Contract Audit Program

Transcription

1 Contract Audit Program Preliminary Survey Program Preliminary Survey Objective: To determine whether the vendor is complying with contract terms and conditions and that (ORGANIZATION) is billed for only supplies and services performed. Contract Selection The purpose of this project is to select a high value Medical Center contract for review of contract terms and conditions. A focus review of each contract will also be conducted to include transaction testing of a sample of expenditures from each of the major expense categories identified on the monthly invoice. Scope: Purchase orders for Medical Center services and products (Scope Period) Procedures: Consult with purchasing personnel and obtain reports of high dollar transactions for goods and services. Obtain and review the list of high value purchase orders to determine the type and magnitude of large scale contract purchase of goods and services. Discuss the top 10 purchase orders/contracts with Purchasing and Finance management. Evaluate risk of non-compliance. Select a contract for review based on the risk assessment performed. Audit Program Contract Abstract and Transaction Testing Review Contract & Amendments To identify key contract financial and operational terms and conditions. Scope: Current contract Procedures: Obtain and review the current contract(s) and amendment(s) Prepare a contract abstract Determine areas of greatest financial and operational risk Conduct management & staff interviews Interviews & Organizational Structure projects, presented by Terri Buchanan 1

2 Contract Audit Program To determine how products and services provided by the Contractor conform to the contract terms and whether a contract monitoring process is in place. Scope: Current contract Procedures: Interview key managers and staff. Obtain an organizational structure chart (if applicable). Obtain and review operating guidelines and sample financial reports. Identify Organization policies and procedures related to the products and services provided by the Contractor. Financial and Operational Risk Assessment Conduct a financial and operational risk assessment. Scope: Current contract(s) Procedures: Document the work flow for product inventory management. Determine potential losses due to non-returnable products. Verify that Contractor keeps a current Certificate of Insurance on file with the Organization as stated in the agreement. The following audit steps are examples and should be modified based on the financial and operational risk assessment completed on contract terms and operational procedures. Vendor Billing A focus review of vendor billing that includes transaction testing of a sample of expenditures from the major expense categories identified on the monthly invoice and in the agreement. Scope: Audit scope period. Procedures Obtain report from Accounts Payable for Contractor paid invoices. Select a judgmental sample of invoices for review. Obtain copies of selected invoices. Evaluate invoices for compliance with contract terms. Credits To compare credit allowed in the agreement against invoices to ensure compliance. projects, presented by Terri Buchanan 2

3 Scope: Audit scope period. Contract Audit Program Procedure: Obtain and review invoices to verify that the allowed credit was taken prior to payment. Returns To evaluate the return policy allowed in the agreement with actual return credit on invoices to ensure compliance. Scope: Audit scope period. Procedures: Review invoices to identify credit for returned products. Compare credit allowed on invoice to contract terms for compliance. Review record keeping for returned products. Transportation charges To evaluate the transportation charges allowed in the agreement with actual transportation charges on invoices to ensure compliance. Scope: Audit scope period. Procedures: Review invoices to identify transportation charges for delivery and return of blood products. Compare charges on invoice to contract terms for transportation charges. Review monitoring process for review of transportation charges. projects, presented by Terri Buchanan 3

