How No-Win/No-Fee Audits Can Help You Find Order

If You and your AP department are stuck in a rut, a No-win/no-fee audit can be a great way of convincing higher management to help you get things back on track. 

While it is correct that a "no win/no fee" audit can be appealing when you and your suppliers communication and relationships are in a rut, particularly when trying to convince management to allocate resources for a review, there are some key considerations before presenting this option to the FD or MD:

Potential Benefits of "No Win/No Fee" Audits:

• Reduced Upfront Costs: Management might be more receptive to an audit if there's no initial financial outlay. This can be especially attractive if your department is already strapped for resources as so many companies are post-COVID. A third-party recovery company will often include recovery as part of their offering and this would be the best option if you are in need of a pitch that will improve your relations with higher-management, and assist in making the AP department more important in the future.
• Focus on Overpayments: The auditor's incentive is tied to finding discrepancies, potentially leading them to identify and recover significant overpayments or duplicate payments. This recovered money can justify the audit cost as well as reinvigorate budgets in other departments. This in turn can get you on good terms with other department leaders and management.
• Required Reconciliations: The requirement for any auditor to reconcile accounts and essentially perform a full supplier statement audit will often bring untold reward. Because the recovery specialists are going to require that your team find all necessary electronic and hard-copy data pertaining to each recovery, you will be given a great chance to use the recovery process to reorganize. If you can persuade the recovery specialist auditors to return to you their file with everything in order for each supplier then you have essentially had them streamline and repair the holes you had in your own supplier data. This can be an invaluable re-ignition of order in your own team.
• Awakening Clarity in Relationships: The supplier or vendor companies that no one has contacted for some time will get a chance to be reacquainted with your organisation and perhaps present any new updates they have made to services or any improvements that you can make good use of for within the current contract.

Quality Considerations with External Auditors:

• Reputation Matters: Reputable external audit firms have a vested interest in maintaining high-quality standards. Delivering poor-quality audits could damage their reputation and lead to a loss of clients therefore the data integrity they will bring to their audit will help shine the light for your staff and their future improvement.
• Professional Standards: External auditors are bound by professional standards that require them to conduct audits with due diligence and objectivity.
• Regulation and Oversight: External audit firms are subject to regulatory oversight, which helps ensure they adhere to professional standards.

However, there are still potential drawbacks to Consider: 

• Focus on Profitability: Even for established firms, there can be an internal pressure to complete audits efficiently to maximize profits. This could lead to less time spent on a specific engagement, potentially impacting the depth of the review.
• Experience of Assigned Auditors: The quality of the audit can also depend on the experience of the auditors assigned to the engagement. Newer or less experienced auditors might not be as adept at identifying complex issues.
• Scope Creep and Additional Fees: Unexpected complexities during the audit can lead to "scope creep," requiring additional work beyond the initial agreement. This can result in unforeseen fees for your company.

Here's how you can mitigate these risks:

• Select a Reputable Firm: Choose an external audit firm with a proven track record of quality and a strong reputation in your industry.
• Request Experienced Auditors: Inquire about the experience level of the audit team assigned to your engagement.
• Clearly Define the Scope: Clearly define the scope of the AP review upfront in the engagement letter. This helps manage expectations and minimize the risk of scope creep.
• Maintain Open Communication: Maintain open communication with the audit team throughout the review process. This allows you to address any concerns promptly and ensure the audit stays on track.

In Addition:

While the quality concerns might be less pronounced with reputable external auditors compared to "no win/no fee" arrangements, it's still important to be mindful of potential risks and take steps to mitigate them. A well-chosen external auditor can provide a valuable and objective assessment of your AP department.

• Focus on Quantity over Quality: To maximize profits, the auditor might prioritize completing many audits quickly rather than conducting a thorough review for each client. This could compromise the quality and comprehensiveness of the findings.
• Potential Bias: With their fee contingent on findings, the report might overemphasize negative aspects while downplaying positive controls or processes.
• Limited Expertise: Firms offering "no win/no fee" arrangements might have less experienced auditors compared to established firms with a proven track record. Expertise is crucial for a reliable review.
• Hidden Fees: While the base audit fee might be waived, there could be additional charges for unexpected services or expenses identified during the review process.

