Is it time for a compliance audit? Contract compliance audits can be costly and time-consuming. These 5 considerations will make the audit process easier and will help you recover costs, improve contract management processes, and ensure compliance faster.
When was the last time you performed an assessment of your contracts? Audits, as painful as they can be, are a necessary step in due diligence — helping you save money in the long run by reducing risk and improving processes and controls.
What’s more, if you’re a pre-IPO company, a contract audit can help you achieve compliance that fuels greater scalability and accelerates growth. It can also position your company to generate higher returns when it does go public.
What makes for a successful contract compliance audit? Here are 5 key points to take into account before you begin.
Consider the scope
Are you reviewing the entirety of the contract? Are there particular areas with which you’re concerned? Who will be performing the audit process — internal or hire external consultants?
An audit could be as easy as a quick search for contracts containing keywords, vendor names, terms, etc., or a file folder click. This depends upon how you’re managing your contracts, the capabilities of your contract management tool, and how well your contracts are organized.
Say, for example, you are conducting an audit in response to new regulations and market dynamics, you would search for contracts using relevant search terms aligned with the current landscape. For instance, if you’re navigating evolving data privacy regulations, you may search for contracts with keywords such as data protection, GDPR compliance, or personal data handling.
Adapting your audit approach to address current challenges ensures that your contracts remain up-to-date and compliant with new regulations. If you’re using a contract management tool with cloud-based contract storage that makes the audit process easy, you can perform it in-house. If you’re storing your contracts in a way that doesn’t allow for an easy search, consider hiring someone — it will cost you less in frustration and resources.
Consider the objectives
When considering the objectives of a contract compliance audit, it is crucial to align them with your organization’s specific needs and goals. By clearly defining the desired outcomes, you can direct your efforts toward areas that require immediate attention and improvement.
Whether your objective is to minimize costs, mitigate risks, identify process inefficiencies, or detect fraudulent activities, a well-defined focus will help streamline the audit process and allocate resources effectively.
Additionally, setting objectives allows you to measure the success of the contract audit and track its progress, ensuring that your contract management practices align with your broader organizational objectives.
Contract compliance audits should be initiated when you have strong leverage to change processes or recover payments. Are you releasing a new product? Changing regulations? IFRS 15 might require reconsideration of contract terms, clauses, pricing, etc., this could be a good time for an audit.
Think practically about when to begin an audit. It’s important to assess the estimated duration of the audit process to ensure it aligns with your project timelines and resource availability. This will enable you to properly manage the process and stay ahead of obligations and deadlines.
You’re likely not the only party in the contract. Use the audit as an opportunity to strengthen your relationships by framing them within the scope of collaboration. Present it as a chance to make sure that all parties involved are getting what is expected, and that processes are being fulfilled from both sides, as was initially agreed.
Leading contract management solutions have built-in features to foster collaboration. They include the ability to track changes, edit, comment, and negotiate contracts online, and version control with a robust audit trail. Useful features like these not only help ensure flawless compliance but they’ll speed up the overall audit process.
Consider the future
This is likely not the first, nor will it be the last contract compliance audit you’ll perform. A time-consuming and comprehensive task, possibly lasting months and requiring a lot of leg work to chase down contracts, the easiest way to perform an audit is by using a cloud-based contract management platform.
Contract management tools not only make performing a successful contract audit easier, but they also make implementing changes and enforcing them easier too, giving your organization faster processes, and flawless compliance that accelerates growth.
Implementing a contract management platform will not only help with contract compliance audits, but also with managing your whole contract lifecycle.