recovery auditing: real experiences, real solutions paul dinkins, executive vice president,...
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Recovery Auditing: Real Experiences, Real Solutions
Paul Dinkins, Executive Vice President, PRG-Schultz International Inc.
Jennifer L. Harris, Vice President, Operations, Horn & Associates, Inc.
Jack Dothage, Interim Director, Division of Accounting (MO)
Kim S. Oliver, Director, Division of Finance (UT)
What is Recovery Auditing?
A 34 year old best business practice– Identification and recovery of overpayments inadvertently made to suppliers of goods and services
– These funds are otherwise undetected and lost
– Performance based fee structure - Recovery auditors are paid on a share of the amounts recovered
– Sophisticated technologies for data mining
– 24 different service providers – Wide range of experience and expertise
What is Recovery Auditing? (cont’d)
–This is an accepted business practice of most Fortune 500 Companies, a large mix of Federal Agencies and a growing number of state governments
–Now required for Federal Agencies based on the Recovery Audit Legislation (handout)
–Office of Management and Budget has issued implementation guidance (handout)
–Recovery auditors assume all costs and risks associated with the program
–Several Billion dollars recovered annually
Most Result From Human Error
But…
At .1%, the error rate is very low and we should give credit on a high level of accuracy to AP teams
Who and Why?
• Who does it? – Majority of large private sector companies
– Federal Agencies – by legislative mandate…GSA, Transportation, Justice, Interior, Agriculture, Social Security, Department of State, DoD Homeland Security, Department of Commerce & Education
– Growing list of state governments
• Why do it? – Recover the money
– Learn from the process
– Further demonstrate good stewardship of taxpayer money
• Team up with your procurement group to:– Use existing RFP’s to build your own– Structure selection criteria on the normal “Technical Capabilities,
Past Performance and Price” and emphasize your need for known performers
– Solicit added value reporting
• Making the program worthwhile– Plan for a comprehensive scope – mandatory for all agencies
(otherwise participation will be minimal)– Define success– Let everyone know that it is expected that overpayments will be
identified and recovered
Getting the Process Started
The Process
• Pre-Audit Planning Meeting• Data conversion and verification • Identify Overpayments • Validate Overpayments• Submit Claims• Management Report
• Meet key participants involved in the audit process
• Request the electronic and hard copy information necessary to perform the review
• Define the scope and parameters of the audit • Identify sensitive or off limit suppliers• Outline reporting needs and frequency
Pre-Audit Planning
• IT contact will deal directly with your IT staff
• Request will not require additional programming from your department
• Data will be verified against a sampling of invoices and charge backs to insure accuracy
Data Conversion
Source of Overpayments
Two primary categories
Disbursement Errors – 20% Disbursement errors are typically those overpayment
errors made by the accounts payable process such as duplicate payments and missed discounts.
Contract Compliance Errors – 80% Contract compliance errors are overpayments related
to all other terms and conditions of purchase such as missed allowances, rebates, pricing errors, returns, and numerous other categories.
