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What is an Audit Trail, and Why Do You Need One?

Every interaction your company has with a vendor when relating to its services has a trail of information. Taking the time to make sure that this trail is easy to access, follow, and confirm is the first step to taking the pain out of not just audits, but vendor management in general. 

An audit trail is vital to any process that involves managing your vendor relationship. In its most basic form, it is a record of all activities, procedures, or engagements your organization has with a particular vendor. 

To boil it down even further, an audit trail represents the sequence of steps taken by your company’s departments between the start and end-point of a specific contract or agreement. From small businesses to global conglomerates, companies of all sizes and cultures can benefit from a robust audit trail. For finance, and vendor management specifically, having a clear audit trail has some very tangible benefits. 

1. Reduce errors and improve accountability 
Audit trails connect every source document and electronic record to every person interacting with a transaction in any way, making it much easier to track and correct errors while simultaneously reducing their likelihood from the start. 

2. Ensure compliance 
Every company is different, but all companies want to stay compliant. Falling outside the lines can cost businesses lucrative contracts and generate substantial and costly fines.  With an audit trail in place, you can quickly provide whatever information is required by the IRS, industry review boards, and other government bodies to demonstrate your compliance with all relevant protocols and laws. 

3. Eliminate fraud 
The enhanced internal controls provided by a well-defined audit trail create an environment where fraud won’t be able to thrive. When source documents, from purchase orders to invoices to bills of lading, are connected and cross-checked automatically, scams like invoice fraud can be easily avoided. 

4. Simplify audits 
Nobody purposely goes looking for an audit, but having a proper audit trail can take some of the pain out of the process. With clear, easy to verify financial records, auditors can spend less time and resources on your audit, reducing your expenses and freeing you to return to business as usual much more quickly. 

5. Reassure investors and lenders 
Knowing you’ve got a lock on documentation gives potential investors and lenders confidence in your internal processes and business value during due diligence. As with auditors, clear and comprehensive audit trails make it easy to verify your activity, creditworthiness, and business acumen.

The audit trail function in and of itself is extremely valuable to a vendor management team. However, it is how the audit trail content is harnessed that transforms them into a truly productive tool.

  • Reporting – When your business is creating comprehensive audit trails, the amount of data accumulated can become unmanageable very quickly. It is vital to have a system in place that can allow for this information to be filtered for proper analysis. 
  • Review – The periodic review of your digital audit trails can help tighten administrative controls throughout your vendor management function and, consequently, your entire business. It can also help to identify problem areas, such as issues of non-compliance, and incidents of inefficiency and over-spending. 

Using audit trails to ensure you have the information you need to hold vendors accountable for performance is simply good business.   It represents a tangible opportunity to tighten control of your entire operation and translates as benefits to your bottom line.

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