Cost Recovery E-Book

Richard B. Lanza

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 565

Veröffentlichungsjahr: 2009

Beschreibung

• Cost Recovery: Turning Your Accounts Payable Department into a Profit Center shows how to identify a company's hidden financial assets.
• It provides tools to assist organizations generate cash recoveries, stop profit leaks, move away from control issues, and work towards process improvements.
• The book shows how to incorporate profit recovery technology, and how to pair a company with a recovery expert best suited to the company's needs to achieve bottom line results.
• The book discusses how to utilize free services offered by cost recovery consultants, using of top money-saving proves improvements, and how to create a plan to maximize recovering technology.

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

About the Author

Foreword

Selling Cost Recovery

Preface

How We Got Here

Now That We Have a Model, How Do We Reapply It?

Why Use This Book?

Acknowledgements

How to Use This Book

CHAPTER 1 - Benefits of Recovery Services

U.S.General Accounting Office Report “Recommends” Recovery Auditing

Top Benefits of Cost Recovery

Top Reasons for Recovery

Recovery Estimates—Embrace the Uncertainty

When Recovery Becomes Fraud

Sarbanes-Oxley Implications

Notes

CHAPTER 2 - Overcoming Obstacles to Getting Recovery Started

Overcoming Obstacles to a “No Brainer” Service

Why Internal Audit Departments Are Sometimes the Worst Resource for Doing ...

Why Internal Audit Departments Are Truly the Best Resource for Doing Recovery Audits

Why Select a Provider for Your First Audit

Notes

CHAPTER 3 - Assessing Opportunities and Risk

Focusing on the Largest Fish

Scattergraphing: A Powerful Tool to Identify Changes in Company Activity

Going Deeper and Data Auditing Vendor Accounts

Using Vendor Toolsets

The Top 10 Questions to Ask When Deciding to Do a Recovery Audit

Notes

CHAPTER 4 - The Overall Cost Recovery Marketplace

How the Industry Worked in the Past

Recovery Consulting Today

The Evolving and Continuous Recovery Process at Companies

Why Recovery Consulting Is so Popular

Dimensions of Recovery

Recovery Categories

How the Recovery Areas Are Defined in This Book

CHAPTER 5 - Accounts Payable and Procurement

Case Study Wrap-Up

CHAPTER 6 - Advertising Agency Audits and Media Reviews

Case Study Wrap-Up

CHAPTER 7 - Audit Firm Benchmarking

Case Study Wrap-Up

Recoveries to Find

Questions to Ask

Conclusion

CHAPTER 8

Overview

Case Study Wrap-Up and Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

Notes

CHAPTER 9 - Freight Bill Auditing

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask

Conclusion

CHAPTER 10 - Health Benefits Auditing

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask

Conclusion

Note

CHAPTER 11 - Lease Audits

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

CHAPTER 12 - Order to Cash Reviews

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

Notes

CHAPTER 13 - Payroll Tax Credits

Overview and Recoveries: Savings to Find

Other Federal Programs

State and Local Incentives and Credits

Questions to Ask When Assessing the Opportunity

Conclusion

Note

CHAPTER 14 - Proactive Fraud Audits

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

Notes

CHAPTER 15 - Project Fraud Audits

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask to Assess the Opportunity

CHAPTER 16 - Real Estate Cost Segregation

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

CHAPTER 17 - Research and Development Tax Credits

Background

Case Study Wrap-Up

Questions to Ask When Assessing the Opportunity

Conclusion

Notes

CHAPTER 18 - Strategic Sourcing

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

Notes

CHAPTER 19 - Telecommunications Auditing

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask

Conclusion

CHAPTER 20 - Travel and Entertainment Reviews

Overview

Case Study Wrap-Up

Automation Benefits

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

Notes

CHAPTER 21 - Utility Reviews

Overview

Case Study Wrap-Up

Recoveries to Find

Questions to Ask When Assessing the Opportunity

Conclusion

CHAPTER 22 - Selecting a Provider

Overview

Applying Discipline . . . It’s a Good Thing

Step 1: Form the Team

Step 2: Set Requirements and Success Metrics

Step 3: Draft a Request for Proposals

Step 4: Negotiate

Step 5: Complete Decision Analysis

Conclusion

Notes

CHAPTER 23 - Technology Used in Recovery Efforts

Introduction

Data Analysis/Mining/External Data

Assessing Vendors against Watch Lists

Making the Scattergraph

Continuous Monitoring

Pre-Formatted Workpapers/Process Workflow/Client Management Dashboards

Conclusion

Notes

CHAPTER 24 - Conclusion

Where Do We Go from Here

What Else Can You Do?

