Despite the worldwide stimulus, uncertainty and a high unemployment rate continue to dampen overall consumer confidence and spending.  During these ongoing tough times, recovery audit is an often overlooked lever to improve cash flows and help strengthen the balance sheet.

Actions finance executives should consider:

First, accelerate your recovery audits as much as possible. Practically all retailers have ongoing recovery audit efforts to identify and recover overpayments from vendors. These efforts usually include a combination of internal and external (third party) resources that can return, on average, over $1 million in overpayments for every $1 billion in retailer sales.

Typically, the internal group completes its entire review and turns the audit over to the primary external audit group who then completes their entire audit. A sequenced process can result in transactions being audited up to two years, or longer, after the transactions were initiated.  Retailers whose recovery audit programs operate this way can accelerate cash flows if each audit group completes its review faster.  If completing the audit cycle quicker is not possible, there are other options to accelerate cash:

Modify the audit approach to complete the projects with the highest recoveries first and then turn them over immediately to the external group to review. The turnover should occur before the internal group has completed its full scope review. Of course, you’ll need a collaborative relationship between your internal and external recovery audit providers. Ask both groups:

• What are the current timelines and deadlines for our recovery audit efforts and the dollar value of overpayments recovered?
• How can we modify our recovery audit approaches to accelerate cash flows?
• What percentage of the overpayments found by the internal and external groups could be accelerated, and what is our plan?

Also, consider expanding your audit. Traditionally, recovery audit efforts are focused primarily on the merchandise purchase-to-pay transactions. Other types of transactions are excluded from the traditional scope, but represent opportunities to accelerate cash, as well as incremental sources of previously untapped funds.

Five recovery audit opportunities often overlooked:

• Retail pharmacy operators often exclude pharmaceutical purchases from drug wholesalers and manufacturers from their recovery audit scope.


• Retailer’s lease and occupancy costs, one of their largest costs, often go unaudited.  The complexities of lease agreements, intricate billing procedures and unexplained charges, make it difficult to identify hidden charges and magnify the potential for overpayments.


• Sales and use taxes payments are another area where, due to the complexity and changing regulatory environment, overpayments occur; however, these transactions are often not included in a recovery audit process.


• Retailers instruct vendors on how merchandise should be documented, labeled, packed, shipped and invoiced. When these policies aren’t followed, they impose a charge to offset the extra costs incurred from non-compliance.  However, these transactions are frequently not audited by the retailer’s audit teams.


• Although healthcare is one of the largest and fastest growing costs for companies, self-insured companies typically overlook healthcare benefit payment recovery auditing and rely upon their third-party administrator to ensure that all claims are billed and paid correctly. However, even the Federal Government, the largest healthcare payer in the US, states that 3.7% of all Medicare payments are improperly billed. In the commercial sector, we estimate improper payments of up to $200-400,000 for every $100 million in claims spend.

So sit down with your internal and external recovery auditors.  Ask them what types of purchases are excluded from the scope of your internal and external audits. Are the 5 areas above are included?  What acceleration opportunities exist?

After conducting some basic fact gathering, identify which of these opportunities could provide you the highest return with the least effort - then make a plan to become the King of Cash.

Questions about using recovery auditing to generate cash?  Contact us at .(JavaScript must be enabled to view this email address).