recovery audits and contract compliance · which of the following types of audits have you done?...

Copyright © Casher Associates, Inc. 2015 - 2016 Permission to use granted to Diversified Communications.

The Accounts Payable & Procure-To-Pay

Conference & Expo is produced by:

Recovery Audits, Specialty Audits

and Contract Compliance:

How AP Can Enhance Your

Company’s Bottom Line Jon Casher

Casher Associates, Inc.

May 25, 2016

Slide 1




Before We Begin Background Types of Erroneous Payments and When They Happen Recovery Audits Contract Compliance Audits Specialized Audits Recovering Erroneous Payments Eliminating Erroneous Payments Shortening the Detection and Recovery Process How to Select Recovery Service Providers Key Control Points and Best Practices Questions Final Thoughts

Agenda

Slide 2




Before We Begin

Slide 3




Serial Entrepreneur Founded Casher Associates in 1976 to design and develop custom financial

systems and back office automation

Co-founded CM Associates, provider of financial industry software products, in

1985

Co-founded RECAP, an AP Audit firm, in 1988

Director of NASDAQ company, 2000-2015, head of audit committee from 2002

until company went private in 2015

Current Focus Consulting to Finance, AP, AR and Procure-to-Pay organizations and their

service providers

Training, Certification, White Papers, Surveys, Workshops, Presentations

Before We Begin

My background

Slide 4




Online survey done between 1/13/2016 and 2/26/2016

# Respondents – 61 A small number of participants

Margin of Error – plus or minus 13% at a 95% confidence level Means that any answer to any question has a 95% chance of being within 13%

of the actual number

Therefore, while the following results are interesting be careful about drawing

conclusions

Before We Begin

Recovery and Contract Audits Survey

Slide 5




Which of the following types of audits have you done? Check all that

apply

# %

1. None or don’t know 8 13%

2. Vendors with credit balances 35 57%

3. Vendor statement audit 40 66%

4. Duplicate payment audit 43 70%

5. Reverse sales tax audit 6 10%

6. Contract compliance audit 10 16%

Before We Begin


Slide 6




Which third party audit firms have you used to do audits?

# % 1. None or don’t know 36 59% 2. Names provided (one or more times) 25 41%

1. AP Chex 2. AP Recovery 3. Apex Analytix 4. Broniec 5. Connolly 6. Deloitte 7. E&Y 8. KPMG 9. Lavante 10. PRGX

Before We Begin


Slide 7




If you’ve use a third party audit firm, how satisfied were you with the

results?

# %

1. Not applicable 30 49%

2. Very dissatisfied 1 2%

3. Somewhat dissatisfied 1 2%

4. Neither dissatisfied or satisfied 5 8%

5. Somewhat satisfied 11 18%

6. Very satisfied 11 18%

Before We Begin


Slide 8




Approximately how much money was recovered in the most recently

completed audit?

# %

1. Not applicable 10 16%

2. Don’t know 26 43%

3. Under $1,000 5 8%

4. Between $1,000 and $9,999 6 10%

5. Between $10,000 and $99,999 3 5%

6. Between $100,000 and $999,999 6 10%

7. Over $1,000,000 3 5%

Before We Begin


Slide 9




Background

Slide 10




Private Sector Retailers - 1970s

Manufacturers - 1980s

Service Industries - mid-late1980s

Non-Profits - mid-1990s

Public Sector State and Local Governments - mid 1990s

Federal Government - very few prior to 2000

Background

Historical Perspective

Slide 11




A/P Audit, AP Audit, Accounts Payable Audit

Post-Audit

Payment Recovery

Overpayment Recovery

Profit Leak Audit

Recovery Audit

Profit Recovery Audit

Goods and Services Audit

Invoice Audit

Disbursement Review

Pre-Audit

Background

Some Terminology

Slide 12




We don’t make mistakes

We won’t find anything

We don’t have the time

We don’t have the expertise

Fear of looking bad or being blamed

We don’t want to alienate our suppliers

We’re too busy on other projects

We’re too busy keeping up with the day-to-day work

We tried it and were disappointed with the results

Background

Why Organizations Don’t Do Audits

Slide 13




Recover past erroneous payments

Identify improvements to processes and controls

Reports provide insights into your organization’s expenditures

Reduce future erroneous payments

Background

Recovery and Contract Audit Goals

Slide 14




Background

What Causes Erroneous Payments

Slide 15

Vendors Approvers Submitters Your System(s) Purchasing Accounts Payable




Background

Who Blamed for Erroneous Payments

Slide 16

Accounts Payable Purchasing Your System(s)

