Indirect Procurement Audits
Procurement involves the acquisition of products and goods a company
needs to function. Direct procurement typically refers to the
process of purchasing supplies or services for the core operations
of a business, like employee wages or the raw materials that go into
a manufactured product. Indirect procurement deals with acquiring
the services and products that support the functions of a company,
such as a janitorial service, computer technology or office
supplies.
In cost accounting, companies often refer to these terms as direct
and indirect overhead, especially in manufacturing operations.
Managing Indirect Procurement
The purpose of an indirect procurement audit is to create visibility
into your company's indirect expenditures and make the necessary
adjustments to improve your bottom line. Here are several more
specific examples of items falling into the indirect procurement
category:
- Company travel and transportation expenses
- Office supplies and furniture
- Professional services, like legal, marketing or accounting
- Safety equipment
- Event planning
- Janitorial products
The idea is to analyze expenditures associated with supplies and
services to find discrepancies in your vendors' invoicing process. A
successful audit will also identify areas where you can save money,
whether it results in purchasing fewer supplies, using a new vendor or
making any other needed adjustments.
Procurement Audit Services
While you want to trust and depend on your suppliers to provide
reliable services, how do you know they're following the exact
specifications of the agreed-upon contract each time they deliver an
order and send you an invoice?
Once a contract has been signed, they often go relatively unmonitored
until it’s time to renew. How can you be assured that every single
transaction was invoiced properly per the terms and conditions of the
contract? Organizations are often at the mercy of the supplier in this
regard, and must trust that the supplier both adheres to the contract
and does not make any billing mistakes.
We can perform an arrears audit and analysis of your contracts to
ensure that your suppliers have adhered to the terms and conditions of
your agreements. Occasionally, we will complete an audit and find that
the supplier has stayed true to the agreement, and did not commit any
mistakes. In that case, it is assuring to know that your supplier has
maintained contract compliance.
However, more often than not, our audits reveal findings. Whether they
did not charge fixed pricing correctly, incorrectly applied discounts,
or did not adhere to shipping terms, we’ll uncover these discrepancies
and work to reconcile the differences on your behalf.
At Dryden Group
we provide
indirect spend auditing services that
help you and your company ensure contract compliance and supplier
integrity
Indirect Procurement Strategy
Companies sometimes use dark purchasing processes for indirect items,
meaning there is no standardized buying practice in place. Also known
as ad-hoc ordering, these practices circumnavigate any formal
purchasing guidelines a company has in place. Areas like these
frequently contain the most discrepancies.
Some specific instances of discrepancy include:
- Misinterpretation: Incompliant or vague contract terms without clarification.
- Inaccurate delivery schedules: Unjustified late fees combined with rushed lead times.
- Ineffective inventory management: Unnecessary delivery of goods based on inexact inventory counts.
- Promised incentives not applied: Rebates, credits or volume discounts not reflected on invoices.
- Incorrect invoicing: Goods or services billed at the wrong amount.
- Poor vendor performance: A supplier's inadequate performance affecting your company's production.
Once we help you identify these areas, we can take the necessary
proactive measures to optimize future spending. Our auditors will
sometimes find discrepancies dating back years.
The Audit Process
Here's an overview of each step of our audit process:
- Supplier Selection: We work with you to determine which suppliers to audit. We can audit suppliers of any size, in any region, and in any category.
- Data Gathering: We gather all of the necessary information to begin the audits. This starts by reaching out to your procurement team / category managers to acquire the agreements and legal documents. We then reach out directly to the suppliers on your behalf to gather the historical transactional data, pricing details, legal documents, and anything else deemed necessary to complete the audit.
- Audit Analysis: Our consultants complete a comprehensive audit and analysis. We verify that the prices you paid are consistent with your contract.
- Presentation of Results: After we complete the audit, we meet with your organization to discuss the results, recovery, and next steps.
- Reconciliation: We work directly with the supplier to return any overcharges uncovered during the audit.
- On-going Optimization and Monitoring: After the historical audit has been completed, clients often opt to continue to work with us on an ongoing basis.
Working with us on an ongoing basis will allow you to maximize your
contract's value and continuously maintain contract compliance
Benefits of a Successful Indirect Procurement Audit
The short- and long-term benefits a successful audit will produce
include:
- Reduction of costs: A successful audit will trim antiquated, bloated or traditional spending methods and create uniform spending practices throughout your company.
- Identifying outdated processes: We'll help establish innovative and effective purchasing methods that save money and improve operating efficiencies by eliminating issues like on-the-fly purchases and verbal contracts.
- Increased vendor accountability: By identifying invoicing errors and discrepancies, vendors streamline and increase the accuracy of their internal processes.
- Creating measurable goals: After the audit, your company can analyze and track the entire procurement process, creating approved supplier lists, vendor reviews, price indexes and more.
Contact Dryden Group Today
At Dryden Group, our goal is to improve your company's bottom line. As
your trusted partner, we'll streamline the procurement of your
indirect goods and services, helping you lower your expenditures while
keeping your books more accurate. To learn more about how we can help
you,
contact us today.
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