How can you use a contract audit to improve contract management?

2 Why do you need a contract audit?

A contract audit can provide many benefits for FMs, such as improving contract compliance and governance, enhancing contract performance and quality, optimizing contract value and cost, reducing contract risk and dispute, and supporting contract improvement and innovation. It can ensure both parties are fulfilling their obligations, identify and address any gaps or issues in the contract delivery, verify that payments are based on actual work done, detect and resolve any errors or fraud in the contract documentation, and provide feedback and recommendations for future contract planning.

3 When should you conduct a contract audit?

A contract audit can be conducted at any stage of the contract lifecycle, depending on the objectives and needs of the FMs. For instance, prior to signing a new contract, an audit can be used to ensure that the terms and conditions are clear, fair, and in line with the FM's goals. During implementation, it can be used to monitor progress, performance, and quality, as well as identify any issues or challenges that may arise. After completion, it can be used to evaluate outcomes, impacts, and lessons learned, as well as verify and reconcile final payments and settlements.

4 How should you conduct a contract audit?

Conducting a contract audit requires a structured and systematic process. This includes planning the scope, objectives, criteria, and methodology of the audit, selecting an audit team and schedule, and preparing an audit checklist and questions. During the execution phase, activities such as interviews, observations, inspections, tests, and analyses should be conducted to gather evidence and findings. Finally, the audit results should be reported and communicated to relevant stakeholders with conclusions and recommendations. Follow-up includes implementing the audit recommendations, monitoring and verifying corrective actions, and closing the audit.

5 What are some best practices for a contract audit?

To ensure that your contract audit is effective and efficient, you should involve both parties in the process and use a risk-based and data-driven approach. Additionally, you should apply relevant standards and guidelines, such as the International Standards for the Professional Practice of Internal Auditing (IPPF) or the Contract Management Body of Knowledge (CMBOK). It is also important to maintain audit independence, integrity, and objectivity while avoiding any conflicts of interest or bias. Lastly, be sure to document and store the audit records, evidence, and reports in a secure location. A contract audit is an invaluable tool for FMs to improve their contract management process and outcomes by ensuring that contracts are delivering expected value, quality, and performance while being managed in a compliant manner.