Submitters Vendors Approvers




For $1 billion in transactions: $10-20 million caught before being paid

$2-20 million erroneously paid

$0.5-1 million recovered without formal recovery audit

$0.2-0.4 million additional recovered by basic recovery audit

$0.2-0.6 million additional recovered by extended recovery audit and/or

secondary audit

$1-18 million NOT RECOVERED 50%-75% recoverable with special and contract compliance audits

25%-50% never found or not recoverable

Background

The Size of the Problem

Slide 17




Types of Erroneous Payments and When

They Happen

Slide 18




Duplicate Payments

Payment of Credit

Payment to Wrong Vendor

Payment of Overlapping Bills

Wrong Amount Paid

Unused/Unapplied Credits or

Rebates

Goods or Services Not Provided

Extra Charges

Incorrect Rates

Lower Quality Substituted

Excessive or Inapplicable Taxes

Fraudulent Transaction

Types of Erroneous Payments

Slide 19




Multiple invoices for same goods or services From same vendor

From contractor and subcontractor

Invoice and a second notice

Copy or fax and original invoice

Invoice and a work order

Invoice and on a statement

Invoice and on a P-card

Invoice and on an expense report

Double posting of electronic invoice or batch

Invoice and same goods or services as part of another invoice


Duplicate Payments

Slide 20




Credit applied to your account at vendor but notification never received

by Accounts Payable

Credit invoice posted as a regular invoice usually resulting in a triple

payment!


Payment of Credit

Slide 21




Wrong vendor selected Unrelated vendor - wrong vendor number keyed

Different vendor with similar name

Different related vendor (e.g. different franchisee)

Wrong vendor received and deposited payment Checks stuck together

Check sent to wrong lock box



Slide 22




Second invoice includes “past due” amounts that you’ve already paid

but vendor has not applied to your account

Charges for goods and/or services included on 2 separate bills

Two parties submit invoices that include charges for the same services

Final bill includes amounts paid on progress bill(s) or deposit


Overlapping Bills

Slide 23




Wrong amount keyed

Payment of total amount rather than just current charges

Credits not reflected in the invoice or in the amount due

Discount not taken or wrong discount taken


Wrong Amount Paid

Slide 24




Invoice does not reflect earned rebates, discounts or credits

Accounts Payable is unaware of rebates, discounts or credits

Refund never received by Accounts Payable


Unused/Unapplied Credits or Rebates

Slide 25




Invoice for full amount but only received partial shipment

Invoice does not reflect returns, damaged goods, etc.

Bill for cancelled order


Goods or Services Not Provided

Slide 26




Freight that was to be included

“Address Exception” fee

Surcharges that are contractually prohibited

Billed for passed through charges at a marked up rate

Billed for passed through charges before discount or rebate received by

vendor

Billed for incorrect or inappropriate finance or late charges


Extra Charges

Slide 27




Billed at list price rather than negotiated price

Charged for a higher quantity of goods

Billed for higher percentage of common charges


Incorrect Rates

Slide 28




Charged for contracted skill level but person with lower level was

substituted

Goods provided were a lower quality than called for in contract or PO


Lower Quality Substituted

Slide 29




Tax charged on entire invoice rather than just on taxable portion

Sales tax charged for goods being used in manufacturing or for resale

Sales tax charged based on wrong tax jurisdiction

Your organization is tax exempt

Goods put into service in an enterprise zone

Value Added Tax (VAT)


Excessive or Inapplicable Taxes

Slide 30




Documents that look like invoices

Inflated prices

“Refund” checks

Fictitious vendors

Altered vendor file information

Employee - Vendor collusion


Fraudulent Transactions

Slide 31




Calendar Year End - November - February

End of your fiscal year and end of a vendor’s fiscal year

When you install a new system or procedures

When you merge, acquire or divest

When you switch to electronic feeds

When your vendors install new systems

When your vendors merge, acquire or divest

When your vendors change name, address, lock box or bank account

When Erroneous Payments Happen

Slide 32




Recovery Audits

Slide 33




First Steps

Credit Balance Audit

Uncashed Check Audit

Statement Audit

Basic A/P Audit

Expanded A/P Audit

Secondary A/P Audit

Recovery Audits

First Steps and 6 Types of Audits

Slide 34




Recovery Audits

First Steps

Most can and should be done in-house Identify sources of data you may need to draw on Contracts Deal Sheets Purchase Orders Invoices Receipts Payments Vendor File(s)

