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A Guide to Forensic Accounting Investigation, 2nd Edition by Jessica S. Pill, Mona M. Clayton, Thomas W. Golden, Steven L. Skalak

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Chapter 28

Contract Compliance

Jeff Leedom, Philip Treccagnoli, and David L. Marston

Large complex contracts are a significant part of today's global business environment. Most companies negotiate both large and small contracts with a goal to drive business value. In fact, in some businesses, large contracts are the foundation for significant international corporate relationships as well as the overall value of the companies involved.

Despite the importance of contracts, they are not all created equal, and furthermore, not all contracts are complied with by each and every business partner. In fact, contract compliance, or should we say noncompliance, is a significant issue that plagues organizations throughout the world without bias as to industry, geography, or company size. Also, contract noncompliance is an issue that covers a broad range of business contracts and can have lasting impact. Some of the types of contracts that are frequently affected by noncompliant behavior include, but are not limited, to the following:

  • Licensing
  • Sourcing
  • Co-development
  • Distribution
  • Service
  • Advertising
  • Franchising
  • Joint ventures and partnerships
  • Government procurement

The failure to comply with contractual terms can arise from many different types of contracts, and the type of noncompliance can come in many forms. The following are a few examples of how business partners fail to comply with contracts:

  • Lack of appropriate controls over the reporting process
  • Mathematical and clerical errors ...

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