Best-Practices for Post-Audit Deductions



Roger Anderson

Principal, Optimize Consulting LLC


[00:30] Roger Anderson:

Sure everybody is looking forward to the day, so hopefully, this topic doesn’t bore everybody and hopefully, let’s have a little food for thought at the end of it all. And I’m sure everybody loves post audits if you deal with them now, it’s probably a really fun game. Personally, the reason they tasked me with this for this year because I do a lot of post audits. The reason I do is because of the ability to fight back on auditors and try to prove them wrong and try to get good money back to you and prevent stuff from happening. Even though you may not win all the time, it was just a fun game to play with them and kind of see how far we could push it. So Janet is going to talk about post-audit ends in general, which I think most people will know if you’re already in the industry, best practices to handle post audits is to prevent post-audit claims, and tools to follow best practices.

[01:00] Roger Anderson:

What are post-audit claims? Most of them are coming from your third party auditors like PRGX and Colliers. It’s probably the big two out there in the food industry anyway. Of course, you got some smaller ones across the country or some on the west coast. You do have your internal auditors also that will send you information. One key — that is careful that you make it an internal audit, and you might get a post-audit from the third party audit at the same time, which is kind of odd. It has happened once. Not often, but it does happen. Suppliers agreed to certain grace periods for the end investigation, so hopefully, I think for most of the bigger customers, they do give you at least 30 days to analyze and do some research and say yes, I agree to it or no, I don’t like that, I don’t agree to it and maybe get you an extension or a little bit of extension but not a lot and find out how far back they go. You may have difficulty either getting the claim information, the backup, the support, and what they’re doing. The people that set up the offer, so the price may no longer be with your company information could have been lost or filed away or in somebody’s email somewhere along the path. For example, in that case when I worked at the last company, one of our bigger customers had filed a claim against us and somebody in the company actually had an email from 2001 that helped support what was invalid. How he remembered that it was there in his email I do not know. Most emails get deleted so it’s kind of odd that he even had it on file but it did help with this fight and actually helped prevent the claim.

[02:30] Roger Anderson:

Of course, most auditors are getting a commission. I don’t want to know if I’m going to jump ship into post-audit research and claims. Most of it can be wrong trade promotional pricing. We’ll talk a lot about trade promotion because there’s a lot that can be done on the front end to hopefully eliminate or reduce a lot of these post-audit claims. While such a battle, most times it’s invalid. Sometimes you’ll have overlapping deals. Or you’ll have an auditor that sees something in the pipeline and says, let me try it and see what sticks. Your policy differences. Of course, your customer has a different policy and here’s our policy, you may not have your own policy. And even then a lot of your post-audit clients and your fight may come down to policy versus policy where nobody is going to win. And of course, they often deduct wherever, they post as many reductions if it’s invalid, and they’re going to pay it back. I mentioned this one other session that is almost like an interest-free loan to them. They know it’s invalid. They are going to pay it back but they’re going to sit on it. How many people noticed when a company is in financial stress that they’re doing more post audits? Pay attention to samples and supervisors who want to do their part at the end of the year before they get their post audits increased. They also increase when they purchase companies. So you’ll see an uptick in post audits winners, either they’re acquiring companies or they’re being acquired by somebody else and that company has come in to do a lot of post-audit claims.

[04:00] Roger Anderson:

Sometimes best practices are what I did in the past, some may not work, some may have worked, which is kind of giving you guys an idea, okay, what could you all do that maybe, maybe have a little bit of luck to hopefully get some money back or are not ready to trade or use a company’s trade money. If you’re able to establish and publish a post on a policy give us something simple. For example, what we started doing every time we made invalid requests, we always put verbiage on the bottom side for this and say we’re going to reduce this from your customers’ trade budget to an auditor, they’re going to say I’m okay, no big deal to me. But usually, if it gets escalated, that’s when the customer is going to step up and say hey, I need that money, I need it for a few promotions down the road. Tells me that’s where we, a lot of companies, you might have just simple policies that I heard from another client have been working with is that at one of the shorter meetings there was talk of doing a company’s post-audit but they came to a decision that it wasn’t gonna work.

