REPORT PREPARED BY: Russell Ward, Head of Accounts Payable and Enablement, NWSSP Karen Jones, Assistant Director of Finance (Corporate), ABMU

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1 REPORT PREPARED BY: Russell Ward, Head of Accounts Payable and Enablement, NWSSP Karen Jones, Assistant Director of Finance (Corporate), ABMU REPORT SPONSORED BY: Lynne Hamilton, Director of Finance AUDIT COMMITTEE 14 th September 2017 AGENDA ITEM: (xx) ATTACHED MARKED: x Update report in respect of concerns raised about NWSSP Accounts Payable Services to ABMU Health Board 1.0 Background This report provides an update to the Audit Committee following the meeting held with senior representatives from NWSSP on the 8th March 2017 and the subsequent report presented to the Audit Committee on the 16 th March This was as a consequence of concerns raised by the Audit Committee at its meeting in September 2016, regarding Accounts Payable Services to the Health Board. 2.0 Overview As reported to the Audit Committee in March 2017, the meeting that was held with senior representatives from NWSSP was very constructive and a number of issues/concerns were discussed and a number of actions agreed that would improve the service provided and provide the necessary assurance and controls that ABMU require. Detailed below is an update against the discussion areas and the actions agreed. 3.0 Discussion areas The following areas were discussed at the meeting: 3.1 OCR Balance Sheet Code As background, this code should have a zero balance at each month end, but the NWSSP Accounts Payable Service (AP) had failed to achieve this, despite its importance being discussed during every monthly meeting. The situation has vastly improved and is now reviewed on a regular basis by AP and is no longer viewed as an area of concern. The The balance sheet code would be reviewed and cleared as far as possible on a daily basis by the Accounts Payable Manager responsible for ABMU. Complete and ongoing

2 The Accounts Payable Manager will set out a clear month end closedown timetable whereby the sequence of events affecting the OCR Balance Sheet Code is established, and all relevant staff are properly trained. Complete. If the relevant manager cannot be contacted prior to Accounts Payable month end close on the last working day of the month, a finance code will be provided by the ABMU Head of Accounting on a reversing journal basis, thereby creating a zero balance. On-going 3.2 Net Credit Balances Report As background, this report sets out all net credit balances with suppliers (i.e. monies owed back to ABMU either because the supplier has been overpaid or a credit note has arrived in connection with faulty/returned goods after the original payment has been made). The There should nothing on the report older than 2 months. Responsibility for this will reside with Accounts Payable Manager responsible for ABMU. Complete all old transactions have been resolved and the report is regularly reviewed. The only aged credit balances are in respect of NCA invoices which can take longer to resolve 3.3 Non Payment of Pharmacy Invoices Sept 2016 As background, the issues arose shortly after the establishment of a new Electronics Team within AP, who were set up to handle all electronic invoice feeds e.g. OCR, Pharmacy, GHX etc for the Health Boards/Trusts serviced out of Companies House. The issue arose where some pharmacy suppliers had put ABMU on stop due to non-payment of its invoices. The Accounts Payable Manager will monitor the Pharmacy control sheet to ensure that balances match, and all variances are investigated and cleared prior to payment of each batch (in with the relevant Financial Control Procedure). Complete Refresher training to be required as identified. Complete and training is ongoing 3.4 Non Recovery of VAT As background, the Health Board s VAT advisors EY had identified Contracted Out Services (COS) VAT and Input VAT under claims amounting to 671k in the first two quarters of 2016/17, compared to 475k for the same quarters in 2015/16 and 233k in 2014/15. Since ABMU has to pay for the EY reviews and 4.5% of all non-identified COS VAT, the costs for ABMU are rising each year due to the failure by NWSSP to identify and/or recover VAT prior to payment. The main cause of this is an incorrect VAT code being applied on the purchase requisition which is why is it essential to train and maintain knowledge of recoverable VAT within Procurement Services. The A copy of the EY schedule showing missed VAT recoveries is to be sent to Russell Ward for investigation. Complete

