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.