FAQ

A financial recovery audit offers several key benefits for businesses, helping them to optimize their financial operations. Here are some of the most notable advantages:

1. Identification of overpayments or errors

A recovery audit helps identify any overpayments, billing errors, or discrepancies in the accounts. This might include duplicate payments, missed discounts, incorrect contract terms, or incorrect invoicing. By finding these, businesses can recover lost funds.

2. Cost savings

By uncovering overpayments or errors, businesses can reclaim money that was unnecessarily spent. In many cases, auditors can recover significant sums, which could otherwise be overlooked.

3. Improved financial control

Audits give companies greater visibility into their financial processes, allowing them to improve controls and reduce the risk of errors in the future. It also provides insights into systemic weaknesses that may need addressing.

4. Increased operational efficiency

By reviewing financial processes, a recovery audit can highlight inefficiencies and provide recommendations to streamline operations. This can lead to better cash flow management and overall improvements in business operations.

5. Prevention of future mistakes

An audit may uncover patterns of recurring issues, allowing businesses to implement corrective measures and avoid similar mistakes down the road. It helps in identifying weaknesses in accounting systems, vendor contracts, or procurement processes.

6. Supplier and vendor relationship management

The audit can also ensure that businesses are complying with negotiated contracts and terms with suppliers and vendors. If errors or inconsistencies are found, they can renegotiate terms or clarify expectations to prevent future disputes.

7. Enhanced compliance and risk mitigation

Recovery audits help ensure that companies comply with internal controls, tax regulations, and external audit standards. This can reduce the risk of fraud or errors that could lead to regulatory penalties.

8. Financial transparency

Recovery audits provide a higher level of transparency and understanding of the business's financial status. This can help in preparing for external audits, ensuring that all records are in order.

In short, a financial recovery audit helps companies identify and recover missed opportunities for cost savings, improve their operational processes and protect themselves from future leakages.

The timeline for seeing results from a financial recovery audit can vary depending on a few factors, such as the scope of the audit, the complexity of the financial records, and the efficiency of the auditing process itself. Typically, the first results of a financial recovery audit can be expected within 3 to 6 months after the audit begins.

Here's a breakdown of the process :

Initial phase (1-2 months) : During this period, the auditor collects and reviews financial data, including invoices, contracts, payment histories, and other records. This phase also involves identifying potential discrepancies or overpayments.

Investigation and identification (2-4 months) : The auditor analyzes the data to identify potential errors, overcharges, or recoverable amounts. This may take a little longer if there are complex or large-scale transactions to sift through.

Resolution and reporting (4-6 months) : Once discrepancies are                                    identified, the audit team will work with the organization to reconcile                                  accounts, recover any overpayments and prepare a report summarizing their                  findings.

The financial result from an audit can vary significantly depending on the size and complexity of the organization being audited, the industry, and the scope of the audit. However, here's a general idea of what you might expect:

1. Typical recovery range:

     >        Small to medium businesses : Financial recovery audits might result in                             recovering anywhere from 1% to 3% of annual spend. This can add up to a                         significant amount depending on the size of the business.

     >        Larger organizations : For large enterprises with extensive transactions and                     suppliers, the recovery can be as high as 5%.

2. Industry variations:

     >        In manufacturing or retail, audits might recover more due to the volume of                       transactions and vendor relationships.

     >        In government or public sector audits, recovery may focus more on ensuring                   compliance and finding billing errors, which could result in a recovery of 3% to                 7% in some cases.

     >        Healthcare audits may recover funds due to overpayments to vendors or                         billing issues that often go unnoticed, potentially yielding higher recovery.

3. Types of recoveries:

     >        Overpayments : Identifying situations where duplicate or incorrect payments                   were made.

     >        Pricing errors : Finding discrepancies in contract pricing versus what was                         actually billed.

     >        Unapproved discounts or rebates : Recovering funds from vendors that                             didn't apply agreed-upon discounts.

     >        Contract non-compliance : Recovering money from suppliers or service                           providers who didn't adhere to terms.

4. Specific cases:

     >        Healthcare : Some healthcare organizations can recover millions due to                           coding errors, improper billing, or non-compliant vendor contracts.

     >        Retailers : For larger chains, a financial recovery audit might result in                                   recovering hundreds of thousands to even millions in vendor overcharges or                   incorrect shipping fees.

Overall, the money recovered will depend on how thoroughly the audit is conducted and how many discrepancies are found. For many businesses, a financial recovery audit can lead to a significant financial windfall, often paying for itself multiple times over.

When hiring a company to conduct a financial recovery audit, you'll typically come across two main pricing models: "no cure, no pay" and fee-based. We work with the variable cost model. Here's what it means and how this might affect your budgeting.

"No Cure, No Pay" (Contingency Fee) :

In this model, the audit company will only charge you if they successfully recover funds or identify overpayments. This is a common and appealing approach because it minimizes your upfront costs and the financial risk.

How it works :

The auditing firm will perform their work at no initial cost to you. If they find errors, overpayments, or unclaimed rebates, they will charge a percentage of the funds they recover.  

Advantages :

     >        No upfront cost : You don't need to allocate a budget or pay anything unless                   the audit is successful.

