Internal Controls audits and Contract Management

February 3, 2011

Infraco, the South African government-owned Broadband and long distance telecommunications provider, has been cited in a recent Deloitte audit report for a failure in internal control processes in the company’s procurement and contract management environments.

“Although there are set policies, procedures, guidelines and processes to effectively effect the contract management process, we noted in many instances that these are not complied with, unintentionally or otherwise”, stated the Deloitte report.

An increasing number of companies all over the world are failing internal controls assessments conducted by independent auditors as auditors become increasingly concerned over the lack of visibility and control that many companies have over existing contracted commitments and overall contract management procedures.

The majority of companies put most of their effort in to the negotiation of contract terms and conditions, but do not dedicate the same level of attention and oversight post contract award.   This is largely because legal and business executives still do not consider contracts to be mission critical or strategic to their businesses.  For many, a contract is viewed as an insurance policy for when things go wrong.  Clearly auditors and industry observers, like the IACCM, see this as an outdated view and one that will only lead to increased scrutiny by auditors and regulators.

Contracts are strategic documents that outline how two parties are to collaborate with each other and the terms and conditions that govern that collaborative relationship.  For those companies that are able to manage and control their contracting processes efficiently, greater competitive advantage can be achieved through cost savings in the pre-award contracting process and better exploitation of contract terms, conditions and obligations in the post award process.

Dolphin Software would argue that the most effective way to bring about total control of the contract management process and ensure that contract obligations are properly complied with is to follow clearly defined contract management procedures, to appoint a senior executive to oversee contract management from a strategic position and to automate inefficient manual processes and control contract milestones and commitments more effectively with technology.

CFOs will rapidly understand the strategic importance of effecive contract management if their auditors refuse to sign off their accounts.

**24 February 2011 – update**

Broadband Infraco CEO and Non-Executive Director resign

Dave Smith, CEO of Broadband Infraco, the South African state owned entity tasked with bringing down the cost of broadband, and Non-Executive Director Tumi Magasa have resigned with immediate effect as a result of their recent contract management woes.

In October last year audit firm Deloitte was commissioned to conduct an urgent internal audit “to review the controls in relation to the contract management function, evaluate the adequacy and effectiveness of key operational and financial controls, and test compliance with the applicable legislation, policies and procedures”.


Before last weekend, did you consider printer cartridges to be a risk?

November 2, 2010

No, nor did we.  It is surprising to discover what other unknown risks you may have hidden in your organisation.  Take contracts, for example.  Do you have full visibility and control over your executed commercial and procurement contracts?  Are there inherent risks in your contracts that you do not have ready access to, or that your business is not managing effectively?  Do you base your business plans on contracted obligations and commitments that you do not have control over?

As Andy Kyte at Gartner says, ‘contracts are the lifeblood of an organization and if you are not in control of your contracts, you are not in control of your business’.

So, what should you do about hidden or hard to find legacy contracts that are not being managed effectively?  Typically, you will normally have two choices:

  • Ignore the problem and leave your legacy contracts as they are (but run the risk of contracted obligations and commitments not being managed)
  • Hire resources to locate, scan (if in paper format) and manually profile legacy contracts and milestone data. (For many organisations, this is too costly and too complex to consider).

Dolphin AutoCapture – the world’s first discovery engine for legacy contracts
Dolphin AutoCapture is a solution that has been designed specifically to address the issue of locating lost or hard to find legacy contracts hidden in Windows file shares and user desktops.

For many organisations, legal, procurement and commercial teams spend significant energy and resources negotiating and fine-tuning the terms and conditions of contracts, only to disguard the contract document once it has been signed and executed.  An average procurement or commercial contract will contain a mixture of critical dates that need to be tracked, as well as obligations or commitments that need to be managed effectively in order to maximise the value from the business relationship.

Dolphin AutoCapture is the first solution that will:

  • Discover and identify list or hidden contracts in Windows file shares and computer desktops
  • Automatically extract key contract milestone data from contract documents
  • Provide a management dashboard with instant visibility into contract milestones and key terms

If you are planning for your next financial year at the moment and you are formulating plans on your understanding of what you have committed to in procurement and commercial contracts, but you feel that you do not have complete control or visibility of your contracts, consider deploying Dolphin AutoCapture to provide instant visibility and control over your contracts and commitments.

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