The 7 Myths of Contract Compliance Auditing Every Procurement Professional Must Know [Infographic]
October 18, 2021
While many organizations are fully embracing the use of contract compliance audits, some organizations are still holding back. The reason? Widespread misconceptions exist regarding contract compliance audit requirements and results. The list below separates myth from reality to help procurement professionals maximize supplier efficiency, communication, and savings.
Common Audit Misconceptions
- Myth: Auditing a supplier will harm the relationship
- Reality: Auditing a supplier leads to an increase in transparency, fosters communications, enhances trust, and strengthens relationships.
- Myth: An audit will disrupt supplier operations
- Reality: By and large, day-to-day supplier operations are not interrupted. During audit planning, they develop and communicate a clear process and timeline to supplier personnel.
- Myth: Audits require significant time and support from company stakeholders
- Reality: Stakeholder support is required only on rare occasions, such as when substantial errors are identified.
- Myth: Audits can be performed only if the contract contains an audit
- Reality: A continued supplier relationship is usually needed to conduct a thorough contract compliance audit. Suppliers nearly always cooperate with an audit request when there is an ongoing relationship, as the audit is a way for them to build additional transparency and trust with the company.
- Myth: Most billing errors are the result of intentional fraud
- Reality: Errors are most likely a misunderstanding of intricate contract terms, an unintentional oversight in manual billing processes, or programming glitches. Very rarely do invoices have errors. An Institute of Finance and Management report found that 3.6% of supplier invoices have errors.
- Myth: Resolving audit findings requires legal action.
- Reality: Legal or unilateral actions are exceptionally rare. The most common resolution to findings of inadvertent errors is a negotiated settlement, which is mutually agreed to by both parties.
- Myth: Audits must be performed by third-party auditors
- Reality: Contract compliance audits can be performed by in-house personnel. Internal personnel are already familiar with company processes and controls – and have earned the trust of company management – many organizations use these resources to conduct contract compliance audits.
For a downloadable version of this list, click here.
If you’d like to speak with our contract compliance specialists about how audits can help your organization, please contact us here.