Distributor audit program

While it can be viewed as a mild annoyance, it has been our experience that the honest and compliant business partners will support such an initiative, because they too understand the threat posed by persistent product diversion.

The non-compliant distributors are a threat to the entire distribution system as they are costing manufacturers millions in unwarranted and unearned discounts and rebates and could increase their exposure to product liability lawsuits. Imagine a diabetic using a glucose monitor calibrated to U. The results are potentially fatal and costly as it can be argued that the manufacturer is liable for not keeping this product out of the U.

Compliant distributors will get direct benefits from an audit as the auditors can pass along information that can assist the distributor in improving its operations, including issues such as internal theft, weak internal controls, and proper inventory management. As with most initiatives, a well-designed plan and approach are a necessity for any audit program to be successful. There are three distinct steps in the typical audit program:. Manufacturers can and do establish controls to govern these obligations, but in the end there is always a heavy dependence on a good faith understanding that the distributor will comply with its agreement to accurately report their sales tracing activity.

A well-conceived audit process can foster compliance without creating any unnecessary animosity or tension. An audit program should be created in a methodical step-by-step process to ensure consistency in application.

The program should also be tailored to address the unique needs and characteristics of the agreement. Most audit programs are designed to evaluate and verify reported sales and to validate purchase volumes and market share calculations. With the sales data, an auditor can prepare an inventory reconciliation, corroborate quantities reported to the manufacturer via market share or utilization reports, and take a sample of transactions and review the supporting invoice documentation.

Additionally, advanced auditing-based software allows for sophisticated data mining and integrity checks, and can uncover irregularities within the sales data. Audit programs do not have to be limited to verifying and validating the sales data.

Developing an audit program will involve some expense and the manufacturer needs to ensure that the benefits will outweigh the costs, and the program needs to be tailored to ensure that. The scope and duration of the review must be established. Alternatively, a shortened period within this three-year span can be considered. Likewise, if a distributor has multiple distribution centers, consideration should be given to reviewing only certain locations in detail.

In applying any limited scope procedures, if instances of abuse are discovered, the review can then be expanded to cover more years or all locations. Additionally, manufacturers can realize a huge savings by identifying those distributors that are not meeting purchase or market share commitments and in turn cease or modify the discounts or rebates they offered.

Any manufacturer can probably point to a few business partners who would be good candidates for an audit. After the audit program has been designed, the candidates selected, and the notices sent, a distributor should be given a limited amount of time to gather the records for the audit. Why Get a Supplier Audit? With an estimated 40 million people enslaved worldwide, can collaborative efforts between consumers, governments, brands and NGOs eliminate modern slavery for good?

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