Identify relevant transaction processing systems Purchasing Accounts Payable P-Card, Credit Card, Fuel Card, etc. Wire Transfer Electronic Payment Other

Slide 35




Decide on software to use to do your analysis Excel, Access or Specialized Software

Typically only need the following data in electronic form Vendor file Invoice transactions Disbursement transactions

May want to draw on Card transactions Payments that bypass AP (e.g. wire transfers)

May want to Identify and link duplicate and related vendors Identify sensitive vendors Analyze spend with vendors By amount By transaction volume

Recovery Audits

First Steps (cont’d)

Slide 36




Identify vendors with credit balances Often determined by looking at data in vendor master

May need to look at invoice and/or payment transaction data

Check with purchasing and internal business units

Prepare a balance inquiry/statement request letter

Find appropriate contacts at vendors

Send, track and follow up

Some useful observations Reconcile the vendor’s response against your data as you may find you’ve made

other overpayments

If you’re owed money, ask for payment

Recovery Audits

Credit Balance Audit

Slide 37




Identify open checks (open over 90 or 180 days) Usually determined by looking at data in check register

May want to use a dollar cutoff (e.g. >$100, 500 or 1,000)

May be a problem finding open checks if bank reconcilement does not update

check register

Search invoice transaction history for offsetting transactions Open check may be a payment to a wrong vendor or a duplicate to the right

vendor that was never cashed or returned

At least half of all open checks have offsetting transactions

Document the offsetting transaction and stop and void the open check

Recovery Audits

Open Check Audit

Slide 38




Identify vendors to include/exclude from a statement audit Possible Inclusion criteria Minimum of $25,000 or $50,000 in spend

Minimum of 3 or 4 invoices

Possible Exclusion criteria Utilities

Taxing authorities

Garnishments

Donations and contributions

Sensitive vendors

Vendors with lock box addresses unless you have other contact addresses

Recovery Audits

Statement Audit

Slide 39




Prepare a balance inquiry/statement request letter

Find appropriate contacts at vendors

Send, track and follow up

Some useful observations Ask for data to be sent in electronic form

Over half of the vendors will never respond

Analysis of responses should determine if the vendor applied your payments

properly

You may end up owing money to a few vendors

Recovery Audits

Statement Audit (cont’d)

Slide 40




Focus on finding possible Duplicate Payments

Payment of Credit


Key pieces of data to look at Vendor #

Invoice #

Invoice Date

Invoice Amount

Decide on vendors and transactions to exclude

Recovery Audits

Basic A/P Audit

Slide 41




Issues with each key piece of data Vendor Same or related vendor under different vendor #

Invoice # Invoices without invoice numbers

One versus Ietter I or letter L

Zero versus letter O

3 versus 6 versus 8

2 versus Z

4 versus 9

Invoice # ending in A, ADJ, Z, CR, CM, DM, DR, etc.

Recovery Audits

Basic A/P Audit (cont’d)

Slide 42




Issues with each key piece of data Invoice Date Dates more than 3 months prior to processing date

Dates after processing date

Invoice Amount Even dollar amounts

Amounts over $10,000

Recovery Audits

Basic A/P Audit (cont’d)

Slide 43




Focus on finding possible More Duplicate Payments

More Payment of Credit

More Payment to Wrong Vendor

Overlapping Bills

Wrong Amount

Key pieces of data to look at Vendor # and Duplicate or Related Vendor #s

Invoice #

Invoice Date

Invoice Amount

Decide on vendors and transactions to exclude

Recovery Audits

Expanded A/P Audit

Slide 44




Issues with each key piece of data Vendor Same as for basic A/P audit

Invoice # Same as for basic A/P audit

Invoice #s inconsistent with format, longer or shorter than others for vendor

Transposed characters or digits

Long sequences of the same character - e.g. 0000

Not in compliance with your rules for invoices without invoice #s

Recovery Audits

Expanded A/P Audit (cont’d)

Slide 45




Issues with each key piece of data Invoice Date Same as for basic A/P audit

# of transactions not a multiple of weekly, monthly or quarterly for rent, utility, taxing

authority, etc.

