Stop throwing away your money! How to avoid duplicate payments without expensive audits

Nicole Edbrooke – Head of Purchase to Pay

December 2011

How to avoid duplicate payments without expensive audits

7th December 2011

• About Essex County Council• P2P at Essex County Council• The Business Case• Implementation• Initial Findings• Lessons learned and next steps

Content

UttlesfordBraintree

Colchester Tendring

Chelmsford

MaldonEpping Forest

Brentwood

BasildonRochford

Castle Point

Harlow

ThurrockSouthend on Sea

Essex County Council

Budget of £2.2bn

£930m pa on goods and services

80% on services

650,000 payment transactions

385,000 invoices

P2P at Essex County Council

• Advance Business Solutions (Cedar) and Marketplace is the core P2P solution

– Orders– Catalogues– Approvals– Workflow– Electronic and OCR invoicing– Auto matching and payment– Payment information

• Additional landscape of line of business systems which include P2P technology

• Final payment made via Cedar either through direct entry or file upload from source systems

Annual Invoices

MARKETPLACE 198000

CONFIRM 480

ELAN 7600

EMS 14500

MAYRISE 576

UMIS 14226

A4W 150000

TOTAL 385382

ECC Annual Invoices

MARKETPLACECONFIRMELANEMSMAYRISEUMISA4W

Core Solution – Cedar and Marketplace

• £500m pa orders from annual procurement influenceable spend of £930m

• 3000 users raising 95000 purchase orders

• 90,000 pa invoices submitted electronically directly from 1000 suppliers and 108,000pa invoices scanned using OCR technology

• 10,000 active suppliers – 38,000 on supplier database – 150 suppliers added monthly

• 11.4% late payments

• 50.9% 1st time match rate on invoices

• 18% order lines subject to 2 way match

• 25% catalogue orders Catalogue orders

2 way match

1st time match rate

Late payments

Business Case ‐ Context

• No organisation, whether private or public and regardless of finance system used is immune from making duplicate payments

– CIPFA benchmarking suggests an average of 0.02%– US Institute of Internal Auditors found between 0.05% and 0.1% of annual

invoice payments– US Institute of Management & Administration found 7% of companies with

over 5,000 employees were paying 0.5% of invoices twice

• There is a healthy market of companies providing forensic checks on data with a recovery service based on a % of the recovered payment

• ECC previously commissioned recovery agency in 2007 to provide such a service which identified and recovered £45k from a 4 year period

• Reports in the media about the levels of duplicate payments being made by Local Government, which will have a reputational impact

Business Case ‐ Background

• Duplicates have arisen through duplicate purchase orders, manual keying error, duplicate supplier records and fraud

• There are some legitimate “duplicate” invoice references which make wholly relying on standard system controls unreliable eg. Legal invoices will always quote the case reference and not a unique invoice reference

• Invoices for the same value, from the same supplier on the same date eg. Rental invoices

• Recovery effort is time consuming and the risk of recovering payments has increased due to the economic climate

£0.00

£20,000.00

£40,000.00

£60,000.00

£80,000.00

£100,000.00

£120,000.00

£140,000.00

£160,000.00

2007/8 2008/9 2009/10 2010/110

10

20

30

40

50

60

70

80

90Total AmountNumber of Duplicates • With 385,000 invoices paid pa at a value of

£930m, this represents less than 0.02% of transactions

• Full implementation of P2P technology led to duplicate orders and duplicate invoices

• All known duplicates have been recovered

Business Case – Existing Controls

• AP controls are set to capture duplicate invoices on entry based on invoice reference, date and value – if one character is different on the invoice reference this check will fail.

• A duplicate check is run on a daily basis between all the AP companies

• Marketplace checks for duplicate invoices based on invoice reference, date and value

• Other source systems have no known duplicate controls

• An exception report is run daily for payments over £100k, any potential duplicates on the same run will be identified

• The final opportunity to identify a duplicate relies on budget holders checking their reports

9

Business Case ‐ the solution

• Fiscal Technologies forensic algorithm software (AP Forensics) allows us to identify and resolve potential duplicates before the payment is made

• AP Forensics has the ability to pick up any duplicate payment & master supplier file issues, typographical or compliance issues and unusual or fraudulent transactions.

• The software is hosted remotely via a managed solution. The daily payment file is run through the software and a priority indicator based notification of any potential problem transactions is provided .

• The software continually builds up knowledge based on our payment history and provides real time information on controls and processes which need improving

• The cost of the desktop solution includes training and product updates

• Assumption that the technology will pay for itself within the first month

Implementation – Going live 

• Quick to deploy - managed service = minimal system testing

• Penetration testing for data protection issues

• System configured, report mappings created and automated

• Procedures created – what action is taken when duplicates are identified, where is the money returned to, what system and process controls require review

• Training of AP employees

• Reports specified – source systems, budget codes, suppliers, reason codes, values

• Daily payment check initially and then look at history

How it works

Finding the duplicates

Reporting

Initial Findings

• Already identified £124,000 from previous financial years for recovery

• Prevented £6k of duplicate payments in first week

• Implementing changes to manually created payment references

• Retraining to reinforce best practice controls within AP

• Introducing further exception reports to ensure payments not made via different channels

• Too many potential duplicates identified to be reviewed on a daily basis – prioritise based on indicators and programme in regular transaction checks

Lessons learned and next steps

• Changes in processes and personnel may have weakened controls

• Refunds made via Accounts Receivable are not available to negate duplicate

• Supplier database will require review on a regular basis – at least annually

• Regular reviews of found duplicates and non-duplicates will be required to ensure continuous improvement

• We will undertake a recovery audit in 18 months to test our improved controls are working

• Programme to review and recover duplicate payments from our historic transactions