Many companies employ outsourced firms to pre-audit and pay their freight invoices. This is not only helpful to catch all invoicing errors, but it also is a much less costly way to process freight invoices than typical in-house operations. Utilizing a pre-audit firm does not, and should not preclude company’s from also using a Post Audit firm to audit the results.
Post-auditing of freight invoices refers to the process of reviewing and verifying the accuracy of freight invoices after they have been paid. The purpose of post-audit operations is to identify any errors or overcharges in the billing process and recover any funds that were incorrectly paid during the initial audit process. And yes, millions of dollars are recovered each year during the post audit process.
The post-audit process typically involves the following steps:
- Collecting Data from the carrier, such as invoice files, bills of lading, and delivery receipts.
- Collecting Freight Payment Data from the initial pre-audit firm, or in-house payables departments.
- Checking for Errors such as incorrect, or improper charges, incorrect weights, and incorrect classifications.
- Verifying Charges against the contracted rates to ensure that the charges are consistent with the terms of the contract.
- Resolving Discrepancies that are identified during the audit process directly with the freight carriers.
- Recovery of Funds for any overcharges that are identified during the post-audit process. This may involve issuing a credit memo or receiving a refund.
There are several critical points to consider:
Freight invoice errors are quite common
Post Audits firms are usually paid on a contingency basis
Top notch post auditing firms offer Free advice to assist their clients to further reduce their shipping costs going forward.
There are several common errors or discrepancies that are frequently identified during post-audit of freight invoices. Some of the most common ones include:
- Inaccurate Charges are the most common errors found during post-audit. This could be due to incorrect weight or volume measurements, incorrect rates, or incorrect application of surcharges or discounts.
- Duplicate Charges Paid are often found during the post-audit process.
- Incorrect Carrier Identification on the invoice, resulting in incorrect billing or routing of the shipment and payment to the wrong service provider.
- Billing Discrepancies can occur when the billing information on the invoice does not match the actual shipment or service provided. This could be due to incorrect address information, incorrect service levels, or other billing errors.
- Tariff or Regulatory Non-Compliance: Carriers are required to comply with various tariffs and regulations when billing for freight services. Non-compliance with these regulations can result in additional charges or penalties for the shipper.
Freight invoice errors are quite common as a result of continuing changes to rates, freight classifications, fuel related surcharges, delivery surcharges, dimensional surcharges, accessorial fees, etc.
Several years ago, ICC was challenged to perform a “third” Post audit, meaning two other firms previously audited the client’s invoices. We agreed on the condition that if we found money the prior two auditors missed, we would become this firm’s primary post auditor. And that’s exactly what happened.
Here are some key steps a company can take to set up an effective post-audit program for freight invoices:
- Define Objectives and Metrics: Before setting up a post-audit program, it’s important to define the objectives of the program and establish metrics for measuring success. For example, the objective may be to identify and recover overcharges, and the metric may be the amount of savings achieved.
- Establish Processes and Procedures: Once the objectives and metrics are defined, the company should establish clear processes and procedures for conducting post-audit reviews. This may include developing a checklist of items to review, defining roles and responsibilities for team members involved in the process, and establishing communication protocols with carriers.
- Collect and Analyze Data: The next step is to collect and analyze data related to freight invoices. This may involve collecting invoice data from multiple sources, such as carriers, freight forwarders, and internal systems, and analyzing the data for inaccuracies or discrepancies.
- Conduct Reviews and Dispute Errors: After analyzing the data, the company should conduct post-audit reviews and dispute any errors or discrepancies identified. This may involve communicating with carriers and requesting additional documentation to support charges or resolve disputes.
- Track and Report Results: Finally, the company should track and report the results of the post-audit program on a regular basis. This may include providing regular updates to management, identifying trends or patterns in the data, and making recommendations for process improvements for negotiating better rates with carriers.
Conducting post-audit of freight invoices can provide several benefits for companies, including:
- Cost Savings as a direct result of identify billing errors and discrepancies. By correcting inaccurate charges and duplicate payments, companies can reduce their freight spend and improve their bottom line.
- Improved Payment Accuracy can help ensure that payments to carriers are accurate and comply with contractual terms and conditions. This can help build stronger relationships with carriers and reduce the risk of payment disputes or discrepancies in the future.
- Process Improvement can help identify areas for improvement within the company’s shipping operations. By analyzing the data and identifying trends, companies can implement changes to improve efficiency, reduce errors, and enhance overall performance.
- Carrier Accountability can help hold carriers accountable for their billing practices and ensure compliance with applicable laws and regulations. This can help prevent carriers from overcharging or billing for services not provided.
