Make sure contracted terms are fully delivered
When a contract compliance review is included in audit scope, information resources are expanded to include review of contracts with suppliers of goods and services. Examples of the kinds of errors identified follow:
The Client’s fleet was managed by a third party provider, but client negotiated vehicle cost directly with a car manufacturer. Contract with car manufacturer included a rebate if more than the target number of cars were purchased during the three year contract. Target was met, but rebate was not received. Recovery was approx. $1.6 million.
Rebates were negotiated by the client with several of their larger vendors. The rebates were based on annual billings, excluding expense and pass through costs, but there was no system in place for tracking or collecting the rebates. After auditing, rebates unpaid or short paid were identified. Recoveries were over $600,000.
Index Based Pricing – Contracts with tiered pricing including monthly change with a published index were reviewed. Prices were recalculated for each month based on the index resulting in identified price discrepancies. Recovery was $16,000.
Volume based Pricing-Prices in the second year of a contract were reduced if purchases during first year met a certain target. Target was met, but prices were not reduced. Recovery was about $42,000.
Budgets are created for each event/project and agreed to by both the client and the supplier. Many of these types of contracts are set up with installment billing provisions. Typically with 1/3 at signing and 1/3 at some mile post and 1/3 at completion. Meetings that were cancelled without initial payments returned were identified and funds recovered. In other cases, the project is completed, but at less cost than the budget and supplier never issued credits for the difference. Recovery $67,000.
National rebate agreement in place for all purchases from Supplier yet other office locations were not utilizing specified account number so the Supplier did not include purchases from these locations. Calculation of consolidated purchases resulted in $213,000 rebate claim.
Recurring payments on expired and terminated leases resulted in recovery of $352,000. When a contract compliance review is included in audit scope, information resources are expanded to include review of contracts with suppliers of goods and services
State, Federal and Local Government entities are not immune for payables errors and in fact are significant beneficiaries of recovery audit services. Government agencies first began benefiting from recovery auditing subsequent to the Waste Corrections Act of 1999. Below is the content of the Congressional Hearing on the Waste Corrections Act of 1999 that required recovery audits for Federal Agencies including the expert witness testimony by Paul Dinkins, ATG’s Chief Marketing Officer.