The Power of Real-Time Monitoring vs. Recovery Audit

Spend optimization tools can help internal AP and audit teams identify all of the fraud, mis-use and waste endemic to your systems.

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As businesses continue to adapt to the challenges presented by today’s dynamic market conditions, identifying and addressing risk in real-time within accounts payable has become more difficult to achieve.

Look no further than 2020 for examples of organizational spend risk reorganizing under unique market conditions. As businesses worldwide shifted almost overnight to remote and hybrid work models, spend has looked much different, and so has the risk it introduced.  

Purchase activity in the riskiest and least visible categories like miscellaneous stores, including online merchants, rose exponentially last year. As a result, those high-risk types of purchases today account for a greater portion of overall spend than ever before.

These expanding risks in employee expense reports sit on top of more traditional risks in payables, especially those in duplicate payments, which alone can cost a billion-dollar organization more than one million dollars annually.

And, spend risk has tripled since the pandemic. To compound the issue, most organizations lack the visibility into their spending to triage these risk profiles in real-time. Instead, most large organizations rely on retrospective information provided in end-of-quarter or end-of-year audits to determine where the next round of forward-facing risks may reside.

Among the most common retrospective audits are outside recovery audits, which work on contingency, charging a flat fee on the duplicates they locate and recover. For a billion-dollar-plus organization, recovery audit could easily find and recover more than $1 million annually on behalf of your finance team at a fee in the hundreds of thousands of dollars.

It’s easy to see, then, why organizations see real-time monitoring as the ultimate solution to spend risk, and in particular, to the auditing for duplicate payments. With the right spend optimization tools, an organization can monitor 100% of spend near real-time across departments and bring duplicates down to a number near .01% while also impacting other risk profiles.

This is not to disparage recovery audit; a typical recovery audit has many benefits, ranging from outsourcing time-consuming audit work to the recovery of vast sums of money for a relatively low cost to the organization.

But, recovery audit is by definition incentivized to recover after the fact. The fundamental, transformative shift many AP teams are making today is not away from retrospective analysis and recovery efforts but rather toward real-time monitoring. Each plays an important and complementary role in a multi-pronged approach to risk.

Real-time monitoring means visibility before and during the process instead of after. It’s a shift left in the controls. With a real-time monitoring solution, organizations can benchmark their vendors, invoices and purchase orders to establish a baseline risk profile for each. With historical and trend-based information, teams can easily and quickly identify new risks in real-time and escalate those key findings to internal audit teams before payment.

The result is fewer duplicates. Less fraud. A significant overhaul in departments where misuse, waste and cash leakage perhaps ran rampant. Where once recovery audit flagged all of the loss and recoverable duplicates after the fact, much of that retrospective recovery work can today be avoided entirely, with better upfront visibility into spend and risk.

According to a Forrester Consulting study commissioned by Oversight, automation, visibility and control are newcomers to the enterprise marketplace; only 24% of organizations $1 billion and up have adopted spend optimization tools. But, those who are ahead of the pack, gaining access to the kinds of complete, granular and timely insights that reduce duplicates while simultaneously protecting against all manner of fraud, mis-use, waste and cash leakage. 

When realizing the implications of such a forward-facing financial technology, it’s a common mistake for a finance leader to think of a real-time monitoring tool as a replacement for recovery audit. And to believe that real-time monitoring could make the retroactive third-party analysis obsolete.

But, the truth is the two business models work best together. It’s not real-time monitoring vs. recovery audit; it’s real-time monitoring and recovery audit, as a stack.

With real-time monitoring, an organization can reduce its industry average of 1% spend lost to duplicates to approximately .01%. In real numbers, that might look like an organization reducing its duplicate payments from $1 million annually to $100,000. That remaining $100,000, which is hard to identify and recover, is the perfect kind of low-hanging fruit that recovery audit is purpose-built to collect. By allowing recovery audit to then do the heavy lift, the organization can get back to effectively managing real-time risks.

And, beyond the recovery itself are the necessary checks on the system that audit provides. Want to know how well your real-time monitoring programs are working? Handoff your quarter or your year to a recovery audit firm and assess. Let audit serve as a counterbalance to spend optimization instead of a method to achieve it.

Spend optimization tools can help internal AP and audit teams identify all of the fraud, mis-use and waste endemic to your systems. By stacking real-time monitoring with recovery audit, an organization can realize a drastic reduction in that 1% lost to duplicates, alongside a near-total reduction in the 5% of revenue lost to fraud, with an additional 70% reduction in out-of-policy spending.

In short, the systems pay for themselves. So, while only 24% of large organizations have these capabilities today, it’s clear that the stack of real-time monitoring and recovery audit is a combination that will expand their footprint meaningfully in the years and decades ahead.