Appendix 1 - Additional Publications Related to Business Cost Savings

Appendix 2 - Accounts Payable

Appendix 3 - Records Retention and Right to Audit

Appendix 4 - Discussion Paper Continuous Controls Monitoring with ACL ...

Appendix 5 - Tapping the Strategic Potential of Procurement

Index

Additional Praise forCost Recovery: Turning Your Accounts Payable Department into a Profit Center

“In these turbulent economic times, nothing is more important than protecting your money. Rich Lanza shows you how to put proven theory into practice. This book on cost recovery will save you time and money.”

—Dave Coderre President, CAATS

“Internal control professionals can glean practical insights on cost recovery from Rich’s book and gain valuable insights into best internal control practices. Industry, government, and education evaluators can convert vendor overcharges into cash: employee benefits, freight, leases, service agreements, and much more . . . Alas, a detective control that turns auditing into a profit center!”

—Bob Benoit, President, Lord & Benoit SOX Compliance and Member of COSO Taskforce

“Cost Recovery: Turning Your Accounts Payable Department into a Profit Center is a valuable resource in any economic environment, industry, or organization. Whether you’re part of a large, multinational corporation, or a relatively small company with one location, the broad range of topics covered ensures that you will find something useful in this book.”

—Ronald T. AltomareDirector, Internal Audit and System’s ControlBarnes & Noble College Booksellers

“Cost Recovery: Turning Your Accounts Payable Department into a Profit Center is an interesting, accessible introduction to one of the most overlooked areas of corporate governance. Filled with real-life case studies and the actual names of Recovery Firms from various and sometimes unexpected industries, the book reveals the power of not only recovering material funds from historical transactions but reaping future cost savings from ‘closing the gaps’ as well. This is a must read for anyone involved in business planning, particularly procurement and internal audit.”

—James N. Bean Partner, Advertising Audit & Risk Management

Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Lanza, Richard B.

Includes index.

eISBN : 978-0-470-52614-9

1. Cost centers (Accounting) I. Title.

HF5686.C8L267 2009

658.15’53—dc22 2009008540

About the Author

Richard B. Lanza (CPA, CFE, PMP), President of Cash Recovery Partners LLC, helps companies identify their hidden financial assets, mostly using technology and referring them to specialists. He has a decade and a half of experience in audit technology and recovery auditing, becoming a leading authority in these areas. His free Web site, findmillions.net, helps companies identify cost recovery and prospective savings in all areas of their business.

He is the author of 15 publications and training courses and has written more than 75 articles for major audit and accounting publications discussing audit software, cost recovery, and fraud detection, including the following books:

• Proactively Detecting Fraud Using Computer Audit Reports

• Buyers Guide to Audit, Anti-Fraud, and Assurance Software

• 101 ACL™ Applications

• Payables Test Set for ACL™ and IDEA™

• Revenue Test Set for ACL™ and IDEA™

• Fraud Detection and Cash Recovery Using ActiveData for Excel™

Rich has worked for companies ranging in size from $30 million to $30 billion, and in all has helped them save money through the use of technology and recovery auditing. While he has more than 16 years of experience and is a recognized leader in the use of audit technology, Rich also founded auditsoftware.net, a free Web site devoted to using technology for generating bottom-line results.

He is a frequent and popular speaker at industry events, such as the conferences and seminars of the Institute of Internal Auditors and Association of Certified Fraud Examiners.

From a volunteer perspective, Rich is a member of the Institute of Internal Auditors Board of Research and Education Advisers and serves as chairman of the board for the North Jersey Institute of Internal Auditors chapter.

A graduate of Pace University, he is a member of the American Institute of Certified Public Accountants (AICPA), the Association of Certified Fraud Examiners (ACFE), and the Project Management Institute (PMI). Rich was recently awarded the prestigious Outstanding Achievement in Commerce Award from the Association of Certified Fraud Examiners.

Foreword

I’ve been in the world of finance and internal audit for more than 18 years. Ï’ve worked in several different industries, with both public and private firms. The management styles and corporate philosophies I’ve experienced vary as much as the products and services those companies manufacture and sell. I’ve dealt with all of the Big Four accounting firms, and a litany of consulting firms.

How often do we hear about companies wanting to “cut costs”? I just recently read an article about a large media company instructing its employees that they would not be reimbursed for going to lunch with other in-town employees. I’ve experienced this type of cost cutting in the past, but is this type of action really going to have a significant impact? The ironic thing is that when companies decide to cut back, they hire expensive consulting firms to tell them where they can save money, excluding their own fees, of course.

