Vendor Audit and Cost Recovery: Improving Bottom Line Results

Introduction

No matter how thorough your purchase controls, overpayments to vendors represent a business risk that directly affects your bottom line results. They are a fact of business life. People make mistakes and computers that process transactions repeat these errors until corrected. The larger an organisation grows, the more complex its purchasing processes become, and the greater the risk of significant financial loss due to undetected and uncollected overpayments. Addressing this problem constitutes a large part of vendor audit operations.

Large businesses typically generate hundreds of thousands of payments to suppliers for transactions that may represent billions of dollars in annual expenditures. Government agencies, manufacturing and retail industries, in particular, may have many different and complex purchasing arrangements with large numbers of suppliers. Ensuring that every transaction has been processed correctly to align with an organisation’s policies and procedures can be a labyrinthine task involving the entire organisation, multiple (and often, incompatible) computer systems, and a myriad of files. The sheer volumes of purchasing data and disparities among the departments and systems that handle them further exacerbate these difficulties.

The range of errors that can occur in overpayments is broad and can include

  • Miscalculations
  • Vendors’ pricing mistakes
  • Duplicate payments
  • Omitted discounts
  • Neglected allowances and rebates
  • Miscalculated freight charges
  • Tax overpayment
  • Non-compliance with sales agreements
  • Charges for goods not received
  • Charges for services not provided

Undetected, these errors can cost organisations the equivalent of one percent of their procurement budgets each year

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Tuesday, July 16, 2013 In: Whitepapers Comments (None)

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