How to stop improper payments: A focus on government vendor risk

Transcription

1 How to stop improper payments: A focus on government vendor risk

2 TODAY S SPEAKERS Nichole Gable SENIOR MANAGER KEARNEY & COMPANY Nonie Dalton SENIOR PRODUCT MANAGER, PUBLIC SECTOR, ACL

3 IN TODAY S WEBINAR 1. Procurement Risks & Improper Payments 1. Key Laws & Regulations 1. Automation - Approach and Methodology 1. Examples 1. Q&A

4 The US government spends an average of 26.1% of total government expenditures on general procurement. Public procurement is the one activity most vulnerable to waste, fraud and corruption.

5 RISK IN PUBLIC PROCUREMENT Fraud Risks are exacerbated by: Volume of transactions across all areas of Complexity of the process Close interaction between public officials and businesses Multitude of stakeholders.

6 COST OF FRAUD IN PUBLIC PROCUREMENT Loss of public funds Decreased quality of service Decreased quality of service that can be detrimental to citizens, infrastructure and/or the environment Inability to achieve objectives & mission Erosion of public confidence US Federal Government reported about $140B in improper payments in FY Rates ranged from 0% to 100% *Includes all improper payments, not just contractual services and supplies.

7 KEY LAWS & REGULATIONS - FEDERAL 2002 Improper Payments Information Act (IPIA) 2010 Improper Payment Elimination Recovery Act (IPERA) 2012 Improper Payment Elimination Recovery Improvement Act (IPERIA) 1982 Prompt Pay Act (PPA) 2014 OMB issues guidance for Agencies implementing IPERA OMB A-123 Appendix C, Parts I & II

8 KEY LAWS & REGULATIONS STATE & LOCAL STATE & LOCAL Federal grants at the State and Local level are subject to 2 Code of Federal Regulations (CFR) 200 (Uniform Guidance). 2 CFR identifies reimbursement as the preferred method of payment and requires payment within 30 calendar day after receipt of the billing, unless the Federal awarding agency or pass-through entity reasonably believe the request to be improper. ALL ENTITIES Treasury Finance Manual Part 4a, Chapter 2000 states that the "[t]he principal objectives of control of disbursements are to ensure that all disbursements are legal, proper, and correct..." Further, "[a]ll agencies, including agencies that do not use Fiscal Service to disburse payments, must be vigilant of the risks and inefficiencies that exist to providing accurate and reliable payment data in advance of payments being made."

9 IMPROPER PAYMENTS DEFINTIONS IPERA Any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.

10 IMPROPER PAYMENTS DEFINTIONS OMB A-123 (Implementing Guidance) Improper payments include any payment to an ineligible recipient, any payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received (except such payments where authorized by law), and any payment that does not account for credit for applicable discounts. OMB instructs agencies to report as improper payments any payments for which insufficient or no documentation was found. OMB Circular A-123 requires agencies to take the following actions as it relates to improper payments Publish Annual Financial Report Complete Risk Assessment Estimate Improper Payments Develop Corrective Action Plans Meet Reduction Goals - Have < 10 % Improper Payments

11 Is it possible to get on top of your P2P improper payments?

12 Yes!

13 AUTOMATED CONTINUOUS MONITORING Useful Data Objectives > Criteria > Risk > Frequency > Data Requirements Contract Data AP Disparate Data Sources Receiving Automated Continuous Monitoring Data extraction Analytics Alert Stakeholders & Remediate Monitor and Report to Stakeholders

14 BENEFITS OF AUTOMATING CONTROL MONITORING Get in front of your payments Meet audit and new fraud and data analytics requirements. Remediate 8 of 11 root causes of improper payments. Analyzes entire data population. Create a repeatable and documented process. Supports transparency, improves efficiency, and leads to data-driven decisions. Identify organizational risks (i.e., known and emerging).

15 GETTING STARTED

16 GETTING STARTED: METHODOLOGY Identify & Verify Risks Document key processes & controls Assess internal controls Document & Report Results

17 GETTING STARTED: METHODOLOGY 1 Identify & Verify Risks Perform an agency wide risk assessment Develop implementation plan Determine high-risk programs and areas by focusing on datadriven entity wide assessment TIP: In your risk assessment focus on dollars spent by program, red flags, data anomalies, etc., rather than on materiality and payment recapture auditing cost effectiveness.

