Audit of cost invoices
Operations in the construction and manufacturing industries, generate an incredibly large number of cost invoices related to the purchase of equipment, services and a wide variety of small materials. Seemingly small amounts, when added up easily go into the millions annually. Invoices that are less than a few hundred zlotys in value most often do not generate much interest, and there are no people in the company who are interested in taking the time to look for savings in relative small costs, or in delegating such a task.
The rule of thumb that comes into play here is that the larger the organization, the greater the chance that money will run away where a lot of it can be saved with little effort. In small companies, where every invoice passes through the hands of the owner, questions about the legitimacy of expenditures occur much more often than in companies with corporate governance run by multi-member boards. Employees accustomed to the fact that the expenses they generate are not analyzed, also over time stop paying attention to whether purchases of certain resources can be optimized and choose the path that is most convenient for them.
Analyzing the costs associated with equipment and material expenses requires quite specific experience and knowledge. Not an accountant’s experience, but the ability to spot questionable items or recurring patterns in the clutter of invoices that can be grouped together and attempt to consolidate them.
Sins of employees
The value of company money to employees is very abstract and often intangible. I venture that the conversion rate is quietly 10:1. Private 50zł is exactly and without any doubt 50zł, there is nothing to discuss, but is the company’s 500zł in advance actually 500zł? Or, rather, a virtual token with a value of “500 zloty at your disposal”? Over the past few years I have been faced with a mass of situations in which, privately, I have been asked for advice and opinion on some purchase. Often the topic dragged on for weeks, because it involved spending $50 less or more, and in the meantime I received invoices “generated” by the same people, with values unknown by them, because the services or purchases in question were made without any arrangements. Of course, such actions, should be associated with certain consequences, but these are already aspects of organizational culture and require a completely separate discussion.
The most common sin of employees with company money he observes is not asking “how much does it cost?” Privately, anyone who leaves their car at an auto repair shop asks the question, what will the cost be? A breakdown of a company car? The car often goes to the workshop, and if everything is ok, the workshop establishes the scope and cost of the service with the person to whom it got the contact. Otherwise, an invoice goes to the company, and all we can do is pay it. Examples of not setting the price, you can find a great many, plumbing hoses, printer toners, paper risks, paints for surveyors, lean concrete, etc. Usually, a simple question to the merchant entitled. “Can we pay less for this good?” gives us a quick 5% price reduction.
Often our employees, defend their spending decisions with the argument “cheaper is not possible.” Try to offer them 30% of what they manage to get, then even Orlen’s wholesale prices for fuel may prove flexible. I know, I checked :).
Many costs can also be reduced by centralizing supplies for construction sites. If we have several locations where engineers order similar materials from different suppliers, it makes sense to choose one from which we will increase the scale of purchases and lower the price. Immediately there will be someone who will raise the problem of the logistics of such a solution, but this is not true. In this era of such fashionable dropship, and how efficiently courier companies operate, logistics are usually limited to sending a single email.
Sins of traders
A good salesman, does what he is supposed to do, which is make money. He senses the customer, tempts, manipulates, and tailors sales techniques to the recipient. There aren’t many of them, but there are some real artists in the retail industry. They are able to make the customer dependent, “amenable” and even corrupt.
They can also perfectly sense when a customer stops checking them out and start taking advantage of that to increase their commission. Suddenly, it may turn out that our hard-earned trade discounts, are achievable for any Kowalski from the street… In the age of today’s Internet, it is easy to verify how much what should cost, but not in every organization takes advantage of this. If this is due to certain arrangements and dependencies, that’s fine, that’s sometimes the case. But if this is due to organizational shortcomings, then we should talk about “burned” funds.
EU open market
I am, of course, in favor of supporting local companies and, where possible, buying domestically produced products. However, for many products, their prices in our market can be much higher than in the manufacturer’s country, or at a foreign distributor that operates on a much larger scale than the local one. Especially in the construction and industrial machinery parts business, it happens that sending a few inquiries to Germany, France or Italy can save us a good 10-30%. We often fear the security of such transactions, or the communication barrier, but wrongly. Practice shows that just as we verify local contractors, we also succeed in verifying and sensing foreign ones. Knock on wood, it hasn’t happened yet that I was cheated and didn’t get the goods I ordered. It simply makes sense to take advantage of how much of an open market we operate in.
How do I act?
I certainly need to know the nature of your business, talk about expectations and issues that raise your concerns. The next stage of the work is to go through the cost invoices, one by one, and look for items that pique my interest. I satisfy my interest in the first place by contacting your contractor anonymously and seeing if I get a better deal as an anonymous person. If not, I further verify it on the open market. For each invoice/item audited, I create a corresponding note, which is part of a summary document on which we can work together. Of course, at every step I act with respect for commercial confidentiality, the principles of good cooperation and a large dose of common sense.
The effects of my work can only be two. One is money and the other is a certification of the high efficiency of your organization. I invite you to cooperate with us.