How much you can recover?

How Much Can You Recover from an Accounts Payable Recovery Audit?

Presented by Karl Andersson, AP Impact

Hello everyone, my name is Karl Andersson, and I’m with AP Impact. Today, we’re going to talk about **how much you can recover from an Accounts Payable recovery audit**.

If you research this topic online, you’ll find that most organizations reference a generally accepted average recovery rate. Companies process their AP transactions correctly **99.9% of the time** — an impressive statistic that any finance team should be proud of. However, that remaining **0.1% error rate** represents cracks in the process that can translate into real financial losses.

To put it in perspective, for every **$1 billion in spend**, that 0.1% error equals about **$1 million in losses**. Or, viewed another way, for every **$100 million in spend**, there’s roughly **$100,000** in potential recoveries. While that’s a small percentage, it can represent big dollars.

Having audited AP organizations for over 20 years, I can confirm that the 99.9% accuracy benchmark is realistic, though individual companies vary significantly above or below it. To calculate your organization’s recovery potential, you’ll need to consider four key factors — it’s not as simple as applying a flat 0.1%. Let’s walk through those components.

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### The Four Key Components of Recovery Potential
1. **Spend to be audited**
2. **Number of ERP/AP systems**
3. **Level of automation**
4. **Control environment assessment**

Using these four pieces of information — and a little spreadsheet magic — we can create a realistic recovery estimate.

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### 1. Spend to Be Audited
This refers to the total amount paid to suppliers, excluding:
- Payroll
- Debt service payments
- Intercompany transactions

I also recommend excluding your **largest vendor(s)** from the calculation. Large suppliers are often scrutinized more closely, so recoveries are usually found in mid-tier vendors instead. This approach provides a more conservative baseline for your recovery estimate.

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### 2. Number of ERP Systems
The number of ERP or AP systems your company uses can significantly affect recoveries.
- **One system** = baseline (no adjustment)
- **Multiple unrelated systems** = +5% recovery adjustment
- **Multiple systems with overlapping vendors** = +25% adjustment

The more systems and silos in place, the higher the likelihood of duplicate payments and missed credits.

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### 3. Level of Automation
Automation tends to **reduce errors** — but not all automation is the same. When we talk about automation here, we mean **system-to-system data interchange** (EDI, automated invoice exchange, etc.), not just scanning or OCR tools.

Here’s how automation impacts recovery potential:
- **>90% automated:** -50% adjustment
- **50–90% automated:** -25% adjustment
- **25–50% automated:** -5% adjustment
- **<25% automated:** baseline (no reduction)

Highly automated environments tend to have fewer recoveries, while manual or semi-automated environments present more opportunity.

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### 4. Control Environment
Assessing your control environment can be subjective, but it’s crucial. Ask yourself:
- Do you have duplicate vendor master records?
- Are you regularly cleaning and reconciling vendor files?
- Do you track vendor-reported payment errors?
- What percentage of your transactions are credits or adjustments?

If your credits or adjustments represent **more than 2–3%** of total transactions, that can indicate weaknesses in purchasing or AP processes.

In general:
- **Better than average controls:** -25% adjustment
- **Average controls:** baseline (no adjustment)
- **Below average controls:** +25% adjustment

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### Bringing It All Together – The “Spreadsheet Magic”
Let’s walk through a few example scenarios:

**Example 1:**
- Annual spend: $500 million
- Base recovery rate: 0.1% → $500,000
- One ERP system, some automation (-5%), average controls (no adjustment)
- **Estimated recovery:** ~$475,000 (range: ±20%)

**Example 2:**
- Annual spend: $300 million
- Base recovery rate: 0.1% → $300,000
- One ERP system, no automation (+10%), below-average controls (+25%)
- **Estimated recovery:** ~$420,000 (range: $366K–$504K)

**Example 3:**
- Annual spend: $1 billion
- Base recovery rate: 0.1% → $1,000,000
- Multiple ERP systems (+25%), high automation (-50%), strong controls (-25%)
- **Estimated recovery:** ~$650,000 (range: $520K–$780K)

For **multi-year audits**, multiply the annual recovery estimate by **1.5** to account for additional years of spend and historic recoveries.

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### Key Takeaways
- The **average recovery rate** is 0.1%, or roughly $100,000 per $100 million in spend.
- The actual recovery potential depends heavily on your **systems, automation, and controls**.
- Manual environments, multiple ERPs, and weaker controls increase recovery opportunities.
- Automation and strong control processes lower potential recoveries but improve efficiency.

At the end of the day, this framework provides a **realistic estimate** of what to expect from a recovery audit. Each company’s situation is unique — but with the right analysis, you can get a clear picture of your AP recovery potential.

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### Learn More
If you’d like to understand your organization’s potential or learn more about how **AP Impact** performs recovery audits, please visit **www.apimpact.com**.

Thank you for your time!