How an A/P recovery audit can improve cash flow

To prevent cash from slipping through the cracks, many Finance teams periodically run an A/P recovery audit to identify and recover erroneous payments and unidentified credits.

Besides year-end financial reporting time, other optimal times to conduct an A/P recovery audit, according to experts, include:

• when there are significant organizational and/or staff changes
• after implementation of new tech or system upgrades
• after a merger, acquisition or expansion
• whenever there’s an increase in pre-payment for goods and services, or
• whenever there’s been frequent overriding of controls to quickly pay suppliers.

What to look for in an A/P recovery audit

Even with great controls, people and systems in place, overpayments can happen that eat away at your company’s cash flow.

Once you define the time period of spend you want to examine, a good place to start is combing through your company’s vendor statements. Software provider apexanalytix estimates that at least 75% of the overpayments recovered in an A/P recovery audit are found in a review of vendor statements.

As part of your A/P recovery audit, it may be a good idea to establish a rolling window of 60 to 90 days to recover statement credits. After the credits are cleared, the rolling window ensures credits won’t age off statements and become unrecoverable.

Some other areas worth reviewing:

• Third-party payment applications, such as p-card purchases. Watch to see if there are any suppliers being paid from two different sources.
• Your rebate management process. This is where discounts get missed.
• Pricing accuracy. Do invoices match the contract price? Were benefits negotiated by your procurement team delivered?
• Return transactions. Did returns get properly credited to the general ledger?

It’s helpful to generate a report with a full accounting of all overpayments and a detailed explanation of how and why they occurred so that they don’t happen again.

But because of how busy A/P is, you may want to suggest bringing in an experienced third-party audit partner for assistance. The audit partner you choose should be prepared to offer specific recommendations.

Keep in mind that you may be able to leverage your A/P automation software to speed up the recovery audit process because of easy access to historical supplier spend data.