[5:06] Roger Anderson:

Do not delay in processing your post-audit claims. We do have that opportunity for the last 60 days or 30 days. Don’t just get it filed away and forget about it. The best luck getting that repaid or prevented as one is still in that not deducting stage, that’s your best luck. Also, if you’re in the stage where you can’t get to it in time, at least keep the auditor up to date and say hey I’m still doing research and they work well with you. Hopefully, they’ll say okay, I’ll give you a 30 days extension or will give you a little bit more time to do some research. If possible, I noticed quite a bit that most auditors will send you a claim but they may not send you how they came up with the dollar figures. One claim I worked on was that they sent us the claim and then told us how they came up with the math so I dug deep into the spreadsheet and found that they’re auditing for something that they weren’t supposed to audit. Took the whole spreadsheet, rejected all things, saying, “Nope, this is not well from what I found, so prove why you came up with this.” So don’t just accept what they say, try to find a way that something as simple as that can be of some help to you all.

[6:08] Roger Anderson:

This might be a tough one but put a limit on the time frame, most will follow a two-year time frame, 18 months to two years. Some other companies have gone back four years, which are even tougher because that’s when you start losing visibility to a lot of your records. Now the advent of technology should be a lot easier because now you may be able to find that information in your system especially using a product like HighRadius or any other soft system that allows you to look back in history.

[6:33] Roger Anderson:

Sure, transparency and grace period in its flexibility, demand proper documentation. You may not get very far with that but at least it’s worth it. Sometimes he’s even put that in front of them. Here’s where you might have the biggest challenge when it comes on the post audits you know imbalances sizable post on a claim and you know they’re not going to pay back, you only have really two choices either write it off, reduce retrace band or tread another ship and much more salespeople will not want to or even your company. I did have a soldier that did tell the customer if you keep doing this to me I am going to stop shipping your products so they were sales who did put their foot down and said knock this, knock it off otherwise I’m not gonna deal with you anymore. So you might hurt all these other presentations. We’ll talk about collaboration, that’s where the collaboration with your sales team can be beneficial also because they’re willing to go with you to that battle and say to the customer while you’re fighting with the auditor that hey, your honor and just doing this for this, I don’t like it viewed as valid. They can go to violence if you don’t. If you don’t tell your auditor that this is invalid help gives money back. I’m not gonna send you any product that helps with a smaller customer, but it did help when it was actually heard. It was hard to believe that the soldier was actually willing to go that far and say, I’m going to cut you off, which is surprising for most people who are not gonna cut anybody off.

[07:50] Roger Anderson:

Do a lot of people write-off their trade budgets when they don’t recover the money? A lot of people write it off. That’s where you probably get the most pain, if you have a trade spend with your customer that is when you don’t pay back, you don’t say okay, if you don’t pay it back, I’m going to have to reduce your future trade spans. That means we can win this promotion around Christmas. We both lose in the end because now we’re going to have the best price, we’re going to lose our sales through this. So let’s try to find a medium midway point to resolve this instance that the customer doesn’t take up before the grace period ends. Most are going to stick to 30 days on a pretty tight end and after the day as soon as it hits, it’s happening. This kind of goes into well when the customer pays for your invoice without invoice copy of some sort. Most people would probably say no, most companies will say no. So this is where you’re going to want to have to make sure you have your non-documented post-audit so leverage the SOX compliance and prepare a comprehensive list of all the documents required. Most of them may come from internal sources, some may come with the audit. This might be part of your history select with the deduction management tool as you’re going to find where you’re starting to get deeper. Looking at previous deductions, we’re able to find that supporting information and say yes, it was valid or it was invalid. We’re able to find an email attached to the previous deduction that was taken by the customer.

[9:25] Roger Anderson:

This may not apply to everybody. This is something we tried. Do you have a centralized document backup? Best practice, for this reason, has been especially to document your promotional deals, you have a deal sheet, make sure your salesperson is there when they’re renegotiating or updating their deal sheet or do anything to change that those sheets are documented somewhere. Either an email changes that to the buyer, and make sure they update your internal records that way at the end of the day, the orders don’t get the same records if you’re not keeping it updated. You look in your system, this doesn’t match with what they’re providing. Make a change to make sure your sales team updates all their information, keeps it up to date, no matter what changes they’re going to cancel, it makes sure they cancel and make sure the customer acknowledges that they cancel the deal. That’s where a lot of auditors will see it that it was never truly canceled inside that required time frame. The neighbor document management system doesn’t necessarily have to be HighRadius, but it was better to level us. But that was that benefit because we used the claims agent which went out to the auditor’s portals and actually pulled the post-audit claims off the portal. So we had that extra time to actually start researching right from the day it was posted on their portal. So we have someone to go through and pull it down for us and you scan it somewhere else or reprint it. Try to strengthen your internal procedures. That would be more like the same thing– keep everything up to date. Make sure everybody understands the hold pipeline at what you do down at the beginning of the order has an impact on the back end.

