In her first pronouncement as The Groceries Code Adjudicator last week, the biggest supplier complaint highlighted by Christine Tacon was the use of so-called “forensic” purchasing auditors.
Trawling back as far as six years to find reasons to deduct payment, these are shadowy operators, working under the guise of the retailer they represent using a retailer’s email address, so suppliers typically don’t know who they are dealing with.
So, who are these guys, and why are they so controversial? In an exclusive interview with The Grocer, a former purchasing auditor lifts the lid on the forensic auditors, the terms under which they operate, and shows how industry pressures are leading to a rise in spurious claims against suppliers.
Alan Hillier was a partner at FAP Europe, sold in 2009 to PRGX, the largest purchasing audit firm in the UK. He has since set up a business called Salitix that helps suppliers see off purchasing auditors and pursue their own claims for underpayment.
Supermarkets have used purchasing auditors for years to recover money from suppliers. Hillier believes this is a “legitimate and commercially sound” practice, but says retailer pressure has pushed auditors to become increasingly aggressive and make increasingly dubious claims.
As a rule of thumb, leading supermarkets would expect auditors to recover at least £1m for every £1bn of turnover, he says. “Numbers like this generate pressure that can be linked directly to the increase in spurious claims,” he says. “Profit recovery has gone from being nice to have, to integral in achieving annual turnover figures.”
The big four typically employ one firm to do their main audit, then employ another firm to complete for a second or even third pass to pick up on anything missed the first time. This often duplicates the work suppliers need to do to defend claims, says Hillier, and also increases pressure on the lead auditor to recover as much money as possible to hold on to the more lucrative contract of first-choice auditor.
- Retain data in its original format. Too often data has been transcribed for senior management and this is all the supplier has
- Insist on full supporting documentation that might support a claim, such as the complete chain of email correspondence or all relating sales data
- Contact the GSCOP compliance officer at the retailer who will be able to help suppliers understand the retailer’s position on elements of the code
- Employ an expert to help defend your position and help bring counter claims. Purchase auditors will never highlight errors that benefit suppliers
At the same time, increased competition between the leading firms (others include Audit Partnership and Connolly), has depressed fees, encouraging auditors to make as many claims as possible. Whereas a fee rate of over 20% was common a decade ago, Hillier says fees have dropped below 10% for a first audit in some cases.
As a result, auditors are inundating suppliers with claims that don’t always stand up to scrutiny. Some claims may be pushed by auditors because they are small, so suppliers may think they are not worth challenging, says Hillier. Emails or Joint Business Plans are cited, only for subsequent correspondence to undermine or invalidate their case - if challenged, of course. But they will also make very small claims with little or inaccurate supporting evidence because they reckon that suppliers may think they’re not worth challenging, claims Hillier.
When the claims relate to events that took place years ago, it is hard for suppliers to make their defence because account managers have moved on and records lost.
“Auditors know that because of the amount of effort and time that would be required to defend against this deluge of claims, suppliers are simply unable to defend them on a day to day basis,” says Hillier.
Suppliers also told The Grocer claims are frequently invalid and money is deducted from payment before they have had a chance to disprove a claim. “We have had claims totalling hundreds of thousands of pounds over the past year, of which we have defended 60%,” says one. “You tend to be ‘guilty until you prove your innocence’. Any inability to supply evidence refuting the claim, and the money is deducted.”
At a Westminster Forum conference last week, Tacon promised to crack down on the practice and called on retailers to limit audits to the year before the current financial year. “It is causing enormous burdens on suppliers,” she says. “In some cases they are getting demands for very large sums of money. I’m talking hundreds of thousands of pounds.” She has given retailers under a month to propose how to tackle the issue. Nobody is suggesting that purchasing audits should be banned, but suppliers have a good case for change.