What are the benefits of conducting a Primary Recovery Audit?

Answer 1

The benefit of Primary or Secondary Recovery Audit is to recuperate money lost due to payment errors, accounting errors, accounting or bookkeeping system issues, etc.

Organizations that benefit most from overpayment or receivables auditing are companies that conduct a very high volume of transactions, have automated payment systems where payments are made based on programmatic values (sku's, product id's, claim id's, etc.), and have adjustable payments or receivables for the same product or service.

Coding errors in automated payment or accounting systems account for a fair amount of financial transaction errors, and they often go unnoticed for months or years.

Example: Imagine that a company sells medical supplies to hospitals and clinics around the world, and their top selling product is surgical gloves. On January 1 2010, their main supplier increases the price per unit by $1.00. The company informs their customers that they will see a price increase per unit of $1.00. The person responsible for managing product pricing for customers in the billing system adjusts the price, but makes an error by only increase the price per unit by 10 cents instead of $1.00. The company sells 4 million units over the next three months, bills their customers as usual; the customers receive the bill with the adjusted price increase of 10 cents per unit, and pay the amount on the invoice without question. The customers are under-billed for approximately $3,600,000.00 while the companies cost increased in total by $4,000,000.00. A Recovery Audit would hopefully catch the error, determine the amount to be collected from customers, define a process to inform customers of the billing error, and collect the lost revenue. Additionally, the outcome of a Recovery Audit should be to put additional controls into the accounting process to avoid this type of error in the future.

The example above is a very common scenario, and collectively causes companies billions of dollars of lost revenue every day. There are an innumerable number of scenarios similar to the one described, thus the need for Recovery Auditing.

I have included a link to a Google Knol article below that provides additional valuable information on the subject.

See related links for articles that describe other aspects of Primary and Secondary Recovery Audits.