Invoice Amount Same as for basic A/P audit

Similar amounts (within 1-9%)

Alternative amounts such as discounted, net, different currency

Amounts significantly higher or lower than the median amount for a vendor

Recovery Audits

Expanded A/P Audit (cont’d)

Slide 46




Verification Obtain and review copies of source documents Contracts, Purchase Orders, Invoices

Determine if checks have been stopped, voided or re-issued

Some useful statistics and benchmarks Transactions with same vendor under different vendor #, same invoice date,

same invoice amount and same invoice # are virtually all duplicates and 85% or

more are typically recoverable

Duplicate payments are typically less than 10% of all erroneous payments

Recovery Audits

Basic or Expanded A/P Audit

Slide 47




Use a second party to perform an audit

Each party typically brings different skills and finds and recovers

different things

Fees for secondary audits are usually higher than fees for primary

audits

Recovery Audits

Secondary A/P Audit

Slide 48




Contract Compliance Audits

Slide 49




Advertising and Media

Telecommunications

Temporary Help

Construction

Freight and Delivery Services

Utilities

Property Leases

Software Licenses

Travel Expense

Legal and Other Professional Services

Waste

Equipment Leases


12 Types of Audits

Slide 50




Analyze expenditures by Vendor General Ledger

Ask AP staff Who are our problem vendors and sensitive vendors Who are our problem approvers and submitters

Ask Purchasing staff Who are our problem vendors and sensitive vendors Who are our problem requestors and submitters

Select 1-5 vendors coordinating with purchasing and legal Obtain copies of their contracts Review contracts for complexity and potential issues based on terms and

conditions Determine if you have/need additional data


First Steps

Slide 51




For each selected vendor/contract(s) Determine if in-house expertise exists for doing a contract compliance audit

Identify potential third party experts

Speak/meet with 2 or 3 such experts

Decide whether to do in-house or outsource

Pick one or two vendors/contracts to audit first


First Steps (cont’d)

Slide 52




Purpose

Potential Opportunity

Issues


For Each Type of Audit

Slide 53




Purpose Whether advertisements/commercials were placed as scheduled and met other

criteria

Validity of web clicks

Compliance with of co-op payments

Whether guaranteed exposures were met

Appropriateness of agency rates, fees, passed through rebates and discounts

Potential Opportunity 2-5% of total media spend

Issues Highly specialized

Third parties typically needed to achieve results

Contract Compliance

Advertising and Media

Slide 54




Purpose Whether landlines, wireless services are in use

Whether equipment and features are in use

Whether proper tariffs are being applied for local, long distance, private lines,

Whether taxes and other charges are accurate

Competitiveness of rates

Potential Opportunity 3% or more of spend, some claim saving up to 25%

Issues Limits on how far back you can go

Contract Compliance

Telecommunications

Slide 55




Purpose Verify that people with appropriate skill levels are being provided

Verify that hours billed comply with contract

Potential Opportunity 1%-5% of temporary help spend, occasionally much higher

Issues Require resumes of assigned personnel

Require electronic timesheets

Contract Compliance

Temporary Help

Slide 56




Purpose Compliance with contracts

Proper bidding and subcontracting

Change control

Potential Opportunity 1% - 2% of total costs

Issues Many different types of contracts add to the complexity of these types of audits

Best done during the project lifecycle

Some firms charge hourly rates rather than contingent fees

Contract Compliance

Construction

Slide 57




Purpose Rate compliance

Weight accuracy

Service failure

Extra charges

Billing customer when shipper pays freight

Types of services that can be looked at: TL (Truckload) and LTL (Less than Truckload)

Long Haul, Regional and Local

Inbound and Outbound

Air Freight

Ocean Freight

Small Package air and ground

Courier Service

Contract Compliance

Freight and Delivery Services

Slide 58




Potential Opportunity 2% - 4%

Issues Specialized audit software is available for several types of freight and delivery

service audits

Services provided by logistics companies and freight payment processors

Contract Compliance

Freight and Delivery Services (cont’d)

Slide 59




Purpose Proper rate Assessment of alternative rates/plans Efficiency analysis, load shifting Types of services that can be looked at: Electric Water / Sewer Gas Steam

Potential Opportunity 1%-3% of historical bills Prospective savings can be significant

Issues Some utility rates are regulated in some states

Contract Compliance

Utilities

Slide 60




Purpose Errors due to space measurement, common area maintenance charges, utility

usage, construction costs, CPI rate escalators, charge backs, charges for

excluded costs, excessive management fees, incorrect base year, real estate

and other taxes, etc.

