Streamlining operations and cost controls have become a priority in today's breakneck business environment. And when it comes to the accounts payable (AP) department, the highlights are invoice review and audit. Do you know what controls it? Of course, an AI-enabled accounts payable automation solution. Though AP audits are massive, with numerous concepts, in this blog, our focus is the 'audit against contracts'
What is an Invoice Audit against a Contract?
It ensures that a company complies with the terms of its invoice, agreements, and contracts, including obligations, responsibilities, and expectations. For example, an audit against a contract involves a review of these agreements to ensure that they are being followed and that both parties are fulfilling their obligations.
Benefits of Audit against the Contract
It helps identify discrepancies and match financial records per the contract terms. Major highlights in this process are identifying instances of non-compliance or failure to meet contractual obligations and areas where improvements can be made to better align with the contract terms.
Common Issues Found During Invoice Audits Against Contracts
- Overbilling: It happens when invoices are raised for services that were not mentioned in the contract. Overbilling also occurs when a vendor invoice is raised at a higher rate in comparison to the contract.
- Duplicate invoicing: This situation occurs when the vendor invoices for the same service multiple times. It can be a human error or even a deliberate attempt to overcharge.
- Delayed invoicing: It happens when late invoice approvals are done against the agreed-upon time frame, which may result in penalties or fees for the organization.
- Non-compliance with contract terms: Sometimes, vendors may not comply with the terms of the contract. For example, they may not meet the service level agreement or may not provide services as agreed upon in the contract.
Steps of Invoice Audit against Contract
The process of conducting an audit against the contract starts with
- Review the contract in terms of the agreement, including the scope of the work, the payment terms, the timeframe for delivery, and any other obligations or responsibilities outlined in the contract.
- In addition to physical inspection, an audit against a contract can also involve reviewing financial records to ensure that payments are being made following the contract terms. This includes reviewing invoices, receipts, and other financial documentation to ensure that all payments are accurate and comply with the contract terms.
- Lastly, document the audit findings to communicate the same to the parties involved. This can include providing feedback to employees or contractors, recommending improvements, or even renegotiating the contract terms if necessary.
In conclusion, an audit against a contract is essential to ensuring that a company complies with its contractual obligations. By reviewing the contract terms, conducting physical inspections, and reviewing financial records, companies can identify areas where improvements can be made and ensure that all parties meet their obligations. Ultimately, an audit against a contract helps to ensure that the business relationship remains productive and beneficial for all parties involved.