Retailers, are you still noticing financial losses despite your primary audit firm’s efforts? The complexities of the retail industry can make it challenging to catch every error. For larger retailers with annual sales exceeding $1 billion, implementing both primary and secondary recovery audit firms is crucial.

While primary audit firms set out to conduct a comprehensive review, they may not catch every error, potentially leading to financial losses. This is where secondary recovery audit firms step in, providing an additional layer of scrutiny to identify any missed discrepancies. Secondary recovery audits serve as a more detailed, focused follow-up to primary audits. They specifically aim to identify errors that were missed initially.  

By implementing a secondary recovery audit, retailers can ensure more precise and thorough financial reviews, enhance cash flow, mitigate risks, and demonstrate responsible financial management across the organization.

The Challenges with Retail Primary Recovery Audits

The complexity and volume of retail transactions, combined with the inherent limitations of primary audit firms, make it likely that some errors are missed initially and detected later by the secondary recovery audit process. As a result, many retailers are turning to secondary recovery audit firms to provide an additional layer of examination, using more detailed and specialized approaches to uncover missed discrepancies.  Here are some key reasons why this happens:   

Challenge #1 with Retail Primary Audit Firms: Complexity

• Retailers have a high volume of transactions that are inherently complex, involving multiple pricing structures, systems, and parties causing inevitable errors.

• Detecting errors in complex transactions can be difficult, making it likely that some errors will be missed initially by the primary audit.

• Additionally, tools used by primary audit firms may have limitations in detecting complex errors, especially those involving complicated rebate agreements, or intricate promotional calculations.

Challenge #2 with Retail Primary Audit Firms: Time and Focus

• Primary audit firms often require more time to audit, particularly when they use traditional staffing models, which can restrict their depth of analysis. Auditors may have to balance thoroughness with efficiency, potentially missing errors that require more time to uncover.

• Because primary audit firms often have a broad scope, covering a wide range of transactions and areas. They may prioritize larger, more obvious discrepancies and may not delve as deeply into smaller, more nuanced errors that require detailed examination.

Challenge #3 with Retail Primary Audit Audit Firms: Complacency

• Primary audit firms that have been in the same role for an extended period of time often become complacent, delivering the same results year after year.

• When long-term primary audit firms are comfortable with established relationships and recurring results, they are less likely to focus on identifying new opportunities or challenging the status quo.

•  Retailers constantly evolve, introducing new products, promotions, and processes. Primary audit firms may not always be fully adapted to the latest changes, or they may be so entrenched in existing processes that it is too cost-prohibitive to evolve, leading to missed errors in new areas.

Find out how accelerated recovery can help retailers save time, money, and critical relationships with suppliers in our blog, “How Retailers Can Mitigate the Impact of Inflation with Accelerated Recovery” >

The Benefits of Implementing a Secondary Retail Audit Firm

Engaging a secondary audit firm offers retailers numerous advantages, enhancing the thoroughness and accuracy of financial reviews. These audits provide an additional layer of scrutiny that complements the efforts of primary auditors. 

Benefit #1: Drive Primary Audit Firm Accountability

When a primary recovery audit firm knows there will be a secondary audit partner coming in behind them, the primary audit firm will likely want to ensure that they have all their I's dotted and T’s crossed. In this way, secondary audits can be a great tool to encourage more depth from your primary audit firm, making sure it is putting its best foot forward.

Benefit #2: Promote Audit Comprehensiveness across the Entire Audit Program

Secondary audits take a more detailed and granular approach, examining specific areas and transactions that may have been overlooked or inadequately reviewed in the primary audit. The secondary audit builds on the findings from the primary audit, using these insights to refine their approach and focus on areas of higher risk or previously identified issues.

A secondary recovery audit provides the opportunity for the primary firm to refine its procedures, ensuring a more complete and accurate primary review. By doing so, retailers can trust that their financial data is as precise as possible.

Benefit #3: Improve Cash Flow without Increasing Risk

Secondary audits specifically target areas known to be prone to errors but may have received less attention during the primary audit, such as minor supplier discrepancies or intricate promotional terms.  Secondary recovery audits often uncover additional funds, sometimes recovering an extra 10-20%, with some findings exceeding 50%. This significant financial return not only recovers lost revenue but also enhances the overall recovery audit program.

Benefit #4: Mitigates Operational Risks

An additional audit firm familiar with the retailer’s systems and processes acts as a safety net, ensuring continuity and reducing operational risks. In case the primary audit firm encounters issues, the secondary firm can step in seamlessly, providing uninterrupted audit and risk management services.

