May 27, 2014

Cost Recovery: IA's way to...'Show them the Money' (article)

In a world of “what have you done for me lately”, most Internal Audit departments don’t have the ability to quantify real value in terms of bottom line dollars. Let’s face it, IA is a cost center, and although all of us Internal Auditors know the value we bring, often many in the company don’t see it that way. IA is just the company watch dog, making sure everyone is following the corporate rules. Well, what if you can be more than just a cost center and can deliver real bottom line results?

Cost Recovery Services are the catalyst to that paradigm shift.

As the corporate group that touches almost every department in the company, who better to objectively lead internal audits of major expense lines such as Telecommunications and Data, Lease & Common Area Maintenance, Freight, and Accounts Payable? Traditionally, companies leave the review of expenditures to department heads or other management. The fact is, often these department heads 1) don’t have time to make changes, 2) don’t know how to make changes, 3) don’t want to put their job on the line if they find they dropped the ball and could’ve been saving the company lots of money, or 4) are getting kickbacks from vendors. If you take a step back, and put on your IA hat, you can see there is risk in all of those scenarios. Our job as internal auditors is to minimize the company’s risks and exposures to risk. Let’s break out the examples above:

1. Managers don’t have time to make changes or seek better deals.
a. Their department is understaffed
b. They can’t afford to put resources on a Cost Recovery Project

2. Managers don’t know how to make changes.
a. The department managers rarely understand the contract
b. They rarely know what their peer companies,competitors, or other local companies are paying. So they don’t have a baseline.

3. Managers don’t want to put their job on the line
a. Since they really don’t have the expertise, bringing someone in would make them look bad
b. If a third party came in and found savings/recoveries, their job would not be necessary

4. Managers are getting kickbacks from vendors
a. Often, managers are persuaded to award contracts with ‘gifts’

When you put all of these scenarios into perspective, there is some very big exposure for many companies.

A logical way to have oversight of these departments is through internal audits. CBIZ Risk & Advisory Services (RAS) works directly with the Internal Audit Department to bring the expertise to complete these contingency audits. Just like any other audit placed on the audit plan, we work with the IA department to determine proper scope, responsibility, and timing. We also prepare and deliver a professional, third party audit report that can be shared with Senior Management and/or the Audit Committee.

Naturally, there are engagements that we go directly through the department that we will be performing the audit for. However, the compelling reason to go through IA is the transparency and openness necessary to assure that each department has the controls in place to assure there are no unethical or fraudulent events taking place, or there are controls to prevent them from occurring. Since CBIZ RAS provides all the manpower to complete these contingent audits, there is truly minimal time needed by your IA staff, or the department staff to complete the engagement. In fact, unless we find recoveries or savings opportunities, there is no cost at all.

This is a compelling value proposition for the company,and a great opportunity for the Internal Audit department to spearhead this important review.