Change the Way you Manage Your Contracted Services and Transform your Audit Findings (so there aren’t any!)
Audits aren’t popular but they are important.
They are a fundamental component of most companies’ risk management program ensuring employees behave ethically and responsibly to meet commitments to stakeholders and deliver value to customers.
Audits also often evoke fear and apprehension in those being audited. Satisfactory audit results are reassuring and confidence building. Less than satisfactory findings expose non-compliance with policies and procedures and can at a minimum bruise egos and at the worst be career limiting.
For over 25 years, Management Controls Inc. (MCi) and their Track SaaS Suite (Track) have helped dozens of companies pay their vendors with confidence. They know their payments are accurate and their actions consistent with policy requirements.
Audit Challenges
No matter your thoughts about them, audits are here to stay. Senior management relies on them to assess individual and organizational capabilities to consistently comply with not only external regulations, but internal policies, like financial controls, as well.
Maintaining compliance with financial controls and policies for companies using hundreds or thousands of contract resources every day, can be daunting. Preparing for, participating in and responding to audit findings is resource intensive. Being confident that audit findings will confirm processes are implemented consistently according to prescribed standards, is not the norm.
What if you could control your own destiny and accurately predict audit results while minimizing the time and effort needed to support the overall audit process?
You can.
Accurate Work Time Measurement
Corporate level or external audits are a common tool for measuring adherence to financial controls policies. One of the most frequent audit findings is a failure to follow contractor time keeping processes. Examples are:
- Invoiced work hours exceeded approved hours in the contractor time system (CTS)
- No work hours in the CTS to validate invoice
- CTS work hours approved after invoice already paid
Companies using MCi’s Track software have eliminated audit findings like those above. Track users are effectively employing poka-yoke to prevent discrepancies between invoiced hours and CTS hours. Poka-yoke is a funny sounding Japanese term common in lean manufacturing circles and defined as the "use of any automatic device or method that either makes it impossible for an error to occur or makes the error immediately obvious once it has occurred.
Track users have effectively error proofed the process for validating contractor work hours. Track data is a true accounting of the hours a contractor spends at the work location as provided directly from a company’s access control system (ACS). The vendor and company have agreed to use badge-in / badge-out events as the single method for measurement of time on-site.
Fig. 1: Poka-yoke example from the medical field. Each receptacle will accept only one plug design thereby eliminating the possibility of accidental connection to the wrong medical gas source.
Contractors no longer have to estimate time and manually prepare time sheets. Companies no longer need to enter time data into a separate CTS. Instead there is a single view of vendor hours worked in Track. This single view not only eliminates time-intensive, error prone manual time keeping, but also effectively eliminates invoice time discrepancies. Owners and contractors have the same view of contract labor and equipment time every workday and sometimes even on a shift-by-shift basis.
Applying Contract Ts and Cs for Accurate Invoicing
Another common audit finding is discovering that invoices are routinely paid even though they don’t comply with contract rates, terms and conditions (Ts and Cs). Applying the correct, contractually allowed multipliers to hours worked sounds straightforward. The challenge is that each invoice likely contains dozens of labor classifications, shift schedules and pay rates.
Fig. 2: Complexity is a big contributor to audit findings for inaccurate vendor payments
Consistently applying all of these variables to hundreds or thousands of invoices every day, is complex. Yet for many companies, vendor billing and company invoice approval processes are manual. First, the contractor’s billing department is expected to apply all of the rates, Ts and Cs correctly as the invoice is prepared. Then the company’s approver needs to evaluate the invoice for accuracy keeping all of those same conditions in mind.
Using this traditional, manual approach, is time-consuming delaying the delivery of a vendor invoice to the company by days or weeks. The company is effectively approving payments for goods and services in the dark – as approvers cannot remember details from days or weeks in the past. Consider that some companies report approving a million or more invoices every year and ensuring invoicing accuracy becomes almost humanly impossible. It is no surprise that lack of compliance with financial controls is often a repeat audit finding.
Accurate Vendor Invoice Payments
MCi’s decades of experience indicate that companies save 4% to 15% of contracted services costs when they consistently pay vendors according to contract Ts and Cs. For companies that rely on hundreds or thousands of contract employees every day, the savings can add up to millions of dollars, annually.
For Track users, the secret to capturing these cost savings and maintaining compliance with financial controls processes is to automate the application of contract rates, Ts and Cs to work hours. This automation reduces the probability, perhaps to zero, of human errors such as:
- data entry
- allowing charges for hours or partial hours spent on activities not contractually billable
- failing to apply the lowest rate for equipment – daily, weekly or monthly
- double billing for the same worker or piece of equipment
Track software fully integrates with a company’s ERP system and imports vendor contract rates, Ts and Cs. This data is used to create pay formulas unique for each vendor. Billable time is calculated by automatically applying pay formulas with correct Ts and Cs to accurate hours worked. Then the total invoice amount is calculated by applying a pay formula with correct labor and equipment rates to those hours. Invoices are more accurate for two reasons. Rates, Ts and Cs are correctly and consistently applied and company approvers receive invoices sooner, closer to the actual delivery of goods and services. Some companies using Track receive invoices within 1-2 days versus the 1-2 weeks or more using the traditional heavily manual process.
Conclusion
Today’s modern workforce may contain more contract workers than company employees. The value of consistently paying contractors accurately can be worth millions of dollars every year and contribute significantly to improved operational efficiency. To develop the capability to consistently deliver accurate payments is difficult or impossible if the payment process is reliant on human capability. Humans cannot effectively measure time on work site for hundreds or thousands of individual contractors nor can they remember and apply all of the contract rates, Ts and Cs to hundreds or thousands of invoices, consistently.
MCi has a proven, decades long track record of integrating with companies’ existing ACS and ERP systems to automate dependable, consistent processes for ensuring that vendors are paid exactly what they have earned, in a timely manner. Gain back control of your contracted services management with better cost control, visibility and better audit outcomes.