Benefit #5: Demonstrates Financial Stewardship

Engaging both primary and secondary recovery audits showcases a retailer's proactive approach to safeguarding financial interests. It sends a strong, positive message to stakeholders about the retailer’s commitment to responsible financial management and diligent oversight.

Benefit #6: Facilitates Continuous Improvement

Because long-term primary audits are not incentivized to drive error elimination, secondary audit firms are more likely to proactively help retailers improve. Secondary recovery audits can catalyze process improvement, providing strategic insights into areas of potential risk and leakage within the retailer’s financial processes. Learning from both the primary and secondary audits helps refine audit procedures, enhance controls, and prevent similar errors from occurring in the future.

Looking to improve margins, internal payment processes, supplier relationships, and payment accuracy? We have just the solution for you. Learn about the benefits of prevention and acceleration in the recovery audit process in our blog, “The Power of Acceleration and Prevention in the Recovery Audit Process” >

Tips for Choosing a Secondary Recovery Audit Firm

Retailers consider it a best practice to engage a secondary audit performed by an external firm that specializes in retail recovery auditing, particularly when the secondary audit follows a primary team without broad retail recovery audit experience. A professional recovery audit firm with core capabilities in retail can leverage decades of expertise to drive additional results due to several key factors:

Tip #1: Audit Experience

A firm with extensive retail knowledge brings decades of industry-specific expertise to the audit process, ensuring maximum recoveries. Experienced retail auditors know precisely where to look for discrepancies and errors, ensuring nothing is overlooked. By tapping into their wealth of knowledge, retailers can feel confident that their financial interests are well-guarded.

Tip #2: Proprietary Technology

Specialized retail audit firms employ purpose-built tools and technology platforms that streamline the audit process, making it more efficient and effective. Their advanced technology, designed specifically for retail recovery auditing, provides a significant advantage over generic audit tools. 

Tip #3: Retail Data Knowledge

Understanding the complexities and nuances of retail datasets is crucial. Experienced retail audit firms have a deep comprehension of retail data, enabling them to identify discrepancies that others might miss. This expertise ensures a more accurate and thorough audit.

Tip #4: Comprehensive Approach

A deeper understanding of the most productive retail claim types and functional areas to audit allows specialized firms to focus their efforts where they will have the greatest impact. This comprehensive approach ensures that all potential recovery opportunities are explored, providing you with a complete and detailed financial review.

Tip #5: Reporting and KPIs

Retail audit firms deliver additional value through detailed reporting, offering industry benchmarking and in-depth analyses of audit results, observations, and recommendations. This information drives process improvement and helps enhance financial management practices. By leveraging these insights, retailers can foster continuous improvement and maintain a strong financial footing.

There are so many moving parts in the average retail enterprise, from inventory to rebates to nuances between suppliers. Find out how to maximize findings in recovery audits and enhance internal payment processes in our blog, “Retail Best Practices for an Effective Recovery Audit” >

Best Practices for Working with Secondary Recovery Audit Firms

Onboarding a secondary audit firm requires the implementation of tailored procedures specific to each retail environment. To ensure the audit process is efficient and understood by all stakeholders, the following best practices should be established:

1. Define Clear Audit Guidelines: Establish comprehensive guidelines for both primary and secondary audit teams. This ensures clarity and equity regarding the audit scope, rules, and standards, fostering a cohesive and efficient overall audit program.

2. Set Audit Timelines: Clearly define timelines for both primary and secondary recovery audits, including specific start and end dates. This helps in maintaining a structured and timely audit process.

3. Create a Turnover Schedule: Develop a detailed schedule for the transition from the primary to the secondary audit firm. This allows a seamless handoff and continuity in the auditing process.

Many retailers have successfully implemented secondary recovery audits with accelerated timelines by designing audit programs that follow transactions by 30-90 days and allow for primary-to-secondary handoffs throughout the year. In the retail recovery audit industry, seizing every opportunity to recover financial leakage and maximize margins is crucial for optimizing financial performance.

How FlexTecs Can Help Implement a Secondary Audit Retail Firm

Traditional recovery audit practices weren’t built for the wealth of data and fast-paced environment that defines retail today. That’s why partnering with a firm like FlexTecs for your secondary recovery audit firm makes all the difference.

With advanced preventative technology and internal optimization, FlexTecs ensures that retailers don’t have to wait for the damage of incorrect payments before safeguarding their margins. Our philosophy is to “prevent what you can, accelerate the recovery of everything else,” allowing retailers to benefit from enhanced payment accuracy, quicker recovery periods, improved supplier relationships, and seamless P2P processes.

Ready to prevent payment errors and bolster your retail margins with a secondary recovery audit? Get in touch with our team now to see how FlexTecs can enhance your financial health and operational efficiency.