4 Example Contract Abstract Single Contract Contractor: Services: Agreement date: Contractor Name Provide product and services to Organization (Signature date) Effective date: (Date) Term: 2 years; may be renewed for successive one-year periods by mutual agreement Page Section 1.0 Products and Services Availability of products is based upon adequate voluntary donations. Terms and prices are stated in Attachment A Contractor Best Efforts: Maintain requested inventory Deliver product with at least a 21 day shelf life Regulations-parties comply with the FDA, The Joint Commission, and state & federal authorities Notifications 2 Contractor will notify Organization when follow up donor testing is required by FDA Ownership- Contractor owns blood until received by organization Fees and Payment Attachment A lists amounts for products and services UCSDHC responsible for incremental costs recommendations and /or requirements mandated by state or federal agencies with 30 day notice from Contractor Payment due 30 within days after date of invoice. Early payment discount not in price attachment Organization to provide Contractor w/information on discounts/rebates to government health care programs Books and Records: Each party to keep books and have available upon request any federal, state or local government agency Exclusion of Liability ARC does not guarantee tests done by ARC, and cannot & does not guarantee or warrant Blood or services ARC not responsible for unavailability of Blood provided best efforts are made Term and Termination 8.1 Effective July 1, 200X and will terminate after two years with renewal for successive one year periods by mutual agreement. Six months prior to termination parties to discuss possible 12 month renewal Unilateral termination for breach (8.2.1); regulations preclude lawful performance (8.2.2); party ceases as a business (8.2.3) Disputes: Dispute resolution is to be by arbitration Independent Contractors: Parties shall participate in agreement as independent contractors Insurance: Contractor to keep current Certificate of Insurance on file with Organization for the duration of the Agreement and any extensions to it. Organization to be included as additional

5 Example Contract Abstract Single Contract insured for general and auto liability. 7 ATTACHMENT A Credits: 1st seven months of the term agreement Contractor provides Organization with a monthly credit of $10,000 reflected on the last invoice of the month (July 1, 200X through January 31, 200X) The following 12 months (months 8-19) Contractor provides Organization a monthly credit of $7500 reflected on the last invoice of the month (February 1, 200X through January 31, 200X). For the remaining five months, Contractor will apply no fixed monthly credit (February 1, 200X through June 30, 200X). Delivery Terms: Delivery on routine basis with transportation of product being the Contractor s responsibility. No shipping charges. Orders to be consolidated for efficient delivery. Organization responsible for samples sent to Contractor unless coordinated with a regular delivery. Transfer of product between Organization s locations is the responsibility of the Organization. 9 Attachment B Return/Credit Policy Amendment/modification by Contractor with a 30 day written notice to Organization. A. Product may be returned for full or partial credit as follows: 1. Only damaged cells. 2. Plasma of platelets in exceptional circumstances at sole discretion of Contractor. Contractor determines which party pays shipping. B. Reporting/documenting returns: Contractor must be contacted and a Contractor Return Form must be completed before return and credit will be given.

6 CONTRACTOR: SERVICES: AGREEMENT DATE: EFFECTIVE DATE: TERMINATION: Contractor Name Services Provided Date Signed Date 30 days written notice to Authorized Distributor or no longer a UHC member CONTRACTING STEPS: UHC contracted on behalf of (Your Organization) with Novation. Novation on behalf of UHC contracted with (Contractor) to provide broad-line food service distribution services to members nation-wide. (Your Organization) as an UHC member, through a signed Letter of Participation with Novation Contract Administration, selected (Contractor) as its Authorized Distributor. Authorized Distributors (Contractor) have a Novation Authorized Distributor agreement with terms set forth in the contract summary for Agreement No: XXXXX. Agreement No: XXXXX is a contract summary and is abstracted below. CONTRACT SUMMARY for AGREEMENT No. XXXXXX Page SECTION SUMMARY 1-2 Agreement No. XXXXX References: Distributor = Authorized Distributor Member = Participating member of UHC Sections with * are potential cost saving areas 1-2 Supplier Contractor 1-2 Products Broad-line food service distribution service (provide distribution of food, beverages, enteral nutritional products, disposable products, chemicals, small wares) 2 Contacts Contacts for each contract 2 Distribution Through contractor distribution network. As of (date), Contractor operates 88 wholly owned distribution centers with 37 authorized to execute the Novation agreement Novation authorized distributors listed on pages 13 & 14 of this contract summary (Your Organization) has a Letter of Participation with: (Contractor) Distribution Center Address Telephone 3 Electronic Commerce Contractor has committed to support Novation s online purchasing solution,

