Written by: Jill Ulliman, System Director, Accounts Payable at OhioHealth Corporation

I recently shared a story with a long-time colleague from the Recovery Audit firm, SpendMend, about a session I attended this past year at the annual IOFM conference.  After recounting the story for my friend, he asked me if I would be willing to write a guest blog for their website.  He is in sales and he insisted that my story hit directly on the single biggest obstacle he faces when working with prospects and potential clients.

Here’s what happened…  The Procure-to-Pay session was covering Post-Payment Audit and in an effort to engage a room of about 50 AP professionals, the speaker asked us to raise our hands if we were using a Recovery Audit firm or had experience with post-payment audits.  To my surprise only about 10 hands went up.  The speaker was a little surprised by this too; she quickly followed up with a couple of informal questions trying to understand why the vast majority of the room was avoiding a Recovery Audit.

After a few minutes of lively conversation, an AP manager boldly stated what was on their mind:

“I’m concerned my CFO would think I’m not doing my job if there happens to be a high volume of findings.”

As the others nodded in agreement, it was obvious that the AP professionals in the room had a fear that they might be exposed by the findings of a Recovery Audit, and they worried it could reflect poorly on their team’s quality of work.  

 My first thought was “WOW!” as I considered all of that lost revenue for their organizations.  I then thought ignoring the issues that could cause overpayments doesn’t make them go away and it certainly doesn’t put preventive measures in place to stop the bleeding.

I’ve engaged various firms in post-payment recovery audits over the years. I admit my ego may have been a bit bruised when I saw the executive summary after that first audit and how easily some of the overpayments seemed to occur.  I wanted to think my department’s processes were bulletproof.  Well guess what? All AP departments are vulnerable (typical recovery audits can yield 1.5% of spend in potential recoveries) and many things are outside our immediate control.  However, based on what we discovered, many things are within our control.   It was my call-to-action to close some process gaps in our operations.

I also have a tendency to be slightly (ok, maybe considerably) competitive.  So I shared the results with my team and put many of the recommendations into place.  I then challenged the team to help ensure that overall recovery findings would be less than the previous year.  Year over year audit findings declined until our organization was less than half in percentage of recoveries based on spend from the 1.5% industry average.

That’s the story our financial leaders want to hear!

 I know that the need for post-payment audit recovery can create a certain perception from associates not as familiar with the process and why it is necessary.  I wanted to help dispel some of those beliefs by presenting our experience to our organization’s finance team (about 300 associates) at a recent retreat.  

This is how I led into the presentation:

Post-payment audit ensures that terms and conditions of all purchases negotiated with suppliers are captured appropriately. The review provides an independent third-party evaluation of our procurement cycle, validates departmental controls and recaptures lost revenue.

If we do not review supplier payments on a regular basis, we are at risk of not recovering funds owed back to us as well as not having good data to hold suppliers accountable for contract compliance.

Many of those seasoned finance professionals were surprised to learn that ‘payment errors’ represented only 0.022% of our audit sample and the majority of claims were from pricing, rebates, and RTV credits.  Imagine if those claims were never recovered!  We just don’t have direct visibility into those transactions from the AP standpoint.

We have gotten so much value from recovery audits, both financially and operationally, that we decided to step up the timing.  In the past we would engage in audits every 2 to 3 years but the drawback was that we were always working with latent findings and credits that were from previous budget periods.  A solution was presented that performs continuous monitoring of more current activity (beyond 90 days versus 2-3 years) that helps us uncover erroneous payments and unidentified credits in the current budget period.  It also provides the visibility into process issues or supplier behavior that we can react to more timely for prevention.

While I don’t endorse any firm in particular, (much like this blog) I have a high regard for the practice itself.  I make sure I leverage the data from the executive summaries as well as ask the audit firm for industry benchmarking so that we continue our march toward best in class. (Did I mention I’m a tad bit competitive?)

I know many of you feel my pain when I lament that accounts payable tends to get a rap for being the ‘spenders’ and the transactions fall on the spectrum of being non-value add.  Imagine informing your CFO that you can happily bring lost revenue back into the financial statements.  Trust me, he/she won’t think you aren’t doing your job well; instead you may make an impression for identifying opportunities to control expense and leveraging additional process improvements.

Take my advice, get over your fear, and reap the benefits of a Recovery Audit.  You’ll quickly realize you had nothing to fear in the first place and can leverage audit findings to bring value back to your organization.

 

ABOUT THE AUTHOR

In 33 years at OhioHealth, I have grown with the organization as an agent of change.  During my tenure, I’ve held various Finance positions that led to my current role as accounts payable director.  I have a passion for operational strategy, and I have led my team through Lean transformation with dramatic results.  I strongly believe in developing and empowering my associates so they can be experts at problem-solving and efficiency.