Conducting Administration Fee (Direct Operational Services) Audits with Suppliers

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    • #292265

      We are seeking templates or white papers on how to conduct an administration fees (Direct Operational Services) audit with a supplier. We want to do it in house.

      Our goal is to look for opportunity areas that can be used for re-negotiation and reduction of fees.

      1. What data should we request?

      2. How should we ask for it?

      3. How do we evaluate it? Do we compare the collected data to profit, previous year, etc.?

      4. How would an accounting professional request this information?

    • #293747
      Anonymous
      Guest

      1. What data should we request? You should have a clause in your contract which allows for auditing of fees. You should request a report from the supplier for the past three years for all administration fees paid by your company to the supplier as well as the corresponding purchase orders in order for you to perform the audit.

      2. How should we ask for it? Send an official request as per the audit clause in your contract/agreement via e-mail or hardcopy on your company letterhead requesting they provide the data within 30 days.

      3. How do we evaluate it? Do we compare the collected data to profit, previous year, etc.? You need to reference back to the contract, and then the issued purchase orders to ensure the fees correspond with your agreement and the authorized purchase order. Any increase, whether annual or per project, based upon CPI should be challenged to ensure it corresponds with the agreement and the true CPI increase of the country where the agreement resides. You need to evaluate based upon the agreed to fee schedule and unit of measure in the contract/agreement. If you are being billed for “knowledge workers”, ensure you are paying appropriately for the level of expertise and geography (onshore/offshore) of that worker and have the vendor back this up with factual data.

      4. How would an accounting professional request this information? This should be managed through your vendor management or strategic sourcing/category management group.

      5. Can you share any support materials (templates, white papers, other thought leadership)? Unfortunately I do not have any materials to share, however, the onus should be on the vendor to provide this information as part of their relationship management value add. They should provide the report based upon what you require as the customer (unit of measure, PO number, date, etc.,)

    • #293748
      Anonymous
      Guest

      Hmmm … perhaps the request should go to an ‘audit’ team; not the Procurement team.

    • #293749
      Anonymous
      Guest

      Some of our suppliers have added an administrative fee to the cost of pass through when they purchase services on our behalf and it can range anywhere from 3-6%….

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