Reduce Costs and Increase Cash Flow with an Effective Contract Compliance Audit
June 26, 2018
Cash flow is important to any business – but it’s of particular importance within the procurement industry, where the very operations of the business depends on maintaining liquidity. Procurement professionals who aren’t able to maintain their cash flow and reduce costs will find it difficult to grow – or may even find it difficult to fulfill business objectives. In order to ensure the stability of their business, procurement professionals have to be able to improve upon their workflows and their internal contract compliance.
Building Liquidity and Increasing Cash Flow
It is a procurement professional’s responsibility to maintain contract compliance, and part of this responsibility lies in engaging with professional, third-party services to improve upon accuracy as needed. On average, an audit will find noncompliance totaling to 2-4% of the total transaction value audited. Even in some of the best-case scenarios – in which an organization finds that its contracts are extremely compliant – the compliance audit will generally pay for itself. Thus, in addition to all of the other benefits that a contract compliance audit provides, it also offers a direct increase in cash flow and reduced costs.
Business negotiations are intensive for a reason: if the terms and conditions aren’t being met, it’s very likely that the organization is losing revenue. But in the course of business things can change. An independent contract compliance audit will catch any inconsistencies that may have led to the organization spending too much or receiving too little. Contract compliance audits will identify and recover lost profits, will be able to verify that the data provided by third parties is accurate, and will otherwise be able to help further streamline operations.
Without contract compliance audits, most organizations are going to have to rely upon key individuals to catch these types of errors – and this may only occur due to happenstance. The longer a contract goes without being corrected, the harder it generally is to get it corrected. Mistakes happen – audits catch them.
Uncovering Overpayments and Under-Reported Revenue
A procurement professional has many responsibilities to juggle. Through the course of work, errors can occur – and these errors need processes in place to catch them. When errors occur internally, they usually occur because an internal control has failed. Contracts can be overpaid, or revenue can be underreported, and this reduces cash flow and alters the accuracy of the professional’s reporting. Contract compliance audits can aid a professional in catching these issues and recovering from them as smoothly as possible.
One of the most critical aspects of a contract compliance audit is that it catches errors that have occurred in day-to-day operations for the business. The higher the volume of transactions, the more likely there are errors occurring – and these can be substantial in both value and number. A procurement professional can’t always pore over this data themselves; they need help. An audit can do just that.
Revealing Unrecorded Liabilities and Identify Missed Savings
A contract compliance audit is not only dedicated to finding external and internal errors. A contract compliance audit also serves the very important role of optimizing and improving upon the organization’s contract management. Through a compliance audit, an organization can develop unique insights and intelligence regarding the organization’s processes. The audit will then make recommendation that the organization can implement for improved efficiency. Procurement professionals will find that their operations run more smoothly and that errors occur far less often once a contract compliance audit has completed its risk assessments and recommendations.
Without analysis, a business is unable to improve. When conducted by a qualified expert, contract compliance audits bring experienced, third-party insights that might not otherwise arise from the organization’s internal staff. A third-party perspective is often invaluable, especially when dealing with processes that may already be entrenched.
Compliance audits pay for themselves. Not only can they save an organization a substantial sum of money, but they can also increase transparency, improve cash flow and reduce costs moving forward. A properly conducted compliance audit will help fine-tune an organization’s contract operations, all while catching potentially damaging mistakes. For more information about the most important benefits of a contract compliance audit, download our eBook.
To learn more about how to develop greater transparency, accountability, and trust with key third-parties, click here for more insights from SC&H Group’s Contract Compliance Audit team.