Next-Generation Recovery Auditing

We believe the process of selecting a firm to perform a recovery audit should boil down to three essential questions:

  • How many errors do they find?
  • How much of my money do they spend to complete collection?
  • Do they leave me better than they found me?  

At Visual Risk IQ, we have taken a fundamentally different approach to recovery auditing that we believe answers these questions better than others. Our approach meets industry norms in every respect - except when we outperform them. That's why we refer to it as "next-generation" recovery auditing.

 

How many errors do they find?

 

Visual Risk IQ uses state-of-the art software to perform its analysis. The analysis considers duplicate pay / contract compliance AND ALSO fraud indicators that reflect our Internal Audit heritage.  Many recovery firms in the market today use proprietary programs that have been developed over the past 20 years, but that rely upon older technology. In many cases, these systems are not performing the detailed heuristic and statistical analyses necessary to produce the most complete list of recoverable items, and possible fraudulent items. We find more items.

 

 

How much of my money do they spend to complete collection?

No matter what percentage of recovered funds you pay a recovery audit firm, they’re still spending your money. Our approach is different. We believe that the collections process needs to be managed just like any other project - transparently, with a focus on costs and potential return. Many recovery items are “easy” - they consist of double payments, payments made in error, or discounts or interest paid in error. Some are “hard” - involving vendors that will not or cannot return your funds, or vendors who no longer exist.

We believe the key to managing a recovery process is to determine whether collecting 70% of available recoveries at a cost equaling 10% of the cash recovered is better for you than collecting 75% or 85% of available recoveries, but at a cost of 20% or 30% of the cash recovered. Traditional recovery audit firms don’t give you that option - we do. It’s your project, and it’s your money. We spend less of your money to recover your cash.

 

Do they leave me better than they found me?

A recovery audit firm sustains its practice by performing the same or similar analysis and recovery loop on a periodic basis. As internal auditors, we believe that there’s a much better way. The motivation of recovery audit firms is keep their auditors employed, and to identify the same or similar findings in subsequent years. Our economic motivation is to expose you to a full-fledged CCM-T system that can dramatically improve your internal control environment.

After we complete our recovery audit project with you, we provide you two primary options. The first is provide a final report, which includes suggested improvements to your ERP system and payables process that will better prevent these items from recurring in the future. The second option, where the return on investment is justified, is to leave in place the system that produced the analysis for us and make it yours.

Yes, we can sell you the system. In the process of performing our initial analysis, we “install” our software platform on a dedicated machine that resides outside of your ERP application. The difference between option 1 and option 2 is simply working with your IT group to move our dedicated server environment into your infrastructure and configuring some workflow changes within your payables process to take advantage of the new software platform.

Once licensed, you can also leveage this monitoring system for a myriad of other uses for modest additional costs. If you’re an institution of higher education, you can easily implement our post-awards accounting module for grants and contracts. If you are subject to FTC rules for Red Flag Compliance and identity theft, you can easily implement our FACTA module. Or we can work with your internal audit department and demonstrate how this platform can be used to dramatically improve your audit coverage. In each case, we prevent more future errors.

The following diagram shows the current- and future-year impacts of owning a customized CCM-T system that aims to prevent payments being made in error.   On the left, you see an example where an organization had $463,000 in Payments in Error (PIE).  An audit recovery firm typically recovers 80% of those payments (as an average), and remits 70% of what is found and collected.  This leaves you with 56% of the original payments made in error. 

On the right, you see an example of prevented errors.  In this case, the software is preventing 80% of these PIE's from leaving your organization in the first place.  We apply the same percentages (recovery and remittance) to the funds left over, subtract a maintenance fee for the software (which can and should be amortized over other uses), and you see true cash returns of $372,000 - more than $110,000 more than a recovery-focused approach.

 

Preventative ALWAYS BEATS After-the-Fact
The real strength of a CCM-T system is the fact that no matter how effective your recovery effort, a certain percentage of the money that leaves your walls in error will never be recovered. The vendor may disappear. They may dispute your version of the facts and refuse to pay. The "vendor" may be a valued employee whom you choose not to pursue for a violation of policy "this time". And the passage of time makes it less likely that you'll effectively recover these items. If you scan for them once a year, or once every few years, there's a very slim chance that these dollars will come back to you even if they're identified perfectly. And always remember - this is your money that's going away, right now!