Procurement: How does spend analysis & recovery work?

Sam Hunt, CCS Commercial Agreement Manager SARS 2, explains how spend analysis & recovery works in this special focus article on procurement

Duplicate payments, overpayments, incorrect rates, missed discounts, incorrect VAT or contractual oversights…all of these can be sources of unnecessary overspending.

Overspend is a feature of most organisations, whether public or private sector and typically the payment recovery industry operates on an assumption that around 0.01-0.05% of all transactions are erroneous.

That could amount to a significant sum in a high spending public body, but historically, there may have been a reluctance among some working in the public sector when it came to recover such payments. Perhaps it was down to embarrassment, not wishing to be held to blame, or a sense that the supplier relationship might be damaged.

But HM Treasury insists that any hesitance should be overcome. In fact, the department’s guidance document ‘Managing Public Money’ explicitly charges all publicly funded organisations to pursue overpayments in business transactions, “irrespective of cause”.

Spend Analysis & Recovery Services 2 (SARS 2) agreement

That’s why Crown Commercial Service (CCS) designed the Spend Analysis & Recovery Services 2 (SARS 2) agreement. We believe it has an important role to play in stretching public sector budgets not only by recovering past overpayments, but also delivering future savings by correcting VAT allocation errors, suggesting ways a customer can improve the efficiency of their contract, and highlighting areas where the organisation is losing money through overpayment.

SARS 2 offers a range of approaches to overspend recovery and efficiency savings. Accounts payable and statement reviews look at all spend recorded on ledgers. But customers also have the opportunity to take a more detailed review of specific areas of expenditure such as utilities, telecoms, contingent labour or specialist VAT advice.

Different audit approaches can benefit different customer organisation types. Whilst suppliers of accounts payable audits frequently seek out organisations that process high volumes of invoices with an average high value, our Utilities Review suppliers on Lot 3 have brought significant benefits to organisations of all sizes.

All reviews begin with an initial meeting with the customer to establish scope and timescales, so the supplier can explain the information they need.

In the case of accounts payable reviews, suppliers will usually request an extract from the client’s purchase ledger or read-only access to the accounts payable system, supported by read-only access to supplier invoices. Data from these will undergo automated cross-checks to identify possible errors, with any overpayments then manually validated and assessed.

The recovery process is respectful and professional so there is no risk to the client-supplier relationships and once the overpayments are confirmed, agreement is made on how the money will be refunded. Only once the repayment has been made, will the customer receive an invoice from the SARS 2 supplier.

Spend recovery companies are respectful of the customer-supplier relationship and avoid apportioning blame. Suppliers also understand that overspend happens and are often keen to reconcile their accounts with those of their clients.

Prior to any audit, neither the supplier nor customer can say for certain if anything will be recovered. But SARS 2 removes any customer risk by ensuring all services are provided on a no-win-no-fee basis.

Suppliers can do this because they have a wealth of experience and resources to understand which factors place an organisation at risk and help them identify potential recoveries.

If suppliers don’t identify any recoveries, there are no invoices to pay and you still get independent third-party validation that your accounts payable systems and processes are operating robustly.

A spend review provides the customer with a full report that details every recovery identified, and suggests changes to improve efficiency and minimise future errors.

CCS has a mandate to support the public sector achieve maximum value in every commercial relationship. The CCS SARS framework agreement supports that objective in helping customers to minimise waste of tax-payer funds through unnecessary payment errors.

CCS’s free whitepaper containing tips and advice on how public sector organisations can recover incorrect payments through SARS 2 is now available to download.

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