So it is that this inaugural blog post of Sourcing Talk is focused on the sourcing of financial audit or attestation services. Sourcing Talk is a new IQNavigator topical blog post series for managers and stakeholders of services spend that focuses on sourcing strategies and insights.

Unassailable Sourcing Process
The sourcing process that is followed to select (or even renew) a public accounting firm to conduct required financial audits is critically important to the legitimacy and credibility of the selection. As such companies should approach the sourcing process with unassailability as the objective.

• This is especially true for publicly-traded corporations that depend so heavily on the external audit report to meet regulatory compliance requirements and that give all investors transparency (ok, limited transparency) to the soundness of the corporation’s financial statements and internal controls.
• Unassailable sourcing practices are arguably more important for non-public entities (i.e. privately held companies, hedge/mutual funds, pensions, etc). Because the final audit report is not always made public for these private firms like they are for public firms, the qualifications and reputation of the CPA or public accounting firm selected carries potentially even more weight.

Audit Scope Misconceptions
Just because the lead auditor has been awarded the corporate audit does not automatically mean they also have to, or are the best option to, do the subsidiary and external audits of a company, such as company-owned investments, subsidiaries, partnerships, etc.

• Often these subsidiary and external audits fall outside the mandatory scope of the corporate audit – for instance, due to level of ownership interests or materiality – yet are included in scope of the contract / engagement with the lead auditor unnecessarily. For a small to mid-size company this may be appropriate and most cost effective or practical. However, for large corporations where the corporate audit can cost several million dollars and the subsidiary and external audits can cost even more, just the opposite may be true.
• Big audit firms compete fiercely for corporate audit awards from big corporations, not solely for the revenue and reputation that accompanies the win, but because of the ancillary scope that is typically added on beneath the radar of competition. Because the selection decision is necessarily focused on the regulatory requirements of the corporate audit scope, the cost and quality details of the subsidiary and external audits often do not weigh heavily in the final decision. Big public accounting firms know this and price the subsidiary and external audits accordingly.
• Subsidiary and external audits can be competitively bid to obtain better, more competitive pricing and to seek more experienced audit resources for sometimes niche or specialized business entities or operations – for instance, SAS 70 audits, foreign entities, trusts, foundations, etc. The incumbent or lead corporate auditor should certainly be invited to bid as well.
  • Alternatively, the scope of the subsidiary and external audits could figure more heavily into the corporate audit selection process, if for no other reason than to leverage competitive pressures for appropriately skilled resources and better pricing.

Managing the Audit Engagement
The challenges of managing an audit engagement are no different from the challenges of managing many other complex SOW engagements. Companies should consider utilizing a VMS (vendor management system) with best-in-class SOW functionality and features (like IQNavigator!) to mirror the complex terms of the corporate audit agreement – also the terms of subsidiary or external audit scopes of work – and fully operationalize the audit engagement. Doing so will not only bring financial disciplines to a big, high risk and complex engagement, but will create much greater visibility to the spend and better position the company for audit term extensions, renewals and strategic sourcing.

At the CWS conference last Thursday, ​I hosted two roundtables about expanding programs internationally, and they were both over-subscribed; people were pulling in chairs to seat 14+ people at a 10-person table!

Here are a couple of discussion points from the roundtables:

• Drivers for going global were the usual benefits of visibility, compliance and cost control and savings. The CFO/Finance group seems to be driving a lot of this, rather than HR directly.
• While a “standard global process” is a goal, the process needs to be customized for specific countries
• For capturing the “long tail” of many countries with few workers, using worker tracking (without sourcing or invoicing) can gain the visibility and compliance benefits
• Many people wanted help with each country’s regulations, which typically the MSP and VMS can help provide
• There was a lot of discussion about having one global VMS, but having multiple MSPs depending on the country/region
• There was some conversation about “export laws” for bringing in workers to different countries

The conference overall went very well, we were over-subscribed for both our Wednesday cocktail hour and our Thursday dinner, and many presenters mentioned IQNavigator. Several participants told me “your name is all over the conference”!

To better understand and appreciate both aspects of control, let’s quickly revisit coverage and visibility:

• Coverage is the portion of spend under active management.
• Visibility is the company’s ability to capture, report and leverage relevant services spend data to identify vendor and efficiency-based cost savings.

Below is the detailed description of control.

Control is the ability to track and manage compliance with vendor and category preferences AND it is the disciplined management of category operations as measured by contract compliance.