18 GETTING STARTED: METHODOLOGY 2 Document key processes & controls Evaluate process and control documentation. Perform walkthroughs to create/update process narratives and flowcharts documenting processes surrounding payments. Identify key controls. Determine key internal controls and match to identified risks in highrisk program areas. Use ACL to model business process and script key business rules for each process area (i.e., vendor payments, travel and purchase cards, grants, etc.) Data extraction Analytics

19 GETTING STARTED: METHODOLOGY 3 Assess internal controls Using ACL, model business process to perform: Test of design: Assess the design of internal controls to determine if they are in place. Test of effectiveness: Assess the effectiveness of internal controls (i.e., receiving reports for contracts identified with property). Validate results through risk-based sampling. Analytics

20 GETTING STARTED: METHODOLOGY 4 Document & Report Results Document and Report results to your stakeholders Remediate Exceptions Monitor overtime Alert Stakeholders & Remediate Monitor and Report to Stakeholders

21 GETTING STARTED: METHODOLOGY Identify risks Analytics Document & report results Document key processes & controls ACL GRC ACL GRC Assess internal controls Analytics

22 PURCHASE TO PAY RED FLAGS Contract Using invalid document numbers or identifiers typically attributed to purchase card Purchases unrelated to the Government organization s mission or a fictitious mission Invoice Inadequate vendor identification information. Vendor on the DNP list Incorrect or non-existent address or phone number. Vendor address or telephone number is the same as an employee s. Invoice for single amount that would typically be billed and paid as progress payments (I.e., construction payments) Invoice does not align to description or unit price of contract line items identified in the contract Receiving Report Quantity of items received cannot be independently validated Invoice and receiving report are not consistent in terms of quantity and price

23 HELPFUL RESOURCES Go to ScriptHub >> Go to Inspirations >>

24 Identifying red flags only matters if something is done about them People only take action when enforceable expectations and accountability have been assigned.

25 ALERT STAKEHOLDERS & REMEDIATE Automate alerts, notifications, and remediation process

26 MONITOR & REPORT TO STAKEHOLDERS Improve transparency to increase Accountability

27 EXAMPLES

28 ACCOUNTS PAYABLE CONTROL IMPROVEMENTS The Problem: Material weakness findings due to availability of supporting documentation to support the propriety of commercial payments. The military service component took numerous corrective actions to improve the controls over this process and asked my organization to validate these corrective actions. Data was spread across multiple disparate systems and hard to assess. (over 250 and 20 million lines of data) Approach: Used process modeling and analytics to obtain greater transparency over this P2P process. Applied automation and analytics, to consolidate the data into a useful and meaningful format and analyze contract data, as compared to financial data. Established a continuous monitoring process Benefits: Found 50% of disbursements weren t recorded in AP system. Found records in multiple accounts payable systems exposing the org not only to improper payments but also duplicate payments. Identified Fraud, and used data to facilitate prosecutions Helped stakeholders address root causes and correct strategic policy issues and the tactical job of payment disbursements

29 AVOIDING VENDOR OVERCHARGES The Problem: Lacked standard framework or technology solution Labor intensive to reconcile Invoices, sales reports, and PO were reconciled months after the payment Vendors did not always apply agreed upon discount price Labor intensive to identify, investigate and manage refunds How it was Solved: Implemented Automated Monitoring for 100% of payments assess prior to disbursement. Compare vendor prices and payments against state-wide Contract Published these exceptions for more detailed remediation Results Provide management oversight of state-wide activities Recovered procurement costs of $2.9M due to incorrect billing Improved vendor compliance Reduction of improper payment rate Reduced reputational risks through reduction of vendor fraud risks

30 IN CLOSING P2P payments are high risk in all government organizations Improper Payments will continue to be a high priority for all Preventative Controls are best and achievable through automation and analytics Monitoring allows you to be compliant with both Prompt Pay and IPERA

31 Q & A

32 FOR MORE INFORMATION Visit : Us: webinars@acl.com nichole.gable@kearneyco.com