So, in addition to whichever cost-cutting measures you choose, why not try to find money in-house through nontraditional revenue channels such as cost recovery? Perhaps we as humans are skeptical in nature and have always been trained to believe that we can’t get something for nothing. Why else would you refuse to allow someone to examine your payables to see if you’re due any money? Well, here are a couple of reasons.

In my opinion, the primary reason for not wanting to explore cost recovery is that people do not want their mistakes to be highlighted. Consider this: If you mistakenly paid an invoice(s) twice, and the amount was, say, $200,000, would you want your boss to know?

Another reason that I’ve heard for not wanting to explore cost recovery is that “We don’t want to upset our vendors.” Hmmm . . . sounds like a wonderful business partnership to me. The vendor overcharges or double bills your company, and you remain silent. Who are you dealing with, Don Corleone (a.k.a. the Godfather)?

In any case, perhaps you as an individual are not at fault. The vendor may be trying to cheat you, or increase their revenue by double billing and hoping only a few will catch on and complain. Maybe the vendor made an honest mistake, or maybe your systems are not sophisticated enough to distinguish duplicates, and so forth. However, cost recovery is a great opportunity to review processes, procedures, strengthen internal controls, and detect fraud.

In these extremely difficult economic times, no effective argument can be made against cost recovery. It requires no upfront capital, no significant human resources, and the payback is often significant.

Selling Cost Recovery

If you are in the position of having to convince others (as I was when selling a cost recovery audit related to advertising expenditures), my advice is to keep trying. You have nothing to lose and everything to gain. If by chance (and I highly doubt this), you don’t recover any funds, you end up confirming the strengths of your payables systems, processes, and people without incurring any costs. Imagine what it would cost to hire an independent auditing firm to arrive at the same conclusion. But, if you recover money (and you probably will), you just might end up a couple of rungs higher on that proverbial corporate ladder. To quote Nike, “Just Do It!”

Now that you’re convinced of the benefits of cost recovery, and have gotten the okay to proceed, where can you go for help? Well, you can start by reading this book. I’ve had the pleasure of knowing the author, Richard B. Lanza, since 1989. We attended Pace University together and were colleagues for a short time at a major retailer.

Rich provided valuable accounts payable data analysis services with the unique twist of dealing with foreign currencies. My company had subsidiaries in various countries, each with a similar payables system, but there was no possible way I would have been able to obtain such a large volume of data for each country in a format I could understand, let alone review it, had it not been for Rich. This saved a great deal of time in the field (and associated travel expenditures) because it allowed me to pinpoint areas of focus.

Rich has an amazing command of systems, data, and so on, and can bring the concise story out of the mountain of details. He has a true passion for cost recovery. Rich focuses on client needs; doesn’t speak with a litany of slogans, corporate buzzwords, and so on; and won’t try to sell services you don’t need. Remember, his business is cost recovery! I am pleased and proud to call Rich a friend and business partner.

Ronald T. Altomare Director, Internal Audit and System’s ControlBarnes et Noble College Booksellers

Preface

How We Got Here

At my core, I am a CPA. Unlike the normal CPA career that goes from external auditor to accountant to controller, and then one day, just maybe, to CFO, I am an entrepreneur. As an entrepreneur, I find myself consistently figuring out my next service and how to package it for the marketplace. As a writer, I am always thinking of new concepts to present to the reader. I believe it is useful to provide this perspective, as it is that basis for developing a cost recovery publication.

My career started as a standard CPA’s would. I worked as an external auditor. I then became a data analysis expert when I started working with ACL software. With ACL software, a nonprogrammer like myself could process data in ways previously unimagined. To this day, I still believe I can do more with ACL software than most programmers can do with million-dollar computer systems. For this reason, I initially befriended the purchasing director of a Fortune 500 company who needed these data to improve his buying decisions.

By turning this data analysis toolset to the purchasing and accounts payable area, I discovered that I could find errors and sometimes even fraud within the data. With this removed, it led to savings for the company. Again, an auditor at heart, I created more and more data routines to help save and find money for companies. When the external and internal auditor markets saw little use for data analysis because they were content to sample audit populations, this happened. We used to joke that auditors would sample 30 items because they knew that if they audited 100 percent of the population with a data analysis tool . . . they might actually find something! I, frankly, grew a bit disgusted with the audit communities that were more interested in issuing clean audit reports than in getting to the root of the problem and saving companies money in the process.