Disbursement Errors - Duplicate Payments
Vendor Name Vendor # Invoice # Inv Date Amount
ACME Labs 6671 2897 8/27/2003 $2,385.00
ACME Labs 6671 2897 8/29/2003 $2,385.00
XYZ Inc. 8776 34687 11/7/2003 $27,858.00
XYZ Inc. 8776 110703 11/7/2003 $27,858.00
ABC Products 42963 54896 4/21/2003 $548.96
ABC Products 42963 1492346 4/21/2003 $548.96
M Incorporated 12345 62983 6/12/2003 $5,400.00
M Incorporated 12345 6298345 6/12/2003 $5,400.00
Disbursement Errors – Payments to Wrong Supplier
Vendor Name Vendor # Invoice # Inv Date Amount
ABC Labs 9399 866526H 8/29/2003 $7,888.61
ABC Products 9936 66526 8/29/2003 $7,888.91
Sun Inc. 875922 533583 3/22/2003 $248.78
Sun Inc. 116449 1533583 3/22/2003 $248.78
Disbursement Errors - Payment Errors
Vendor Name Vendor # Invoice # Inv Date Amount Check DtACME Labs 6671 DM42698 7/22/2003 -$600.00 7/30/2003ACME Labs 6671 42698R 8/15/2003 $600.00 8/20/2003ACME Labs 6671 42698RR 8/25/2003 $600.00 8/30/2003
XYZ Inc. 8776 2460040 2/10/2003 $214.20 3/10/2003XYZ Inc. 8776 2460040 2/10/2003 $64.20 3/10/2003XYZ Inc. 8776 2460040 2/10/2003 $150.00 3/10/2003
ABC Products 42963 44228CM 1/12/2003 $250.00 2/10/2003
M Incorporated 12345 92699CR 4/28/2003 $175.00 5/20/2003
Disbursement Errors – Open Credits on Statement
• Summarize download to rank suppliers
• Request statements from top ranked suppliers, by mail and by telephone
• Review statements to identify old credits, returns, unapplied cash, etc.
Disbursement Errors - Missed Discounts
• Analyze electronic discounts to ensure all available discounts were received.
• Review offers from vendors to identify where discounts were not taken.
Contract Compliance - Pricing Errors
• Review data to identify situations where items were billed at prices higher than negotiated.
Contract Compliance - Rebates/Accruals
• Review of rebate and accrual programs to insure that they were received and calculated correctly.
Contract Compliance - Contract Review
• Review contracts to insure contract was not overpaid.
• Analyze for discounts or rebates included in contract.
Validation
• Documents necessary to validate claims will preferably be pulled by audit team.
• The documents typically will be imaged.
• After validation claims will be reviewed by designated person for final approval.
Claim Submission
• Upon approval, claims will be generated and submitted to suppliers.
• The agreed upon process for collection will be followed.
• All correspondence will be handled by the audit team.
Reporting
• Reporting will be provided ongoing as agreed in the pre-audit planning meeting.
• A final management report will:– Summarize the findings– Provide year to year comparisons– Offer recommendations to decrease or
eliminate errors
• Data Mining
The Missouri Program
• Utilized cooperative procurement with the State of Maine
• Selected a company with proven record in large corporations
– Not intrusive
– Significant financial benefit
– Insights on control issues
– Viewed as a partner
The Missouri Program (cont’d
– Initial focus primarily on disbursement errors
– Continued expansion of scope to include contract compliance and Medicaid
– Recovery Audit team’s experience is cumulative opening new opportunities over time
The Utah Program
• Getting Started– Look at other states RFP's
– Review data elements captured on your system
– Get support from individual agencies
– Have auditors pull documents
– Determine how overpayments will be accepted
(cash &/or credit)
The Utah Program (cont’d
• Lessons Learned– An A/P audit requires a level of commitment from
state staff
– Requires consistency in recording payable information
– Requires audit trail on system for receipt of overpayments for vendor's open credits
– Why not contract for an A/P audit?
Summary
• Good stewardship of taxpayer money• Optimize transaction assurance• Learn from the process• No risk
Questions?Paul Dinkins, Executive Vice President
PRG Schultz International Inc.
419 Canyon Avenue, Suite 224
Fort Collins, CO 80521
970-221-2000
Jack Dothage, Director,
Office of Administration
Division of Accounting, State of Missouri
Truman Office Building
P.O. Box 809
Jefferson City, MO 65102
573-751-4013
Jennifer Harris, V P OperationsHorn & Associates3690 E. Ft. Union Blvd, Suite 202Salt Lake City, UT [email protected]
Kim Oliver, Finance Director1140 State Office BuildingSalt Lake City, UT [email protected]
Carol YoungState Accountant1140 State Office BuildingSalt Lake City, UT [email protected]