Relying solely on a contract as a means of oversight is like assuming that having speed limit signs eliminates the need for traffic enforcement. A contract might outline the expectations and responsibilities, but it’s not enough to ensure compliance or effectiveness. In the realm of audits—whether you’re assessing internal operations, third-party vendors, or even a fourth party hired by a third party—simply pointing to contractual clauses is not an adequate substitute for robust tests and controls.
The Role of Tests and Controls
During an audit, my primary focus is on evaluating the effectiveness of tests and controls. These mechanisms provide measurable assurance that processes, systems, and relationships are operating as intended. They answer critical questions:
- Are obligations being met?
- Are risks being mitigated?
- Are all parties adhering to regulatory and operational standards?
For example, if a creditor hires a third party to manage certain functions, the existence of a contractual agreement is merely the starting point. It’s the tests—such as regular reporting, compliance checks, and performance reviews—that ensure those contractual obligations are being upheld.
When It’s in the Contract
If something is explicitly outlined in a contract, the next step is to determine how compliance will be monitored and verified. For instance:
- What specific metrics or key performance indicators (KPIs) are required?
- What frequency of testing or reporting is appropriate?
- Who is responsible for conducting the tests—an internal team, a third-party auditor, or both?
Merely stating “It’s in the contract” without ensuring the proper controls are in place is a risky approach in today’s complex operational and regulatory landscapes.
Practical Takeaway
Audits are about accountability and verification. A well-written contract is an important piece of the puzzle, but it’s just that—a piece. Without the implementation of proactive tests and controls, you’re left with a framework that lacks enforcement. Whether you’re managing creditors, third parties, or their subcontractors, the auditing slogan should be simple: “If it’s in the contract, prove it through tests and controls.”
Author: Bev Evancic
Bev.Evancic@ResourceManagement.com
Bev Evancic is a Senior Vice President at Resource Management Services, Inc. Prior to employment at RMS, Bev worked as the Collection and Recovery Manager at AT&T Universal Card, Citi, and Federated Department Stores. Bev started in the collection industry as a collector at an upscale clothing store in Cincinnati, Ohio. As a returned check and private label credit card collector, Bev gained a basic understanding of the collection industry that has not changed with the introduction of regulations. Her collection philosophy begins with the idea that businesses and customers benefit from preserving the customer relationship. First, collectors need to attempt to contact customers when it is convenient for the customer to discuss his/her financial condition and willingness/ability to pay. Second, you never collect money by intimidating or threatening customers. Third, businesses must make sure the debt is valid.
She has managed all phases of collection and recovery operations, including automated dialer units, bankruptcy, and legal units, skip tracing units, internal collections, outside collection agency networks, and Consumer Credit Counseling. As a Consultant for Resource Management Services, Inc., Bev has spearheaded collection and recovery best practices reviews for many top credit grantors. Her articles on dialer operations, agency management and bankruptcy best practices have been widely publicized.
She is well known and regarded as a specialty expert in the areas of: Repossession, Bankruptcy, Estate, Litigation, as well as Pre- and Post- Charge-off. Prior to joining Resource Management Services, Inc. in 1995, Bev managed the Recovery Department for AT&T Universal Card Services where she developed the bankruptcy, probate, internal and litigation processes.
She is the author of “Recovery Management: Collecting the Uncollectible Account.”
Like to share ideas and talk with your peers? Consider joining a creditor’s only network…
Recovery Management Network
The Recovery Management Network(SM) (RMN) is a unique networking organization, strictly for creditors, providing collection and recovery professionals with the peer contact, resources and information they need to succeed in their jobs.
There is no fee to join this peer group, but creditors must be involved in the collection, recovery
or auditing departments at their organizations, and be interested in sharing experiences and ideas with other RMN members. For more information, see: https://collectioncomplianceexperts.com/rmn/
Or, contact Bev Evancic at bev.evancic@resourcemanagement.com for more information.
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