[11:07] Roger Anderson:

Everybody understands the old terms of that promotion. Leverage aside some time for a complete documentation guide. Most people may not have quantities on a deal sheet but make sure you have the price dates, it is based on the order date, ship date, receipt date, how they’re going to affect how they’re going to get it. Most people may not like this but from my experience, I prefer scam promotions. At least, then, you know that they offered as a customer and the customer got it. When you get burned a lot, your often way is some bill back because in your open up to ship dates and order, they start playing a bigger role on set because maybe a ship three days before it was supposed to take effect. That’s where you got to work with your sales team and your order processors to make sure we got a deal going and either update the promotion in the system to catch up through the order or delay that order. Make sure everything in the written confirmation account they actually apply and acknowledge it. Especially now I think most customers are going through the same situation whether they’re having a turnover in their buyer world, the person you talked to two weeks ago may not be the same person today or when you get that audit. Enable the document management system, a single document repository. The reason for that is that you have access to a fear post-audit team or whoever’s working or doing research your sales teams will have it. Morale should have access to that system. Real-time document update up-gradation says- some changes over the deal sheet, you can actually see that update at the end of deduction tracking, which again, your HighRadius, that’s the biggest thing in the deduction tracking. We took big advantage of that. And also with that, you can actually link previous deductions to your post-audit claim. See once you do your research, you can start linking them up inside the system so that we don’t keep going back and say you took this back on invoice 1234 in December so you don’t get it this time.

[13:10] Roger Anderson:

So checklist for effective and efficient document management — of course, proof of delivery, copy invoice, production withdraws, shipping or freight bill. You’ll see a lot of this. With one customer, they had an uptick in invoice fights because the pricing didn’t match. So the price that they mentioned was the hundred dollars fine. The auditor came out and sent claims for hundreds and tens of thousand dollars because they went back and said nope, there’s a price difference in the penny. There’s $200 in today’s audit.

Stringent internal procedures– a proper process to pace up deduction resolution by leading on other metrics. Again, this is where the production comes into play. It is your opportunity to either prevent it altogether or reduce it when it does get deducted. As soon as it does get deducted, you’re going to end up paying for it anyway, so it’s less time on your books. Suffering system to identify potential post-audit causes– this is where the invalid/valid process comes into play with HighRadius. Configurable workflows to resolve post-audit faster, and transparent inter-team communication between sales and accounting to remove any challenges. Some of your sales teams still might be email-driven, but with HighRadius, you’re able to give it more information. That way they can add their notes to the system and set a claim. Make sure you understand the deal terms. That’s where a lot of customers get a lot of vendors, maybe get burned too. And those vendor games that you sign is a history with a multi-page, constantly look at it and sign off on it.

Sometimes there’s going to be a keyword in there that they’re going to use to their advantage of the post-audit claim. For example, there’s one significant customer who has a section for unsellable loans, where if you don’t make sure that’s checked or unchecked, the order will come through and say, nope, you owe us this money because we got all this backlog for the last three years so you get a massive audit for something you never expected. You think it’s invaluable when you look at the vendor agreement and there, in some paragraphs is buried this verbiage that they could take all unsellable up to all the way back. Another one was inside the vendor payment there was a $5 per case fee. Sales didn’t realize it was there and got the audit, I found the vendor agreement inside I found this note that said they can charge $5 per case fee, nobody realized it was there. So be careful. That does not mean this may come into play as a lot of your executives may be the one signing off on this document. Make sure they either read it earlier, make sure somebody reads it thoroughly to see if there’s anything that stands out. So you can say, “Nope, I don’t agree to this section or renegotiate that rental agreement.” Otherwise, order comes in and they say, “Nope. I’m taking it. I’m running with it.” Try to make sure your terms and conditions aren’t conflicted. Your customer may be more of a challenge. Especially for post audits. All your customers now probably look more at their internal policies compared to your policies and they just kind of blow you off now. This is key. Also especially bill backs– shipping order and receipt date. Make sure that’s clear.

[16:12] Roger Anderson:

One example had a product that we shipped on a Friday. With a soldier probably some of his deals to start Monday. We can be honest about that as well. All you have to do is really go in either adjust your promotion to reflect that Friday date so this reduces a post-audit claim, which helped us significantly. To follow best practices– do not delay in doing your research, rejected or not documented post audits, and use technology to best advantage. That’s probably the biggest thing right now. It gives you more options, resources, the ability to look back in history and hopefully pull in some more information that you maybe never realized was there. Any questions?

