A Practical Guide to Integrating Recovery Audit into the Source-to-Pay Process

In large organizations with high invoice processing volumes, overpayments in the source-to-pay (S2P) cycle are almost inevitable. As a result, CFOs are increasingly incorporating recovery audits into their processes. Although once viewed as a "witch hunt," these audits are now seen as a natural part of a healthy S2P process.

Technology is driving this trend. Big data has improved procurement and accounts payable efficiency, enabling recovery audits to detect and correct errors more effectively—and in a more prudent manner.

Invoice volumes continue to grow

Payment accuracy is particularly difficult to control. Accounts payable teams face an increasing number of invoices each year, creating ample room for overpayments due to unrecognized rebates, duplicate invoices, and other common mistakes.

More than half of the errors stem from simple human mistakes: typos, insufficient time, inaccurate calculations of taxes, discounts, or rebates. In other cases, erroneous payments reveal a lack of necessary controls that could have intercepted the issue when the invoice arrived.

Overall, invoice errors erode expected profit margins and can ultimately accumulate into significant losses.

A recovery audit is a tool that systematically reviews supplier payments and compares them against contracts, purchase orders, invoices, and receipts to identify and recover funds lost due to errors, thereby correcting issues.

Core steps

To maximize recovery results, flexibility in audit collaboration is crucial. Some companies may be ready to immediately launch a full organization-wide recovery audit; others may start with a single business unit and gradually expand scope.

Regardless of the approach, following these core steps can lay the foundation for successful recovery audits:

• Secure internal support.Securing a senior internal sponsor for the recovery program is essential. Any recovery audit firm must deliver on its promises, but an internal advocate can help identify the areas where auditors need to focus most and facilitate expanding the analysis across multiple regions, moving from one department to the next.
• Keep the big picture in mind.Collaborative relationships help identify sensitive points in supplier relationships. If a supplier provides critical products such as medical supplies and equipment, the company may be willing to forgo certain claims. In other cases, supplier relationships may be viewed as strategic and vital to the company's future plans, where controls and process improvements are more critical than retroactive claims.
• Handle each claim with discretion.A recovery audit ultimately means contacting suppliers and requesting refunds—although this is best practice, such communication is never welcome. Be sure to keep business relationships in mind and take the necessary time to gain supplier buy-in. Provide all necessary information and documentation to justify issuing the check. Additionally, choosing focus areas is crucial. If evidence is found that could cast doubt on a claim, address it proactively.
• Communicate actively and maintain visibility.While patience in working with suppliers is necessary, sometimes deeper engagement is required—especially when the goal is to strengthen controls and prevent errors. If the audit partner is seen as a faceless entity in a distant office merely requesting funds, suppliers may delay. Holding workshops with suppliers, or communicating collectively in a summit format within a large enterprise environment, ensures they understand the full context and objectives of the audit and builds respect for you as a service provider.
• Use technology as an aid, not a solution.New audit methods employing artificial intelligence and machine learning help detect key information such as signatures and product codes across various document formats, thereby improving recovery audit efficiency and accelerating recoveries. However, technology solutions alone cannot provide the nuanced judgment, discretion, experience, and professionalism needed to manage supplier relationships or identify process improvement opportunities.
• Match the audit partner to the company's size.Due to their large scale, numerous business units, complex legal entities, and broad geographic coverage, global enterprises face extensive accounts payable challenges and a longer list of potential improvements. Smaller recovery audit partners may not bring the insights of a global audit program, nor may they have the scalability needed when the company decides to expand the audit from a single business unit or country.