Post audit claims are usually generated by third party auditors that are usually paid a commission to capture your money. Post Audits are a billion dollar business.
Perhaps not surprisingly, our experience is that up to 50%of post audits can be wrong, errors that can be attributed to auditor zeal or perhaps misinterpretation of the business deal. In addition, they are often very old, and hard to investigate.
Low Hanging Fruit
Incorrect or excess claims can be attributed to applying a pricing or promotion to non-applicable regions, customers, or time parameters.
“Double dipping”, can include deducting for allowances that were already deducted and even those deductions that were previously repaid to you because they were wrong, but then deducted again in a post-audit a couple of years later.
The biggest audit firms work for a number of your customers so be alert for auditor data sharing, where the result can be that your confidential trade programs are misapplied to the wrong markets or customers.
- The devil is in the details. Make sure that every promotional deal is documented (quantities, pricing, expiration periods, etc.,) and that you send a written confirmation to your customer Section 404 of Sarbanes-Oxley requires that all deals be documented, so use the legislation to your advantage.
- Establish a document management process so you can quickly access backup such as price lists and promotional deal sheets when you receive post audit claims two years after the fact. Use promotional funds and deduction tracking to strengthen the audit trail. An automated deduction performance system (such as Smyyth’s Carixa ™ Credit-to-Cash system) should keep track of how every deduction was resolved, so that you can always – even four years later – determine if a post audit charge is a double (or even triple) deduction.
- Establish a Post Audit Policy for your customers and the auditors, and have your president sign it. The policy should include
- limits on how far back an audit claim will be accepted.
- a requirement that all claims be fully supported with documentation
- a 90-day Investigation Grace Period for the claim prior to their ;post-audit deduction.
- for the auditors, a statement that your marketing and promotional plans, pricing, and operational policies are confidential trade secrets, and you will pursue violations.Your customer may not agree with your policies (just as you may not agree with theirs), but having a well-crafted Post Audit Policy is your first line of defense. Mail it to your customers and to the auditors so you are on the record.
- Reject out of hand all post audits that are not documented. Just as your customer will not pay an invoice without proof of delivery, you need the paperwork that supports these claims. Explain to the retailer that by your corporate policy, and in compliance with SOX, the company is not permitted to accept undocumented charges.
- Strengthen internal procedures that enable you to address post audits quickly. Develop research procedures, track “DDO” and establish improvement targets and code claims by type in order to track potential abuse.
- Simplify and clarify your sales and promotion offer sheets, removing any gray areas open for interpretation (i.e. promotions based on ship date, order date, receipt date or a combination thereof?). It is very important to get your sales/marketing departments involved to tighten internal control of sales agreements.
- Establish a post auditor-customer contact database. Doing so will drastically reduce resolution time, and enable you to cut through excessive red tape.
- Make sure you use your process to uncover the reasons behind post audit deductions, instead of just disposing of them Knowing root causes will flush out the systemic problems and conflicts between you and your customers.
- Don’t delay in addressing post audit claims. You will quickly run-out the grace period and end up writing off the charges. On receipt of claims, send the auditor a letter with your policy, underlining the Investigation Grace Period and insisting they not deduct until that is complete.
- Avoid periodic settlements as your exclusive strategy. It’s tempting, since a single claim can cover a hundred transactions. Nevertheless, insist that each claim be documented, research them and demand repayment for those that are invalid. A package settlement is appealing, but doesn’t get to the heart of the problem and can even encourage more deductions, especially gray areas subject to misinterpretation.
Lastly, and always, be consistent with your policy enforcement, as the word will quickly spread among post auditors that your company is not a pushover, but a principled company that insists on being treated fairly.