Insights Magazine Volume IX - Page 20

Vendor Management Manage Your Exposure to Risk Ronald Steinkamp, CPA, CIA, CFE, CRMA, CGMA, CCA, CCP Whether it is a billion-dollar construction project or a ten-thousand dollar cleaning contract, every contract for outsourced services has risks that need to be managed to protect your organization. Most organizations rely on outside third-parties to provide the goods and services they need to operate effectively. However, once you have signed a contract, do you understand the risks involved? Do you actively and effectively manage them, taking into consideration the associated costs, performance of the vendors and compliance of the vendor against the contract terms and conditions? inflated charges for air fuel instead of ground fuel and charged for oversized freight when the freight did not qualify as oversized. • Payroll Services: Instead of paying their clients’ federal taxes in appropriate amounts and by the regulatory deadlines, the company diverted the funds to pay their own salaries and expenses. They defrauded their payroll clients of more than $2 million. • Construction Sub-Contractor: While on a project to build a water treatment plant, the sub-contractor prepared and submitted inflated invoices and false change orders for labor and materials provided to the project, which resulted in $4.8 million in overbilling. • Fire Safety Company: The company contracted with a municipal government to annually inspect and re-size firefighter safety equipment, but failed to perform this critical function, putting the safety of firefighters in jeopardy. Don’t Pay the Price Contracting with an outside third-party exposes organizations of all types and sizes to significant risks of financial and reputational harm. There have been several instances recently when organizations that did not understand and manage their third-party contract risks have paid a huge price. • 18 Freight Shipper: The company inflated charges to the government by $13 million for shipping military freight throughout the United States. The freight shipper submitted false claims for air shipments when the freight was actually shipped by truck,