What Is a Contract Audit?
Contract audits need to performed periodically in all lines of business, in order to confirm that a contract's terms and conditions are being met as required.3 min read
What Is a Contract Audit?
Contract audits need to be performed periodically in all lines of business, in order to confirm that a contract's terms and conditions are being met as required. Once a contract has been written and signed by everyone, the audit process begins. The audit may be done at a micro level (i.e., per contract) or at a macro level (i.e., entire portfolio).
During a contract audit, all controls, policies, and systems will be evaluated and verified. Account books, transaction records, and operation logs will be inspected. The intent is to ensure that everything was correctly delivered to the customer and that they were billed appropriately. It can also help prevent suppliers from over-billing or under-delivering to a customer.
How to Perform a Contract Compliance Audit
A contract audit has many benefits, which include cost recovery, process improvement, preventing fraudulent activity and managing risk. When deciding to perform an audit, there are several factors to take into consideration.
- Consider how comprehensive the audit is. Determine if the entire contract is being reviewed, or just a few concerning areas. If you plan on conducting your own audits, it's good practice to start small and do the audits in batches (ex - by contract type). You can then apply what you learned, and with that knowledge you are able to move forward with the other contract batches.
Be sure to establish clear objectives. A company must determine what it hopes to accomplish by examining its contracts and performing the audit. This can be fulfilled by establishing clear objectives upfront. Otherwise, it won't make much sense to perform the audit in the first place.
- Consider timing. Audits should always be conducted when you have the ability to revise processes or reclaim overpayments. This could be influenced by a multitude of factors, all depending on the type of relationship you have with your distributor.
It is beneficial to hire professional consultants and/or attorneys to perform an audit, if possible. These specialists have seen many similar contracts throughout their career, so they are able to offer insight and share their expertise about contract compliance audits, as well as act as another set of eyes to review the contracts.
6 Steps to Prepare for a Contract Audit that Covers Approach to Information Security
Today's businesses rely heavily on technology to operate efficiently, especially making use of the cloud. It is definitely highly beneficial to move contracts and documents to the cloud. It also poses some important points, particularly when it comes to Information Technology. Here are six key ways to improve and protect the technology of your business by preparing for a contract audit.
- Each person in your organization should be assigned to a user group. Each role should have the appropriate user permissions when it comes to software and files. This makes the process easier for IT administrators. It saves time and decreases the possibility of mistakes occurring and causing improper access.
- Be sure to set permissions for dashboards, reports, and user interfaces for each user. The permissions should be strictly limited so users can access contracts, files, reports, and software needed to perform their job, but not beyond that.
- Ensure that user permissions can be moved from higher level files to lower level ones, to avoid inadvertently providing access to restricted files. Also, check your contract management software for automatic updates to security permissions. This way, you can grant access to certain user groups as the contract moves through different stages of the process.
- Confirm that your policies provide strong security upon entry and strict password rules. This includes identifying the parameters for creating strong passwords, as well as utilizing two-factor authentication. Review the security on other access methods, such as a corporate network, mobile devices, or a VPN. This will further enhance the security of your information.
- Prepare in advance for a compliance audit. This will allow you to ensure that you have all details and a fully trackable system in place for each contract and document stored in the cloud.
- Evaluate and periodically review the security practices of your vendors. If your organization utilizes contract management software, double check that it aligns with your company's policies and permissions, then customize security requirements in your contract as needed.
If you need help with a contract audit, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel ome from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.