A Thorough A/P Fraud Review Requires Dynamic Human Expertise
If detecting overpayments or fraud were as simple as running the right software, there would be no need to do a physical audit of your accounts payable department. You bring in humans for a reason. Certain pertinent details can only be found by physically combing through the files, whether they’re electronic or on paper. And, any uncovered discrepancies can potentially add up to a sizable amount of lost revenue.
A manual audit review is the perfect complement to intelligent software systems. Today’s data demands are immense, so some form of automation is necessary to scour your accounts payable department’s files. But, not every overpayment can be identified through an exception report. And, the problem gets proportionately worse as the size of the company increases.
As a starting point in the audit process, a software program can find patterns that indicate fraud, and easily catch many types of duplicate payments and other errors. The depth of a manual review, however, is something that no algorithm has yet been able to replicate. It combines objective data with dynamic human experience and expertise.
What May Be Missed By Audit Software
While software may be able to identify some of the following sources of lost revenue, a manual review will almost certainly go further to maximize recoveries in these areas.
Tax Overpayments - income, withholding, worker’s compensation, sales and use, franchise, property, severance, excise, unclaimed property, etc.- Sales Tax Regulation Changes
- Procurement Contract Benefits - discounts, rebates, price variances
- Internal and External Fraud Indicators - abnormal invoice activity, rapidly changing payment activity trends, etc.
- Erroneous Escheatment - property classified as abandoned, refunds due from the state
- VAT Credits & Refunds - GST/PST/HST/QST verification, ITC/ITR qualification
The Cost of a Purely Automated Solution
Many accounts payable auditors rely strictly on automation software. High-quality, state-of-the-art programs can produce good results. What they miss on contract compliance and fraud alone, however, can equate significant losses. According to the Association of Certified Fraud Examiners (ACFE), the median loss per case due to fraud in the U.S. is $100,000. In fact, they also say that approximately 5% of all revenue is lost due to fraud every year. That’s huge! Most companies find it is well worth the extra elbow grease to be sure they find and patch those leaks that drain their financial resources.
Why Automation is a Critical Partner in a Manual Review
Audit software is a great time-saving tool that can quickly merge multiple sets of internal and external data to help identify lost funds. It can provide a high-level analysis as well as useful ad-hoc audit reports based on initial findings. And, at the conclusion of an audit, the software can be used to scrub a client’s masterfile of duplicate or questionable entries.
With customized software auditors can quickly identify and recover overpayments in a myriad of categories including duplicate/erroneous payments, pricing errors, cash/volume, discounts, freight, sales tax errors, and unclaimed property. Every system, however, has its limitations. And, only a manual review which involves pulling and reviewing actual documents, can make up the difference as well as provide Key Non-Financial Benefits of an AP Audit.
“A thorough review is the only way to ensure you are conducting a comprehensive audit and receiving the greatest possible ROI for the time and fees you invest in an audit.”
– Gerry Conheady, President, Broniec Associates