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Recovery Audit: What You Should Know

Ben Evans, CPA, CCA, and President of Auditec Solutions.

Key Benefits of Recovery Auditing

Key benefits of recovery auditing include, but may not be limited to:

• Funds for other initiatives: Recovered funds—typically unbudgeted and unexpected—can be a powerful resource for an accounting team to reinvest in high-impact initiatives.
• Increased cost savings: Recovery audits identify overpayments, duplicate payments, and other financial errors. This results in direct cost savings and improved bottom-line results for the organization.
• Improved financial processes: Audits provide insight to what issues are driving the errors. This allows leadership to determine what process and procedure changes should be made to mitigate the risk of the error occurring in the future.
• Increased cash flow: Recovering all funds due to an organization improves its cash flow.
• Enhanced vendor relations: Account reconciliations performed during recovery audits often clarify unresolved past discrepancies leading to improved vendor relations.
• Improved data quality: A review of financial transactions and records can highlight data quality issues. This gives the organization the opportunity to make the necessary corrections to ensure improved data quality going forward.
• Mitigated fraud risk: Recovery audits can help identify fraudulent activity such as “phantom” vendor schemes and collusion with suppliers.

Overall, recovery audits can provide significant benefits for companies looking to improve financial performance, identify opportunities to enhance internal processes, build their relationships with current vendors, ensure data integrity, and mitigate the risk of fraud.

What Types of Errors does a Recovery Audit Typically Identify

Common errors typically identified through a 2025 recovery audit include, but are not limited to:

• Duplicate payments: Instances where a vendor has been paid twice for the same goods or services delivered.
• Overpayments: Situations where a vendor has been overpaid due to a calculation or pricing error.
• Pricing discrepancies: Circumstances where a vendor has charged a price in excess of the agreed-upon contract price.
• Unclaimed credits: Situations where credits or discounts due the organization have gone undetected.
• Allowances or rebates: When a vendor fails to apply agreed-upon discounts, rebates, or promotional allowances to invoices.
• Freight: Incorrect or excessive shipping fees that deviate from agreed contract terms or negotiated rates.

Recovery audits can help uncover a wide range of errors and discrepancies. Leading this initiative shows proactive stewardship and a commitment to financial optimization.

What are the Types of Recovery Audits

There are different types of recovery audits, depending on the focus and scope of the review. Common types of recovery audits include:

• Accounts Payable Recovery Audit: Focuses on reviewing a company’s accounts payable transactions to identify overpayments, duplicate payments, outstanding credits, pricing errors, etc.
• Contract Compliance Audit: Emphasis on reviewing individual large vendor contracts to ensure the vendor is complying with the terms and conditions of the contract (i.e., pricing, discounts, rebate programs, etc.).
• Construction Audit: identifies and recovers overpayments, billing discrepancies, and contract compliance issues across vendors, subcontractors, and material suppliers.
• Unclaimed Property Recovery Audit: A current statement is solicited from the largest vendors to identify unapplied credits. In addition, unclaimed property is recovered from states.
• Freight Audit: Identifies overcharges, incorrect rate applications, and billing discrepancies in shipping and logistics invoices.
• Healthcare Recovery Audit: Includes a review of a healthcare provider’s billing and payment processes to identify overpayments, coding errors, or other billing errors.

What Steps are Involved in a Recovery Audit

Performing a recovery audit involves several steps listed below:

• Identify the Scope: The scope set by the organization will depend on its specific needs and objectives of the audit. This generally involves identifying the payment processes, systems, and vendors to be included in the review.
• Collect Data: The data required to complete the review may include payment records, vendor contracts, invoices, etc.
• Analyze the Data: Once collected, the data is analyzed to identify any errors, discrepancies, overpayments, outstanding credits, etc. This may involve data analysis tools and techniques to identify patterns and trends in the data.
• Report Findings: The results of the audit are reported to the organization’s management team highlighting any errors or discrepancies identified and providing recommendations for improving payment processes.
• Recover Lost Funds: After the findings are reported, the recovery audit team generally partners with the company to recover any lost funds by seeking vendor feedback on identified claims and coordinating repayment.
• Implement Go-forward Improvements: The organization may benefit from implementing improvements to its payment processes to mitigate the risk of future errors or overpayments. This may involve updating policies and procedures, implementing new systems or tools, or providing additional training to employees.