Control is measured by two separate metrics: savings leakage and contract leakage. These terms are often confused or used synonymously by practitioners and vendors alike. As is the case with other procurement terms, there is no right or wrong way to define leakages. But it is important to understand how it is being defined at the point of use. For our purposes here, I use the following explanations and accompanying picture:

• Savings leakage occurs when savings have been identified and are available but for some reason are not realized in the SOW or contract. Maverick spend is part of savings leakage, but there are other causes as well. For instance, lack of awareness about or system configuration of revised pricing.
• Contract leakage occurs when payments do not comply with contract terms. Generally the causes of these errors are process oriented and operational in nature.

Control of the category is the ability of the procurement organization to ensure negotiated savings and pricing actually make their way into SOWs or contracts. Having the ability to centrally control or push out negotiated pricing and preferred vendors to the organization in a timely manner maximizes category control and minimizes savings leakage.

Operational control is the ability to minimize errors and inaccuracies when processing invoices and payments. Automating these processes and linking them directly to contract terms is the best way to maximize contract compliance and virtually eliminate contract leakage.

Best in class VMS technologies (yes, like IQNavigator!) readily provide these desirable control features.

In the last article of this series we will pull it all together with math. Anybody up for a word problem!?

• Services Procurement’s 3-Legged Stool: Part I – Spend Under Management? (How do you know?)
• Visibility (Another opportunity to quote Einstein!)

• A – Lack of coverage because that spend isn’t really under management;
• B – Lack of control because category preferences have not been adopted;
• C – Complacency, or in other words tolerating badness; or
• D – All of the above

There are no good answers to this one, but the message should be clear: nip maverick services spend in the bud… nip it, nip it, nip it! (For help in nipping it, see Question #1.)

A – Maverick services spend helps identify strategic sourcing opportunities.
Explanation – If a business manager is aware of the preferred vendors and preferred pricing and still he or she selects a different vendor for their need, there just might be a good reason. Experienced procurement and sourcing managers will approach this event with an open mind (at least the first time!): open to the possibility that the set of preferred vendors simply does not meet the business manager’s needs; open to the possibility that the maverick vendor might be a good addition to the preferred set or maybe even a replacement; open to the possibility that the business manager does not fully appreciate the benefits of going with the preferred vendors.

B – Maverick services spend reaffirms the Business as the responsible party for making vendor selections.
Explanation – If this is true in your company (like it is in most), then remember that responsibility is a two-edged sword: On one side the Business is the responsible party for selecting vendors for the business or project at hand. And it will be their executive management team or the markets (ie stock holders, customers) that will hold them accountable for business failures and reward them for successes. On the other side of the sword, if the Business is going to do their own sourcing then they are also responsible for spending money wisely, performing adequate due diligence on selected vendors, and for competitively bidding (we hope!). The difference is that on this side of the sword it is Procurement’s job to hold the Business accountable – the origins of ‘shine the light’ in procurement lore.

C – Maverick services spend validates the effectiveness (or ineffectiveness) of services procurement technologies and processes.
Explanation – If the technology or process in place allows maverick services spend to make it all the way through without being stopped, then by design isn’t maverick services spend an anticipated and acceptable outcome? A good VMS solution (like IQNavigator!) is configurable at the category and transaction level to employ hard stops and soft stops when non-preferred vendors or pricing are selected.

D - All of the above.

But maverick services spend isn’t all good. Stand by for Question #2 that highlights the less attractive side of maverick services spend…

Our topic was “Worker Tracking”, which means completely tracking the entire non-employee workforce, including temporary workers, contractors, field workers, etc. This provides a closed-loop process to correctly on-board and off-board all non-employee workers and manage their time-limited assignment – with two key benefits:

• Compliance to security policies and background checks for non-employee workers for corporate network or building access
• Visibility into the non-employee workforce – who they are, where they are, who their suppliers are, and what they’re working on

To successfully manage this process, there are 6 things the VMS (services procurement) software needs to provide:

1. Ease of use – The screens should be fully configurable to capture only the information needed for each type of non-employee workers
2. “Worker” concept within the software, so the system lets the user know about past assignments and do-not-rehire situations
3. Flexible approval processes and notifications
4. Support for high-volume worker situations and remote workers like manufacturing plants and distribution facilities
5. Real-time reporting, especially for global and high-volume clients
6. System integrations to automatically turn on and off access for non-employee workers

Fortunately, I finished ten seconds early, so they didn’t have to resort to the stop-time music!