[17:27] Audience Speaker:

You mentioned connecting to your auditor, is there any matching or anything like that you’re doing when they’re sending the request to you to match back into your system to pull any of that audit playing back in on a package together for the auditor? Or just the request coming from the auditor, and you’re able to work on that?

[17:46] Roger Anderson:

More than customer order sometimes we’re not going to give it to you anyway. So you still have to do your work to figure out. They’re telling me they want $1 for this time frame that says pray up two more to you to go where that dollar comes from and what key information that they give you to even help you find internally? Ultimately, because I think most post auditors I don’t know why they don’t send supporting information to help say, here’s why we took the dollar or more information, but it’s just sometimes the way they work.

[18:21] Audience Speaker:

Hi, I’m Christy from Sony electronics. We get post audits from mostly Best Buy and Walmart, a little bit other customers, but those are the big ones. I’m surprised people are getting claims without documentation. I think we mostly get things with documentation, although they do try to get away with a lot of stuff they shouldn’t be getting away with a couple of things that we do to address it. We have a dedicated analyst who just does the post audits and she’s very skilled at researching these things. She knows all about our systems to look at things and she does it across customers. Whereas the normal way we assigned claims is by the customer but she’s kind of a specialized person for us. On the technology side, we actually put all of our emails between certain donated domains with a searchable database. So all emails between our salespeople and those two customers get copied in the background. And she can go in there and search those emails to look for correspondence that’s in our favor. Obviously, the post auditors are on their side, they will ignore the correspondence that’s not in their favor. And they’ll find one out of context email that supports their claim and try to use it whereas there may be another email after that, that says we reject your offer. So she spends a lot of time looking through those emails. That’s kind of helpful for us. But it seems like the volume has gone down the last couple of years. And it could be that we’re doing better at doing these best practices. I mean, we do most of those. We try to be very careful about how we document deals so that there’s no ambiguity that could be used against this later, but I wonder too, if the customers are just doing better at claiming it upfront and not having what we kind of phone us because we had a dedicated post-audit team too and we started seeing post audits, we look back and say, you know, technically this happened three years ago or two years, six months ago. So we started having people track if the customer didn’t take the full amount, we’re gonna start being proactive, say, hey, you didn’t take the full amount. So please take this now, to avoid it.

[20:36] Christy:

Sometimes we do that but salespeople don’t like that. Right? They can’t get their heads around asking the customer to take money from us.

[20:37] Roger Anderson:

Do you trade spend for that?

[20:55] Christy:

They’re almost all trade-spent.

[20:57] Roger Anderson:

I’m surprised they don’t want to do it sooner. So that way, it reflects more accurately in the current timeframe.

[21:03] Christy:

Yeah, they’d rather claim it so we don’t have to worry about it. Three years from now and, you know, have all these special processes we put in place to deal with the phenomenon of post-audit. Are there a lot of post-audit is for non-trade? I guess we usually have them for pricing.

[21:04] Roger Anderson:

It’s mostly pricing, fees, and finance more than you think. And I heard through somebody here that one of the major grocery retailers are going to start an audio private label, which is kind of scary because that’s a whole other ball game. It’s also almost always driven by praise. That’s a whole other bucket of money that they’re going to take advantage of which is kind of scary. Because most times you’re not gonna have any kind of budget for that. So that’s pretty straightforward like, “It’s here, your price. Don’t bother me with anything. It’s your product you deal with.” So that’s really interesting to hear that. Sorry to hear that too.

[22:17] Christy:

AAFES, the army– that’s the other one we get posts audits from. The claim has dropped off a lot. Again I don’t know if it’s just that we’re doing a better job preventing.

[22:27] Roger Anderson:

It could be. Sometimes a lot of it goes in cycles like one of the major retailers has an auditor on-site so that’s her full-time job is to sit there and audit stuff all day long.

[22:46] Audience Speaker:

You know they’re using their own AI to determine what’s worthwhile to try to get away with. Usually, the auditors will try to get away with weird stuff. But usually, if we escalate to the A/P department, they’re reasonable about stuff. I mean the things that we are not successful in are usually things that are a bonafide disagreement between the two companies on what the deal was ultimately they have the upper hand. They have the money and usually, we can’t prevail on those.

[22:47] Roger Anderson:

Has anybody ever tried negotiating policies to meet halfway? Say no policy or policy we’re just not meeting so let’s just say you take 50, we take 50 and we’ll call it even. Has anybody tried that yet? Has it been successful?

[23:43] Audience Speaker:

Sometimes it works, it just depends. It probably depends on the buyer because usually, the buyer is involved.

