History of A/P Audits
Virtually every publicly traded or privately held company in the United States has commissioned a contingency-based audit of their prior year’s paid invoices (A/P audit). This concept started over 30 years ago and has spread through most of the European countries and throughout the Pacific Rim. Manufacturers and retailers, operating on razor-thin margins, were quick to grasp the concept of having a group of highly trained and motivated experts identify and collect overpayments to their suppliers and service providers. With no “up front” costs and commissions paid only after the overpayments are collected, it’s a win-win situation with the net recoveries going directly to the bottom line.
Overpayments for large organizations have averaged between 1/10th and 3/10ths of a percent of sales. While no one can fault an A/P operation correctly processing 99.7% to 99.9% of transactions, a CFO of a $10 billion a year corporation sees the benefit of recovering the lost $10 million to $30 million, with a zero budget project without any additional headcount.
Departments of the federal, state, county and municipal government, like all other large organizations, function with a high volume of suppliers, transactions and budget dollars. Therefore, in the last decade, forward thinking executives in the public sector have utilized the A/P audit not only for the budget relief of the recovery dollars, but for the expert analysis of A/P systems. The core strength of Horn & Associates is in our ability to measure the effectiveness of their internal systems, recover lost dollars and benchmark any and all facets of the procurement process.
The federal government has recognized the recovery audit savings by public companies, which resulted in the Section 831 being added to the Defense Authorization Act for Fiscal Year 2002. This section added a new subchapter to the U.S. Code (31USC 3561-3567) that requires federal agencies that enter into contracts exceeding $500,000,000 in a fiscal year to carry out a cost-effective program for identifying any errors made in paying the contractors and for recovering any amounts erroneously paid to the contractors.
With the audit mandate in place, the challenge for the federal agencies is to select the audit firm with the greatest strength and experience that fit their need. Horn & Associates 30 plus years experience in the audit industry, in combination with their technology and value added services puts them ahead of the competition in every audit.
What is the review?
Audit functions are performed manually and electronically, depending on the scope of the audit. In addition to performing all required functions of the Federal Act, we will evaluate every facet of the client’s A/P systems. We are fast, efficient and informative - recovering lost dollars while providing a complete review of your A/P accounting system. We also offer strategies to improve operations, all on a contingency basis.
Where multiple systems exist, we build intermediate links between systems. We can provide the agency with these overpayments in an electronic method compatible with existing programs so that recovery is simple and seamless. Our powerful servers and programs store and manipulate multiple years of financial data, allowing us to perform a myriad of audits, modeling, profiling and data mining for our clients. A portion of our staff is dedicated to Information Technology. Our IT audit staff is experienced in acquiring the data necessary for a complete audit from any platform. We quickly convert and prepare data from the client’s systems into a readable format at our site.
Your relationships with your staff and your suppliers are as important to us as they are to you and we focus on keeping them strong. Our goal is the same as yours, to save you money and help you improve your processes. We have the staffing and the most powerful auditing tools in the industry to fulfill and exceed your expectations.
The Audit Process
Pre-Audit Planning The audit begins with a complete analysis of the project as agreed to by your Executive Agency's A/P management and IT team, and our audit and IT team. Our Project Guidelines Agreement simplifies the project by:
Identifying the scope of the audit
Understanding and agreement to your expectations of the audit
Identifying required electronic and hard coy data
Identifying "claim" types and documentation
Define claim approval and submission procedure
Define logistics of the audit
Determine interim reporting expectations
Determine your on-going Data Mining requests
Data Acquisition and Conversion In recent years, the audit process has been refined to allow auditors to locate a large percentage of overpayments electronically. As a result acquiring and qualifying data from your systems is essential. Our IT staff works with your IT staff to access your unique data storage methods. We require no programming resources from your agency. We simply ask for your IT folks to make us a confidential copy of the files involved in a non-proprietary flat file. We then convert that file into a format that is compatible with our audit tools. Our auditors then evaluate the data sets for completeness, integrity and accuracy.
High Level Auditing Our HAI staff includes programmers and auditors who have significant experience working with and examining large data sets. We specialize in manipulating data and evaluating it against your contracts, policies and procedures to identify a host of potential overpayments and inconsistencies. Our auditors use the most advanced software tools available created specifically for accounts payable auditing. With these tools, our auditors perform a comprehensive series of routines against your data. These routines quickly identify overpayments due to missed discounts, duplicate payments, open credits, pricing issues and a variety of inconsistencies. Once these routines are completed, the data is referred to the local audit center or client site for further verification and more detailed auditing.
Detailed Auditors After the completion of our High Level examination of your paid claim data, it is forwarded to our Detailed Auditing group. This group performs several functions. They review the output files from the High Level group, interrogating each potential claim to verify its validity within the agreed upon process established during the Pre-Audit Planning process. They then add these overpayment situations to those already identified within your own system and perform a myriad of modeling, profiling and ad hoc queries to insure that every similar instance had been identified and recovered.
Detailed Auditing The HAI auditors recognize the importance and sensitivity of your supplier relationships, and we focus on keeping them strong. After our auditors have identified an error, they contact the supplier carefully and thoroughly explaining the overpayment. The preferred method of recovery is to issue a claim (charge back document) to the supplier and to deduct the amount of overpayment from the next payment.
Detailed Auditing Each overpayment is thoroughly documented within the terms of the Pre-planning meeting. Our auditors assemble supporting documentation independently without taking time away from your staff. Any documentation used is copied and the original is returned to the appropriate location.
Our review includes, but is not limited to:
Duplicate Payments
Missed discounts
Freight issues
Statement review
Pricing Errors
Overpayments
Returns
Knowledge Transfer During the audit process, we provide analysis and suggestions on system or procedures based on trends that have been identified by the audit. We will demonstrate with you and your staff how your systems and policies work compared to how they were designed to work. We will also make recommendations for improvement and help benchmark where your processes and systems stand within all agencies that share recovery audit reporting. At the completion of each audit cycle, we will deliver our Management Reports detailing our findings and recommendations for system or policy changes to reduce such occurrences in the future.
Audit Time Frame
The cost recovery review project time frame is based on cooperation of your personnel and proper downloads of data. The audit can take 120 to 180 days to complete the initial three year audit. As part of the process, it is all predicated on the number of routines performed on the data and the number of findings resulting in the pulling of hard copies of documents for vendor verification.