7 3 Pricing Based on cost-plus markup schedule in this contract summary (page 11) and listed below: o Boxed meat, nutritionals=5%; o Dairy, poultry, seafood, beef, pork, deli meats, frozen juice=7%; o Dry & refrigerated goods8=%; o Coffee, produce, shell eggs=8.5%; o Frozen goods9=%; o Disposables=10%; o Foodservice chemicals=12.5%; o Smallwares/equipment=13% Incentives as discount, or upcharges applied to invoices based on drop size, payment terms and total volume based on this agreement (page 11) Up-to date line item pricing available in Novation Contract Catalog- available to member at the Marketplace@Novation Web site Distributor to give 10 days notice for pricing term changes unless changes occur more frequently than every 30 days Noncontract products pricing not to change more often than listed below: o WEEKLY=Boxed meats, dairy, poultry, seafood, beef, pork, deli o meats, produce, shell eggs MONTHLY=Coffee, disposables, dry & refrigerated goods, foodservice chemicals, frozen goods & juice, nutritionals, smallwares/equipment Order guide listing current pricing provided at beginning of month by Distributor Weekly current pricing provided upon request for products with weekly price change frequency 4 PRICING ERROR* Pricing Error Damages The following damages paid to participating member by Distributor when Distributor fails to load and maintain pricing systems w/in 30 days notification by member to primary ordering location: 1 st Occurrence=written notice 2 nd Occurrence=$125 3 rd Occurrence=$250 4 th & each successive occurrence=$ Landed Costs All prices under this agreement based on landed costs and is defined as: Contract products: contract price before prompt payment discounts and before addition of markup.

8 Non-contract products: delivered cost plus standard freight to distribution center, less off-invoice discounts. A negotiated cost made directly with the manufacturer for a product. The products priced under agreement will equal the cost, plus category markup, less discounts. A product price on an order guide will be calculated on a monthly basis at time guide is prepared and maintained as such until next order guide prepared and sent to member (subject to price changes described above. Special Handling Charge: Individual container or partial case orders have 2% added to markup as follows: a) Calculate base price from markup + special handling charge: $10 + (10% +2%) = $11.20; b) Less any promotional allowance shown on face of invoice (if applicable). 5 Minimum Order Requirements Contractor requires a minimum average order size of $ PAYMENT TERMS* Payment terms not to exceed 30 days and based on Days Sales Outstanding (DSO). Incentives and late payment fees paid on average days sales outstanding over prior 13 week period. Distributor to pay incentive based on invoice for payment prior to net due date: Prepayment = -0.60% 1-15 = -0.25% = 0.00% Payment after 30 days following fees apply: = +0.25% =+0.50% Additional 15 days >60 = +0.25% Deviations from terms void & nullify prompt pay incentives. Distributor reserves right to alter payment terms based on creditworthiness/payment history with 30 days notice. 6 PREPAYMENT* Initial election of prepayment shall be made within 5 days prior to initial purchase and reasonably reflect anticipated monthly dollar volume. Following prepayments to be 15 days before beginning of month prepay begins. Advance payment is a deposit without interest. At month s end, starting with 1 st full

9 calendar month after advanced payment received, Distributor shall produce statement comparing deposit with actual dollar volume and; a) If dollar amount volume exceeds deposit Distributor shall invoice difference. b) If dollar amount less than deposit, Distributor shall issue credit within 10 business days. If member elects to switch to another billing method, Distributor may apply deposit to outstanding balance and shall refund any remaining deposit within 10 business days of notice to switch billing method. 6 PRODUCT SUBSTITUTION* No automatic product substitution by Distributor without member approval. Written or electronic preapproval for substitution by member to automatically substitute product. When notified item out of stock, member may authorize substitution. Automatic substitutions must be equal or better quality. Substituted items priced at landed cost + distribution fees. Product Substitution Damages Distributor s failure to follow product substitution provision requires Distributor to pay member damages: 1s Occurrence=written notice 2 nd Occurrence=$125 3 rd Occurrence=$250 4 th & each successive occurrence=$1000 When substitutes are a higher price per unit, member can request credit for totals of >$25 per calendar month & must be received in writing by Distributor by 25 th of the month following month credit is due. Credit calculated as difference per substituted unit and actual units shipped. 7 Delivery Distributor offers delivery at least one time per week & no deliveries on 6 major holidays. Refrigerated foods delivered refrigerated & adjacent to member s cooler or inside if access safe and clear. Delivery within 24 hours after receipt of order. Drop shipments directly from supplier subject to agreement terms. Drop shipment service charges by supplier to Distributor may be passed to member upon notification at time of order. Unscheduled delivery orders over $500 =

