Red flags during contract management

A contractor invoices for work but there are no/inadequate checks that the work has been done to required standards before paying the invoice.
Costs/margins look unreasonable or are not clear in the context of risk/nature of contract and contractor performance.
Design of contract leaves it vulnerable to manipulation.
Internal audit or the audit committee has raised concerns about a contract, eg its award or how it is managed.
Evidence of underperformance through published data, user feedback or whistle-blowing, client concerns, internal audit, audit committee or the media. A contractor is performing below expectations, but no penalties have been imposed.
Client or contractor reluctant to meet or talk about contract.
Contract is awarded on the basis of an unrealistically low bid which is then made up for by contract variations, duplicate invoices, sub-standard delivery etc.
Unspecified items on invoices and invoice prices/amounts do not match contract.

The following controls can be used by your agency to mitigate the red flags listed above:

Effective contract management and monitoring
Internal audit review of contracts including checking goods/services have been received
Proactive monitoring, such as spend analysis
Setting of appropriate authorisation limits
Segregation of duties
Effective budget monitoring

The following situations offer examples of red flags to be aware of during the payment stage of your procurement:

The same person has responsibility for both signing off and paying invoices, or the same person who approves expenses also counter-signs them.
Irregular payments or gifts given to staff.
Increasing amounts paid in expenses or large payment(s) paid to an individual.
Transactions carried out at an odd time, odd frequency, unusual amount or to unexpected recipients.
Internal controls which are not enforced or are compromised through intervention by more senior colleagues.
Discrepancies in accounting records and unexplained items on reconciliations.
Bank reconciliations are not up-to-date.
GST charged on invoices but no Australian Business Number.
Poor budget monitoring.
Missing documents/only photocopied documents available.
Excessive/spurious voids or credits.
Common names or addresses of payees or customers.
Unusual discrepancies between the client’s records and confirmation replies.
Missing inventory or physical assets which cannot be adequately explained.
Evidence of alterations on documents, such as backdating signatures.
Duplicate or inflated invoices.
Employees unwilling to share duties, take leave or may have a lifestyle above their apparent means.
Unusually high payments in a certain cost centre.
A large number of small payments to one supplier.
Receiving and paying for poor quality goods/services.

The following controls can be used by your agency to mitigate the red flags listed above:

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