Performing a recovery audit requires expertise in financial analysis and payment processes, so many organizations elect to partner with a third-party recovery audit firm to conduct the review. These firms have specialized knowledge and tools to identify errors and recover lost funds, ultimately helping companies improve financial performance and reduce the risk of future errors.

Recovery Audit Cost

The cost of a recovery audit can vary depending on several factors, including the size of the company, the complexity of the payment processes, and the scope of the audit. Generally, recovery audit firms work on a contingency basis, meaning that they only get paid a percentage of the recovered funds. Some recovery audit firms also offer fixed-fee or hourly-rate pricing models, which may be more suitable for smaller or less complex audits.

How Often should a Recovery Audit be Performed

This depends on the complexity of a company’s payment process and its total payment volume. Generally, it is recommended companies conduct recovery audits regularly, such as annually or bi-annually. However, some organizations choose to conduct recovery audits more frequently, such as quarterly or monthly, depending on their specific needs.

Organizations may also want to consider conducting a recovery audit following a significant change in their payment processes or systems to ensure any new processes are functioning as intended and are not resulting in payment errors. Often times, key process and/or system changes occur following mergers or acquisitions, but they also are associated with ERP implementations or changes to an organization’s procure-to-pay process.

Key Takeaways

• Purpose: Identifies and recovers overpayments, duplicate payments, and financial errors to improve cash flow and profitability.
• Benefits: Includes cost savings, improved financial processes, enhanced vendor relations, better data quality, and fraud risk mitigation.
• Common Errors Found: Duplicate payments, overpayments, pricing discrepancies, unclaimed credits, and unclaimed allowances or rebates.
• Industries That Benefit: Retail, healthcare, manufacturing, financial services, construction, energy, and government agencies.
• Frequency: Typically performed annually or bi-annually; more frequent audits may follow major process changes.
• Cost: The process is designed to be low-touch from the client and is performance-based, so there’s no upfront cost or financial risk.

If you want to continue learning more about recovery audit, check out our other resources found below.

Contract Compliance Audit

Construction Audit

Warranty Audit

Freight Audit

How to Choose a Recovery Audit Provider

There are many third-party recovery audit firms. When selecting a partner to perform a recovery audit in 2025, it is recommended to consider the following:

Vendor relationships: Your relationship with your vendors is critical to the current and future success of your organization. Therefore, it is important to select a third-party audit provider who carries out the audit responsibilities with a keen focus on professionalism and ensuring the relationship between your company and the vendor remain top priority.

Diverse professional background: It is important to use a third-party audit firm whose auditors come from a variety of backgrounds. This includes auditors with extensive experience in the recovery audit industry as well as those who have previous employment history with companies who used third-party audit firms. Having this variety results in an audit firm with the appropriate balance of recovery audit background and a full appreciation for the “white glove” treatment required to be provided to the organization and its vendors

What are your needs? Third-party audit firms specialize in a limited number of recovery audit types (i.e., sales and use tax, healthcare, contract compliance, etc.). Therefore, it is beneficial to consider the type of audit(s) your organization is looking to perform. This will increase the likelihood of efficiently selecting the audit firm which best suits your needs.

The Auditec Difference

Auditec Solutions distinguishes itself through a collaborative, results-oriented approach to recovery auditing, offering superior delivery and clear communication. We focus on simplifying the process and maximizing client ROI by identifying root issues, negotiating with suppliers, and facilitating timely resolutions, ultimately returning millions in lost profits. 

• Collaborative Audits: Auditec emphasizes a collaborative approach with both clients and vendors, fostering transparency and efficient issue resolution. 
• Centralized Service Centers: Auditec’s centralized service centers in Gilbert, AZ, Layton, UT, and Kosovo contribute to higher-quality claims and a better overall audit experience.
• Focus on ROI: Auditec’s audit team recovers millions for most clients across all industries.
• Industry-Specific Expertise: Auditec offers specialized recovery audits across various sectors, including Retail, Energy, Construction, Government. and Healthcare.
• Process Improvement: Beyond recovery, Auditec helps clients identify and implement process improvements to prevent future errors and optimize financial efficiency.