How Adding a Sales & Use Tax Review to an AP Audit Recovered $10M in Overpayments

At a Glance

Who A global manufacturer of network equipment that has worked with apexanalytix on an AP reccovery audit since 2019 and added a sales and use tax audit.

The Problem Purchase orders were often marked as taxable by mistake. No one checked these charges before they were paid. Overpayents build up for years.

The Fix apexanalytix conducted a sales and use tax recovery audit by using the data that was already being collected from the existing AP recovery audit.

The Payoff More than $10M was recovered through the sales and use tax audit across the life of the partnership, contributing to more than $15M recovered when combined with the AP recovery audit.

Overview

The company makes network equipment for customers around the world and has been an AP Recovery Audit client of apexanalytix for more than seven years. Following the first year of partnership, it added a sales and use tax recovery audit by leveraging the data already shared for the original AP recovery audit. 

This reflects a pattern common to companies that add a SUT audit onto an active AP recovery audit. Because the data is already available, the extra effort required is minimal.

Audit Highlights

Challenge

Before the sales and use tax review began, the company’s AP team handled a high volume of purchase orders across multiple business units. Each unit had its own state and local tax rules. Tax treatment depended on how an order was coded when it was entered, not on a later check of what the supplier charged. 

Many orders were coded as taxable by mistake, even though, the supplier had not charged tax on these orders. But the payment system read the code as a signal to pay use tax anyway. No one on the AP team checked these charges against the real invoices. The team simply paid what the system said to pay. 

This kind of overpayment is hard to catch. Normal AP checks don’t catch it.  

The invoice itself often looks correct. The tax charge comes from separate system rules. Those rules rarely get reviewed unless someone looks for them directly. 

Solution

The sales and use tax audit was scoped to run alongside the company’s existing AP recovery audit and it used data the company was already providing for its core audit. Because tax was already broken out at the line-item level, no new data pull or system access was needed to begin the review.  

apexanalytix then added three data points to the standard AP data. These were tax location, tax paid to the vendor, and tax the company had charged itself. Together, these data points showed exactly where use tax had been applied by mistake. 

Running the tax audit did not extend or slow the company’s standard AP recovery audit. The two audits ran on separate tracks from day one. This let the tax review move at its own pace. Claims were resolved as they came up, without changing the pace or scope of the ongoing AP audit. 

Results

Since adding the sales and use tax audit, the organization has recovered more than $10 million, a substantial share of the $15 million the full partnership has recovered to date. 

Most of the money came from use tax, not sales tax. The main cause was purchase order coding.  

When an order was marked taxable by mistake, the system created a use tax charge. It did not matter what the supplier actually billed. No one caught these mistakes before payment, and they built up for years. 

A smaller part of the recovery came from suppliers. Some suppliers had overcharged sales tax directly on invoices. This is a more common type of error.  

Conclusion

his case shows how much value can hide inside data once it’s extended into a sales and use tax audit. Adding the audit required no new systems and no extra work from the client’s team, it simply asked a new question of the current dataset: “Have we made any tax overpayments?” And recovered millions!