[23:52] Roger Anderson:

One thing to do in a pre-deductions is when it’s presented, make sure you’re tracking those. I actually was tracking those for a few years before I left. It’s actually kind of fun to see how much we were actually preventing the company from not getting dinged with it. Actually, I still keep in touch with my post-audit team now. They still keep track of all that. They still get enthused by seeing where it was last year. Of course, it’s going to vary. The amount can vary depending on what cost your auditors are at, your claims are at but this gives you a visual idea of how much are we really preventing or what do we stop from hitting our books.

[24:33] Rachel Home:

Rachel Home from Pumpkin. We sell olive oil across the country. When you mentioned private label, is it the only post-audit type that could come in pricing? Because as long as your contract upfront doesn’t give any allowances then there really can’t be an audit.

[24:51] Roger Anderson:

That’s what I’m kinda curious about what they’re going to audit on when you already have a preset price.

[24:55] Rachel Home:

And I guess upfront if you the front-end of the process when you’re accepting the order and accepting and confirming that order at that price and if that process is solid then really it should prevent the post-audit claims.

[25:09] Roger Anderson:

That’s why it’s kind of interesting. Maybe they’ll just give it a run. See if they find anything, and they don’t find any middle stop but it’s hard to say.

[25:18] Rachel Home:

So, one other question I have is if there’s anything you can share in terms of what you’ve seen as the industry standard time limit? I’ve seen a couple of years back as well. But is there that sweet spot that you’ve seen where it’s two years, three years, four years?

[25:35] Roger Anderson:

Generally, I think even Pure Jecksie uses these two years as their timeframe. I think somebody told me there is an ECC code out there that goes back four years.

[25:53] Rachel Home:

Now, do you find that that’s something that’s already in the contract and some fine print that tells you that it’s spelled out?

[26:01] Roger Anderson:

Like one of the reps I’ve dealt with, I don’t always get an instance or not, but he always put in his verbiage on the deal sheet which said you have 18 months to file any claims. Never found a heavy post-audit from that side of it. So I hope that was coincidence or that verbiage actually worked for me. It’s hard to tell. We actually put it as part of a deal sheet that you had for 18 months.

[26:21] Rachel Home:

And that comes from the manufacturer?

[26:25] Roger Anderson:

Correct. Even then technically they can use that ECC to say, “Nope, we don’t care about your terms.” It trumps us all, but it’s worth it sometimes.

[26:41] Audience Speaker:

I just had one follow up on that new retailer about the private labels. We just got that announcement. Our marketing team was concerned that it’s going to be with marketing projects like rebranding pleat charges and all that. That may be the other piece of it. We could go completely wrong on that. We’re scared as well.

[27:08] Roger Anderson:

No other questions? Well, thank you, everybody.

[00:30] Roger Anderson: Sure everybody is looking forward to the day, so hopefully, this topic doesn't bore everybody and hopefully, let's have a little food for thought at the end of it all. And I'm sure everybody loves post audits if you deal with them now, it’s probably a really fun game. Personally, the reason they tasked me with this for this year because I do a lot of post audits. The reason I do is because of the ability to fight back on auditors and try to prove them wrong and try to get good money back to you and prevent stuff from happening. Even though you may not win all the time, it was just a fun game to play with them and kind of see how far we could push it. So Janet is going to talk about post-audit ends in general, which I think most people will know if you're already in the industry, best practices to handle post audits is to prevent post-audit claims, and tools to follow best practices. [01:00] Roger Anderson: What are post-audit claims? Most of them are coming from your third party auditors like PRGX and Colliers. It's probably the big…

What you'll learn

Post audit claims have always been a sore spot for suppliers. And while deduction teams try to stay on top of their game in terms of negotiating timelines, cross-checking paper trails and researching internally, it’s a stretch to assume that they would always be successful. Join the discussion with Roger as he discusses best-practices to deal with and prevent post-audit claims and the role of technology.

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HighRadius Deductions Software acts as a powerhouse for proactive deduction management to prevent bottom-line erosion. It provides automation, process standardization, and a platform for cross-departmental and customer collaboration. It supports deduction management by providing some key features like back-up document capture which captures deduction data from customers and supplies the information required for resolution; auto-capture proofs of delivery (PODs), bills of lading (BOLs) from carrier portals & emails; structured deduction resolution, collaboration & approval workflows to streamline the communication and approval process; along with automatic deduction correspondence, and automatic data push to customer portals. The result is a proactive deduction management operation that recovers revenue normally lost to invalid deductions.