3 The NWSSP Front Line Procurement Team to attend VAT training to ensure that the correct VAT code is being applied. Outstanding - Training is being arranged in the Autumn for the Front Line Procurement. In addition, it had subsequently agreed that NWSSP AP, Procurement and Central Sourcing managers would meet with EY to discuss potential system changes where VAT is always recovered (e.g. maintenance contracts) and thereby set up automatically within Oracle to recover the VAT charged. NWSSP Accounts Payable staff have received training but its application must also be reinforced. Complete and is on-going The Health Board to send Accounts Payable examples where incorrect financial codes have been applied despite the correct ones being supplied. Complete Refresher Accounts Payable VAT training will be given annually. 2017/18 training to be scheduled for the Autumn 3.5 GHX Technical Issues (Johnson & Johnson and Konica Minolta) As background, Johnson & Johnson (J & J) send their invoices to AP via the GHX Exchange (back-office integration). Following complaints last year by J&J, a statement reconciliation exercise was undertaken in late 2016, which identified a large number of missing invoices. These invoices hadn t been pulled through the GHX Exchange, which resulted in a significant number of old invoices to clear and pay for this supplier. The following actions were agreed: Accounts Payable will continue to monitor the account via monthly statement reconciliation. Complete and is now on-going process A meeting arranged for w/c 13 th March 2016 with procurement to discuss delivery and pricing issues with J&J. Complete - this is constantly being monitored As background, Konica are not processed via GHX. The issue with Konica was that a large number of invoices were never received in Accounts Payable; they had been sent direct to the Health Board. However, it was not known that they were missing for many months because statement reconciliation had not been undertaken. Where invoices were received in AP, Konica had either not quoted a purchase order number on a number of their invoices, they had an incorrect purchase order or the purchase order was fully billed. In addition, there was insufficient information on the invoice for AP to determine where the photocopiers were located. This prevented AP obtaining the necessary approval to pay the invoices. There were also a number of invoices raised on ABM that were for Cardiff and Vale, Aneurin Bevan, PHW and Velindre. The Accounts Payable will continue to monitor the account via monthly statement reconciliation. Complete and is an on-going process Improved account management will be undertaken by Procurement. Complete and is an on-going process Konica are looking to replace old machines with new ones and new purchase orders will be raised. On-going with the Front Line Procurement Team 3.6 Invoices on Hold Report/Lack of Statement Reviews As background, the Health Board instigated a project in August 2016 under the leadership of the Assistant Director of Finance (Corporate) to address the significant numbers of Invoices on Hold (IOH). These IOH entries appear on the report where an invoice is received from a

4 supplier, but the goods and services have not yet been receipted against the Oracle Purchase Order by the Receipt & Delivery point. Since then, there has been significant progress made in reducing the number of invoices lines appearing on the IOH report. A year ago ABMU had the highest volume of holds (around 14,000) compared to other Health Boards/Trusts, and as a consequence of the project, ABMU no longer have the highest volume on hold (reduced by around 75% to 3500 with a significant volume relating to <30 days old). The All Invoices lines on hold older than 60 days would be targeted in 2017/18. On-going Price and Max Ship holds would be monitored and reviewed with Procurement/central Sourcing, since this remains the area which is causing the largest volume of IOH entries. On-going Statement reconciliation for ABMU s top 50 suppliers would be undertaken by Accounts Payable. On-going. It is anticipated that Robotics can be utilised in this area to automate the process, with ABMU being the pilot site. NWSSP anticipate a working process being available in Sept/Oct OCR Scanning Process (Duplicate Payment) As background, a duplicate payment involving the OCR scanning process was outlined. This issue arose as a result of an invoice being processed via OCR (correctly) and an Accounts Payable Officer also entering the invoice manually but in doing so entered the invoice number incorrectly. The following action was agreed: Refresher training would be given to the Accounts Payable OCR staff. Complete and refresher training is on-going The new Fiscal Tech software would be reviewed to establish why this duplication was not highlighted to the Accounts Payable Team. Complete - the new software went live in January 2017 and following this example, further training was provided. 3.8 Sancta Maria Invoices As background, there appeared to be a bug in the Accounts Payable module within Oracle whereby in some instances the bank details against an invoice are not the same as the bank details held against the supplier s account. The Health Board regards this as a potentially very serious issue and therefore it has been escalated by Accounts Payable to V1 and Oracle. As an interim measure an alert is in place that notifies Accounts Payable who are then able to fix the issue before the payment is made. The following action was agreed: Accounts Payable to further escalate to V1/Oracle. V1 have confirmed that this has been escalated to a priority 2. Complete a fix was applied and the problem has not arisen since

5 4.0 RECOMMENDATIONS The Audit Committee is asked to note the improvements that have been made with regards the service being provided by the NWSSP Accounts Payable Service to ABMU Health Board, and the ongoing work to ensure that the improvements are maintained.