10 no extra charge; under $500 =actual delivery cost. 7 Returned Goods Policy Full credit for items returned undamaged, properly stored and in original packaging. Products can be returned for the following: a) Ordered or shipped in error; b) Received outdated or otherwise unusable; c) Received damaged, defective or nonconforming; d) Manufacturer authorizes return through Distributor; e) Product recalled. Distributor bears freight charges, all risk of loss/damages from and after product leaves member s possession. Subject to supplier s policy, Distributor shall accept products returned with expired dates or have been discontinued and credit according to supplier s credit to Distributor. Freight charges & liability for returned products are Distributor s when return authorized and coordinated by Distributor, otherwise member s responsibility. Member determines type of credit (replacement or credit memo). If credit memo, Distributor to issue w/in 7 days of receipt of return. 8 Order Entry Software/Hardware Distributor agrees to provide member order entry software and upgrades, if any, free of charge. Customer support and training for Distributor s order entry system provided free of charge upon request. Distributor to provide software interfaces to (Contractor business application), Computation and DFM, for price updates, ordering, product availability and receiving within 30 days of request if Distributor currently has an interface. 8 SERVICE LEVEL* Distributor shall guarantee an unadjusted fill rate of 98% in any one month period. Fill rate defined: percent of line items filled 1 st scheduled delivery after order placed during one moth divided by total line items ordered (not to include unauthorized substituted products). Crop shortages, manufacturer allocations, unusual member demand (>110% prior month average order per item) or special orders not included in fill rate calculations if Distributor gives notice of these on order confirmation. Member may request service level audit

11 9 PRODUCT STOCKING REQUIREMENTS* within 15 days of month closing and Distributor shall audit prior month s fill rate and provide review w/in 15 working days. Distributor shall pay or credit member for audits with one month fill rate <98% as follows: a) Take the difference of actual service rate & guaranteed rated, X b) Member purchases for month (including discounts) X c) 10%. Example-actual service rate 90% and purchases of $100,000, times 10% equates to: ( ) ($100,000) (.10)=$800. Distributor will compensate member for failing guaranteed service level. Distributor to keep inventory to provide member required fill rate of 98%. Distributor will stock any item requested by member when use of item by members/other customers creates anticipated movement of 3 cases per week at the primary ordering location. Distributor may stock item with less than 3 weeks inventory movement and deviate from listed distribution fees for noncontract items. Deviation not to exceed 1%. Distributor to add requested items where usage meets minimum movement requirements and supplier meets standards listed in this section. Distributor not to remove stock meeting minimum inventory movement requirements unless Distributor no longer distributing item. Distributor to contact member about continuing need for product before removing an item from stock if member purchased item in last 90 days. Distributor to give notice of intent to remove item from stock and if member provides usage estimates of 3cases/week w/in 10 business days of notice, Distributor to maintain item in stock. Damages for Noncompliance Stocking Requirement: 1st Occurrence: written notice 2 nd Occurrence: $125 3 rd Occurrence: $250 4 th & each successive occurrence=$ Problem Resolution Member may request, in irresolvable issues without applicable damage provisions with Distributor s contract compliance, general problem