Alternative Approaches to Present to Management:

• Cost-Benefit Analysis: Prepare a cost-benefit analysis outlining the potential financial benefits of identifying overpayments and improving internal controls. This analysis can demonstrate the return on investment (ROI) associated with a proper AP review, even with upfront costs.
• Phased Approach: Propose a phased approach, starting with a limited scope internal review focused on high-risk areas. This can be a more cost-effective way to identify major issues and potentially recover significant overpayments, justifying a more comprehensive review later.
• Data Analytics: Highlight the potential of data analytics tools to identify anomalies or trends in AP data. This can be a good starting point for uncovering potential problems without a full-blown audit.

Positioning the "No Win/No Fee" Option:

• Last Resort: Present the "no win/no fee" option as a last resort if other approaches are not well-received by management.
• Focus on Transparency: Be transparent about the potential drawbacks of "no win/no fee" audits, such as the risk of a less comprehensive review or potential bias.

Remember:

A high-quality AP review offers valuable insights beyond just recovering overpayments. It can help assess internal controls, identify process inefficiencies, and suggest areas for improvement, ultimately leading to a more robust and efficient AP department.

Although proposing a no-win/no-fee audit can be a compelling strategy to gain the support of higher management, especially when facing financial constraints or when trying to optimize and streamline operations you should remember to focus on why this approach can be particularly persuasive and effective:

Risk-Free Evaluation

1. Minimal Financial Risk: The no-win/no-fee model minimizes the company's financial risk because there are no upfront costs. This aspect is very appealing to management, especially in scenarios where budget limitations are a concern.

2. Cost Effectiveness: Since payment for the audit depends solely on the recovery of funds, it can be positioned as a cost-effective solution to identify and rectify issues without requiring a significant investment.

Demonstrating Proactivity and Responsibility

3. Proactive Approach: Proposing such an audit demonstrates a proactive approach to problem-solving. It shows that you are actively looking for innovative solutions to improve efficiency and correct underlying issues in the AP process.

4. Financial Stewardship: It reflects a commitment to financial stewardship, appealing to management’s responsibility to safeguard the organization's resources and ensure operational efficiency.

Strategic Benefits

5. Potential for Recovery and Savings: The audit can potentially uncover significant recoveries or savings, which can be a strong motivator for management. The prospect of recovering lost funds or identifying inefficiencies can justify the initiative.

6. Data-Driven Decisions: A thorough audit provides detailed insights and data, which can help in making informed decisions about current processes and future improvements. This data can be invaluable for strategic planning and internal control enhancements.

Building a Case for Change

7. Catalyst for Change: This kind of audit can act as a catalyst for broader organizational change. By uncovering inefficiencies and providing concrete data, it can support arguments for more substantial reforms or investments in systems and controls.

8. Educational Opportunity: It offers a learning opportunity for the organization. Understanding where and how mistakes are occurring can lead to better practices and prevent future errors, fostering a culture of continuous improvement.

How to Present the Proposal

• Highlight Benefits: Emphasize the risk-free nature of the audit, potential financial recoveries, and the strategic insights that can be gained.
• Align With Goals: Ensure the proposal aligns with the organization’s broader financial and operational goals. Show how it fits into long-term strategies for efficiency and financial integrity.
• Risk Mitigation: Address potential concerns about data security, confidentiality, and the quality of the audit. Ensure that management understands the measures in place to protect the organization.
• Previous Success Stories: If possible, mention case studies or examples where similar audits have led to significant recoveries and improvements.

In essence, a no-win/no-fee audit proposal can serve as a persuasive tool to encourage management to tackle financial and operational ruts. By focusing on the benefits and aligning the audit with the company's strategic goals, you can effectively make the case for this initiative. While "no win/no fee" audits can be tempting, a well-researched and presented alternative, emphasizing the long-term benefits of a comprehensive review, might be a more sustainable solution. However, you can still mention the "no win/no fee" option as a last resort, but be sure to manage expectations and highlight the potential drawbacks.

