The Supply Side: Walmart making changes in system that audits supplier payments

A retail business as large as Walmart U.S. with $441.8 billion in sales during fiscal 2024 incurs significant accounting and post-audit transactions given the number of suppliers, the millions of products purchased, the thousands of stores and the growing online business.

Post-audit claims are part of doing business in retail. In addition to Walmart’s internal post-audit work, the company hired third-party auditing firms Apex Analytics, Cotiviti, PRGX and Auditec, which review sales records and reconcile books to match supplier agreements.

The number of third-party players created several layers of scrutiny but also made the process cumbersome and transparency harder to achieve. To become more transparent, Walmart opted to go with a single third-party auditor for fiscal 2025, which began Feb. 1. The retailer asked for bids in late 2024 and United Kingdom-based Audit Partners Limited (APL) was hired. APL has audit employees based in Nepal and India and is already performing post-audit duties at Sam’s Club, according to its website.

Under the former system, the external teams would look for discrepancies in prices or the allowance given for defective products, freight and handling charges on returns, and retail merchandise recovery and other shipping mistakes. When a discrepancy was found the auditor would write a post-audit claim and email documentation to the supplier.

The larger the business, the more likely a supplier is to have post-audit claims. For instance, a cosmetic company could easily have 500 SKUs (stock-keeping items) in Walmart stores. But even smaller suppliers with just a few items can also get post-audit claims that will reduce their payments unless they are successfully disputed.

Bentonville-based HRG is one firm that works with suppliers doing business in retail which includes Walmart, Target and Amazon. HRG CEO Boyd Evert said Walmart’s goal to have greater transparency with post-audit is a noble step in the right direction, but it remains to be seen how efficient the protocol will be with a sole auditor who relies heavily on automation and auditing workers in other countries.

A bigger concern is changes in the workflow process. Typically, third-party auditors would notify the supplier of claims via email communication. However, Walmart is moving to “High Radius,” a web portal system containing claim notifications and supporting documents. Evert said it’s an extra step for busy suppliers to have to log into another portal daily to check for claims and pending deductions. He said smaller, busy suppliers without dedicated post-audit teams could see claims stack up in the portal and go unnoticed until deductions are made.

HRG also has concerns about the automated system used by APL. Having previously worked with Walmart suppliers in South America in an automated post-audit system, Evert said machine learning and artificial intelligence tend to create more and smaller claims that could be grouped into a single claim that covers multiple stores. He said the record number of claims received for one supplier in a single day is 160.

Evert said automated claims tend to be pass or fail based on wording in the supplier contract and do not account for email conversations between buyers and suppliers over specific campaigns that create areas requiring arbitration. Evert said the onus will be on suppliers to ensure contracts and correspondence are carefully worded to avoid common triggers for potential claims.

He also said complicating the workflow is Walmart’s effort to make the accounting more current.

“Suppliers have asked for this, and Walmart is delivering. It will be a positive in time but painful for some getting there,” Evert said. “Compressing the window down will force more claims in the short run.”

He said Walmart is supposed to announce changes to the post-audit protocol in the next few weeks.

Another aspect being changed is how the defective allowance is going to be calculated for suppliers. The Claims and Returns Systems (CARS) will look at a supplier’s actual returns last year, and that will become the benchmark. For instance, if the benchmark to start is 5% and then at the end of the year they were 6%, Walmart will not go back and collect that 1% difference. If a supplier works to get returns down to 3% the next year, then 3% is the new benchmark for that coming year. The supplier will be charged if returns are higher than 3%. If returns fall as low as 1%, Walmart would then reset the allowance back up to 5%. HRG said changes to CARS allowances will be phased in starting Feb. 1.

Evert said Walmart is not doing anything new or unusual, but only time will tell how it works for suppliers.

“Walmart is not doing anything other retailers haven’t already done, and the goal to create more transparency and an up-to-date record is certainly understandable and really what best serves everyone,” Evert said. “It remains to be seen if the single auditor using automation is the answer.”

Neither Walmart nor APL returned requests for comments about audit protocol changes.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics, and is sponsored by HRG.