     >        Risk-free : If no money is recovered, you don't owe anything.

     >        Incentive for Success : The audit company is highly motivated to find                                 recoverable funds, as they only get paid if they deliver results.

The number of years you can go back during a financial recovery audit typically depends on legal statutes of limitations and the policies of the organization being audited, as well as the specific industry standards. Here's an overview of what you can generally expect :

1. Statute of limitations

The statute of limitations is the maximum time period during which you can seek legal action to recover overpayments or claim damages. This time frame varies depending on the jurisdiction and type of transaction. Typically:

     >         In some jurisdictions, the limit may extend to 6 years, but this is less common.

However, some companies may have contractual terms or internal policies that allow for going back further, sometimes up to 7 years or even 10 years, especially if there's a provision that extends the recovery period in certain cases (e.g., fraud or misrepresentation).

2. Industry-specific guidelines

     >        Healthcare : In healthcare you may be able to go back up to 6 years for                             audits related to overpayments, billing discrepancies or insurance claims as                     healthcare providers and payers may have different timelines.       

     >        Government contracts : Government contracts often allow for audits of                             transactions dating back to 7 years.

     >        Retail / manufacturing : For supplier or vendor audits in industries like                               retail and manufacturing, it's common to review transactions from                                     the past 3 to 6 years.

     >        Payment terms : If there are specific payment terms that include long-                             standing rebates or discount agreements, the time frame for auditing could                     extend beyond the statutory limitations.

4. Audit scope

In practice, most financial recovery audits focus on a 3- to 6-year window because it's generally a good balance between identifying meaningful recovery opportunities and staying within the bounds of legal requirements. That said, some audit firms are willing to go back as far as 10 years if the organization has sufficient documentation and there are no time restrictions on claims.

Key considerations :

     >        Documentation : The further back you go, the more challenging it becomes                     to retrieve accurate and reliable documentation, which can hinder the                               effectiveness of the audit.

A financial recovery audit can be conducted both onsite and remotely, and the choice of approach often depends on the nature of your business, the type of audit, and the audit firm's capabilities. Here's a breakdown of both methods :

1. Onsite financial recovery audit

This method involves the audit team coming to your location to conduct the audit in person.

Advantages :

     >        Direct access to records : The audit team can have immediate access to                           physical documents, accounting systems, and personnel for clarification of                     any discrepancies.

     >        Collaboration : Onsite audits allow for easier collaboration between your team                 and the audit firm, especially if there are complex issues that need immediate                 discussion or resolution.

     >        In-depth investigation : If the audit involves reviewing specific operations,                         internal controls, or supply chain processes, being onsite can help auditors                     understand the context and identify recoverable funds more thoroughly.

Disadvantages :

     >        Costs : Onsite audits often come with additional costs, such as travel                                 expenses, lodging, and time spent by auditors at your location.

     >        Disruption : Having an audit team onsite can sometimes disrupt your normal                   operations, especially if the audit is large or requires significant resources to                     support the process.

2. Remote financial recovery audit

A remote audit is conducted with the audit team working off-site, typically by accessing your financial records, invoices, and other relevant documents digitally.

Advantages :

     >        Cost-efficiency : Remote audits eliminate the need for travel or lodging                             expenses, making them more affordable for many businesses.

     >        Flexibility : Auditors can work at their convenience, and your staff can provide                   documents and data as needed without needing to be physically present.

     >        Speed : In some cases, a remote audit can proceed faster since auditors can                   access records immediately and don't need to wait for onsite visits or                               scheduling.

Disadvantages :

     >        Limited access to physical records : If you have a large number of physical                       records or documents that haven't been digitized, it can slow down the                             process. The audit firm will rely on the information provided electronically.

     >        Communication delays : Depending on the complexity of the audit, back-and-                 forth communication may be slower compared to having auditors onsite who                 can discuss issues in person.

How It Typically Works:

     >        Remote process : For a remote audit, auditors typically request access to your                 financial software, transaction records, invoices, contracts, and any other                         necessary data. They may use secure cloud platforms or data-sharing                               services to review the documents and communicate with your team.

     >        Onsite process : If the audit requires onsite work, the auditors may review                         physical documents, assess internal processes firsthand, and interview staff to                 understand certain transactions. They'll also have direct access to systems                       that may not be easily shared remotely.

3. Hybrid Approach

Combination of both: Many financial recovery audits are now hybrid, where initial document collection and analysis happen remotely, followed by an onsite visit if needed for further investigation or clarification. This allows the audit firm to minimize costs and increase efficiency, while still ensuring that any complex or challenging issues are dealt with in person.

Summary:

• Remote audits are often more cost-effective and flexible, making them a popular choice, especially for straightforward audits where most records are available digitally.
• Onsite audits provide more hands-on involvement and can be better for more complex audits or when deep investigation into physical records is required.
• Many companies today opt for a hybrid approach, starting remotely and only going onsite if necessary for additional context or verification.

Ultimately, the choice depends on the specific requirements of your business, the complexity of your records, and the audit firm's capabilities. You can discuss the best approach with the auditing company before starting the process.