Potential Opportunity Recoveries of $0.50 - $10 per square foot of space

Issues Leases are complex documents

Getting data from landlord can be difficult


Property Leases

Slide 61




Purpose Recover overcharges for discontinued seats and/or services

Potential Opportunity Large if high turnover, downsizing, mergers, etc.

Issues Companies often do not maintain accurate inventory of software

Financial services industry is a heavy user of seat licenses for software and

information services

Software providers often do audits to look for unauthorized usage

Contract Compliance

Software Licenses

Slide 62




Purpose Non-compliance with policy

Unused tickets

Overcharges

Disallowed expenses

Potential Opportunity Varies greatly

Issues Fraud is a significant factor in travel expense

Automated booking and T&E systems significantly reduce effort of conducting an

audit

Contract Compliance

Travel Expense

Slide 63




Purpose Hourly billing errors, abuses, and inefficiencies

Person providing service does not have qualifications

Unreasonable fees and expenses

Markups on expenses and third party experts

Potential Opportunity Usually under 10% of invoiced but as high as 50%

Issues Require billing records and other supporting documents

Audited firms sometimes try to charge for being audited

Contract Compliance

Legal and Other Professional Services

Slide 64




Purpose Compliance problems such as dumpster fees, weight, collection frequency

Identify cost reduction strategies by segregation of waste and recycling

Potential Opportunity Small dollars. Best for organizations with many locations generating a lot of trash

Issues Many states and cities have checklists and worksheets to help you conduct a self

audit

Contract Compliance

Waste

Slide 65




Purpose Equipment changes and substitutions

Usage/activity billing

Appropriate rates

Billing on terminated leases and returned equipment

Potential Opportunity 1% - 3%. Some claim recoveries of up to 15%

Issues Lease agreements vary greatly and can be complex

Companies with many locations often not aware of what is no longer in service

Contract Compliance

Equipment Leases

Slide 66




Specialized Audits

Slide 67




Health Insurance & Medical Claims

Property & Liability Claims

Reverse Sales & Use Tax

Postage

Payroll & Other Tax Payments

Value Added Tax

Real & Personal Property Assessments & Taxes

Escheat Recovery

Specialized Audits

8 Types of Audits

Slide 68




Analyze expenditures by General Ledger

Ask AP, Purchasing, Payroll, Tax, Treasury and Real Estate staff Which have the greatest potential

Which might be too risky to do

Select 1 or 2 areas

For each selected area You probably do not have in-house expertise exist for doing a specialty audit

Identify potential third party experts

Speak/meet with 2 or 3 such experts

Pick one area to audit first

Specialized Audits

First Steps

Slide 69




Purpose

Potential Opportunity

Issues

Specialized Audits

For Each Type of Audit

Slide 70




Purpose Premium charges for ineligible people

Invalid claims

Upcoding and unbundling

Potential Opportunity 5% - 10% of premiums and claims

Some firms claim typical reductions/recoveries of 20% - 60% but that seems

unlikely

Issues Health care costs have become very large

Fraud is rampant

If self insured, Third Party Administrators (TPAs) often have different objectives

than you

Specialized Audits

Health Insurance & Medical Claims

Slide 71




Purpose Recover overpayments of premiums

Excessive and fraudulent claims

Potential Opportunity 5% - 10%

Issues Public adjusters can help with a recovery process

Specialized Audits

Property & Liability Claims

Slide 72




Purpose Recover due to wrong tax rate, wrong tax jurisdiction, not taxable

Potential Opportunity 2% - 5% of sales/use tax

Issues Having transaction detail showing breakout of taxes greatly reduces effort

Knowledge of sales and use tax rules and access to appropriate data is critical

Specialized Audits

Reverse Sales & Use Tax

Slide 73




Purpose Recover unused and underused postage deposits

Potential Opportunity Can be significant if heavy user of direct mail

Issues Records of actual usage are often poorly maintained

Specialized Audits

Postage

Slide 74




Purpose Find overpayments of Social Security, Medicare, Unemployment and Disability

taxes

Potential Opportunity Varies greatly

Issues Certain types of payments (e.g. sick pay) are exempt from certain taxes

Payroll processing firms sometimes provide these services

Specialized Audits

Payroll & Other Tax Payments

Slide 75




Purpose Recover VAT and GST (Goods and Services Tax)

Potential Opportunity 5% - 25% of selected expense categories

Issues What can be reclaimed varies by country

Receipt requirements, filing deadlines and forms vary by country

Specialized Audits

Value Added Tax

Slide 76




Purpose Ensure appropriate assessments

Reduce the amount of real and personal property taxes

Potential Opportunity Varies greatly. Very useful if you have many locations.

