The “Best Practice Statement: Forensic Auditing” update issued by the Groceries Code Adjudicator in October was a timely reminder of the importance and need for high quality, professional and code compliant recovery audit services. The need to undertake these audits within a reasonably short timeframe was also reiterated.
Background and Context
Mark White took over the reins from the first Groceries Code Adjudicator, Christine Tacon, on 31st October 2020. Forensic (recovery) audits undertaken by/on behalf of the Designated Retailers have been one of the areas of concern since the inception of the ‘Groceries Supply Code of Practice’ in 2009 and since an Adjudicator was first appointed.
While improvements over time are acknowledged, by Autumn 2020 suppliers’ concerns relating to forensic audits were again being brought to the attention of the Adjudicator and were raised with the Retailers in the regular meetings with Code Compliance Officers in Autumn 2020 and Spring 2021.
What are the aims of the Adjudicator’s Best Practice Statement?
In summary, the Adjudicator would like to see an improvement in the transparency of recovery audit processes by the Retailers in order that suppliers can, at the outset and for the life cycle of supply agreements, understand the risks and full costs of supply to the Retailers.
The second equally important objective relates to the process. The Adjudicator wants to see clear delineation between these activities and “Business as Usual” trading, a reduction in the number of invalid claims, and faster resolution to Retailer’s claims and supplier counterclaims. This also applies to Standalone Claims (see Reciprocal Time Limits and Standalone Claims below).
Some of the Adjudicator’s Suggested Improvements
- All supply agreements should clearly set out and explain the methodology for calculating any monies due from suppliers for whatever purpose including recovery audit claims. Equally, all claims or responses to supplier counterclaims should include direct reference and access to all relevant documents from the outset, provided in a clear and standardised format referring to the full and pertinent terms of the supply agreement and presented with full backing data.
- A Retailer’s buying teams should not be responsible for the preparation or negotiation of audit claims or supplier counterclaims. At all times this should be handled by the Retailer’s finance team in a transparent, timely process that expressly documents any audit claim agreements.
- At no time should there be any conflation between the settlement of audit or supplier counterclaims with current or future trading discussions.
- All claims should be carefully scrutinised before submission to a supplier.
- From the outset, the Retailer should set out a clear timetable for the resolution of any claims or counterclaims, the Adjudicator suggesting an expected resolution period of 60 days.
- Where Retailers use third party consultants for recovery audit purposes, all audit work should be subjected to ongoing robust scrutiny. This includes ensuring that the staff of those consultants are appropriately trained in the Code and have sufficient experience and understanding to operate within the requirements and spirit of the Code.
Reciprocal Time Limits and Standalone Claims
The Adjudicator also considers that the same overarching principles should apply to Standalone Claims. Standalone Claims being where the suppliers are undertaking forensic auditing programmes examining their accountings with the Retailers.
On 31 March 2021, the GCA published an updated version of the voluntary commitment on forensic auditing confirming that the Retailers had agreed to the commitment which limits the time for which audit claims may be made to the current financial year and the previous two financial years, provided that this is on a reciprocal basis.
Effectively therefore, the ability to undertake these activities is time limited.
How can Aveiroe help?
- Our auditors have developed their specialist expertise across a variety of FMCG/Retailer trading environments. We can seamlessly run your forensic audit activities to the highest standards and in line with best practice as defined by the Code (see About Aveiroe below)
- Mark Fuller and his team can guide you through the requirements of the Code and the development of regular, transparent and robust audit programmes to ensure full compliance (see About the Author below)
- This provides an independent review and creates a testing regime for your transactional dealings with Retailers. This will erase your concerns and give you the confidence that those dealings accurately reflect your supply agreements, so you receive and pay what is due
- Our highly efficient audit processes means faster resolution (and improved cashflow) – in line with best practice and in line with our clients’ best interests in these difficult times
- We help protect and build the trading relationships through the professionalism of our service, gathering and analysing data on a timely basis and conducting the forensic audits in the appropriate, professional manner
About Aveiroe
The team at Aveiroe have built an in-depth understanding of the accounting complexities caused by the promotional/discounting/rebate activities associated with the Grocery/FMCG/Retailer marketplace.
Aveiroe’s Partners pioneered and led these activities from c2000 onwards and have been responsible for the majority of the technological and service innovations within this profession, whilst always maintaining the highest standards of integrity and conduct.
Our experts have repeatedly demonstrated mastery of complex supply chain processes and data systems and the development of appropriate audit techniques and programmes. With the experience of having identified billions of revenue shortfalls and adding billions to client bottom line through supply chain audits, we have diligently directed audit activities on behalf of over 250 clients.
About the Author
Mark Fuller is a Partner at Aveiroe Europe and has over 20 years of experience in this profession. Before joining Aveiroe, Mark was Global Recovery Audit Services Strategy Director at an international firm of recovery auditors. Since the introduction of GSCOP, he has been at the forefront of the recovery audit industry’s response. Mark has overseen the evolution of audit working practices from the inception and the legislative introduction of the Code and continuously throughout the ongoing development by the Adjudicators.
Christine Tacon met with Mark shortly after her appointment as the first Adjudicator to consider best practices going forward and to build understanding of how forensic audit programmes would need to evolve to ensure compliance with the Code. Mark continues to monitor GCA pronouncements and related issues and is the only recovery audit professional to have attended each of the Adjudicator’s annual conferences.
He has delivered numerous training and update programmes for auditors and clients involved with running forensic audit programmes, focused on awareness of the Code’s requirements and ensuring the audits are fully compliant and within the spirit of the Code. Mark has provided best practice audit support to a range of suppliers to grocery and other retailers, ensuring for grocery sector clients that all dealings accurately reflect supply agreements and are code compliant. The emphasis is on helping suppliers and retailers implement an audit approach that reduces GSCOP risk and maintains strong customer/supplier relationships while optimising audit results.