Over the course of a company's lifetime, its books can grow more and more complex. It is to a business' benefit to keep consistent records; otherwise, you will risk overpaying vendors or government taxes. Depending on the company, a cost recovery audit can be done in-house or outsourced to one of the many firms that handle various account recovery procedures.

Action Steps
The best contacts and resources to help you get it done

Data cleansing

If a company does not have confidence in its own numbers, there is little hope a recovery audit will be effective. Data cleansing essentially means cleaning up the books, which involves getting rid of duplicate entries and standardizing notations.

I recommend: Automated Auditors outlines its data cleansing services.

Accounts payable (A/P) audit or overpayment audit

An accounts payable audit can encompass tax overpayment and duplicate payments, and can even detect employee or vendor fraud. Companies that have a complex accounting system might not have time to go back and check for overpayment errors, in which case an A/P audit service would come in handy.

I recommend: Cost Recovery Solutions outlines its A/P audit services.

Fraud audit

Some A/P audits specifically target fraud, either on the part of employees or vendors. An A/P fraud audit could detect stolen checks, unusually large vendor payments, or payments that fall just below the amount where approval would be required. The process also weeds out fake vendors.

I recommend: The American Institute of Certified Public Accountants outlines changes to its fraud audit standards.

Benford's Law

Benford's Law is named after Dr. Frank Benford who discovered that, in any given data set, the odds that 1 will be the first numeral are 30.1 percent. This astonishing finding has been used to weed out fake or fraudulent accounting data.

I recommend: EZ-R Stats explains how Benford's Law can be used to detect fraud.

Contract compliance audit

Before you enter into a contract, great care is taken to negotiate the terms and get the best possible price. But if there is nobody to follow up on the complex payment schedules and rebates, you may be losing money, not to mention violating government regulations.

I recommend: Moody Associates, P.A. outlines its contract compliance audit services.

Sales and use tax audit

If you aren't careful, you might be overpaying state sales and use taxes. An experienced auditor will represent your company to a state tax agency, and comb your books to see if you have overpaid.

I recommend: Weisman and Associates can conduct a sales and use tax audit as part of an A/P audit or separately.

A cost recovery audit can greatly affect your company’s bottom line by helping you to identify financial errors, recoup overpayments and decrease the likelihood of making the same accounting errors in the future. There are several things to consider before starting a cost recovery audit project, such as which areas to examine, the pros and cons of using auditing software and if you’ll conduct the audit internally or by an outside cost recovery audit firm.

A cost recovery audit can be conducted manually, electronically or using both methods. A manual cost recovery audit involves hands-on review of documents by an auditor. With an electronic cost recovery audit, businesses use customized software to detect inconsistencies. Consider the following tips to help you choose a cost recovery audit provider:

1. Assess benefits of a manual cost recovery audit.

2. Seek electronic cost recovery audit information.

3. Get referrals from a cost recovery audit directory.

Action Steps
The best contacts and resources to help you get it done

Dig deep with a manual cost recovery audit

While a manual cost recovery audit is not usually the fastest option, it is, in most cases, the most thorough option. Review your accounting processes and determine if you need to correct errors quickly or if you have time for a manual cost recovery audit. You may also find that a combination of the two methods is best for your needs.

I recommend: Connolly Consulting offers unique manual cost recovery audit services combined with advanced auditing technology to ensure your financial needs are met. Recovery + Solutions is a cost recovery audit provider that offers both electronic and manual services from experienced auditors to analyze your payments and implement affordable cost recovery audit solutions.

Get customizable cost recovery audit solutions

Electronic cost recovery audit software and technology offers quick identification of errors. You will have to weigh the advantages and disadvantages of this method in relation to the unique characteristics of your business. An auditor can help you decide the most efficient process for you.

I recommend: Automated Auditors offers custom software to provide business owners with cost recovery audit solutions. Cost Recovery Solutions uses custom software tailored to your business specifications to conduct electronic cost recovery audits.

Find cost recovery audit services

Whether you choose to use electronic or manual cost recovery audit solutions, it's important that you work with experienced auditors who have experience advising businesses similar to your company. Choose auditors with keen investigative and problem solving skills.

I recommend: Apex Analytix is a leading cost recovery audit provider that specializes in experienced auditors using hands-on expertise and technology to identify inconsistencies and prevent future financial errors. McKenna Long & Aldridge is a law firm that provides a range of cost recovery audit services.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  You can use websites such as Guru.com to post your cost recovery audit needs and get responses from internal auditors or you can search the website's cost recovery audit list for auditors.

