As part of Risk Management, organisation are becoming more forceful to have the Right of Audit Clause incorporated into their agreements with Customers, vendors, partners.
Why it is important for organization to have the clause incorporated?
A. Organization wants vendor to ensure that:
- No harm is being done to environment while providing goods and services
- No exploitation of Workforce.
- Local laws and regulations on workplace safety are being followed
- Does not indulge into corruption and bribery
- Does not do discrimination
- Maintain proper books and records.
- They are not cheating
B. Managing reputation
Organization are coming into focus for wrong reasons due to their size and name. If a vendor supplying goods and services does not follow proper practices, organization name is unnecessarily get muddled.
C. Cost plus contracts
Where Organisations are paying the agreed upon costs, they want to ensure that costs are actually being incurred, no extra costs are loaded, full benefits are being passed on them.
Right to audit clause is important to both the parties, buyer as well as seller.
Organisation on the receiving end need to ensure that Right of Audit clause is a fair clause and does not cause difficulties.
Solution
What I have done is defined different levels of deliverable under Right of Audit clause:
Level 1: Very large customer (say top 20). They will be given right of audit of “operations” pertaining to them. (we don’t want 100% of our customers to come at our premises and audit us.)
Level 2: All others will be given specific agreed upon documents/ information as part of their information needs.
In both the cases it is demonstrated that we are a good corporate citizen, follow laws and regulations, protect environment and so on.
Call for action:
Inputs/ comments/ suggestion: I welcome inputs/ comments / suggestions from readers on how to approach this issue. Feel free to correct me, educate me.
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(Disclaimer: The views expressed constitute the opinion of the author and the author alone; they do not represent the views and opinions of the author ’s employers, supervisors, nor do they represent the view of organizations, businesses or institutions the author is, or has been a part of.)