There are several challenges or obstacles that can arise during the post-audit process, including:
- Data Availability involves obtaining the necessary data from carriers and other third-party vendors. This can be overcome by establishing data sharing agreements with carriers and other vendors and utilizing technology solutions to automate data extraction.
- Data Accuracy is ensuring the accuracy of the data used for post-audit. This can be addressed by implementing quality control measures, such as data validation checks, and regularly monitoring the accuracy of the data used.
- Contractual Ambiguity is when contractual terms and conditions may be ambiguous or open to interpretation, making it difficult to determine whether charges are accurate or not. This can be addressed by reviewing contracts and negotiating clearer terms with carriers.
- Time Constraints are time-consuming, especially for companies with large shipping volumes. This can be addressed by leveraging technology solutions that automate the post-audit process and streamline data analysis.
- Carrier Resistance is when carriers resist post-audit efforts, either due to concerns about data privacy or a desire to avoid scrutiny of their billing practices. This can be addressed by working with carriers to establish mutually beneficial post-audit programs and addressing any concerns they may have.
Technology also plays a significant role in post-audit of freight invoices, as it can help automate many of the tasks involved and streamline the process. Here are some examples of how technology can be used:
- Automated Data Capture software can be used to automatically capture data from freight invoices, including carrier name, shipment details, charges, and other relevant information. This can help reduce errors and save time compared to manual data entry.
- Invoice Validation software can be used to validate freight invoices against carrier contracts, shipping documents, and other relevant information to ensure accuracy and compliance. This can help identify discrepancies and errors more efficiently and effectively.
- Data Analysis and Reporting software can be used to analyze freight invoice data and generate reports on key metrics, such as carrier performance, cost savings, and process improvement opportunities. This can help companies make more informed decisions and optimize their shipping operations.
- Integration with ERP Systems software can be integrated with a company’s ERP system to automatically reconcile freight invoices with purchase orders, receipts, and other financial data. This can help improve payment accuracy and reduce manual data entry.
Some examples of software or tools available for post-audit of freight invoices include:
- Freight Audit and Payment Systems (FAPS)
- Transportation Management Systems (TMS)
- Enterprise Resource Planning (ERP) systems with freight auditing modules
- Electronic Data Interchange (EDI) systems
- Robotic Process Automation (RPA) tools
Ensuring compliance with applicable laws and regulations is critical to the success of any post-audit program. Here are some steps that companies can take to ensure compliance:
- Stay Up-to-Date on Regulations and guidelines related to freight billing and transportation, including those issued by federal, state, and local authorities.
- Establish Compliance Policies and Procedures for post-audit of freight invoices that align with applicable laws and regulations. These policies should be documented and communicated to all relevant stakeholders.
- Monitor Compliance of the post-audit program to ensure that it is operating in compliance with applicable laws and regulations. This may include regular internal audits, as well as external audits by third-party auditors.
- Work with Experienced Providers that have a strong track record of compliance and adhere to industry standards.
- Seek Legal Counsel from qualified attorneys with experience in freight billing and transportation regulations. Legal counsel can provide guidance on advice on compliance issues and help companies avoid legal pitfalls.
Typically post audit firms charge a contingency fee based on a percentage of the recoveries they actually recover for the shipper. In this regard it is a “no brainer.” Performing a Post-Audit on you PAID shipping invoices is a “Win-Win” scenario. This is especially true for firms paying their freight bills in-house.
Strategic By-Products offered by Quality Post Auditing firms:
- Identifying shipment consolidation savings opportunities
- Carrier selection recommendations for improved services as well as lower shipping costs
- Freight rate negotiation recommendations
- Freight cost allocation strategies to control shipping costs
- Identifying routing irregularities that incurred significantly higher shipping costs
- Ground vs. Express shipping service and cost comparisons
To summarize, Post-Audit Reviews will provide these benefits:
- Identify and correct inaccuracies or discrepancies
- Identify and correct these errors and discrepancies
- Help identify and recover overcharges, improve accuracy of billing
- Provide significant benefits for companies, including cost savings, improved payment accuracy, process improvement, and carrier accountability, improving the bottom line
By establishing a well-planned and organized post-audit program, utilizing technology solutions to automate data extraction and analysis, and maintaining open communication with carriers ultimately results in cost savings and improved efficiency in shipping operations.
At ICC, we leverage technology to automate many of the tasks involved in post-audit reviews reducing errors, saving time, and optimizing your shipping operations while maximizing your savings.
Working with ICC, companies can ensure their post-audit program is compliant with applicable laws and regulations, minimize legal risk, and build stronger relationships with carriers and other stakeholders in the transportation industry.
These value-add services are part and parcel of ICC’s Post-Audit service offering.
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