The practice of recovery audit is widely adopted in the private sector as an important component of any drive towards efficient operation. Until recently, the public sector was far more cautious.
In essence, recovery audit takes transaction data, transforms it for analysis, identifies errors, and works with suppliers or providers to recover overpaid cash.
The prospect of an external agency combing through up to six years of spend data to seek out anomalies has not been greeted with open arms. However, attitudes are beginning to change.
At a time of government pressure to find savings fast, an increasing number of senior civil servants are learning to embrace this kind of scrutiny. In stark financial terms, recovery audit generates money by recouping cash that has leaked out as a result of accidental overpayments.
The Home Office and Department for Transport are two bodies that have recently embarked on recovery audit programmes, with highly rewarding results.
Adam Simon, global managing director of business development at PRGX – the world’s leader in the field of the recovery audit – believes there are still some misconceptions about recovery audit that need to be addressed. -Our first priority is to banish once and for all the mistake that recovery audit represents a finger-pointing exercise with the sole purpose of singling out those responsible for payment errors. The fact is that overpayments occur in all organisations, particularly large organisations dealing with a large volume of transactions. As a company, we have never once encountered an organisation without any overpayments in their data. They are inevitable. The function of recovery audit is not to blame, but to help.
PRGX is so confident of this that the costs of its service are based on a small percentage of the amount that is recovered. In simple terms, it’s a ‘no win, no fee’ arrangement.
Jon Francis, client services director at PRGX, says there are particular reasons that make recovery audit even more relevant than ever. -Organisations undergoing significant structural change are particularly vulnerable to leakage in their payment systems, he said. – The administrative transitions that the public sector has undergone in recent years, and continues to do so, make this a pressing concern.
When you combine that with the political drive to achieve efficiency savings while protecting frontline services as far as possible, a compelling case for recovery audit begins to emerge.
Yet an innate hesitancy still remains in some quarters. One reason is the highly confidential nature of the particular information that comes under the microscope. This is where the discretion of the recovery audit agency becomes vitally important. The best organisations in this sector are highly sensitive in their approach, not only when poring over up to five years’ worth of classified data but also in dealing with suppliers in the process of recovering money. It is a process that benefits from having a third-party agency involved to conduct negotiations that are fair, but also firm.
However, deriving maximum value from recovery audit isn’t just about a one-off result. The longer-term benefit is in identifying instances where procedures or policies could be improved to reduce the occurrence of payment errors in the future.
Typically, a list of recommendations will follow from the findings of a recovery audit, but it is up to the organisation concerned to act upon them. Thankfully, the majority do so. In the experience of PRGX returning to conduct a second audit within a year of the first, there is generally a 50 per cent reduction in cash leakages. However, the commitment to efficiency has to come from the very top of an organisation. Where this happens, organisations can gain a raft of new insights into their relationships with suppliers.
A common concern is that the process could irreparably damage relationships with suppliers. In fact, by exploring those relationships and generating detailed spending data that may never have been accurately and comprehensively compiled before, both sides can move forward on a platform of greater clarity and openness.
Many suppliers are unintentional recipients of overpayments and are keen to learn how to avoid similar problems in the future. The recovery audit process not only benefits those who procure, but it also provides an opportunity to identify ways in which suppliers can honour the terms of their contracts more effectively.
Jon Francis explains: – Our approach is threefold. First, we analyse the data provided by a client to identify payment errors. Second, we work to recover the outstanding cash – a process that usually takes between three and six months. Third, we examine what went wrong, and suggest ways to improve systems in future, and reduce leakage.
The long-term benefits of recovery audit are rapidly outweighing the initial caution that has greeted the concept in the public sector. The question is, can civil servants afford to ignore this compelling case any longer?
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