Procurement and sourcing professionals understand that a contract must be continuously and routinely managed over its entire lifecycle. Consistent oversight and ongoing monitoring help ensure the contract and the supplier relationship are operating as efficiently as possible, both strengthening relationships and contracts as well as mitigating risks such as cost overruns, compliance violations, even fraud. The following are five key benefits of implementing a mature contract audit program into your company that will help gain peak performance while protecting the bottom line.
For even more details, check out our eBook, The Importance of a Mature Contract Compliance Audit Program.
1. Contain Costs and Protect Earnings
When contract non-compliance occurs, your business could suffer a number of costly errors. These could include paying more than contracted for a good or service, erosion of negotiated savings through undisclosed charges, rogue or off-contract spending, and financial penalties as a result of data privacy regulations.
With a mature contract compliance audit program in place, your business can protect itself against the risk of costly mistakes.
2. Strengthen Contracts
A mature contract compliance audit program gives insight into the inner mechanics of the supplier contracts themselves. By periodically comparing what is transpiring in the customer/supplier relationship against the terms of the contracts, it is easier to identify terms that need to be clarified to avoid misinterpretations and reduce the likelihood of unintended consequences. This oversight can prevent financial leakage and translate into additional savings over the contract’s lifecycle. Also, creating a strong baseline for contract compliance is a good foundation that supports long-term ROI through a sentinel effect throughout the supplier population.
3. Risk Management
Rotational audits are essential to identifying regulatory or compliance violations and other risk exposures. An advanced compliance program validates supplier policies, procedures, and controls to ensure they comply with data privacy regulations and are adequate to mitigate the risks of data security and data privacy violations. Mitigating supplier risk is an important benefit delivered by a mature contract audit program and an essential element of a comprehensive risk management strategy.
4. Relationship Building
A mature contract compliance audit program will align a company with its suppliers on costs and compliance, creating a stronger relationship. An audit reports on both favorable and unfavorable observations to create a full picture of the effectiveness of the contract, processes, and controls and where each can be improved to act in better harmony.
When all parties embrace a culture of best practices and continuous improvement, the business relationship advances to one of trust and respect with the utmost transparency and accountability.
5. A Proactive, Universal Approach
Implementing a proactive, universal approach will help strengthen your contracts which will foster better relationships with suppliers. Regularly comparing what is transpiring in the customer/supplier relationship against the terms of the contract can uncover terms that need to be clarified to avoid misunderstandings.
By making audits a routine aspect of conducting business, the risk of unpleasant surprises and costly mistakes is significantly reduced. When it comes to managing the vast sphere of an enterprise’s supply chain, it is important to be proactive and apply best practices across all suppliers in a uniform way. By doing so, your business can develop relationships with deeper levels of trust, respect, transparency, and accountability with its suppliers.
Your Business Can Benefit
In addition to generating savings and mitigating third-party risks, Chief Procurement Officers (CPOs) have a heightened desire to improve collaboration with internal stakeholders. At the same time, they want procurement to have better, more transparent relationships with suppliers. A mature contract compliance audit program benefits these myriad needs: it confirms negotiated savings are received, prevents financial leakage, identifies additional savings opportunities, manages internal and external risks, strengthens transparency and relationships, promotes accountability, and provides the enterprise with the insights it needs to optimize performance and protect earnings.
If you have any questions about putting a mature contract compliance audit program in place for your organization, please reach out to our Contract Compliance Audit Services team, who will be more than happy to help. You can also check out our page for a full overview of the services we provide.
In case you missed it, read our blog covering the mechanics of a mature contract compliance audit program to learn about the necessary components needed to build a successful audit program.