Financial Analysis
Post Audit Claims - Saving Companies Million$$
By Cheryl Pomerantz
Post Audit Claims are current deductions for previously missed promotional allowances. Your customers are allowed to deduct for allowances missed in the current year as well as the previous two year period according to the Food and Consumer Products of Canada guidelines.
Any company that does not address Post Audit Claims will definitely create exposure for their company because it tells your customer that they can continue to deduct and not risk paying back invalid portions. As there are no fines or penalties associated with this practice, the incentive is to overinflate the volume and dollar value of these audits. Hence, your customer has now chosen to use your company’s money to fund their retail expansion and not use their bank’s money or their own.
As a credit professional reading this article you are fully aware that time is not always on your side. Effectively and efficiently researching a Post Audit Claim takes considerable time away from your everyday responsibilities.
For the past 15 years, National Deduction Recover Inc. ( NDR) has reconciled and recovered over $150 million dollars of Post Audit Claims for Canadian Manufacturers. We would like to share some of the knowledge gained. The following are some tips, tools and best practices to help get you started.
TIPS:
In order to efficiently and thoroughly reconcile a Post Audit (PA) Claim, the process must be done through hard copy verification which means debit notes and sales records.
All sales records should be accessible to customer service and centrally located. Customer debit notes should be filed by company name and division. Sales records and debit notes should be kept onsite for the current year and the previous two year period.
Always review the clause in the standard covering letters accompanying a Post Audit Claim that refers to a limited time frame in which to respond to the audit. A notification must be sent to the auditing firm immediately upon receipt of this letter for each audit that is received. If you do not send a notification then you are bound to review the claim within THEIR allotted time frame.
It is also important to retain a copy of HOW the response was communicated to the auditor. For example, if sent via e mail, always send with a read notification receipt, being sure to always reference the PA Claim # and customer name in the subject line.
Never grant requests for statements that refer to open items on your customer’s account. This may show all “open credits’ on the account, and the auditor could highlight your information and send it back to you in the form of a Post Audit Claim. It is difficult to refute as you sent the paper.
NEVER confirm verbally or in writing to an auditor that an audit has been closed as information may be obtained in the future to refute the audit.
When researching a Post Audit Claim sometimes you will find an error in the audit to your advantage. (Missed calculation). If the audit is invalid and you are rejecting it back to the auditor, make sure that the amount you are rejecting totals more dollars than what the error is should the auditor catch it upon review.
TOOLS:
The sample Total Inventory Control Report spreadsheet is a listing of all Post Audit Claims opened and closed. Inventory reports are effective for tracking trade spend dollars allotted to your customers as well as budgeting purposes to accrue for future Post Audit Claims. It allows you to track when audits are received, to verify they were received within the FCPC guidelines, how long it takes to research an audit and respond, plus the payment turnaround time. The % Valid Rate is also a vital statistic when reviewing the Inventory Control Report. A high validity rate could indicate that you are not refuting claims with the necessary documentation and/or sales deals are not aligned between your customers’ system and yours.
The most financially rewarding component of the Total Inventory Control Report is that it highlights which allowances are being misinterpreted by your customer.
The problem is still not solved, because it is the weakness within the sales documentation that usually leads to the generation of Post Audit Claims.
Every piece of paper presented by your sales department today has the ability to generate a Post Audit Claim tomorrow. Therefore, the sales department must take a more proactive approach to reduce their company’s exposure and enable the credit department to efficiently reconcile Post Audit Claims.
THE MOST COMMON SALES ERRORS THAT GENERATE POST AUDIT CLAIMS
- Deal dates not filled in properly on Promotional Costing Sheets.
- Deal dates DO NOT ALIGN with your customer’s policy.
- Changes to Deal Sheets not documented or retained.
- Two different Deal Sheets issued with OVERLAPPING deal periods.
- Created date on sheet is from a different year and the deal dates do not specify a year.
- Not all skus are filled in with the proper item codes ( e.g. – TBD [to be determined]).
- The allowance given for the case rate is more or less than the rate given to the DRP ( Display Ready Pallet). An explanation should always be written as to why they are not equal.
- The promotional costing sheet was copied and the new skus in the family grouping were not included.
- Insufficient notification was given to your customer for a deal, as per your customer’s guidelines.
- Insufficient notification was given to your customer for the upcoming price increase.
