Shippers can’t offload the liability to other parties if their
payment vendor goes bust. Brokers and third-party logistics
firms that arrange the transport generally don’t handle
invoice auditing and payment, even though they have the
capabilities to do so. Charles W. Clowdis Jr., managing director, transportation advisory services for consultancy IHS
Global Insight and who helped manage audit and payment
services for 20 years at Ernst & Young, said many shippers
are loath to consolidate the physical and financial components of a shipping transaction. Clowdis said many want a
different company auditing their bills than the partner that
managed the carrier selection process.
As it stands, shippers may be on the
hook for double payments as bilked carriers rightfully demand their money. The
exception could be if the shipper is a
large enough customer to justify the carrier’s eating the charges in order to maintain the relationship.
“At this point, I’m not sure if there is
any other recourse,” said Stephen Beyer,
an attorney closely following both cases.
Beyer, who doesn’t represent any
claimants, said the situation represents
uncharted legal territory for the industry.
CONTROLS LACKING OR NONEXISTENT
If anything positive can emerge from the dual fiascos, it’s
that it may force shippers to take a hard look at a process
that many outsource and then put on autopilot. At both
vendors, internal controls were nonexistent or, if they were
present, routinely flouted. Shippers’ funds were commingled instead of being siloed in dedicated accounts, making
it easy for those in authority to wreak havoc.
For that reason, reputable audit and payment firms will
never consolidate funds for the sake of expediency or out of
some misguided sense of efficiency. “We know exactly
where all of our accounts stand,” said Applebaum. He added
that Cass operates on a different level than its counterparts
because of both its size and its status as a publicly traded
entity, meaning it is subject to more rigorous vendor controls and regulatory oversight.
Multinational companies are complex creatures with
many moving parts. For them, it is simple for an already-outsourced process like freight auditing and payment to fall
through the cracks. Johnson Controls, for example, didn’t
uncover the TransVantage scam for more than 17 years. The
shippers allegedly defrauded by Trendset were unaware of
its scam until Gary Selvaggio notified three of them in a
March 25 e-mail. Selvaggio was not asked to remain after
AFS purchased the firm.
Clowdis said it may make sense for shippers with big-
time freight spend to invest in internal payment resources.
This way, they retain control of the funds and make pay-
ments directly to carriers based on the outside audit
reports. Applebaum said, however, he doesn’t see much evi-
dence of shippers’ switching from a “freight audit and pay”
model to a “freight audit to pay” approach. Craig added that
while some companies may take their treasury functions in-
house, eventually they will migrate back to outsourcing
because a reputable third party performs blended audit and
payment tasks more cost-effectively than can shippers.
Editor’s note: For more tips on how to avoid becoming a
victim, see Cliff Lynch’s FastLane column “Investigate, ana-
lyze, and verify” at www.dcvelocity.com/articles/20130520-
investigate-analyze-and-verify/.
