Allen Liebnick
Allen Liebnick
'No Way That I Overpaid'

Six reasons why companies don't actively pursue overpayments, but should.

March 5, 2009
by Allen Liebnick, CPA

After reading my last column, How Much Is Hiding in Your Company's Pockets?, you're probably thinking "there is no way our company overpaid vendors. There are after all, checks and balances in place; three signatures are required on all checks greater than a preset dollar limit and the software system prevents the input of duplicate invoice information. Besides, we have been partners with our vendors for years. They would be insulted if their integrity was called into question and, best of all; our controller is the CEO's brother-in-law!"

Over the years I have found six reasons why companies do not actively pursue overpayments.

  1. Assumption
  2. Closely held and closely watched company
  3. Not that much to recover
  4. Employees that have been retained will work twice as hard and be more diligent
  5. Let's not make waves
  6. We don't have the time or manpower

We are all guilty of making assumptions, relying on them and then assuming the assumption was correct. One assumes that in an efficiently-run operation, an invoice will be properly reviewed and documented before it is paid. If it is a large amount that requires several signatures, one would assume that all the signors will review it before signing.

The biggest assumptions, in addition to the obvious one that "someone" is reviewing the invoices before they are paid are:

  • "Someone" has reviewed a vendor's file that shows a large credit due from the vendor. If there is a large amount showing up as a credit it is assumed that someone is working to either utilize the credit or get a refund. As strange as it may seem, I have found that the recovery is not treated with any urgency, resulting in credits sitting for long periods of time. The assumption is that the credits are good and will eventually be used. (What happens when you stop using the vendor or the vendor goes out of business?)
  • Vendor files are purged on a regular basis when in most cases they are not. Files that have not been purged on a regular basis end up with vendors with several vendor ID numbers assigned to them. Multiple vendor numbers for the same vendor can lead to the vendor being paid more than once for the same invoice. In addition, vendors who are no longer active vendors and have not been purged have a high likelihood of accidentally getting paid.
Closely-Held and Closely-Watched Family Business

We had a client who had a very closely-run family-held corporation. The company required three signatures for any check over $10,000.00. Invoices were mailed directly to the CEO. The CEO gave it to the accounts payable (AP) department and the accounts payable manager. The AP manager was a nephew and recognizing that it was handed in by the CEO, assumed that the CEO approved it. In turn the controller assumed that the AP Manager approved it and the CFO assumed that the controller and the AP manager approved it. And, of course, the CEO assumed that the AP manager, the controller and the CFO approved it and thus all three signed the check. In reality, the vendor had already been paid by wire and as a courtesy sent the invoice — albeit not marked "paid" — along with a "thank you" note to the CEO.

Both the multibillion-dollar company and the mom-and-pop operation have one thing in common. No matter how tight the operation, there will always be human error. The smaller businesses tend to rely on kinship more than procedures because they think no one would harm the business intentionally. As a result, more emphasis is placed on individuals to avoid errors versus a more structured department that does more reviews.

Not That Much to Recover

As a rule of thumb, a company's potential overpayments are one-tenth of one percent of its revenue, or $1,000 for every $1 million of revenue. A company with revenues of $500 million has potentially overpaid vendors, taxing authorities and telecom companies $500,000. Hard to imagine? Try this perspective. Ask an average wage earner making $50,000.00 a year if he thought he might have overpaid a total of $50 in the last year. Suggesting that he may have overpaid the cleaners for a shirt he didn't get back, overpaid the grocery store for an item that was priced wrong, forgot to take the coupons he had for a sales item, got the wrong change at a movie theater or paid for an extra drink he didn't order at a restaurant, it would be safe to say his answer would be a definite yes!

Employees Who Have Been Retained Will Work Twice As Hard and Be More Diligent

The interesting thing is that the rule of thumb of one-tenth of one percent was determined during good times when companies were fully staffed and accounting departments were well manned. And yes, believe it or not, there were many companies that told me that they didn't have the time to go after $500,000 when they were doing so well. With companies now expecting the existing staff to not only do their normal job but to take on additional responsibility, the room for error has grown, and errors will occur.

Let's Not Make Waves

Just because your company has used the same vendor for many years and they have been a good customer does not mean that it is improper to request a refund. Sure they worked with you in the past and perhaps extended credit when it was needed, but in today's economy, you are just as important to the vendor as they are to you, and leaving money on the table as a good will gesture really does not make sense.

We Don't Have the Time or Man Power

This is one of the hardest excuses to accept. If you had purchased savings bonds years ago, know they have a maturity date coming up and also know they do not pay interest after the maturity date would you not take the time to find the bonds so you can cash them in on the correct date? And if you couldn't find them would you not take the time to do the research to locate how to replace them? Of course you would — it is a recognizable asset that belongs to you. It is the same with dollars that have been erroneously paid and remain uncollected. It is a true asset of the company that belongs to the company and deserves the time and attention it needs to recover it. Remember it goes directly to the bottom-line not only adding to the profits but increasing the company's market value.

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Allen M. Liebnick, CPA, is president of Overpaid Payables Recovery, Inc. A former associate professor, Liebnick has been providing accounts payable, sales tax and telecommunications post audit recovery services for over 15 years. He serves clients in the U.S., Canada and Mexico. He is a member of the New York State Society of CPAs as well as Texas Society of Certified Public Accountants.