Enforcing the Right to Audit Supplier Invoices

Someday, we'll all have access to Spend Management technology that makes it virtually impossible to pay a non-contracted price for goods and services. But this panacea -- which would require tight integration of spend visibility, sourcing, procurement, contract management and payment technology -- is something that for many organizations will be decades off (though in theory it could be accomplished today). Until this point, it will continue to be necessary for most organizations to conduct manual supplier invoice audits. David Rotor provides proof about the types of returns such efforts can bring over on his blog Procurement Investor.

In his post on the subject, David describes his experience in one supplier invoice audit situation when he was working for CN Railways. The supplier in question, a Canadian subsidiary of a "global MRO parts supplier" appears to have been intentionally overcharging on a systematic basis. David writes: "The relationship was worth about C$12 million a year, mostly driven through a huge number of small dollar transactions ... We had the right to audit, and on 24 hours notice put a couple of internal auditors into the supplier's offices. We agreed to sample about 1000 invoices and share the results with the supplier. We found that roughly 50% of the invoices had pricing errors which pointed to our concern about the quality of their data system, when we also observed that about 83% of the errors were in the supplier's favour it suggested that we might also have an ethical concern about their behaviour. The difference between contracted prices and invoiced prices was roughly $1M (8% of the C$12 million in sales). For a railway that only made $75M in profit that year, it was pretty significant.”

Check out the rest of David's post and see for yourself why it can make sense to allocate headcount over to the supplier audit side of procurement. Even if you don't have budget for the latest in e-procurement, spend visibility, and EIPP technology, there's no excuse not to toss headcount at the problem today. The returns will often more than cover the cost.

Jason Busch

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