Audit timing is key to success.
Recently, I spent some time looking at a potential prospect’s business – reviewing news articles, press releases, annual reports etc. One thing struck me - that there was a potential leakage of over twenty-five million dollars from their maintenance budget, about fifteen percent of the annual total.
Upon further investigation I discovered that policy was to carry out spot check audits on less than eight percent of completed work orders at the end of each financial year. Roughly a third of work orders failed the audit and in most cases the reason was due to incorrect service charges being applied by the subcontractor.
Let’s think about this for a moment. Subcontractors are overcharging for work completed in as many as thirty percent of cases, costing the organization in question $25,000,000 per annum and no-one notices? Furthermore, because of the timing of the audit, nothing is done to recover the over payment for on average six months. Given the audit process is extended only to a small subset of work orders, the majority of the over payment is never recovered.
If this were a publicly listed organization, the shareholders might be up in arms about this. From what I can see the problem has been getting worse for the last three years and those responsible have done little to mitigate the problem.
In this case, the majority of work orders were around the $1000 mark, so we are talking a large number of transactions, but thereby lies the problem. An audit approach that is retrospective is bound to fail for three reasons;
The job is already complete so the cost of recovering the over payment is an additional financial burden.
With such a high number of work orders it is impractical to manually audit every job, but small sampling rates mean that it is essential to do so.
Unless the subcontractor is penalized in some way, there is no practical deterrence against repeat offences.
Reviewing the non-conformance issues for this prospect I found that amazingly over 90% arose from either incorrect invoicing for agreed scope of works or failure to correctly document the completed work order.
At Beehiive Software, we developed a platform that was specifically designed with this audit and conformance criteria in mind. When considering work order management undertaken by some of our other clients the workflow is simple;
Accept a consumer request for service – this may require a level of triage in the case of a warranty or service repair request.
Issue the work order to the nearest, appropriately qualified available subcontractor and await confirmation of acceptance.
This includes definition of scope of works and conformance criteria.
Coordinate scheduling between consumer, responding organization and subcontractor.
Escalate work order if delivery KPIs are not being met.
Automatically escalate any work order varying from the scope of works for non-conformance. Variation can be approved if there is a justifiable case.
On completion of the work order, audit the documentation, any variation to the scope of works and send for approval and payment.
The critical part within this process is that the scope of work, whilst subject to variation, is agreed upfront and is the scale of charges that relate to this scope of work. Conditions are laid out in such a way that the subcontractor will not be paid unless they meet specific conformance requirements.
As a result, very few work orders – typically less than 1% – fail these KPIs. If the invoice matches the pre-approved charges aligned to the scope of works and the supporting documentation e.g. photographic evidence of installation and repair is supplied as demanded by the contract, there is little need for further audit.
Under the Beehiive Software platform, work orders are carried to agreed timescale, to budget with invoicing and audit automated in real time. As a direct consequence of this there is far less scope for subcontractors to try to ‘game the system’ whilst still being paid a fair rate for the job. Efficiency improves, service delivery improves, costs and losses are eliminated, and consumer-based outcomes become the norm.
Strangely enough, all part of the Beehiive philosophy of: - “Do it right first time”.