Whether the recovery from an AP audit outweighs the costs depends on a number of factors, including:
Ultimately, the decision of whether to engage in an AP recovery audit should be based on a careful cost-benefit analysis. However, given the high success rate and potential for significant recovery, it's often a worthwhile investment for many companies.
It's difficult to give a definitive "yes" or "no" without specific details, but I can provide a more concrete framework to help you determine if a recovery audit is likely to be worthwhile.
Here's a more structured approach:
1. Estimate Potential Recovery:
- Industry Benchmarks: Research industry benchmarks for overpayment recovery. Some industries, like healthcare, tend to have higher recovery rates (as high as 4-5% of total spend) due to complex billing and coding. Others, like retail, might be lower (around 0.1%).
- Your Company's Characteristics: Consider factors like:
- AP automation: Lower automation generally means higher error rates.
- Number of vendors and invoices: Higher volumes increase the chance of errors.
- Internal controls: Weaker controls increase the risk of overpayments.
- History of past audits: If you've had recent audits with minimal findings, the potential recovery might be lower.
- Conservative Estimate: Based on these factors, make a conservative estimate of the potential recovery. For example, if your annual AP spend is $100 million and you estimate a 0.1% recovery rate, that's $100,000.
2. Estimate Audit Costs:
- Auditor Fee Structure: Understand how the auditor charges (percentage of recovery, fixed fee, or a combination).
- Scope of the Audit: A broader scope will generally cost more.
- Your Internal Resources: Consider the time and resources your staff will need to dedicate to the audit.
3. Compare Potential Recovery to Audit Costs:
- Calculate the potential net recovery: Subtract the estimated audit costs from the estimated potential recovery.
- Consider the ROI: Divide the potential net recovery by the estimated audit costs to calculate the potential return on investment (ROI). A positive ROI indicates that the recovery is likely to outweigh the costs.
Example:
- Annual AP spend: $50 million
- Estimated recovery rate: 0.2% (based on industry benchmarks and company characteristics)
- Potential recovery: $100,000
- Auditor fee (20% of recovery): $20,000
- Potential net recovery: $80,000
- ROI: 400% ($80,000 / $20,000)
In this example, the potential recovery significantly outweighs the audit costs, making it a worthwhile investment.
Beyond the Numbers:
- Process Improvements: Even if the monetary recovery is marginal, an audit can identify process weaknesses and lead to long-term cost savings and efficiency gains.
- Deterrent Effect: Knowing that audits are conducted can deter errors and fraud in the future.
By following this more detailed approach, you can make a more informed decision about whether an AP recovery audit is likely to be beneficial for your company. If you'd like to explore this further, providing us with some specific information about your company's AP processes would allow me to give you a more tailored assessment.

What if I use a No-Recovery/No-Fee Deal?
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A "no-recovery/no-fee" deal, also known as a contingency-based fee arrangement, means the AP auditor only gets paid if they actually find and recover overpayments for your company.1 This can seem very appealing, as it appears to eliminate the financial risk of an audit. However, there are some important considerations:
Potential Advantages:
- No upfront cost: This is the most obvious benefit. You don't have to allocate budget for an audit if no recoveries are found.
- Incentivized auditors: The auditor is highly motivated to find recoveries, as that's the only way they get paid.2
- Reduced financial risk: You're not paying for an audit that yields no results.3
Potential Disadvantages:
- Higher percentage of recovery: Auditors working on a contingency basis typically charge a higher percentage of the recovered funds compared to those charging a fixed fee or hourly rate. This is because they are taking on more risk.
- Potential for less thorough audits: In some cases, auditors might focus on finding quick and easy recoveries to ensure they get paid, potentially overlooking more complex or smaller recoveries.
- Limited scope: Auditors might be less willing to invest time in exploring complex issues or areas with potentially lower recovery rates, as it might not be worth their time if no recovery is found.
- Potential conflicts of interest: There might be a temptation for auditors to be more aggressive in their interpretation of what constitutes an overpayment to maximize their earnings.
Things to Consider When Evaluating a No-Recovery/No-Fee Deal:
- Compare the percentage: Get quotes from multiple auditors and compare the percentage they charge on recovered funds. Factor in the potential for a higher percentage compared to a fixed-fee arrangement.
- Clarify the definition of "recovery": Make sure the contract clearly defines what constitutes a "recovery." Does it include only cash refunds, or does it also include credits, discounts, or other forms of savings?
- Define the scope of the audit: Ensure the scope is clearly defined in the contract to avoid misunderstandings about what will be covered.
- Check the auditor's reputation and experience: Choose a reputable firm with a proven track record, even if they offer a no-recovery/no-fee deal.
- Understand the reporting process: Ensure the auditor will provide detailed reports of their findings, even if no recoveries are found. This can still be valuable for identifying process improvements.
In Summary:
A no-recovery/no-fee deal can be a good option if you have limited budget for an audit and want to minimize financial risk. However, it's crucial to carefully evaluate the terms of the agreement and compare it to other fee structures to ensure you're getting the best value. Don't solely focus on the "no-fee" aspect; consider the potential for a higher percentage of recovery and ensure the scope of the audit meets your needs.
Ultimately, the best approach depends on your company's specific circumstances and priorities. Contact us for more information on what the best way to proceed will be...