Terms to Emplace for the Recovery

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Make sure that information is going to be shared in both directions. Just an up-to-date reconciliation of all of your supplier statements is worth it's weight in gold against the value of any monies recovered. Make sure that your team is using the data they receive from any third party audits or recoveries to improve their data integrity and make sure that supplier statements  are up-to-date an accurate. Any audit of this kind would normally cost a substantial sum so to get the data for free is a godsend.

Implementing a no-cost recovery initiative effectively in your Accounts Payable (AP) department involves a strategic approach that maximizes recovery opportunities without additional expense. Here’s how you can make such a program successful:

1. Leverage No-Win/No-Fee Audits

Utilize external audit firms that offer no-win/no-fee services. This arrangement ensures that you only pay if the firm successfully identifies and recovers overpayments or other financial discrepancies. Ensure the contract specifics align with your goals, focusing on maximizing recoveries and maintaining data security.

2. Implement Internal Checks and Balances

Develop robust internal review processes to catch errors before payments are made. This can include:

• Automated software checks: Use AP software with built-in duplicate payment detection and other error-checking features.
• Manual reviews: Schedule regular manual audits of high-risk transactions or large payments by internal staff.

3. Enhance Employee Training

Provide training for AP staff on best practices for invoice processing and error prevention. Educated employees are less likely to make mistakes and more likely to spot inconsistencies or suspicious activities.

4. Utilize Technology and Automation

Invest in AP automation technology that helps in reducing human error and speeds up the review process. Features like electronic invoice processing, automated matching of invoices, purchase orders, and receipt documentation can significantly reduce the occurrence of overpayments.

5. Regularly Update Vendor Information

Maintain an up-to-date vendor database to prevent payments to incorrect or fraudulent accounts. Regularly verify and update vendor details like bank account information and contact details.

6. Conduct Periodic Reconciliations

Regularly reconcile AP records with bank statements and general ledger accounts to catch and rectify discrepancies in a timely manner. This can help in recovering any inadvertent overpayments or resolving disputes before they become costly.

7. Encourage a Culture of Integrity

Create a corporate culture that emphasizes accuracy and honesty in financial dealings. Encourage staff to report discrepancies without fear of repercussion, and implement a rewards system for identifying cost-saving opportunities.

8. Review and Renegotiate Vendor Contracts

Regularly review contracts and renegotiate terms to ensure they remain favorable. This might include better pricing, more favorable payment terms, or discounts for early payments, all of which can improve cash flow and reduce the likelihood of overpayment.

9. Monitor and Report

Keep track of recovery efforts and regularly report back to management on successes and areas for improvement. Use metrics and KPIs to measure the effectiveness of your no-cost recovery initiatives.

10. Seek Feedback and Adapt

Solicit feedback from the AP team and other stakeholders in the payment process to identify challenges and areas needing improvement. Stay adaptable and willing to change strategies as necessary to improve efficiency and effectiveness. Supplier statement reconciliation, even within a "no-cost recovery" framework, can offer significant benefits beyond just recovering overpayments.

Data Integrity Advantages:

• Improved Accuracy: The reconciliation process involves matching data from your internal records with supplier statements. This helps identify and rectify errors in your data, such as incorrect invoice amounts, duplicate entries, or missing information. Improved data accuracy streamlines accounting processes and reduces the risk of future errors.
• Enhanced Detection of Discrepancies: Reconciliation allows you to uncover discrepancies that might not be readily apparent during regular invoice processing. This could include duplicate payments, fraudulent activity, or pricing errors on the supplier's end. Early detection of such discrepancies minimizes potential financial losses.
• Stronger Internal Controls: The process of supplier statement reconciliation itself acts as a control measure. It helps ensure that payments are made only for valid invoices and that the recorded amounts are accurate. This strengthens your internal controls and promotes financial accountability.

