Post-Audit Claims & Deductions taken by commission-based auditors hired by retailers total billions of dollars annually and, because of the age and structure (by SKU and line item), these claims are challenging to research, reconcile, and document without powerful custom software, such as our Carixa™ Matching and Reconciliation Software. Further, when the claims are partially or wholly wrong, they then must be proven and recovered.
What Are Some Examples of Auditor Errors?
Auditor errors are frequent; here are a few examples:
- Applying pricing or promotion to non-applicable regions, customers, or time parameters. Auditors will often work for several of your customers and will share data.
- Double-dipping (or even triple-dipping) – deducting for allowances previously deducted.
- Deducting previous allowances that were deducted in error and actually repaid to you, but then deducted again in a post-audit.
How to Avoid Audit Errors
- Remember, the devil is in the documentation. 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 an internal document management process so you can quickly access back-ups such as price lists and promotional deal sheets when you receive post-audit claims two years after the fact. Use trade promotion and deduction tracking to strengthen the audit trail. A deduction tracking system should keep track of how deductions were resolved so that you can tell if a post-audit is a double (or even triple) deduction.
- Develop a Post Audit Policy Statement. 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. The policy should include the information in this infographic:
Click to review a SAMPLE POST AUDIT CLAIMS POLICY.
- Always 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 Sarbanes Oxley, the company has a policy of not accepting not fully documented charges.
- Strengthen internal procedures that enable you to address post audits quickly. Develop research procedures, code claims by type to monitor potential abuse. Track deduction days outstanding (“DDO”), and establish improvement targets..
- Simplify and clarify your sales and promotion offer sheets, removing any gray areas open for interpretation (i.e., promotions based on the ship date, order date, receipt date, or a combination thereof). It is crucial to get your sales/marketing departments involved to tighten internal control of sales agreements.
- Establish a post-auditor-customer contact database. Having this information will drastically reduce resolution time, and enable you to cut through excessive red tape by going directly to the source.
- Identify the root causes. Make sure you use your process to uncover the origins of post-audit deductions, instead of just handling a deduction as a single transaction. Knowing root causes will flush out the systemic problems and purchase order – invoice conflicts with your customers.
- Don’t delay in addressing post-audit claims. You will quickly run-out the grace period and may end up writing off the charge. On receipt of claims, send the auditor a letter stating your policy, underlining the Investigation Grace Period, and insisting they not deduct until you complete your research. View the Sample Post Audit Claims Policy, from which you may get some best-practice ideas.
- Get ahead of the Collection of Invalid Deductions. If you research and disprove the claim before it is deducted, it is easier to prevail. After it has been deducted, the auditor has gotten their commission and will be determined not to reverse their position since up to one half the money has to then come out of their pockets. Nevertheless, erroneous and excessive deductions can be recaptured, with consistent and equally determined action.
- Avoid periodic settlements as your deduction strategy. It’s tempting to take the easy way out and accept these settlements since a single post-audit claim can cover a hundred transactions. A package settlement is appealing but doesn’t get to the heart of the problem and will encourage more deductions, especially gray areas subject to misinterpretation. Insist that each claim is documented, research them, and demand repayment for those that are invalid.
- Lastly, be consistent with your policy and enforcement, as the word will quickly spread among post auditors that your company is not a pushover, but a principled business that insists on being treated fairly.
Implement a Comprehensive Deductions Management Software
The Carixa™ platform offers best-in-class deduction management solutions, helping your company cut post-audit losses. Please contact us for more information or to have a feasibility discussion about your business and the implementation of our management solutions.