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:
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Profit leaks come from the accounts payable and purchasing streams.
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There tends to be more leakage as headcount declines, since there are fewer people watching transactions.
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Need staffing overcapacity to plug all profit leaks.
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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.
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A recovery auditor can bill an hourly rate, or a percentage of the cost savings.
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The hiring person can look bad if too many mistakes are found by the auditor.
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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.
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Useful for isolating where the problem areas lie within a business.
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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.
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A good recovery auditor will provide advice, as well as spot specific instances of waste.
Key points relating to accounting metrics are:
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Error tracking is essential within the department.
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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.
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The total number of transaction errors requiring a payroll adjustment.
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The proportion of purchase discounts taken; should focus on those discounts that are the most economical to take.
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Average time to issue invoices; should be as fast as possible.
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The total payroll transaction fees charged by the payroll supplier.
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The percentage of dates on which tax filing dates are missed.
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The time required to produce financial statements.
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Borrowing base usage; warns when the amount of available debt is getting close to zero.