Issues Comparable real property assessment data is typically available online at County

web sites.

Comparable personal property data is typically hard to obtain.

Specialized Audits

Real & Personal Property

Slide 77




Purpose To find and recover money due to your company that has been escheated by

others: dividend checks, refunds, deposits

Potential Opportunity Varies widely. Very useful if you’ve been through mergers, acquisitions,

divestitures, name changes, address changes

Issues Need names of current and past companies, subsidiaries, etc.

While some data is online, full search of all states can be time consuming

Specialized Audits

Escheat Recovery

Slide 78




Recovering Erroneous Payments

Slide 79




Decide whether to do chargebacks

Develop a set of letters/correspondence

Have a tracking system

Determine who will sign correspondence

Determine where responses are to be sent

Obtain vendor contacts Name, Title, Phone, Fax, Email, Street Address

Send out “claim letters” with supporting documents

Follow up

Investigate, Escalate, Give Up


A Recovery Process

Slide 80




Do you automatically take deductions?

Do you accept credits from vendors and, if so, how do you apply them?

Do you place vendors on hold?

How do you deal with fraud?

Some vendors can’t be found, some are bankrupt

Some claims are “false” claims and some have to be dropped

Sometimes you have to settle for less than the full amount


Some Issues

Slide 81




Eliminating Erroneous Payments

Slide 82




Clean Up Your Vendor File

Develop Rules for entering Invoice #s and for Invoices Without Invoice

#s

Integrate Purchasing and Accounts Payable to use common database

and vendor #s

Double-Check All Large Dollar Transactions

Track Rejects and Refunds

Monitor Problem Vendors and Problem Approvers

Use Recovery Audit, Contract Compliance Audit and/or Specialty Audit

Firms

Analyze and Report Errors

How to Reduce Erroneous Payments

Slide 83




Eliminating duplicate vendors can eliminate 75% of duplicate payments

Having accurate and complete mailing addresses can eliminate 50% or

more of stops and uncashed checks


Clean Up Your Vendor File

Slide 84




Most Critical Have very few rules - a summary should fit on one side of one page

Be consistent

Periodically check for compliance


Rules for Invoice #s

Slide 85




System factors that affect rules for invoice #s # characters allowed for Invoice #

Is a unique Invoice # required?

Can you to see all transactions with a specific Invoice #?

Can you override the Duplicate Check and is there an audit trail or report of all

such transactions?

Can you to include a Description as well as Invoice # and do both appear on a

Check Stub or other form of Advice that is sent back to the vendor?


Rules for Invoice #s (cont’d)

Slide 86




General Rules If a vendor specifies an Invoice #, use it unless there are more characters than

can be entered into the Invoice # field in your system

Enter Invoice #s using all of the numbers and letters, but drop special characters

and spaces e.g. dash (-),colon(:), slash (/), asterisk(*),number sign (#), period(.), etc.

Dash (-) may be used in special cases

For dates as part of an Invoice #, be consistent i.e. mmddyy, mmyy, mmmyyyy, or yymmdd, etc.

If you can’t have 2 characters for a month, use the letters A - L to correspond to

January - December.



Slide 87




Specific Rules for invoices without invoice #s Dues and Subscriptions: Use account # or person's name and range of dates covered or expiration date as the

Invoice #

Recurring Rent Payments: Include part of the street address followed by the month and year as the Invoice

Number. You may want a dash between street address and month

Utility and Telephone Bills: Use Account # followed by month covered

Legal Bills: Use the Document or Matter Number followed by range of dates covered



Slide 88




Specific Rules for invoices without invoice #s Payments Covering a Range of Dates: Use the range of dates covered

Tax Payments: Use the Federal Tax Id of the entity for whom the Tax is being paid followed by the

period covered Instead of Month and Year, you may want to use Quarter Number

followed by the letter Q followed by Year for quarterly tax payments

Property Tax Payments: If there is a parcel number, use it followed by the period covered. If not, use a

convention similar to that used for Rent Payments



Slide 89




Specific Rules for invoices without invoice #s Seminars and Conferences: Use the Person's Name followed by the date or range of dates of the conference

Catering, Charters, etc.: If a deposit, progress payment and final payment are to be made and there is no

invoice number use the Event Date followed by DEPOSIT, PAYx where x is the

payment number or FINAL

Check Requests: Do not use a unique Check Request Number. Instead, use one of the appropriate

rules



Slide 90




Specific Rules for invoices without invoice #s Credit Invoices, Debit Memos, Adjustments: If there is a reference to the original invoice #, you may want to use the original

invoice # followed by CR, DM, ADJ so that the original and the second transactions

will be more easily seen as being related.

