Why outsourcing is essential to keep finances fit and healthy part:1
by Adam Simon, Managing Director of Client Services in Europe and Asia-Pacific, PRGX
Friday, July 20, 2012
The practice of recovery audit is about combing through large volumes of spend data to identify overpayments that can be regained from suppliers. Handing over this task to an outside agency may seem akin to washing your dirty laundry in public. But there’s growing acceptance that overpayments occur naturally in almost every organisation, regardless of size or standing, and that recovery audit is a healthy routine to have in place. In this white paper, Adam Simon of PRGX explains why casting aside misconceptions and outsourcing a recovery audit programme could be one of the most astute decisions you make, not just for short-term gains but for long-term financial fitness.
Over 40 years ago, recovery audit industry was born, and it continues to flourish despite frequent predictions of its demise. Companies call in a recovery audit firm when they want to outsource the review of their transaction accuracy. Recovery Auditors often identify error rates valued at $100 to $3,000 per $1,000,000 of spend – which is why this practice is referred to as profit recovery.
Many would ask why should we outsource this activity? Surely a company can manage its own internal controls using in-house verification processes? Or after experiencing a recovery audit, why continue to outsource when the company can incorporate corrective actions into their processes and eliminate the sources of error?
The secret of its enduring value lies in three factors – innovation, independence, and motivation. And it is for these reasons that the value of a recovery audit is only truly realised by outsourcing.
Innovation is the lifeblood of profit recovery
The ability to mine complex data is the key to the success of profit recovery. Since the 1970s, data mining has evolved from examining paper documents in “box audits” to the acquisition and processing of many petabytes of data to the current big data solutions.
Financial nuggets are found scientifically through advanced data mining algorithms, which enable auditors to practice the art of capturing exceptions and anomalies — and translating them into hard profits for their clients. While such techniques are practised commonly, specialist auditors make it their job to find new linkages, claim concepts or sources of data. Innovation is the lifeblood of recovery audit — if this were not the case, the sources of anomaly would dry up.
In recent years, innovation has opened up an array of new ways to mine data, with the most outstanding success being the proprietary techniques to trawl through tens of millions of emails and their attachments in order to find the one email which allows a company to assert and justify a claim from a vendor. Current areas of focus for innovation include root cause analysis to identify the underlying reasons for anomalies; the use of shared service centres in order to streamline data processing and the management of the simpler claim concepts; and the use of technology to capture data more efficiently from legacy systems. Lastly, where recovery audit used to stop at recommendation, now it can move to implementation with the use of external resources experienced in the procure-to-pay area.