Vendor verification

A decade ago most companies never thought to audit their vendors, says David G. Banks CFE, CIA. Times have changed. Complex pricing arrangements such as time and materials, cost-plus and list-less agreements, have prompted purchasing departments to verify critical vendor data. When vendors promise to build a warehouse for a fixed percentage over cost of material and man-hours, who confirms the underlying data? When a vendor agrees to sell goods at a fixed mark-up on cost, who checks that cost?

David G. Banks CFE, CIA is the Director of Internal Audit for Weirton Steel Corporation in Weirton, West Virginia. He may be contacted at email: DGBanks1@hotmail.com. Reprinted with permission from the September/October 2002 issue of The White Paper, a publication of the Association of Certified Fraud Examiners in Austin, Texas © 2002. www.cfenet.com

Right to audit clause

When they first encounter vendor auditing, most fraud examiners wonder how to persuade vendors to allow audits of their transactions. The answer is simple: your company’s purchase order must contain a ‘right to audit’ clause. Carefully examine one of your firm’s purchase orders. Look on the back as well as the front. The relevant permission is often buried deep in the ‘Terms and Conditions’ printed on the back of purchase order forms. If the right to audit already features in the purchase order ‘boilerplate’, you are in luck. If not, you will have to introduce the concept to your purchasing, legal and senior management.