How Contract Audits Can Help You Grow and Safeguard Your Business
It is difficult to admit this as a writer, but a contract audit carries a lot more “gravitas” than an editor’s review of even the most compelling thought leadership article.
For businesses onboarding new SaaS customers, leasing specialized equipment, or arranging monthly shipments of raw materials for processing plants, there is a digital or paper contract somewhere that:
- Was created to define each party’s responsibilities, mitigate risk, and establish what will happen if things don’t go as planned
- Acts as a reminder of what was promised and options that are available to each party should the contract terms and conditions not be met
- Defines what will happen when the contract term ends or is renewed
Naturally, contracts regulate business relationships in many other ways. They often build confidence at the outset of a contract and foster trust during the contract term, not to mention facilitate those relationships for multiple terms.
MISTAKES HAPPEN – CONTRACT COMPLIANCE AUDITS CAN PREVENT THE RESULTING PAIN
Generally speaking, contract authors are highly concise, detail-oriented, and thorough. Yet, they are only human and, as such, can make occasional mistakes.
You would be correct in thinking that contract auditors are human, too. That is because they may be responsible for:
- Version control errors
- Rushed editing and redlining cycles
- Contracts that have obscured and misunderstood text after being scanned from paper
Frequently used, template-based contracts getting a cursory scan before approval, and non-standard terms and conditions getting overlooked. A contract audit can identify inefficient business processes that can cause compliance gaps. However, a contract audit can identify inefficient business processes – like those above – which can cause compliance gaps or diminish contract profit margins. Yes, the audits may cause short-term pain when a business realizes its past mistakes. But they can help improve processes to mitigate future errors.
OUTSOURCING CONTRACT AUDITS– OPPORTUNITIES AND THREATS
These days, many businesses hire third-party audit firms, especially if they lack the internal resources or expertise to thoroughly vet their own agreements. Some firms have a great deal of expertise in identifying problematic terms and conditions. It is the kind of knowledge that you wish you could “bottle” and reuse to expedite contract reviews in-house. Financial audit firms, on the other hand, identify errors in contract terms before deciding to further investigate related transaction records and operation logs within companies.
But by using an unbiased, unemotional contract review bot before sign-off, an audit of active contracts can be far less stressful. A virtual contract analyst can identify potentially problematic terms quicker and more thoroughly than any human reviewer. And let’s face it, clean, consistent agreements do not give auditors any reason to explore other financial or legal documents across the business.
CONTRACT AUDIT WORKFLOWS ARE BEST UNINTERRUPTED
For businesses in regulated industries like healthcare, and financial services, contracts are subject to many controls, both internal and industry-based. If an auditor identifies a problematic long-term agreement, it is much simpler to share a document within a secure repository than pass a contract around via email or in a physical file folder. Audit trails are then maintained in order for regulators to track the end-to-end contract lifecycle with minimal interruption.
Contract audits can create process improvement opportunities to mitigate future errors.
Of course, contract lifecycles do not end when business is awarded and documents are signed. In fact, the post-award phase is when the real work begins. That is to ensure that all parties meet their obligations, disputes are minimized, and contracts are renewed.
Regulatory assessors also appreciate transparent transaction workflows. This enables them to understand who authored a document, who made changes during the negotiation process, and who signed off on the terms. Fortunately, though, a modern contract management system (CMS) comes with permission controls, audit trails, and e-signatures. It offers the consistency and transparency that can only please auditors.
So, do you want to be better prepared for your next contract audit? Are you looking to transform your contract management processes while complying with regulatory standards? Check out our Contract Management Primer, which includes a handy checklist covering things like audit-readiness and predictive analytics. Download your copy today!
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