Additional Benefits Beyond "No-Cost Recovery":

• Process Improvement: Reconciliation can highlight inefficiencies or gaps in your AP processes. For example, you might identify delays in receiving supplier statements or inconsistencies in data formats. Addressing these issues can streamline your AP workflow and improve overall efficiency.
• Vendor Relationship Management: Regular reconciliation fosters better communication and collaboration with your vendors. By promptly resolving discrepancies, you demonstrate a commitment to accuracy and build stronger relationships with your suppliers.

Leveraging Supplier Statement Reconciliation:

Even if you choose not to pursue a full-blown "no-cost recovery" service, you can still leverage supplier statement reconciliation for data integrity by:

• Internal Reconciliation Team: Form a dedicated team within your AP department to handle supplier statement reconciliation. This team can be responsible for reviewing statements, identifying discrepancies, and working with vendors to resolve them.
• Automation Tools: Consider utilizing automation tools to streamline the reconciliation process. These tools can automate tasks like data extraction, matching, and highlighting discrepancies, freeing up your team to focus on complex issues.
• Continuous Monitoring: Make supplier statement reconciliation a regular part of your AP workflow. This ensures ongoing monitoring of data integrity and allows for timely identification and correction of errors.

A last thought:

While "no-cost recovery" arrangements have limitations, the underlying principle of supplier statement reconciliation offers substantial value for your AP department. By focusing on data integrity and leveraging internal resources or automation tools, you can achieve significant improvements in accuracy, control, and overall efficiency within your accounts payable function.

Implementing these strategies can create a strong framework for managing and recovering funds in AP without additional costs. By focusing on prevention, technology, and continuous improvement, you can build an AP department that not only manages payments efficiently but also safeguards against financial losses effectively.

There is definitely a potential silver-lining to a "no-cost recovery" service. Here's how you can maximize the benefits while mitigating the risks:

Turning the Tables

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Free Audit and Team Rejuvenation

1. Transparency and Clear Communication: Be upfront with your team about the limitations of a "no-cost recovery" service. Explain that your primary goal is to leverage the reconciliation process for a free supplier statement audit and to improve internal controls.

2. Data Accessibility: Ensure your team provides complete and timely access to all relevant data, including invoices, payments, and supplier information. This allows the external auditors to perform a more thorough review.

3. Active Participation: Encourage your team to actively participate in the reconciliation process alongside the auditors. This provides valuable learning opportunities for your staff and fosters knowledge transfer from the auditors.

4. Focus on Learning: Shift the focus from solely identifying overpayments to a learning and improvement exercise. Use the opportunity to identify weaknesses in your current processes and controls and work with the auditors to develop solutions.

5. Maintain Control: While cooperating with the auditors, maintain control over the process. Don't hesitate to ask questions, clarify their findings, and ensure their recommendations align with your department's needs and goals.

Mitigating Risks:

• Beware of Bias: Remember, the auditors' incentive is tied to finding discrepancies. Be cautious of overly aggressive tactics or reports that solely focus on negative aspects.
• Hidden Fees: While the base fee might be waived, there could be additional charges for unexpected services or expenses identified during the review process. Be clear about the pricing structure upfront.
• Limited Scope: Understand that a "no-cost recovery" service might have a limited scope compared to a traditional audit. It might not cover all aspects of your AP department.

Overall, this approach can be beneficial if you:

• Manage Expectations: Recognize this is not a substitute for a comprehensive internal audit but rather an opportunity for improvement.
• Focus on Learning: Prioritize using the exercise to identify weaknesses, improve processes, and enhance your team's skills.
• Maintain Control: Actively participate, ask questions, and ensure the process aligns with your department's goals.

The simple act of following these steps, you can potentially turn a "no-cost recovery" service into a valuable learning and improvement experience for your team, enhancing data integrity and strengthening your internal controls within the AP department. If you are inclined to make a mark within your own accounts department, as a manager who can bring order to chaos using low-cost, innovative methods, then a close look into a third party accounts payable recovery audit is definitely a worthwhile endeavor.

Why not contact Twice2Much, our recommended third party accounts payable audit specialists for a duplicate payment recovery review today?