In the aftermath of the Trendset embezzlement case, the issue regarding the financial risks in using freight auditing and payment companies has become a topic of discussion. Specifically, how wise is it to transfer funds to these companies for carrier payments? And are non-bank auditing and payment firms riskier than those operated by banks?
It’s important to remember that the freight auditing and payment industry has been around for about 60 years. And trillions of dollars in carrier payments have been successfully transacted by these companies over that period without incident. And while rare, banks are not totally immune from embezzlement. However, when an incident like the Trendset case occurs, it’s appropriate to look at what financial controls are in place, especially at the non-bank vendors. And it’s important to access your current vendor to ensure that these controls are implemented.
First of all, most auditing and payment companies are insured for employee theft. And while the temporary disruption in payments can be painful for those involved, it is hoped that all parties are made whole in the end.
As a result of the Sarbanes-Oxley legislation put in place in 2002, most non-bank auditing and payment firms have undergone outside audits by reputable accounting firms. Initially, this was a SAS 70 audit, which has now been replace by SSAE 16 audits. These audits ensure that proper financial controls are in place regarding the handling of clients’ funds designated for carrier payment. These controls include limiting access to company systems by company employees, stringent password policies, adequate firewall protection of data from outside sources, implementing controls regarding who can process carrier payments, performing daily account reconciliations, implementing adequate duplicate payment prevention procedures, etc.
If the above controls are in place and rigorously monitored, it is extremely difficult for financial irregularities to occur. Despite these controls, shippers may still feel uncomfortable transferring millions of dollars annually to their audit and payment vendor. In those cases, the shipper can pay the carriers directly from the audited data provided by the audit firm. While this eliminates one of the benefits of utilizing a payment company — that is, making just one weekly payment — it does totally remove the possibility of misuse of the shipper’s funds.
Another option is to have the audit and payment company cut checks on the shipper’s check stock and provide a positive pay file for reconciliation. However, this process may not be offered by all payment companies.
Basically when selecting an audit and payment vendor, or accessing your current supplier, you should look at the following:
- Have they had a SAS 70 or SSAE 16 audit?
- Are they insured for employee theft? For what amount?
- How long have they been in business? (Obviously longer is better.)
- Do they have clients that have been with them for long periods (20 or 30 years)?
- How long has the current management been in place?
- What is their reputation with carriers regarding timeliness of payments and getting information regarding payment status?
- What is the time between transfer of funds to the payment company and receipt of payment by the carriers? (Long delays are a warning sign.)
In summary, assuming that due diligence has been done, and the payment company has the proper controls in place, non-bank freight auditing and payment companies are a safe, efficient method for auditing and payment of carrier invoices.
Vice president of sales and marketing,
National Traffic Service,