Monday, July 15, 2013

Could You Be Overpaying Your Vendors?

For most businesses, vendors are part of day-to-day operations, generating thousands of payments to suppliers and service providers over the course of a year. Does your business have the internal controls in place to detect whether you may be overpaying?

Overpayment to vendors is a very real risk that could impact your organization’s bottom line and result in significant financial loss if not quickly detected and resolved. A variety of errors can result in overpayment, including miscalculations, duplicate payments, neglected rebates and allowances, misunderstanding of contract terms, tax overpayment, and charges for goods and services not received.

To avoid financial loss, you may want to consider a vendor audit. A vendor audit is an external audit of invoices, contracts and other related data from your suppliers. Other best practices for detecting overpayment include:

Consider the “most favored nation” clause, which is a contract provision in which a seller agrees to give the buyer the best terms it makes available to any other buyer. During a recent Doeren Mayhew audit, the vendor refused to reveal invoices distributed to other clients, which triggered our client to question whether the supplier was in compliance with the agreement.

Compare estimates and invoices to ensure charges are accurately reflected. Often times estimates are used to create contracts, and buyers may forget to review actual invoices versus estimated prices.

Ensure vendor invoices are being regularly monitored. Look out for double costs that may not catch your eye as a mistake.

Conduct select testing on larger suppliers, some of which may tend to increase prices each year. A Doeren Mayhew client was assured a discount for each purchase under a three-year contract with a major automobile parts supplier. Our vendor audit specialists found that third-year prices were significantly higher.

Review contracts before renewing them and take note of percentage-of-fee increases.

Frequently gain bids from other vendors to ensure you’re receiving market prices.

Regularly review vendor charges for expenses to ensure there are no duplicates, such as charged meals to hotels and meal receipts for the same day.

Verify that audit clauses are written into vendor contracts and purchase orders, so that auditors may obtain and review any documents related to your contract and agreement. Should you need a vendor audit, this clause will ensure auditors can review all data necessary to provide an accurate report.

Strong vendor relationships are essential to your business, and while they are trusted suppliers, miscommunication and missteps may sometimes occur. Vendor audits not only help improve supplier relationships, but help detect fraud and improve systems and controls both in your business as well as the vendor’s.

Contact Doeren Mayhew for more information.

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