Audit Those Vendors

A vendor can be an entity’s best colleague or worst nemesis. Keep the relationship pleasant and successful by conducting vendor audits. 

Bigco Inc., a Midwest manufacturer, hired Energy Services Limited, an energy consulting firm, to provide specialized procurement services to acquire inexpensive and reliable energy for its manufacturing plants and offices. Energy Services sent invoices to each of Bigco’s divisions and its corporate headquarters based on hourly charges for its professional staff and related out-of-pocket costs. Bigco’s CF0 found Energy Service’s invoices had quintupled in a three-year period and called in our firm.

When we examined the invoices in total, we found that some of Energy Service’s professionals had billed each division and the corporate headquarters for seven hours a day for a total of more than 24 hours. We also found that most of the Energy Service’s professionals consistently exceeded an eight-hour workday and some worked on holidays. Yet the routine services they provided could have been performed during a normal eight-hour workday. Routine vendor audits would have prevented the overcharging.

Entities often implicitly trust vendors. But just as good fences make good neighbors, vendor audits produce good relationships.