Contract Breach Audits, Cost controls and price transparency, Contract management and change management, Delivery controls, Equipment service management, Quality controls, and Supplier qualifications and conduct. In addition, the contract and performance conditions specified in the contract and the extent to which the client is satisfied with the supplier’s performance need to be monitored. Finally, the frequency and methods of monitoring suppliers will vary depending on the nature of the purchase of supplies from the supplier. There may be circumstances where contract monitoring is difficult due to confidentiality issues or the lack of audit trails. However, the frequency of monitoring should be reasonable. Contracts involving more than $500,000 should generally have some form of periodic monitoring. The Contract and Performance Assurance Standards are intended to be used together as a foundation for contractor supplier monitoring. Monitoring may not always involve all of the following standards in every case. In addition, other internal management processes may be used to supplement monitoring. Based on the Contracts and Performance Assurance Standards and the comments from AGC, the following are requirements that an organization’s internal monitoring program should address: Annual procurement cycle: Each supplier should be given an annual review to evaluate performance to determine if the supplier is meeting its agreed performance criteria. Annual reviews should include a supplier risk management assessment and a supplier capacity assessment to identify areas of risk within the supplier’s work. Contract administration: The contract administrator must keep accurate records and track supplier performance, quality, on-time performance, performance reviews, and corrective action. The contract administrator must maintain a record of client complaints about suppliers. The contract administrator must also monitor all aspects of the supplier performance, including customer service, delivery, service quality, and technical quality. The contract administrator must maintain the supplier list in a current status, review the supplier’s performance data and document its results, and monitor supplier performance for compliance with contractual agreements. Management of contract compliance: The contract administrator must use the contract compliance monitor report to perform due diligence in the supplier’s performance. A supplier’s performance should be evaluated with respect to each of the contract requirements to ensure the compliance with the requirements of the contract and the contractual performance conditions. The contract administrator must monitor and review the performance of individual suppliers for performance against contractual conditions at the supplier contract level. If performance does not meet established contractual levels, the contract administrator must determine whether corrective action is needed. The contract administrator must also monitor the performance and conduct of individual suppliers for general and financial integrity. The contract administrator must evaluate supplier performance against internal control standards and other key performance indicators, such as customer satisfaction, customer complaints, business relationship surveys, and financial information. The contract administrator must assess whether risks exist in a supplier’s system or processes. The contract administrator must also assess the adequacy of the supplier’s internal controls to ensure the provision of a proper product and service in a timely manner, and the supplier’s responsibility to address and take corrective action to eliminate any weaknesses in its internal control processes or procedures. The contract administrator must document and evaluate the supplier’s capacity to meet its supplier responsibilities. In particular, the contract administrator must determine if there are any deficiencies that may cause an interruption of performance or a delay in obtaining necessary resources, such as manpower, equipment, and facilities. In addition, the contract administrator must identify any issues that could result in performance failure and identify any mitigating measures. The contract administrator must document any problems that may impair a supplier’s ability to meet contractual requirements and identify any deficiencies in the supplier’s management systems or quality control systems. Supplier risk management: The contract administrator must review, monitor, and review the supplier’s risk management process for effectiveness. This process includes determining the extent of the supplier’s risk management program and evaluating the effectiveness of the supplier’s risk management process. The contract administrator must conduct a risk assessment of the supplier’s operations. The contract administrator must evaluate the risks of contracting with the supplier and determine whether to maintain a relationship with the supplier or terminate the relationship. The contract administrator must maintain records related to supplier risk management. Supplier capacity assessment: The contract administrator must identify, monitor, and assess a supplier’s capacity to meet contract performance and quality standards. The contract administrator must document and evaluate the supplier’s capacity for a supplier to be responsive to changes in client demand. The contract administrator must evaluate a supplier’s capacity to respond to changes in order volume, mix, and delivery dates. The contract administrator must determine if a supplier has the ability to meet the client’s requirements based on changes in the client’s mix of product and product applications. The contract administrator must also evaluate the adequacy of the supplier’s quality control system and its ability to assure a high-quality product and service delivery. Supplier relationship monitoring: The contract administrator must use supplier relationship management to monitor and manage supplier relationships. The contract administrator must regularly conduct ongoing assessments of the supplier to ensure that the relationship is consistent with the requirements of the contract. The contract administrator must develop an overall assessment of the supplier’s relationships with other parties, including both internal and external parties. The contract administrator must monitor and assess supplier relationships with other clients to determine the performance of the supplier and the effectiveness of the supplier’s relationships. Compliance with internal controls: The contract administrator must maintain records of internal control reviews. The contract administrator must have in place a supplier compliance monitoring program to review the supplier’s system and process controls to ensure the maintenance of appropriate internal controls that ensure compliance with contractual obligations, including internal controls pertaining to procurement, billing and payments, and quality. The contract administrator must also ensure that there are no deficiencies in supplier internal controls related to supplier oversight, supplier relationship management, and supplier performance monitoring. The contract administrator must document compliance with internal controls and the effectiveness of the supplier’s internal controls. Managing supplier complaints: The contract administrator must document and monitor the disposition of supplier complaints, including whether actions were taken to correct the problem and if not, to describe the steps taken to correct the problem. The contract administrator must evaluate the supplier’s internal control systems, including supplier quality assurance and complaint management systems. The contract administrator must conduct ongoing assessments of the supplier’s systems to determine whether any steps are needed to correct any deficiencies in the supplier’s internal control systems. Inspections and audits: The contract administrator must document when an organization performs a pre-contract inspection, post-contract audit, or other related inspection and audit. The contract administrator must also monitor supplier agreements with other parties for compliance with other government or industry guidelines, codes, standards, or regulations. Financial audits: The contract administrator must perform financial audits to ensure that the invoices presented for payment are consistent with contractual obligations and are in conformance with generally accepted accounting principles (GAAP) to ensure compliance with the contract. The contract administrator must also evaluate the effectiveness of the supplier’s internal controls to ensure that the supplier can properly bill, receive, and pay invoices for goods and services delivered, services rendered, and goods sold. As a result of these efforts, an organization can identify any deficiencies and take necessary steps to ensure supplier performance on the contract. For more information regarding supplier monitoring, please contact Bob White at (703) 759-9995 or WhiteRF@aicpa-cima.com. For more information regarding the contracting and supplier management standards, please contact James J. Connelly at (703) 759-9995 or James_Connelly@aicpa-cima.com. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. A CFO, CPA or an attorney should be consulted for all business-related matters.