Catch All Rules: Use Invoice Date

Use Invoice Date followed by a dash followed by Invoice Amount



Slide 91




Use the same vendor # for issuing POs and remitting payments

Check invoice line item quantities and prices against PO quantities and

prices

Work closely with purchasing to monitor and resolve problems


Integrate Purchasing and A/P

Slide 92




Implement 90-10 report Report of all invoice transactions within the last 90 calendar days involving

$10,000 or more

What to look for Invoice #s that don’t conform to rules

Possible duplicate

Possible wrong vendor

Large $ look for overcharges and extra charges


Double-Check Large $ Transactions

Slide 93




Exception processing is 10%-20% of transaction volume and 50%-80%

of the work

Track every invoice that comes into A/P that requires intervention with

supervisor, submitter, approver, purchasing or vendor

Track all invoices with amounts adjusted by submitter or approver

Track all duplicates caught by system

Work with purchasing to identify source and cause of problems

Identify “problem” vendors

Identify “problem” approvers


Track Rejects and Refunds

Slide 94




Between 2 and 10 vendors account for 50% or more of all transactions

involving exception processing

Between 2 and 10 approvers account for 50% or more of all

transactions involving exception processing

Work with purchasing to identify source and cause as well as possible

actions


Monitor Problem Vendors & Approvers

Slide 95




Some companies offer general auditing software and others offer

software specific to detecting certain types of erroneous payments Some also offer software to automate the recovery process


Use Recovery Audit Software

Slide 96




Most recovery audit firms work on a contingent fee basis They get paid a percentage of what they find (and recover)

Pricing schemes Tiered price which drops as total recovery increases

Tiered price which rises as total recovery increases

Tiered price based on amount recovered on individual item or claim

Pay on recovery not on discovery Some percentage of claims are unrecoverable or already resolved


Use a Recovery Audit Firm

Slide 97




Most in-house AP organizations and third party Recovery Audit firms

have limited expertise in contract compliance

Most contract compliance audit firms have expertise in only some types

of contracts typically based on type of vendor

Most contract compliance audit firms work on a contingent fee basis They get paid a percentage of what they find (and recover)

They typically get a higher percentage than a Recovery Audit firm

Issues associated with Recovery Audit firms apply here as well


Use a Contract Compliance Audit Firm

Slide 98




Most in-house AP organizations and third party Recovery Audit firms

have limited expertise in specialty audits

Most specialty audit firms have expertise in only some types of audits

typically based on type of goods or services

Some specialty audit firms work on a contingent fee basis, some for a

fixed fee and some for an hourly fee

Issues associated with Recovery Audit firms apply here as well


Use a Specialty Audit Firm

Slide 99




Report # and $ associated with exception processing along with

vendor, approver, source and cause

If using a third party audit firm, require such analysis and reporting to

be part of their deliverables


Analyze and Report Errors

Slide 100




Shortening the Detection and Recovery

Process

Slide 101




Maintain a clean vendor file

Set and use consistent rules for invoice numbers

Use and match against POs, Blanket Orders, Fictitious POs

Verify Sales and/or Use Tax Applicability and Rate

Verify appropriateness of Freight, Insurance and Other Charges

Check arithmetic especially on word processed invoices

Perform Dual Entry of 4 key data elements Vendor, Invoice #, Invoice Date, Invoice Amount

Shortening Detection and Recovery

Front End Controls

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90-10 Report Report of all invoice transactions within the last 90 calendar days involving

$10,000 or more

What to look for Invoice #s that don’t conform to rules

Possible duplicate

Possible wrong vendor

Large $ Look for overcharges and extra charges


Back End Controls

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Take from almost any credit cardholder agreement What vendor must do if vendor detects an error Notify you within 60 days

What vendor must do if not sure how to apply a payment Notify you within 60 days

Time frame and process if we detect a problem Notify vendor of problem in writing

