An Auditrax White Paper

Procurement Recovery Auditing: A path for understanding the sustainable bottom line

Contents
Introduction Problem Statement Previous Options Auditrax Solution Implementation Conclusion 2 2 3 4 6 6

Introduction
In todays challenging accounts payable and procurement environments, companies are leveraging their resources as much as possible to prevent cash from being erroneously paid to vendors. Despite the best efforts of even the most thorough internal process and personnel, all companies are consistently only able to achieve on average 99.5% accuracy with their payment methods because of the many grey areas in the modern procure-to-pay process. As a result, one half percent of a companys total revenues are being lost in the shuffle of thousands of invoices and most internal staff are unaware that a few errors slipped through the cracks. With time, these small amounts start to add up to very large mispayments and slowly but surely fight against a companys financial sustainability. A procurement recovery audit is the solution to this problem because the audit team will be able to understand how financial sustainability is being impacted, recover the lost profits that have occurred, and reduce risk for errors going forward.

Problem Statement
Every company that engages in procurement transactions is losing on average nearly .5% of its yearly revenue1, regardless of the size, complexity of internal controls, or quality of staff sometimes referred to as transactional slippage. Some common contributions to transactional slippage are: grey areas in contractual arrangements, vendors erroneously billing their clients by mistake or intentionally in order to take advantage of loopholes, IT or ERP systems changes, staff turnover, vendor guidelines older than 12 months, multiple physical locations involved in procurement and payment process, and lastly an increased reliance on technology which has taken the human review of invoices out of the equation.

Previous Options
Companies today continue to allow their profits to escape by avoiding an outside review of their payable transactions. Many believe that the audits done by CPA firms will catch these types of errors or that their internal audit department is catching every error that might occur. Despite these perceptions, the profits continue to escape because of the difficulty in spotting long term trends when viewing transactional data on a daily basis or even annual basis. Profit recovery firms have been around for decades and have come in many different sizes. Historically, many firms were comprised of a small team of highly skilled experts who would dig deep with complex techniques in order to uncover large recoveries for their client. With time though, many of these smaller firms started to merge together so they could tackle larger projects and as ERP systems became the norm in the 1990s many firms began to rely more on leveraging technology to find errors. Now many of these same companies have drifted away from many of the proven complex techniques of the past and instead use weekly recovery quotas to dictate when the audit team will be removed from the client site and the audit terminated, leaving potentially significant un-recovered lost profits to slip away forever.
1 - Based on recovered amounts from Auditrax and industry clients over a 25 year period

Auditrax Solution
The Auditrax solution is built around the idea of taking the best of the traditional techniques and the most successful new approaches together in order to implement one highly effective hybrid auditing practice which we call the: 200% audit. As a result of combing the best of both worlds, our process has three defining features to increase the profitability of clients firms without adding expense: 1. Non-Intrusive Once the sales meeting has taken place and an agreement has been reached, our audit team will work independently to recover lost profits without burdening management or staff. 2. Contingent By billing only for claims collected in the form of a check or credit memo, Auditrax does not add expense to the client without adding a real benefit. 3. Comprehensive Auditrax provides the industrys most in-depth audit by using proprietary software and over 20 different forms of auditing techniques. On face value, some of the analysis techniques may seem redundant, as overlap in the review process happens from combining both the traditional techniques and new generation methodologies. However, we have found taking into account multiple perspectives has been insightful to our clients and is a large part to our success as the industrys most comprehensive firm.

Benefit One
All profit recovery firms will return erroneously made payments to clients and many are very effective at doing so. However, Auditrax does not use weekly quotas that dictate when the audit is closed down. Instead, our

auditors use over 20 proven audit reports and techniques on our proprietary software to understand how financial sustainability is being impacted by indentifying all erroneously made payments for our clients.

Supply Purchasing Pricing Rebates Omitted Cash Benefit Two

Discounts Price Discrepancies Statement Credits Discounts Taken at Wrong Date Tax Charges and Percentages Contract Compliance Allowances Cash/Trade Discounts Telecom Billings

Vendor Returns Vendor Programs Duplicate Payments Quantity Discounts Credits Not Taken Cost-Price Differences Sales & Use Tax Contractual Misbillings Vendor Master Review IT Cost Optimization Freight Rate & Traffic Compliance

Once erroneous payments are identified, our auditors will gather supporting documentation that proves the validity of the claim. We will then contact the vendor, provide them with the information gathered, and ask that they work with us to resolve the issue to the satisfaction of both parties. By using our audit team to recover funds for our clients, we are able to avoid adding to the workload of your staff, and ensure that our billing only represents the actual collected amounts we have recovered for your firm, after the check or credit memo has been received.

Benefit Three
Through our Profit+ audit reports, we are able to summarize the errors made during the audit period, identify the root cause of the errors, and make actionable recommendations for improvement to prevent these errors in the future. The audit wrap-up meeting typically includes the financial management

team, along with Accounts Payable staff, and leadership. This meeting allows all members of the organization to learn about problems identified and to begin the process of improvement towards more sustainable financial practices for their company.

Implementation
The implementation of a recovery might be the most time and cost effective project your company has ever undertaken. The project simply requires the secure download of the payables and purchasing data for the specified audit period, a process that typically takes an IT staff member about 1 hour. After the data is received in its unaltered format, the audit team will use proprietary techniques and software to format the data and run it through custom reports to identify recovery possibilities. Auditors will validate that an error has occurred by gathering the supporting documentation, verify the claims with the client, and then sending the information onto the vendor when requesting the refund. Following the audit and collections process, Auditrax will present actionable recommendations to the clients management team to prevent similar errors from occurring in the future, leading to a sustainable bottom line for the client.

Conclusion
The challenges faced by many companys procurement processes are complex and also a necessary part of doing business. Doing away with all the challenges faced by the accounts payable team is not always possible but contracting for a procurement audit could be the right step to help you understand how financial sustainability is being impacted in your organization, recover the lost profits that have occurred, and reduce risk for errors going forward.