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 they are extremely difficult to research, reconcile, and document without powerful custom software, such as our Carixa AuditPro module. Further, when the claims are partially or wholly wrong, they then must be proven and recovered (collected). Our services are comprehensive, click here to find out more.
Auditor errors are frequent; here are a few examples:
- Applying pricing or a promotion to non-applicable regions and 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 which were deducted in error and actually repaid to you, but then deducted again in a post-audit.
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 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. 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.
Post Audit Policy Statement. Your customer may not agree with your policies (just as you do 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, and have your President sign it. The policy should include.
- Limits on how far back an audit claim will be accepted (no older than two years, for example)
- A requirement that all claims be fully supported with documentation
- A 90-day Investigation Grace Period for the claim prior to deduction.
- For the auditors, a statement that your marketing and promotional plans, pricing and operational policies are confidential trade secrets provided to your customers, and that you will pursue violations.
- Click here to review a SAMPLE POST AUDIT CLAIMS POLICY ,
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, 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. Having this information will drastically reduce resolution time, and enable you to cut through excessive red tape by going directly to the source.
Root Causes. Make sure you use your process to uncover the causes 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 your stated 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. View the Sample Post Audit Claims Policy, from which you may get some best practice ideas.
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 amount has to come out of their pockets. Nevertheless, it can be recaptured, with consistent and equally determined action.
Avoid periodic settlements as your 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 will encourage more deductions, especially gray areas subject to misinterpretation.
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.
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