While all of my skills in cost recovery and data analysis were developing, I was collaborating heavily with like-minded colleagues, using e-mail listservs and, later, the World Wide Web. Under the tutelage of Jim Kaplan at auditnet.org, who has created an amazing online community for auditors, I discovered that I could learn much more if I banded together with a community of like minds. This was the basis of auditsoftware.net, my Web site devoted to the use of any technology to improve the audit process. Over time, my research reached into every facet of this industry. I achieved this by speaking to vendors and the users of the technology, which led me to write The Buyer’s Guide to Audit, Anti-Fraud, and Assurance Technology, with Dean Brooks and Mort Goldman. This was the first book dedicated to looking at all aspects of audit technology and provided a list of vendors for anyone looking to purchase the technology.

Now That We Have a Model, How Do We Reapply It?

Under the theory of “if it ain’t broke, don’t fix it,” I decided to use the same concept. This time, instead of technology to help the audit process, I decided to focus on cost recovery. This was much easier for a few reasons:

• My data analysis services were much easier to promote to cost recovery providers and companies where there was no audit slant to them because it focused on savings. Even auditors themselves found the word audit to be limiting because there is a stigma associated with it. Companies quickly found that for a few thousand dollars they received reporting that saved them hundreds of thousands, if not millions. In one instance, one report found over $100 million for a company. Too bad I only charged them for a few hours of my time because 1 percent of that number would have made me a very wealthy man.

• There was nothing written on the work done by cost recovery auditors. We completed an extensive Web survey (mostly through Amazon.com), and while there were a few books in certain specific areas of recovery and a few more on how to save money, there was no comprehensive guide ever developed explaining the entire industry. (Please see Appendix 1 for the research we completed in this area.)

• Knowing that it was difficult to market their services and the concepts underlying their value, cost recovery providers were more than excited to help provide content for Web sites, articles, books, and whatever else would help market their business imperative.

• Generally speaking, it became easier to gain interest from companies. I remember meeting a sales coach earlier in my career (Keith Rosen of ProfitBuilders.com), who told me he wished he had my cost recovery services to sell full-time because it was the easiest sell imaginable. What other service costs nothing until the company gets a financial return and even then, it is on money they never knew they previously had? Instead of any sales gimmicks, he simply told me to explain what I did in a minute or less and the company should simply buy it.

So with this model in mind, I set off to talk to as many recovery firms as possible. While I was already working for a couple of firms doing their data analysis, I found that there were hundreds out there to choose from. I spoke to them. I tried to understand their business model, and then worked to include their pitch in my Web site findmillions.net. The goal of the site was to make it easier for companies to better understand the nature of recovery firms and to get started saving money. As any recovery firm will tell you, the sooner you start, the sooner you save. Of course, the longer you wait, the better chance you have of never recovering anything.

As I spoke to more firms, read their Web sites, and translated as best as I could what they do to Web site articles and other content, I realized that we had again the makings of another book. This time, instead of it being about an obscure audit software market, it was now about how companies could save money.

Why Use This Book?

Professionals are being challenged daily to enhance their business processes and increase their own efficiency at the same time. This usually translates to having fewer people to do the job. I see this book helping in five key ways:

• Saving time in cost recovery provider selection and implementation. Any professional use of cost recovery services will receive an outline of every recovery category, key questions to ask themselves, and key risks to consider within their organization. Collectively, this could take weeks of research and it is all being provided in a published road map.

• Seeing the cost recovery market as a whole. This is the only research document available today that looks holistically at the cost recovery marketplace, and this was realized after days of Web research.

• Covering the niche markets. Specialized recovery specialists are often the best choice for the job, but they don’t necessarily make it into general business periodicals. There is a natural tendency for the media to talk mainly to and about the larger, more established vendors. We deliberately sought out numerous small start-up enterprises that have fewer than 10 employees, knowing that some will be major players in years to come given their compelling business models.

• Setting realistic priorities. The hard decision is often not whether to do cost recovery, but when and how far to proceed in the project. Do we start all audits at once? What recovery options are the best for our company? What sort of training schedule will be required to transfer knowledge? This book will help answer these and many more questions.

• Planning long-term strategy. Even the most experienced recovery specialists can learn something from this book about future trends, new services, and evolving best practices. Companies will also learn to look at cost recovery as not a one-time event but rather a continual process of improvement that, all along the way, provides cash savings to the organization.

All organizations spending cash should be interested in this book, with cost recovery and cash savings being the main motivator. Identifying hidden assets that a company owns and other ways to save company cash is always relevant because it helps companies grow more profitable and professionals to be noticed and rewarded for their efforts. Toward that end, this book’s goal is to make it easier for companies to better understand the nature of recovery firms and to start saving money . . . before it disappears.