- Proper notification was given to your customer for the upcoming price increase, however, the information had to be resent and you did not keep a copy of the second notification, and that was the document date stamped by your customer.
- You have negotiated a different rate for a standardized charge, ( e.g.-Advertising, Lump Sum or Listing Fee); however the documentation surrounding this agreement was not retained.
- The allowance based programs offered by your company are calculated on your company’s invoice date, however your customer calculates the allowance based on the purchase order or received date.
- The additional allowance you have offered your customer states it is based on Sales. You meant it to be based on POS; however your customer interprets this as total sales, based on their purchases.
- Your company offers an allowance for Volume Rebate based on the number of kilos of product received. It is not specified in the agreement whether it is on Gross or Net Package Weight.
- Any form that has the Payment Terms on it must state exactly what your company’s Payment Terms are ( e.g. 2% 10days on pretax amount/net 30 as opposed to just 2%, 10 days).
- Your company has published allowances that are offered to all customers, e.g. Co-op Allowance. On the forms filled out for your customers, this allowance is included in the O & A Allowance. If you do not specify that the Co-op Allowance offered by your company is included in the O & A Allowance, you are certain to be audited for the Co-op Allowance.
- Terminology used is misleading.
BEST PRACTICES:
- Do you have published business rules?
- What is your policy for Deal Notification?
- What is your policy on Floor Stock Protection?
- What is your policy on Price Increase Notification?
- How do you deal with customers’ black out periods for price increases?
- Do you offer a Vendor Agreement?
- Does your customer’s Vendor Agreement align with your business rules?
- How do you calculate your allowances? Are they based on net invoice, list price, etc.?
- Do you calculate allowances based on shipped in calendar year, ordered in calendar year, received in calendar year?
- What is your Cash Discount policy? Is it based on net or gross, net of tax or taxes included?
HOW ARE THE ABOVE RULES COMMUNICATED TO YOUR CLIENT?
- Do you accept “deal pricing” for replenishment of stock?
- If “promotional quantities” are ordered outside of the deal, do you allow your customer to get the “extra monies”?
- Do you allow “opportunity” on either side of the deal period?
- When product is short shipped during the “deal” do you allow your customer to claim the” deal” on the next shipped order?
- Do you have published or standard Listing Allowance rates?
- What is your EDI policy?
- What is your “Penalty & Administration Charge” policy? ( fines for short shipments, pricing errors, etc.)
- Does your company adhere to the FCPC guidelines relating to Post Audit Claims, ensuring the 90 day waiting period and the 2 year guideline is adhered to ?
- What do your Account Managers do with their sales records, e mails, Vendor Agreements, etc. ?
REVIEW YOUR POLICIES IN ACCORDANCE WITH YOUR CUSTOMERS’ POLICIES
Vendor Agreements are written by your customers and are biased in their favour so it is very important to be aware of what you currently have in place and how old it is.
Here is an example of an issue we dealt with recently. A Major Supermarket Chain (MSC) sent out by e mail their new business practices for promotional dollars. The form stated that all Bill Back (BB) monies offered would be calculated based on 8 days before the advertised promotion and end two days after the advertisement finished. The sales department was required to fill in the boxes for the length of the start and end date of the flyer dates. The calculation for the timing of the BB was automatically populated when this information was keyed by MSC. Manufacturers thought this would result in an extreme reduction or even elimination of Bill Back Post Audit Claims. However, MSC’s system did not populate the deal dates correctly, hence 2 years later, manufacturers inherited significant dollars of Post Audit Claims for the missed dates and it was the tracking of these audits that drew the manufacturers’ attention to this ongoing error that was causing audits to increase as opposed to being minimized. Had the credit department who processes the deductions known the new business practices and had on file copies of the promotional deal sheets, they would have noticed the discrepancy in the timing of the deal immediately. Communication of this to Sales would have resulted in this problem being eliminated across the board as MSC would have been forced to correct their system errors. Additionally, when the auditors discovered the error, they did not advise MSC as it meant the volume and dollar value of MSC audits being generated would be diminished. Today, the corrections have been made with the manufacturers who have identified the issue. You cannot change the past but you can set a precedent for the future by identifying the loopholes and closing the door.
For further information, about NDR and post audit claims, contact Cheryl Pomerantz at 416-879-1824 or cheryl.ndr@rogers.com.
