Most C-level executives don’t want to believe that their company is overpaying on purchase agreements for services, supplies or materials. Experience tells me that billing errors are much more common than executives think. Internal controls only go so far.
If you knew that your company was being overbilled by $500,000 a year would you take action to correct it? How about if it was $50,000 a year in four or five categories?
You would probably be wondering how this could be possible with all the great internal controls that are in place. Can’t you rely on the work done by the internal audit staff and your auditing firm?Let me review the factors in one recent compliance audit.
A company with a national footprint that included owned and leased properties was worried about their facility maintenance costs. These services were provided by two different management companies. Although the spend for these key categories was monitored, the CFO wanted to ensure that:
All costs were being billed properly
Expenses for similar services were analyzed to determine if there were any savings opportunities
Authorization for repairs were in accordance with established parameters in each agreement
To complete the compliance audit each contract was reviewed and discussed with senior management to ensure that the intent of the parties was clear. Sample data was gathered and analyzed for each location and each period under review.
The compliance audit revealed the following issues:
Discrepancies in the frequency of services provided
Unsupported overtime charges
Unauthorized charges not covered under the agreements
Services billed on vacant space
The total amount of billing errors exceeded $500,000 for the period reviewed. A settlement was reached with the providers that enabled the company to recover a substantial part of the money based on assurances that new procedures would be put in place immediately.
If there are any spend categories that worry you, maybe you should consider hiring a professional that can do the contract compliance review for you.
Action Step: What would be the next step if you have concerns?
I would start by asking this question:
When was the last time that a thorough review of our purchase agreements for key spend items conducted? In my experience a review done by internal staff will not have the time available or the experience in contract compliance needed to complete a thorough review of all key terms.
If you have had a review done internally or it was done by a company that doesn’t specialize in this work consider contacting me to review the facts. There are specialists available that can complete an initial review on a no-cost benefit share basis. This approach ensures that the specialist is only compensated when they secure a financial benefit for your company.
About the author
Is a leading Procurement and Cost Recovery Consultant that helps senior executives grow the bottom line by strategically driving down costs throughout the procurement cycle. This blog was originally posted on Pulse LinkedIn.