Financial leakage is a cost of doing business. Given the volume and complexity of contracts, most companies are now working at warp speed, with employees taking on more responsibilities.
Traditionally, contract compliance work has focused on recovering funds rather than correcting the issues that lead to financial leakage. Today’s technology makes it much more feasible to implement a preventive approach.
Here are three ways technology can be applied to contract compliance:
- Determining the focus
- Executing the work
- Managing the effort
Determining the focus
Complexity and spend are key factors in determining financial risk. When reviewing numerous contracts, auditors typically use technology to identify and separate them into categories. By focusing on key words or phrases, contracts can be parsed out into the identifiable categories.
This process makes it easier for finance teams to identify risky and complex scenarios and prioritize contracts accordingly. Based on a supplier’s risk profile, companies can determine:
- Should we further explore the potential risk in-house?
- Is there a need for a third-party audit provider to conduct a review (either onsite or remotely)?
It is important to remember to first consider conducting a broad review of moderate and lower-risk suppliers – think routine price check and contract diagnostic reviews – to identify potential areas of process improvement.
Executing the work
Companies can create a viable execution plan that incorporates technology and automation. While implementing a preventive contract compliance audit approach can be largely automated, complex contracts or environments may require evaluation by an experienced audit provider.
Consider adopting an approach that takes an expanded look at your existing process and working with an audit provider that offers:
- Contract intelligence – drives risk assessment and test-building and empowers the contract diagnostic process to identify improvements in contract language.
- Online collaboration tools – works with vendors to acquire data and documentation.
- Risk identification tools – empowers internal audit teams to identify errors efficiently, including breakdowns across supplier categories.
- Technology-aided issue resolution – allows vendors to review issues and respond directly so companies can review feedback, decide how to proceed and move to settlement quicker.
With a preventive audit approach in place, an audit provider’s contract intelligence software can identify pre-payment errors and explore the best workflow processes.
Managing the effort
Contract compliance audits have a slightly different workflow and life cycle than accounts payable audits, and as a result, solutions have evolved to become more robust with sophisticated online tools. The final phase of a contract compliance audit includes managing the effort by tracking and reporting results.
A strong preventive process will include tools that create a central repository for storing contract specifics and audit documentation, like errors identified. This provides a wealth of information for finance professionals, including vendor data and spend types, occurrences of leakage and contract information.
These program management tools also provide transparency into how much savings could be realized by hypothesizing and testing contract adjustments. Program management tools empower users with on-demand reporting, allowing employees to quickly access audit progress, impediments and savings.
Managing breakdowns identified from start to finish can be complex. Companies may need to review certain issues or defer approval to their audit teams. In those cases, rules can be setup for issue routing.
What to do next
By leveraging an audit provider’s technology to identify the cause of leakage, companies can understand what measures need to be put forth to prevent reoccurrence. The thought process must shift from post-payment cash recovery to prevention. This is where technology offers opportunities for wider-scale audit programs, better program management and a forward-thinking model that procurement professionals aim for.
Consider transforming your contract compliance program by identifying an audit provider that will help you focus on technology-enabled solutions that empower teams to identify risks faster and resolve them quicker.
Want to learn more?
Download the Technology’s Impact on your Contract Compliance Program white paper where we identify two key concepts to leverage technology and expand contract programs for optimal results.