Today it was announced that Tesco has agreed to a £129m fine to avoid prosecution by the FCA for overstating its profits in 2014. The root of the problem is believed to be premature recognition of rebate income from suppliers.
For organisations that benefit from supplier or vendor rebates, the spectre of incorrectly reported rebate income and any resulting audit investigation should weigh heavily on the minds of finance teams and at board level.
There have been calls from the Financial Reporting Council (FRC) for “Boards of retailers, suppliers and other businesses to provide investors with sufficient information on their accounting policies, judgements and estimates arising from their complex supplier arrangements”. Audit firms have told us that they will be looking more closely at audit trails to prove correct accounting practices around vendor rebates.
The symptoms of poor rebate accounting include:
- Disputes over the terms of trading deals
- Disputes over rebate calculations and claims
- Difficulty monitoring performance against all aspects of supplier deals
- Hand-crafted solutions using spreadsheets
- Reliance on a few people who know how to manage rebates
- Deals failing to meet their objectives
Whilst the first five symptoms result in rebate accounting problems which in turn can impact auditability and profitability, it is the last point that can actually provide a more significant impact to the bottom line. The inability to calculate the net-net price of goods when comparing one supplier against another can lead to missed opportunities to reach volume discount thresholds.
When businesses implement a rebate management system, we encourage them to model past deals and very often find missed rebate claims and missed opportunities for growth.
Rebate management systems that provide robust governance practices, reduce the risk of manual error, strengthen internal controls and fuel mutual growth for businesses and their suppliers should be music to the ears of Financial Directors.
DealTrack Rebate Management System ensures compliance and fuels growth by:
- Systematising all supplier deals
- Providing a supplier portal with an audit trail from the start of negotiating a deal through to execution
- Integrating with any core ERP systems to extract purchasing data
- Automatic raising of rebate claim invoices
- Complete audit trail for each trading deal
- Providing accurate net-net pricing for buying decisions
- Accurately reporting rebate accruals
Discover more about the features and benefits of our rebate management system by downloading our buyers' guide.