Wishing to check how well its teams were handling input VAT, and the performance of its shared services centre, Etam group appointed Runview to conduct an audit of any overlooked input VAT covering three financial years. An opportunity to highlight the proficient handling of this area internally and demonstrate the quality of the work done by Etam’s teams, while recovering cash and improving VAT processing for a very specific set of invoices.
Nothing serves to assess quality of work like soliciting a well-informed, outside view, although the risk of hearing criticism is obviously also present. If the feedback is positive, however, this judgment, being impartial, is worth far more than a faultless self-assessment. The accounting teams at Groupe Etam experienced this during a VAT audit undertaken by Runview, the Profit Recovery experts (VAT being value-added tax, a type of sales tax common in Europe, which businesses are permitted to claim back).
A French leader in the lingerie market, Etam is a family firm that spans the globe, designing, manufacturing, and distributing underwear and read-to-wear fashion through its Etam, Undiz, Maison 123, Livy and Ysé brands. Present in 55 countries, the group employs some 4,800 people and has around 1,400 sales outlets. It generated revenue of €800 million excluding taxes in 2020.
The group’s subsidiary ledgers are centralized in Clichy (near Paris). A shared services centre (SSC) has been responsible for logging invoices and maintaining the supplier database since 2018. The accounting system runs under SAP, and the group also uses Readsoft for digitization and Notilus for expenses claim management. “We automated the input of invoices for billing-with-order about a year ago,” explains Samir Ourabah, head of accounts payable and receivable for the entire Etam group in France and Europe.
A number of factors induced Etam to consider running an audit of input VAT in the fall of 2021. “An audit of this kind was conducted a few years ago and the results were not very satisfactory,” recalls Samir Ourabah, who joined the group subsequently. The company wanted to confirm that VAT was now under better control, especially as the SSC had been set up in the meantime. “We wanted the benefit of an external opinion to check that the processing of supplier invoices was up to the mark,” Ourabah explains. The audit would also make it possible to recover overlooked input VAT, which constituted a further advantage in his eyes: “The second benefit of the audit was an improvement in WCR and the P&L impact.”
Lastly, the fiscal calendar and tax adjustment time limits also worked in favor of running an audit, as the end of 2021 was looming on the horizon. “We especially wanted to audit financial 2019, following the setting up of the SSC, and we only had until the end of 2021 to post any necessary VAT adjustments,” Ourabah explains.
Initial discussions were an opportunity for Runview to present its solution and methods to Groupe Etam which, for its part, was seeking to decide whether or not to hold this audit. Samir Ourabah describes how they “wanted to check that the audit would be as inexpensive as possible, and that there would be a return on investment,” and in this respect, Runview’s payment-by-results approach proved the clincher. “Runview charges for audits on a success fee basis. If we have done our work well and there are no mistakes, it costs us nothing. If the audit uncovers irregularities, we gain more than it costs us. Financially, the whole deal works completely in our favor,” Ourabah concludes.
Another decisive factor was Runview’s expertise as a recovery audit specialist. “It’s their core business,” Ourabah says approvingly, adding that the option of having in-house staff conduct the VAT audit, rather than appointing Runview, was mentioned. He adds another justification: “We ultimately decided not to conduct the audit ourselves. We wanted Runview to undertake a full audit, because even if we might have saved a little on the success fees, the effect on our staff would have been less significant if we had produced the analysis ourselves.” Ourabah was aware that if the results were poor, it would have reflected badly on his work, and that of his teams. However, making regular checks himself meant he was fairly confident.
Runview was therefore appointed late in 2021 to audit the financial years 2019 and 2021 for 11 group companies, a total of more than 435,000 accounting records representing some €2 billion including taxes, and €200m in VAT. In October and November, the corresponding “FEC” files of accounting entries (as submitted to the French tax authorities every year) were sent to Runview’s consultants and analyzed using data-mining software developed by Runview itself. The consultants were also allowed secure access to view Etam’s invoices remotely. There were thus two stages to the audit. The first two months were spent examining, confirming, and ratifying the overlooked input VAT for financial 2019, so that Etam could submit any adjustments needed before the deadline. Secondly, 2020 and 2021 were then examined in turn.
At both stages, the list of errors found by Runview was submitted to Etam’s staff for ratification. “We confirmed the irregularities uncovered by Runview on their online portal, which had the advantages of being easy to understand and readily accessible to everyone,” Ourabah reports, speaking highly too of the ease of communication with consultants and their skills sets. The assignment ran without a hitch, and despite a busy year-end period, the in-house accounting teams were responsive and completed their ratification work on time.
Samir Ourabah, head of accounts payable and receivable in France and Europe at Etam
Even if the results were what I was expecting, they were nonetheless a relief, and just reward for my staff and myself.
The analyses showed that VAT is managed very effectively. The level of anomalies fluctuated between 0.018 and 0.021% of the accounts entries examined, half the proportion seen during similar assignments conducted by Runview involving only VAT. While the audit meant Etam recovered a total of €113,000 in overlooked input VAT, the amounts found did decrease over the years audited, showing that certain irregularities were gradually remedied. Enough to satisfy Samir Ourabah, who says “Even if the results were what I was expecting, they were nonetheless a relief, and just reward for my staff and myself.” He also shared the final audit report with his teams and line management. This report summarized Runview’s findings and emphasized Etam’s “proficiency in dealing with input VAT”. Ourabah points out that “the report is clear and comprehensive, explaining the various issues the audit uncovered.” His satisfaction with the outcome is shared in Groupe Etam. “Everyone is very happy with it. The audit’s findings back up our decision to outsource the low added-value aspects of accounting procedures,” the head of accounts payable and receivable remarks approvingly.
However, there were still lessons for Etam to learn from the audit. The majority of the amounts recovered arose from a failure to claim VAT on invoices from an American supplier, which had an unconventional billing process making it impossible to deduct this VAT immediately. “It was a very specific case, where I believed we could not record the VAT as an expense. We discussed it with Runview, I collected some documentation, and it emerged that it was, in fact, possible,” Samir Ourabah explains. Thanks to the audit, and especially Runview’s judicious advice, Etam was able to recover this overlooked input VAT and share the information around its accounting staff. “We are continuing to work with this supplier, and with fairly substantial volumes, so the long-term benefit is significant,” he points out.
Interested in further audits
Apart from this one case, the irregularities found were typically one-off errors, side issues, but this is not stopping Ourabah from considering repeating audits of this kind in future. “I want to test these results again, one reason being that we do have staff turnover and therefore a risk that knowledge is lost, or shared poorly, or that new mistakes appear,” he explains.
Etam’s head of accounts payable and receivable is also interested in another of Runview’s areas of expertise, namely finding supplier double payments and overpayments, in the broad sense of the terms. “I’ve conducted audits of this type myself, but I know my limits. Appointing Runview to run an audit would allow its consultants to find the duplicates that the accounting department inevitably miss, and deliver a positive P&L impact,” he continues. Samir Ourabah sees it as a further argument in favor of more widespread use of bill-with-order, for which he is lobbying internally. “Currently, we are seeing about 40% of invoices with orders, but I would like to see that proportion reach 80%. If Runview’s audit shows that most problems encountered with duplicates arise on invoices separate from orders, it could trigger a change in working practices,” he hopes. Once again, there is nothing quite like leveraging the conclusions of a recognized third-party expert to convince any doubters.
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