What is the process for auditing vendor contracts?

1 Identify the scope and objectives

The first step in auditing vendor contracts is to define the scope and objectives of the audit. This means identifying which contracts you want to review, why you want to review them, and what you want to achieve from the audit. For example, you may want to audit contracts that are due for renewal, that have high value or complexity, or that have been flagged for potential issues. Your objectives may include verifying the accuracy of invoices and payments, assessing the quality and timeliness of deliverables, or identifying areas for improvement or renegotiation.

2 Gather and review the documents

The next step is to gather and review the relevant documents for the audit. This may include the contract itself, any amendments or addenda, the vendor's invoices and reports, your purchase orders and receipts, and any correspondence or feedback between you and the vendor. You should also review your internal policies and procedures, as well as any industry standards or regulations, that apply to the contract. You should look for any discrepancies, errors, or gaps in the documents, as well as any evidence of compliance or non-compliance with the contract terms.

3 Conduct the audit

The third step is to conduct the audit itself, which may involve different methods depending on the nature and scope of the contract. You may use a combination of desk audits, where you analyze the documents and data, and field audits, where you visit the vendor's site or observe their operations. You may also interview the vendor's staff, your own staff, or any third parties involved in the contract. You should use a checklist or a template to guide your audit and ensure that you cover all the relevant aspects of the contract.

4 Report and communicate the findings

The fourth step is to report and communicate the findings of the audit. You should prepare a clear and concise report that summarizes the audit objectives, methods, results, and recommendations. You should also highlight any strengths, weaknesses, opportunities, or threats that you identified in the audit. You should communicate the report to the vendor and any other stakeholders, such as your management or legal team, and discuss any issues or actions that need to be taken. You should also document the audit process and outcomes for future reference.

5 Implement and monitor the actions

The final step is to implement and monitor the actions that result from the audit. This may include resolving any disputes or discrepancies, renegotiating or terminating the contract, requesting or providing corrective actions, or improving your vendor relationship. You should also monitor the vendor's performance and compliance with the contract on an ongoing basis, and conduct follow-up audits as needed. You should also evaluate the effectiveness and efficiency of your audit process and make any adjustments or improvements as necessary.

6 Improve your vendor management skills

Auditing vendor contracts is a vital skill for vendor management, as it helps you ensure that you get the best value and quality from your suppliers, and that you minimize the risks and compliance issues. However, it is not the only skill that you need to master. You also need to be able to select, negotiate, manage, and evaluate your vendors effectively. If you want to learn more about how to improve your vendor management skills, check out our online courses and resources that will help you become a better vendor manager.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?