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Unlocking Value: The Essential Role of Auditing in Effective Contract Management

The word ‘audit’ can often invoke anxiety for many individuals and businesses. On top of the anxiety, not knowing what to expect during the audit process can create apprehension. Apprehension leads to worry. Worry leads to potential and actual errors in financial or other records, as well as compliance issues. All of those issues can be uncovered during an audit, along with ‘unforced errors’ that may not paint a fulsome picture of your organisation, its staff and operating procedures. Audits also require significant time and resources to prepare for, which may disrupt regular operations. For individuals without much experience with or about audits, this can increase uncertainty about how to prepare and what will be evaluated. Those factors will exacerbate the inherent worry, anxiety and apprehensions that will arrive with the auditors.
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Healthy Performance Culture
25 November 2024
Daniel Myles-Abadoo - Executive Director
5 minutes

The word ‘audit’ can often invoke anxiety for many individuals and businesses. 

On top of the anxiety, not knowing what to expect during the audit process can create apprehension. Apprehension leads to worry. Worry leads to potential and actual errors in financial or other records, as well as compliance issues. All of those issues can be uncovered during an audit, along with ‘unforced errors’ that may not paint a fulsome picture of your organisation, its staff and operating procedures. Audits also require significant time and resources to prepare for, which may disrupt regular operations. For individuals without much experience with or about audits, this can increase uncertainty about how to prepare and what will be evaluated. Those factors will exacerbate the inherent worry, anxiety and apprehensions that will arrive with the auditors. 

So why do we need audits? The answer is yes. In fact, auditors and audits can help organisations significantly uplift their day-to-day operations. One key objective of auditing is to provide assurance to stakeholders. Audits can also serve a constructive purpose, providing insights into financial health and compliance, identifying areas for improvement, and sometimes even confirming that practices are sound and in good order.

Using contracts as an example, the key challenges organisations typically face can be summarised as follows:

  • Navigating a myriad of regulatory requirements and diverse contract terms can lead to compliance risks and potential legal issues. 
  • Manual and outdated contract management processes can lead to inefficiencies, errors, and delays in execution and reporting.
  • Insufficient visibility into contract performance and obligations can result in missed deadlines, renewals, and opportunities for renegotiation.
  • Poor communication and collaboration among stakeholders for example legal, finance, and operations can hinder alignment and lead to misunderstandings or conflicts.

Through audits, organisations can assess the effectiveness and efficiency of their contract management processes – and address some of the key challenges, outlined above. And as to the upside? It starts with uplifts and improvements to the ways that the Commonwealth Government manages and saves on public expenditures. Considering that the Australian Government awards on average 70,000 contracts each year with an annual total value in the range of $50 billion to $70 billion,[1] there’s a lot to be gained through audits and reviews of contracting processes. Those gains can have flow on effects not only to savings for taxpayers, but also in improved – and potentially expanded services.

As to the how – and what auditors will use as a benchmark? Start with the Commonwealth Procurement Rules (CPRs), which provide a clear and effective framework for effective contract management in Australian government agencies. For those who are new to audit and feel anxious about reviews, my simple advice is to get to know the CPRs inside-out. Knowledge is not only power, but it can help reduce the uncertainty in dealing with what is, likely, the number one issue on the Australian National Audit Office’s agenda – ensuring agencies get value-for-money, along with a heightened focus on transparency and accountability. 

In the current Australian Government context, sound contract management is essential to achieving value-for-money from procurements. As such, contract audits are particularly important for the following reasons:

  • Compliance: Audits help to ensure that all contractual obligations are being met and the organisation is compliant with relevant laws, regulations and internal policies.
  • Risk mitigation: Audits identify compliance gaps and potential risks in contract management, helping organisations proactively address issues before they escalate into costly problems.
  • Performance enhancement: Looking at how you manage contracts can help you find slow or outdated processes. By analysing contract processes, audits uncover inefficiencies and provide insights that lead to improved negotiation strategies and overall contract performance. Improving these can make your contract management smoother and more efficient.
  • Building Trust: Audits help ensure that public funds are utilised effectively and responsibly, reinforcing public trust.
  • Financial Integrity: Audits ensure accurate tracking of contractual obligations and financial transactions, safeguarding against errors, fraud, and financial mismanagement. Audits can show you where you might be spending too much or not getting what you were promised. This can help you save money by renegotiating terms or cutting unnecessary costs.
  • Continuous Improvement: Audits provide insights that can drive process improvements in contract management helping government bodies adapt to changing needs and enhance service delivery.
  • Decision-making. Audits provide critical insights into performance and compliance that enables informed decisions on business strategy and vendor relationships.

In the evolving landscape of Australian governance, contract audits play a vital role in effective contract management and they can play an essential part in  building trust, ensuring compliance, identifying risks, enhancing performance and maximising the impact of public expenditure. By unlocking insights from audits, organisations can optimise their contractual relationships, drive strategic decision-making, and create significant value in their operations. Emphasising the importance of regular audits fosters a culture of accountability and continuous improvement, essential for long-term success. So don’t feel anxious, feel empowered when the auditors come knocking, but be prepared and open to ways of improving how your organisation operates.

Synergy Law utilises its extensive industry insights and expertise of its skilled consultants to help government agencies implement tailored procurement and contract management practices. Contact us to learn more about how we can work with you to achieve the best outcomes for your organisation. 

 

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