Acknowledgments

I want to express my thanks to:

All of the cost recovery providers for their ingenuity to create a service that is based solely on performance and finds savings for companies that were previously unknown. I consider myself so lucky to work with them.

ACL Software, for honing my mind to think like a data analysis engine and the guidance provided by Harald Will over the years.

The Association of Certified Fraud Examiners, most particularly Joseph T. Wells, for providing the taxonomy of fraud so that I could systematically attack it. Without his encouragement for detecting fraud, I would have never gotten started in the cost recovery business.

Jim Kaplan, founder of auditnet.org, for teaching me the value of collaborative networks on e-mail and then the Web.

My children, for giving me a reason to get up every morning so that I may provide them a foundation to build greater works in the future.

My wife, Jessica, for her love and support throughout the writing of this book.

How to Use This Book

The book will provide a step-by-step process for any department wanting to complete a cost recovery effort of their company spend. We tried to draft the book in a logical progression to guide the reader through the process of recovery as follows:

• Chapter 1: Benefits of Recovery Services. Any service needs to start by explaining the benefit to a customer who has marketplace needs. Only after a customer understands the benefits will she be willing to move forward with assessing the risks and opportunities associated with cost recovery.

• Chapter 2: Overcoming Obstacles. Unfortunately, while cost recovery makes so much sense for companies, there are still obstacles to implementation. The reader should make sure he prepares himself for the road ahead to internally sell recovery.

• Chapter 3: Assessing Opportunities and Risks. The goal of this chapter is to provide the reader with a methodology to assessing the recovery opportunity and the risk of the company creating errors. While not being too specific to the actual cost recovery categories (see Chapter 5), the objective is to provide a broad framework to mapping out the company’s opportunities and then laying down a process to ensure the opportunity is maximized for the long term.

• Chapter 4: The Overall Cost Recovery Marketplace. Now that the reader knows what is out there to recover at a high level, she needs to understand how the cost recovery market works and the trends affecting it before going deeper into the recovery categories.

• Chapter 5 through 21: Cost Recovery Categories. With a foundation laid, the reader is in a position to understand every aspect of specific recovery categories. The objective of these chapters is not to explain exactly how to complete a recovery assignment but rather to explain the process being taken by the recovery auditor, what specifically to look for at the company when assessing the opportunity, and what to look for in a vendor in the recovery category. Case studies provided in each chapter assist the reader’s understanding of the true potential in each category.

• Chapter 22: Selecting a Provider. As it simply makes sense to bring in a provider to assist with recovery efforts, at least initially, the reader needs some key considerations for making the best selection possible.

• Chapter 23: Recovery Technology. No publication on recovery would be complete without a discussion of the technology used by firms to focus their testing efforts and manage their engagements. Technology is the third component of the people, process, and technology paradigm, but is just as important as the first two categories.

The book concludes with the selection of a provider to start cost recovery at a company, which is the starting but should not be the ultimate end goal for the company. The company should strive to implement best practices as provided by the recovery firm to improve their processes, thereby limiting their future errors. Over time, they may start their own internal audit function that is trained in the specific categories of cost recovery, or build internal technology to ensure the cost savings never leave the company in the first place. All of this is done in the pursuit of a more efficient and effective organization.

CHAPTER 1

Benefits of Recovery Services

U.S.General Accounting Office Report1“Recommends” Recovery Auditing

Like many private sector business leaders, circumstances in 1996 dictated that the Secretary of Defense evaluate the possibility of using a recovery audit firm to uncover overpayments made by the Department of Defense (DOD) to their vendors. When the final results were in, the United States General Accounting Office (GAO) issued its assessment of the completed process. The results were instructive. (For the full report from the GAO, please visit http://gao.gov/archive/1999/ns99012.pdf.)

The effort began in September 1996, and the recovery audit covered purchases made during fiscal years 1993 to 1995. In late 1997, Congress authorized expansion of the program, and in an August 1998 memorandum, the DOD Comptroller encouraged DOD agencies “to use recovery auditing as a way to identify and correct payment problems.”

The methods used resulted in the detection of $19.1 million in overpayments—about the cost of four new M1-A2 Abrams Main Battle Tanks at the time.2 Efforts to identify additional amounts continue. Of the $19.1 million in overpayments, $12.4 million was due to cash discounts not taken or deducted at the wrong rate, $2.2 million was related to most favored customer terms not received, $1.3 million was due to duplicate payments, and $1.2 million related to credits not taken.