Vendor must respond in 90 days Either correct the problem or provide documentation as to why no error

We will accept or further dispute within 30 days

If we further dispute, vendor has 60 more days

If unresolvable, we and vendor participate in arbitration


Dispute Resolution Terms and Conditions

Slide 104




Best Practices for

Key Control Points

Slide 105




Contracting

Vendor Setup

Changes

Delivery of Goods or Services

Receipt of Invoice

Payment

Vendor’s Application of Payment

Completion of Contract or Order

Key Control Points

Slide 106




Put terms and conditions for dealing with problems and disputes into

standard contracts

Specify how substitutions and changes are to be handled

Obtain information about vendor’s billing system / practices and

application of payments

Specify invoice detail

Best Practices

Contracting

Slide 107




Use standard rules for entering name, address, phone, tax id, etc.

Have a second person check for duplicate vendor

Verify address against US Postal Service (or other country) files

Check vendor’s web site and verify/confirm selected information

Check third party databases and verify/confirm selected information

Best Practices

Vendor Setup

Slide 108




Review contract to assess potential problems and/or need for additional

review or reporting

Best Practices

Changes

Slide 109




Verify against contract and/or PO for compliance with quality, quantity,

timeliness, unit price, substitution, extra charges

Identify, document, review and resolve disputes expeditiously

Best Practices

Delivery of Goods or Services

Slide 110




Dual review all large dollar transactions

Track and report rejects

Monitor transactions involving “problem” vendors

Monitor transactions involving “problem” approvers

Best Practices

Receipt of Invoice

Slide 111




Verify vendor and amount being paid against source document(s)

Provide sufficient information for vendor to properly apply payment

Provide vendor with documentation for any “short” payment

Best Practices

Payment

Slide 112




Request and review vendor statements

Do self audits and follow up with third party audits

Best Practices

Vendor’s Application of Payment

Slide 113




Analyze and document sources and causes of erroneous payments

Do self audit and follow up with third party audit

Track refunds and credits

Best Practices

Completion of Contract or Order

Slide 114




Share findings with others

Monitor external events and factors that might affect past and future

transactions

Best Practices

Other

Slide 115




Selecting a Recovery Service Provider

Slide 116




Audit Software Typically one-time and/or recurring payments

A/P Payment Recovery and Audit Firms Contingent based on recoveries

Contract Compliance Audit Firms Contingent based on recoveries

Some contingent based on future savings

Specialty Audit Firms Contingent based on recoveries, fixed fee or time & materials

Some contingent based on future savings

CPA Firms Can not charge contingent fees

Some get around this but beware


Types of Firms and How Compensated

Slide 117




Approx. 10 A/P Audit Software Providers Most software focuses on finding errors

Few focus on recovering errors

Over 200 A/P Audit Firms 1 public, rest private

Approximately 10 have national practices

Some specialize in certain industries

Some focus on certain specialty audits

Some have alliances with specialists

Some work for large, medium and/or small clients

Thousands of Specialized Audit Firms Most specialize in 1 or a few types of specialized audits


How Many

Slide 118




Copyright 1997 RECAP, Inc. Used with permission

Do they have experience in your industry?

Do they obtain refunds or simply do chargebacks, credits and

reversals?

Do they pursue low dollar recoveries?

How much of your staff’s time and how much space at your site will be

required?

Will they maintain your confidentiality?


Ten Questions

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Will they suggest enhancements to your process on an ongoing basis?

Does their recovery process account for the sensitivity of your vendor

relationships?

Will you have control over correspondence with your vendors?

Can they accept your electronic data in the format most convenient to

you?

Ask for at least three references. CHECK them!


Ten Questions (cont'd)

Slide 120

Copyright 1997 RECAP, Inc. Used with permission




Final Thoughts

Slide 121




Finding erroneous payments can identify control weaknesses and

process improvement opportunities

Finding and recovering erroneous payments can turn Accounts Payable

from a cost center to a profit center

Recoveries can used to fund many process improvement and

automation projects

Final Thoughts

Slide 122




Questions

Slide 123




Jon Casher

Snail Mail Casher Associates, Inc.

110 Pond Brook Road

Newton MA 02467-2648

Web Site www.casherassociates.com

Email [email protected]

Phone 617-571-3890

Contact Information

Slide 124

http://www.casherassociates.com/

mailto:[email protected]