Spring 2010 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

Is Revenue Leaking From Your Organization?

• Poorly managed back-office functions such as billing, contract management, pricing, discounts and allowances, and credit and collections • Employee abuse, misappropriation or collusion (i.e., theft)

Data analysis can increase the efficiency and thoroughness of the process to identify and analyze revenue leakage.

IDENTIFYING THE LEAK

Identifying the leak requires the organization to look beyond traditional reports and analysis. Revenue leakage may be caused by flawed business processes, system configuration errors, missing usage records or potentially internal fraud.

By Audrey Katcher, CPA, CISA

So what is revenue leakage? According to Merriam-Webster, revenue is “the total income produced by a given source.” Leakage is “the escape through an opening, usually by a fault or mistake.” Thus, revenue leakage is the loss of revenue due to errors, gaps or other weaknesses in the revenue cycle. Consider the increased exposure due to revenue leakage in our current economic times, which makes each piece of revenue significantly more important. Your organization has likely met some success in implementing cost-cutting measures, but have you considered that revenue may be leaking from your organization? Studies indicate that organizations could increase operating revenue by 1 to 12 percent through revenue leakage mitigation. Here are some examples of revenue leakage indicators:

Here are examples of everyday activities that may lead to revenue leakage:

1. Master tables and databases out of synch with contracts, agreements and license terms 2. New services that do not flow through legacy systems correctly 3. Discounted or special (one-time) order terms that are deferred and then forgotten 4. Records/database discrepancies resulting in manual intervention that is not carried out correctly 5. Inadequate interfaces between disparate or decentralized systems (electronic or manual) 6. System failures mid-transaction 7. Incorrectly applied rates and tariffs 8. Incorrect restoration of customer data following a system failure 9. Over-delivery (products and services) in the field without the required service order update, approval or documentation in the system 10. Manual correction of service orders that are called out on error reports with re-entry that is not completed correctly

• Under-performing or idle assets (such as licenses, technology)

22 u spring 2010 issue