Recovery Auditing: Real Experiences, Real Solutions

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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)
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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

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What is Recovery Auditing? (contd)

• 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

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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

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Who and Why?

• Who does it?
• Majority of large private sector companies
• Federal Agencies by legislative mandateGSA,
  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

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Getting the Process Started

• Team up with your procurement group to
• Use existing RFPs 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

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The Process

• Pre-Audit Planning Meeting
• Data conversion and verification
• Identify Overpayments
• Validate Overpayments
• Submit Claims
• Management Report

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Pre-Audit Planning

• 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

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Data Conversion

• 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

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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.

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Disbursement Errors - Duplicate Payments
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Disbursement Errors Payments to
Wrong Supplier

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Disbursement Errors - Payment Errors

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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.

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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.

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Contract Compliance - Pricing Errors

• Review data to identify situations where items
  were billed at prices higher than negotiated.

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Contract Compliance - Rebates/Accruals

• Review of rebate and accrual programs to insure
  that they were received and calculated correctly.

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Contract Compliance - Contract Review

• Review contracts to insure contract was not
  overpaid.
• Analyze for discounts or rebates included in
  contract.

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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.

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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.

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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

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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

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The Missouri Program (contd

• Initial focus primarily on disbursement errors
• Continued expansion of scope to include contract
  compliance and Medicaid
• Recovery Audit teams experience is cumulative
  opening new opportunities over time

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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)

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The Utah Program (contd

• 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?

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Summary

• Good stewardship of taxpayer money
• Optimize transaction assurance
• Learn from the process
• No risk

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Questions?

• Paul Dinkins, Executive Vice President
• PRG Schultz International Inc.
• 419 Canyon Avenue, Suite 224
• Fort Collins, CO 80521
• 970-221-2000
• Paul.dinkins_at_prgx.com
• 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
• Jack.dothage_at_oa.mo.gov

Jennifer Harris, V P Operations Horn
Associates 3690 E. Ft. Union Blvd, Suite 202 Salt
Lake City, UT 84121 801-523-9788 Jennifer.Harris
_at_horninc.com Kim Oliver, Finance Director 1140
State Office Building Salt Lake City, UT
84114 801-538-3095 koliver_at_utah.gov Carol
Young State Accountant 1140 State Office
Building Salt Lake City, UT 84114 801-538-3100 Cyo
ung_at_utah.gov