1 |
A billion dollar warehouse club chain established a new defective goods program with its’ suppliers. Instead of dealing with a multitude of varied supplier programs, each buyer had to negotiate a percentage discount to be given off invoice from each supplier. These discounts ranged from 1/8 of 1% (.00125) to 2% (.02) depending on the type of product. Each discount was set up in the system and showed up on every applicable purchase order issued by the company. However, this company also had an auto-pay "perfect match" control system in use. Tolerance levels were typically set at ¼ of 1% (.0025) but could also be manually adjusted upwards where needed. The A/P audit, in reviewing the year’s transactions, discovered that the client was not receiving the defective allowances as expected due to a number of different reasons. The biggest reason was that although the suppliers agreed to give the discounts, typically they would not reflect these discounts off invoice as they would expect the warehouse club to deduct them at the time of payment. Many times the defective discount expected would be less than the set-up tolerance percentage so nothing would ever be billed back. The auditors, reviewing each vendor one-by-one, wrote up over $300,000 on this one oversight during the first year. Subsequent audits recovered significant amounts until the client was able to fully institute the recommendations given by the auditors.
|