Ways to Recover Lost Margins - Pharmaceutical Technology

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Ways to Recover Lost Margins
Recovery audits and other past practices in procurement can improve the bottom line.

PTSM: Pharmaceutical Technology Sourcing and Management
Volume 8, Issue 5

Recovery audits

With any improvement initiative, the secret to sustainability is to continue to improve and add new best practices as they become available. With that in mind, I offer some examples of what some organizations are beginning to do in this area, namely, recovery audits. Recovery audits are audits performed on past transactions to identify overpayments, recovering those overages, and putting safeguards in place to prevent recurrence. Recovery audits are becoming popular as a no-risk/low-risk method to recover overpayments associated with several areas in a company's business. The great thing about recovery audits are that there are many firms willing to perform the audit service and follow-up collections on a contingency fee basis (i.e., the firm will negotiate a split of the collected over payments). Recovery audits include payables audita, worker's compensation audita, telecommunications audita, and waste and recycling audits.

Payable audits. Payables audits are probably the most common recovery audit being performed today. Auditors look for items, such as duplicate payments, invoicing errors, wrong price paid, and other incorrect payments. Many firms have reported up to 2% overpayment on the sample data being audited. As monies are found, companies typically expand the scope of the audit.

Worker's compensation audits. The purpose of worker's compensation audits is to recover worker's compensation premium overcharges. Typically, the audit team will review the past five to seven years of insurance policies and premium calculations with the goal of finding errors and obtaining refunds. Various documents are reviewed, including final audit billing statements, experience-modification rating worksheet calculations, policy-declaration pages, auditor worksheets, loss-history summaries and claim reserves, and especially rating plans. Experience indicates that up to 70% of corporations will find that they have overpaid their carrier and will receive a refund as a result of this type of audit.

Telecommunications audits. Because the telecommunication industry has grown so complex and expensive, it is almost inevitable that waste and errors infiltrate the billing to an organization. The audit eliminates waste, corrects billing errors, and puts an organization in full control of future invoices. Auditors perform an in-depth analysis of local service, long-distance service, data lines and circuits, bandwidth usage, private lines, wireless service, teleconferencing services, equipment leases, and service contracts. Common issues that are addressed and corrected include hidden charges not on billing, overcharges versus contracted rates, incorrect long-distance carrier charges, duplicate charges, charges for unnecessary circuits, charges for services never ordered, and incorrect taxes and surcharges. History shows that corporations can lower their telecommunications bills by an average of 25% with the proper controls in place.

Waste and recycling audits. Independent specialists will perform free comprehensive waste audits that examines every aspect of a company's current waste and recycling services. These audits include contract compliance, thereby right-sizing a company's waste output to ensure that a company's out-density is within its industry standards, margin pricing, and cubic-yard evaluation. Most companies are overserviced and incur expensive bills for frequently scheduled hauler pickups. The specialists also will uncover potential revenues for a company from a more organized and aggressive recycling effort. Specialists are compensated with recovered monies on a negotiated basis or from helping to implement the necessary changes.

These are just a few examples. Recovery audits also are taking place for utilities, medical claims, merchant services (business-to-business transactions), sales and use tax recovery (for nonprofits), and property valuation, along with other areas where billing complexity exists.

Recovery audits are important tools for a company to benefit from improved practices and having additional funds returned and should be considered.

Gregg Brandyberry is CEO of Wildfire Commerce and strategic advisor for FedBid, tel. 215.327.5739,


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