An audit clause with claws

When allegations of waste, fraud, overbilling or kickbacks by a vendor emerge, the first response might be to conduct a vendor audit – guidelines for which are buried in an often overlooked section of the contract, the ‘right to audit’ clause. The difficulty of an impending audit can often be gauged by the strength of the audit clause language, says Ryan Hubbs.

Ryan C Hubbs CFE, CIA, CCSA, PHR is the Forensic Audit Manager for Halliburton in Houston, TX. He is the chapter president of the Houston Area ACFE Chapter (Association of Certified Fraud Examiners, www.acfe.com) and is an ACFE Faculty member. He also sits on the ACFE’s Advisory Committee and the ACFE’s Professional Standards and Oversight Committee.

Just because you have a few sentences in the section of your contract entitled ‘Right to audit’ doesn’t mean that your upcoming vendor audit is going to be a walk in the park. The following items and considerations should be fully explored, incorporated, and/or vetted for each contract and audit clause before contract issuance.