A cost recovery audit can save your business tons of money by helping you locate costly financial errors and over payments. An internal audit to identify costs, when performed by a knowledgeable audit manager, can also minimize the chances of these sorts of errors repeating themselves.

Whether performed as part of a quality audit ISO document compliance, or completed separately, conducting an accurate and thorough cost recovery audit requires experience and know-how. If you are looking to further your career to be qualified to conduct these sorts of audits, consider the following ways to obtain cost recovery audit education and training:

1. Take advantage of association training and conferences to further your knowledge of internal audit issues including a cost recovery component.

2. Subscribe to a newsletter where audit issues are addressed.

3. Deepen your cost audit recovery education and training by keeping up with accounting blogs and readers' comments.

Action Steps
The best contacts and resources to help you get it done

Receive training via conferences where audit strategies are discussed

Auditing and accounting associations are great places to further your cost recovery audit education and training. These associations host conferences where audit issues are discussed by peers and subject matter experts. In addition, many associations offer beneficial training as a membership perk.

I recommend: The National Association of State Auditors, Comptrollers and Treasurers (NASACT)hosts conferences in addition to coordinating training services to address specific training needs. The Association of Local Government Auditors (ALGA) offers a conference that encourages "interchanges of practical information and experience among the auditors."

Subscribe to a newsletter that discusses issues relevant to an audit manager career

Newsletters are a great way to read summaries and in-depth analyses of issues facing audit managers who perform cost recovery as well as other sorts of financial audits. Many newsletters are electronic or online, which means there will be no extra paper piling up on your desk.

I recommend: AuditNet's website features past newsletter issues, as well as a place to register for Twitter updates. The American Institute of Certified Public Accountants publishes a monthly newsletter entitled "The CPA Letter," which discusses a wide range of issues that CPAs face, including the intricacies of cost recovery auditing.

Keep up with blogs that discuss cost recovery audit issues

Blogs are the perfect medium to read up-to-the-minute responses regarding laws, regulations and software innovation. These sorts of issues can greatly impact an audit manager's world, and must be kept up with as part of cost recovery audit continuing education and training.

I recommend: Tax Guru's blog archive includes an article questioning the necessity of cost recovery audits. The blog for the California Association of Nonprofits discusses the nuances unique to nonprofit accounting. Their site includes several discussions about audits.

A cost recovery audit is a process of auditing all the billing and purchasing information to see if catching errors or fraudulent activities can provide a recovery of some money. This type of audit is used on a regular basis to make sure the business is not being overcharged by vendors or paying out too much in other bills due to a clerical error. In many instances, a cost recovery audit can recover thousands of dollars that would have otherwise been lost.

Find information on cost recovery audit applications and uses to know what your business needs. This information can be found through many sources, including:

1. A cost recovery audit directory of services from a provider;

2. Information on what types of errors can occur;

3. Guides on knowing the difference between errors and fraud.

Action Steps
The best contacts and resources to help you get it done

Use a cost recovery audit provider for contract compliance

A common use of cost recovery audits is for contract compliance. The audit looks to see if both parties in the contract are receiving the money or supplies stated in the agreement. Using this type of audit for contract compliance also ensures that a company can enter a contract without errors in payment schedules, terms and purchase orders.

I recommend: Profit Technologies outlines services available for using cost recovery auditing for contract compliance. Cost Recovery Solutions provides a guide on the situations where a cost recovery audit would be the best way to go.

Use a cost recovery audit list of solutions to find accounting inaccuracies

A cost recovery audit is also a good idea when a business is looking for any errors or inaccuracies in the accounting department. This type of an audit can find errors in billing, purchase orders and other billing practices. A cost recovery audit will also look at bills received by the company to make sure all the taxes or tariffs being charged are fair.

I recommend: Connolly provides an explanation of how much a recovery audit can be worth and the areas where most inaccuracies in accounting occur. Quick, Rios & Associates provides information on cost recovery audits on state and federal taxes to maximize refunds.

Consider cost recovery audit information for detecting and reporting fraud

Another problem many businesses have to face is the potential for fraud. Fraud can occur in many ways. The most common way businesses are confronted with an issue of fraud is when internal fraud occurs. This is when an employee is purposely making mistakes on billing and accounting information for personal gain. External fraud is also a problem for many businesses. This occurs when a vendor is trying to overcharge for products or services.

I recommend: Cost Advisors provides information on the process of using cost recovery auditing practices to detect, report and recover damages from fraudulent activities. C.A. MacDonald & Associates provides information on the types of fraud that can occur internally and externally.