Perceived Barriers to Benefiting from Contract Compliance Audits: Separating Fact from Fiction [Blog Post]

The following SC&H Group blog post exposes the facts behind two common contract compliance audit myths, arming senior executives with the information necessary to make sound audit investments. 

Most senior executives acknowledge the substantial benefits of a contract compliance audit. After all, it can serve as a foundation for defining a third-party relationship’s terms and conditions, as well as an indicator of the success of any supplier-company effort. It can improve supplier efficiency, communication, and productivity. Additionally, it can result in recoveries—typically 2-4 percent of the transaction value audited.

However, while the benefits may be clear, some executives perceive several barriers to not only performing a contract compliance audit, but also benefiting from any findings.

No more. In this third part of a four-part series, we’re dispelling two of today’s most common myths regarding contract compliance audit restrictions: that supplier contracts must contain an audit clause and resolving audit findings requires onerous legal action.

Myth: Audits Can Be Performed Only if the Contract Contains an Audit Clause

While some executives believe that contract compliance audits require too much internal effort or supplier disruption others perceive that an audit is not even an option—unless the supplier contract includes an audit clause.

Fact: A well-crafted audit clause guarantees access to the necessary supplier tools and records. However, the absence of one does not eliminate a company’s ability to perform a review. The existence of a continuing supplier relationship is usually sufficient to conduct a thorough contract compliance audit.

Suppliers cooperate with client requests when there is an ongoing relationship, as the audit is a way for them to build additional transparency and trust. In addition, most suppliers recognize that an audit offers opportunities for both parties to improve their processes.

Myth: Resolving Audit Findings Requires Legal Action

Some executives are discouraged from embracing contract compliance audits due to a belief that resolving audit findings will be burdensome, requiring legal consultation.

Fact: Since most errors are unintentional, legal actions are exceptionally rare.

In fact, most situations are resolved with a negotiated settlement, which is mutually agreed to by both parties. In this situation, the company-supplier relationship continues, with process improvements and contract clarifications made as needed to ensure future alignment and compliance.

Want more? Stay tuned for the final part of this four-part series, where we will examine one more top contract compliance audit myth. Or, to read the full list of audit myths, check out our recent white paper, The Truth About Contract Compliance Audits: Dispelling the Myths.

While you’re at it, download another popular SC&H white paper, The Top Ten Indicators That It’s Time for a Contract Compliance Audit. If you’d like to speak with our contract compliance specialists about how audits can help your organization, please contact us here.