How do you conduct a commercial audit of your suppliers and contractors?

I recommend gathering all relevant data, including contracts, payment records, and performance reviews. AI-driven analytics can help you organize and process this data efficiently, spotting discrepancies or trends you might miss manually. In keeping data organized from the outset makes the audit more manageable and allows for easier cross-referencing between documents, ensuring accuracy in your findings.

Conducting a commercial audit of suppliers and contractors starts by defining a clear scope, focused on evaluating their financial health, contract compliance, and performance history. As a Quantity Surveyor, I'd tailor this scope based on the project's specific needs—whether it's cost control, quality assurance, or timely delivery.

In my experience, conducting a commercial audit begins with clearly defining the scope, focusing on key areas like payment terms, compliance with contractual obligations, and cost effectiveness. I review invoices, contracts, and performance reports to ensure transparency and accuracy. Site visits are often crucial for assessing the quality of work and adherence to project schedules. Additionally, I evaluate their financial stability and risk exposure to avoid potential disruptions. Regular communication with the suppliers and contractors also helps in identifying and addressing any discrepancies early.

The first step is to establish the boundaries and objectives of the audit. Determine what aspects of the supplier or contractor’s operations will be audited (e.g., financials, compliance, performance) and set clear goals, such as verifying cost accuracy, contract compliance, or identifying inefficiencies.

Clarify Audit Objectives: Determine the specific objectives of the audit—whether it's to verify compliance with contract terms, assess financial performance, review pricing structures, or check for any discrepancies in invoicing. Determine the Audit Scope: Define the audit’s scope in terms of the time period covered, the types of transactions or activities being reviewed (e.g., invoices, work orders, performance metrics), and the depth of the audit (e.g., random sampling or exhaustive review).

Define Objectives: Clarify the purpose of the audit. Is it to assess financial health, contractual compliance, supply chain risk, or performance? Identify Key Areas: Focus areas may include contract adherence, cost management, supplier performance, quality control, and delivery timelines. Develop an Audit Plan: Establish timelines, audit criteria, and scope. Decide which suppliers/contractors to audit and set expectations for documentation and evidence. Assemble the Audit Team: Choose auditors who are familiar with both the business and commercial aspects, including finance, legal, and procurement specialists if necessary

Create a detailed audit plan, outlining the timeline, the team members involved, key audit areas, and the documentation required. This phase also involves selecting appropriate audit methodologies and ensuring that the supplier or contractor is informed of the process and timeline.

During the audit, the team collects data and reviews documents such as contracts, invoices, financial statements, and performance reports. Site visits may be conducted to observe processes, interview personnel, and ensure that operations align with contractual agreements and compliance requirements.

After completing the audit, compile the findings into a comprehensive report. The report should highlight key observations, discrepancies, non-compliance issues, and any areas where the supplier or contractor has exceeded or fallen short of expectations. Data should be presented clearly, with supporting evidence.

Share the audit findings with the supplier or contractor, as well as internal stakeholders. This involves presenting the report, discussing areas of concern or improvement, and ensuring that the supplier understands the findings and implications. Communication should be constructive and collaborative.

Utilize AI-powered contract management tools to track contractor compliance and automate the identification of potential risks, such as delays or cost overruns. Implement blockchain-based solutions for secure and transparent auditing, ensuring all transactions and amendments are accurately recorded.

I recommend scheduling periodic reviews, supported by AI tracking tools, to monitor the progress of corrective actions. In my experience, setting measurable goals with clear timelines and frequent check-ins ensures accountability and drives continuous improvement. Additionally, I suggest engaging with your suppliers through LinkedIn to maintain open lines of communication during the follow-up process.

After the audit, follow up with the supplier or contractor to ensure that corrective actions are being implemented based on the audit findings. This may involve setting deadlines for rectifying issues, continuous monitoring, or conducting a follow-up audit to ensure compliance.