Recovery Auditing and Accounting Metrics (#35)

In this podcast, we discuss the reasons why recovery auditing can improve profits, as well as the measurements to use in the accounting department. Key points made in the podcast are:

  • Profit leaks come from the accounts payable and purchasing streams.

  • There tends to be more leakage as headcount declines, since there are fewer people watching transactions.

  • Need staffing overcapacity to plug all profit leaks.

  • Hire a recovery auditor to do the analysis work for you. This will require a specialist in each area to be examined, such as payables, advertising, freight, sales and use taxes, and health care billings.

  • A recovery auditor can bill an hourly rate, or a percentage of the cost savings.

  • The hiring person can look bad if too many mistakes are found by the auditor.

  • The first recovery audit tends to find the most savings, with diminishing returns thereafter. Still makes sense to bring in recovery auditors on a regular basis.

  • Useful for isolating where the problem areas lie within a business.

  • Recovery auditing tends to work better with large to mid-sized companies, but can still make sense when sales are as low as $20 million.

  • A good recovery auditor will provide advice, as well as spot specific instances of waste.

Key points relating to accounting metrics are:

  • Error tracking is essential within the department.

  • Average expense report turnaround time; turnaround time can be delayed when supervisors do not forward expense reports to the payables staff in a timely manner.

  • The total number of transaction errors requiring a payroll adjustment.

  • The proportion of purchase discounts taken; should focus on those discounts that are the most economical to take.

  • Average time to issue invoices; should be as fast as possible.

  • The total payroll transaction fees charged by the payroll supplier.

  • The percentage of dates on which tax filing dates are missed.

  • The time required to produce financial statements.

  • Borrowing base usage; warns when the amount of available debt is getting close to zero.

Related Courses

Business Ratios Guidebook