In our 2020 Procurement and Sourcing Benchmark Report, the findings outlined that organizational priorities have shifted in the COVID-19 era. What emerged as the most immediate priority for organizations was a significant focus on managing procurement-related risk. Given the major recession in the United States and significant volatility across global markets, industry leaders have realized that risk management plays a significant role in the success of a company. Today, the business world is grappling with the changes brought upon by the pandemic, which has caused unprecedented changes in personnel operations and major market and supply chain disruptions. The political, economic, social, and cultural impacts of the pandemic will no doubt be longstanding and evolving.
The lesson to be taken from these challenges is that businesses operate in a risky world. Operations can change overnight. While it may be tempting to deprioritize contract compliance auditing, particularly when operating in a major crisis, it is in times of turmoil that the mature audit program will realize its full potential. The need for cost savings, open and positive relationships with suppliers, and a strong understanding of the mechanics of contracts is even more important when volatility becomes the new normal.
Reducing risk while protecting the bottom line is an important benefit delivered by a mature contract audit program and an essential element of a comprehensive risk management strategy.
Mitigating Risk
While cost savings are an important benefit to maintaining a mature contract compliance audit program, there are vital risk management advantages as well. Recurring, rotational audits are essential to identifying regulatory or compliance violations and other risk exposures. Below is a clear outline of supplier risk management challenges that companies face. For even further details on third-party risk challenges and management, check out our full third-party risk management page.
Supplier Risk Management Challenges
- Operating outside the financial terms of contract.
- Utilizing unauthorized subcontractors and/or related parties.
- Failing to follow data security or data privacy obligations.
- Lacking required insurance coverages.
- Not adhering to bidding requirements for outsourced work.
- Not conducting required screening and background checks.
- Committing fraud.
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The protections provided by a mature audit program are important because a lack of knowledge of these violations will not mitigate the consequences that may arise when they come to light. Contract non-compliance can be costly both financially and to a company’s reputation. Mitigating supplier risk is an important benefit delivered by a mature contract audit program and an essential element of a comprehensive risk management strategy. For more details on the risk management landscape, check out our eBook, The Importance of a Mature Contract Compliance Audit Program.
Interested in Reading More?
We encourage you to review our previous blogs, “The Mechanics of a Mature Contract Compliance Program and Why They Matter” and “How Your Business Can Benefit from a Mature Contract Compliance Program” to learn more about contract compliance audit programs.