If worker tracking is of interest, please email marketing@iqnavigator.com for more information.

First we talked about metrics and measure to track program performance and improvements, and several categories of performance metrics were discussed:

• Cost savings versus market rates continue to be a focus in many programs
• Fill metrics like time to fill, compliance to pre-employment screening items, and candidate quality
• Program scope (including types of services, which business units and geographies) and adoption (i.e., the amount of orders and spend outside the program)
• End-user satisfaction with the program

Then we discussed how to improve these key performance metrics, and several themes emerged in the conversations:

• “If you’re not improving, you’re falling behind”: Every program should have a continual improvement focus, as well as frequent calibration to the business needs as they evolve
• Regular improvement project reviews: Quarterly business reviews are an ideal time to regularly report progress on improvement projects, gain alignment and buy-in of the various stakeholders, and gain consensus on the most important improvement projects to tackle next.
• Trouble-ticket trends: The QBR is also a good time to review topical and volume trends of trouble-tickets reported by internal and supplier end-users.
• Ask your various constituents: A regular survey of hiring managers is a good source of improvement areas to focus on, and the MSP should be frequently tapped into for their improvement suggestions and emerging best-practices. In addition, suppliers should be engaged regularly (via survey or supplier summit) to review their feedback on the program and improvement suggestions.

While the detailed improvement projects were specific to each customer’s program, the attendees all felt that continual improvement was an imperative of every program, and as a result was a core part of their job description.

As a vendor to some of the world’s most respected companies, our corporate culture at IQNavigator is very focused on our customers – our internal vernacular and goals center around what can we do to make their lives easier, provide better SLAs, higher quality data, quicker response times, more meaningful metrics – and the list goes on. Sometimes, a little return from our customers goes a long way in making the end results better for all involved.

For example, Helen Huntley, Vice President of Research with the Gartner Group, was a keynote speaker this morning at the VMS Professionals Conference held at the McDonald’s Corporate Training Facility just outside Chicago. She spoke on strategic vendor management with a focus on how to create a mutually beneficial structure. As we all know, every client wants the supplier to do their part with reduced pricing, heightened account representation and attention, SLAs, quality focus, etc. Helen highlighted that companies can only create a truly strategic structure when the supplier’s needs are also being addressed.

To create comprehensive and true value, Helen recommends that the following should be provided to your suppliers:

• Commit to being a reference customer on a regular basis
• Provide exposure to strategic spend information
• Provide regular strategic insights on upcoming business initiatives and challenges
• Be their sponsor and assist in building executive relationships
• Actively participate in the vendor’s client focus groups
• Engage in 360 degree evaluations with both learnings and candid feedback
• Look for ways to drive business to them with incidental spending
• Everyone loves to be recognized – consider submitting them for vendor awards

Providing your key vendors with these points of value not only incentivizes them to perform, but enables them to be as effective as you need and want them to be.

What do you think about the two-way street? Do you have any examples of how providing a little more insight into your operations allowed one of your vendors to respond with a better, quicker, easier solution to your problem?

Picture by PixiePics

What is essential for success for services procurement is integration – integrating with the clients’ financial systems, HR systems, security systems and many others to keep data consistent, enforce policies and provide end-to-end automation. Global enterprises sometimes require more than a dozen integrations to get going.

With system integrations, the devil is in the details, and integration specifics aren’t typically finalized until after the vendor is selected. So clients should look for the most flexible and fastest provider when it comes to integrating with their systems, who can easily adopt to the client’s already existing formats, messaging protocols, and security approaches.

By choosing a provider with a proven track record of delivering integrations quickly and correctly to a broad diversity of client systems, clients can get full value from their services procurement program and avoid the painful operational headaches of incorrect, inconsistent data from lack of integration.

Title: OutSourcing: What Are BPO & HRO Good For?
Date/Time: March 16, 2011 at 1:00pm EST
Panelists: Moderator: Diana Gabriel, VP, Strategy and Solutions, Staffing Industry Analysts, Guest Speaker: Stephen Clancy, General Partner, Athru Development Group

Description

Working through the alphabet soup of VOP, VMS, MSP, HRO and BPO? This webinar aims to provide a broad overview of the BPO and HRO landscapes. We will then look at the key drivers of demand and what determines if and when BPO and/or HRO might be a good choice for a company to explore.

Register Today!