12 resolution through Novation product manager Audit Member may request in writing a price audit from Distributor s primary ordering location at least 20 business days before suggested date of audit. Request to identify 30 items to be verified with one price point verification per item. Audit period limited to 13 weeks before request with date & time mutually agreed upon. Audit performed by Distributor at Distributor s primary ordering location. If audit finds error ration >10% member has right to request expanded scope of 100 items. If 100 item audit find >10% error, member has right to audit all purchases for 13 weeks before the audit. If the 13 week audit finds significant discrepancies, member has right to refer matter to Novation for general problem resolution. 11 AVERAGE ORDER SIZE BRACKETS* $750-$1,999 = +2.5% $2,000-$2,499 = +1% $2,500-$2,999 = 0% $3,000-$3,499 = -0.15% $3,500-$3,999 = -0.25% $4,000-$5,499 = -0.35% $5,500-$6,999 = -0.50% $7,000-$10,999 = -0.65% $11,000-$12,999 = -0.85% $13,000-$15,999 = -0.95% $16,000 + = -1.20% 11 TOTAL MONTHLY VOLUME* Total monthly volume of $83,000-$300,000 with incentive of 0.25%. 11 PROMPT PAYMENT/PREPAYMENT* Distributor to pay incentive based on invoice for payment prior to net due date: Prepayment = -0.60% 1-15 = -0.25% = 0.00% CONVERSION ALLOWANCE* (Contractor) offers member that elects to transition from another distributor to U.S. Foodservice under the Novation distribution agreement, an incentive of 1% of total purchases for the 1 st six months (from date of 1 st delivery). Incentive to be paid w/in 45 days of conclusion of 6 month period. 12 Current Participants Instructions for already participating VHA and UHC members to continue agreement-as of (Date). 12 New Signups Instructions for VHA and UHC members not currently participating with agreement on how to signup (Date) Distribution Centers Lists (Contractor) Distribution Centers as of

13 (Date) Demonstrated Value Financial Value: Average order size and prompt payment incentives applied to each invoice. Monthly volume incentives. Competitive markups Nonfinancial Value: Lists programs available such as continuing education and reporting programs. Incentive/Rebate Provisions: Each quarter Distributor to calculate DSO for member. Member to receive rebate or credit memo according to prepayment terms. DSO calculation uses date Distributor receives payment-not date deposited. Performance Criteria: Guaranteed fill rate of 98% Award Rationale Novation sent 21 invitations to bid in (month/year), with 7 bids submitted. Contractor was the low best bid in every award scenario analyzed. Decision making criteria and analysis of bids described in this section Market Research Summary Results of (month/year) market research questionnaire to VHA and UHC executives. Return rate was 14% Alliance References VHA and UHC references listed. 19 Supplier Disaster Plan Contractor to select & ship products during identified disaster as soon as deemed possible by highway patrol. During local disaster other distribution facilities are equipped to help supply products, equipment, personnel and computers if needed. If disaster is at Contractor s Phoenix, AZ data center, tandem computers in Deerfield, IL will be used. Contractor provides a list of up-to-date disaster contacts. LETTER OF PARTICIPATION (Between Organization and Contractor) 1 Participating Member (Your Organization), Purchasing Manager as Information 1 Authorized Distributor Information 1-2 Notification of Authorized Distributor Declaration contact Contractor/location Net 30 Days Average DSO Average Order Size: Location 1: $8,000 Location 2: $3,500 Member declares distributor listed as its Novation Authorized Distributor for food service. Member agrees to following: 1 A. Use of Distributor as sole source prime vendor and shall purchase at least 80%

14 food & food service related products from Distributor of products offered by Distributor. If Novation or Distributor determine member not purchasing 80 of needed products from Distributor, Novation, member and Distributor may initiate a plan to improve levels within a mutually acceptable time. If levels do not improve, Distributor with Novation approval and 30 day notice begin to remove member from participation in agreement. Transition time not to exceed 60 days. 1 B. Secondary relationships with Distributor not recognized under this agreement. 1 C. Member s eligibility to participate in this agreement as result of membership in UHC. 1 D. Member agrees to terms in the Novation Authorized Distributor agreement as summarized Novation distribution program contract summary. Member agrees to purchases products covered by Novation food service agreements through Novation Authorized Distributor. 1 E. Member agrees to pay Distributor within terms of Novation Authorized Distributor agreement summarized in the contract summary. 2 F. Member may terminate at any time with 30 day written notice. 2 G. Within 60 days of termination member agrees to purchase or have 3 rd party purchase remaining inventory of special order items exclusive to member. 2 H. This letter of participation supersedes any previous agreement between member and Distributor for purchases from Distributor.