I am planning a contract administration audit around employee benefits contracts and was asked whether we would perform procedures that involve vendor personnel. I am trying to determine whether any significant risks can be addressed by working directly with the vendor. Has anyone included the vendor in their contract administration testing in the past? What were the benefits of doing so? What were some of the challenges? I appreciate your thoughts!
A firm I use to work for, had us do a 3rd party health benefit claims audit. We went on-site at the 3rd party vendor to review their claims processing proceedures and selected a sample of claims to validate against actual receipt documentation, which was held on-site at the vendor. The vendor was very accomodating since they knew the business was on the line, since many employees had complained about poor claims handling, untimeliness in processing, and poor communication. The audit did not uncover any major issues other than some minor things. The review acted more as a wake up call to the vendor, which claims processing did improve dramatically after the audit.
Thanks for the response COBOYD. It sounds like claims administration would be an appropriate time to involve the vendor in testing. Poor claims administration would be a risk for any company.
Another area where I wonder whether would be a benefit is in examining the vendor's inputs into our administration process. For example, do they have controls on their end to ensure that the invoices they send to us are accurate? Are there controls at the vendor around fraud prevention?