Accounts Payable on Campus: An Update 1 Mark Krawczyk, CTP Principal, CZYK & Associates 31ST NATIONAL COLLEGE & UNIVERSITY BURSARS SFS CONFERENCE APRIL 23-26, 2017 PONTE VEDRA BEACH, FL SAWGRASS MARRIOTT GOLF RESORT & SPA
2 Agenda for Today Speaker Background Level of Experience In the Room Environment Today What is the NOW What is the WHAT WE WOULD LIKE How do we get to GET TO WHAT WE LIKE How to Measure Success BLOCKCHAIN the future? Summary
3 Speaker Background Mark Krawczyk, CTP Has worked with Accounts Payable processes for over 40 years Spent 6 years as Assistant Treasurer with the University of Michigan, so he has an understanding of payables in a higher education environment Had responsibility for over $1.2 billion in all types of payables, including monthly payrolls Now works as speaker/researcher/consultant/author on a number of treasury, financial management and change management topics with CZYK & Associates Career spans two centuries of all manner of responsibilities in the treasury/finance arena in higher education, regulated utilities, municipal operations and in the corporate sector
4 Level Of Experience in the Room Gauging the Audience Who has functional responsibility for Accounts Payable processing? Who works in Accounts Payable processing? Who interacts/works with Accounts Payable processing? Who is here just to learn and soak up knowledge? Who is never going to raise their hand no matter what? NEXT
5 What is the NOW Who has a written policy for their school s A/P process? Who has written procedures for their A/P process? Who owns the A/P process? Is A/P Centralized or De-centralized? What types of payables are included in the A/P process? Who utilizes procurement cards (a.k.a., p-cards )? Who only writes checks for A/P? Who writes checks and creates ACH/electronic payments for A/P obligations?
6 What is the NOW Lots of paper invoices Most likely de-centralized on a number of campuses On many campuses an A/P policy does not exist (or has not been updated since the last century) Most A/P processes do have separation of duties for data input & approval for invoices Most likely it is hit and miss on whether a current W-9 or 1099 is on file for each vendor/supplier Most likely it is hit and miss on whether there is a regular review (i.e., quarterly) that a current W-9 or 1099 is on file for each vendor/supplier
7 What is the NOW Most likely a process does not exist to evaluate whether to take a trade discount or not (i.e., 2/10, net 30) Many A/P systems still allow the issuance of MANUAL checks Many A/P processes do not address how to handle any type of fraud issues that are encountered Many schools do not have a written policy on how to handle unclaimed property Many schools do not perform timely reconciliation of disbursement accounts to help with the prevention of and/or identification of fraudulent activity Who knows what the document retention requirements are for your school?
8 Today What is the NOW How many schools utilize positive pay on disbursement accounts? How many schools KNOW they have up-to-date signature cards/authorization processes for the A/P processes? How many schools DO HAVE any sort of metrics or key performance indicators to gauge the effectiveness/efficiency of the A/P processing system? Is A/P an accounting function (managed within the Controller s group or similar organization) or is A/P in the Treasurer s area (managing the school s liquidity/cash flow?) Who knows the cost per invoice to process your A/P invoices? Does anyone NOT have a problem with duplicate vendor billings/invoices? NEXT
9 What We Would LIKE Would it be good to know the cost of invoice processing in the A/P system? Study done in 2009 stated cost ranged from $2.73 per invoice to $11.11 per invoice in higher education Implement appropriate mix of tools and technology Traditional EDI (electronic data interchange & invoicing) Front-end scanning/imaging EIPP (electronic invoice delivery but not just a PDF) Utilize a vendor Web portal Automated work flow process T&E automation system/process Procurement/P-Card program (already in place in many schools)
10 What We Would LIKE Investigate Shared Services Centers vs. Centralized A/P Shared Service Centers for A/P are part of an operating unit vs. A/P being a traditional support unit Research possibility of outsourcing the A/P function Outsourcing is gaining in popularity in the corporate sector Is Higher Ed next? That same 2009 study found the following 78% of the respondents DID NOT OUTSOURCE ANYTHING for A/P 6% outsource only data entry 12% outsource scanning/images of invoices 7% outsource the check printing If not already using it, implement Positive Pay for your disbursement account to combat fraud
11 What We Would LIKE At a minimum, utilize two-way matching, with three-way matching being the best practice As another best practice, stop issuing manual checks, period Research how you, as an institution, can take advantage of any applicable discounts for paying early As an absolute best practice, segregate duties whenever and wherever possible Ensure a clean vendor MASTER list Ensure a single, consolidated view of your A/P disbursement operations Pay everything you can electronically when possible Same Day ACH Information mostly envisioned as a backup capability NEXT
12 Getting To What We Would LIKE Create a Roadmap for Redesign PROJECT DESIGN Identify project scope and expectations and developing an architecture for change BASELINE CREATION Focus on role of people/positions, process and technology Identify and quantify time/costs associated with non-value add activities Identify opportunities to reduce complex process steps by reducing activities Estimate cost savings from cutting unnecessary activities INDUSTRY BEST PRACTICES do the research with peer institutions RE-ENGINEERING USE TECHNOLOGY Assess current and future technology and how new tools could be deployed for improved processes IMPLEMENTATION Development project milestones and responsible parties and monitor performance measures and customer satisfaction
13 Getting To What We Would LIKE Process review strategies to consider Build excellence into the business processes by making the process: User friendly Value added Efficient Timely Cost effective Identify and quantify costs and time associated with non-value add activities Identify opportunities to simplify complex steps in the process by reducing unnecessary steps Have a continued focus on customer expectations and results NEXT
14 How to Measure Success Develop the analytics necessary for measurement of success Identify Define the components to be measured Review the process Determine what SHOULD be measured Start SIMPLE!!! Ensure the data is available and not too hard to collect Gather Don t start from scratch Use/develop a template to gather the data Include all team members in the process Define the time period for measurement and when to start
15 How to Measure Success Develop the analytics necessary for measurement of success (cont.) Analyze Do outcomes make sense? Are there areas of concern? How do results stack up? Determine peer group institutions for comparison Finalize findings/results Report Publish and communicate metrics Compare results and trends over time Use metrics to help fashion the communication
16 How to Measure Success Develop the analytics necessary for measurement of success (cont.) Improve Identify areas for improvement (or to stop doing ) Implement appropriate action plans Assign re-defined/identified responsibilities Continuously review best practices/change results for continuous improvement opportunities
17 How to Measure Success Sample metrics/analytics for the A/P process (just suggestions, folks!!) Total cost of A/P function as percentage of total revenue Percentage of invoices paid within terms Percentage of invoices paid early Time to resolve a supplier/vendor issue Number of supplier calls Number of emergency payments Number of duplicate payments Number of manual invoices Percentage of W-9s with TIN match exceptions NEXT
18 Blockchain The Future This is a quick, blue collar discussion of what Blockchain Technology is and how it might impact the A/P function at your institution.)
19 Blockchain The Future It started with Bitcoin
20 Blockchain - The Future Bitcoin first appeared in a 2008 white paper authored by a person (or persons) using the pseudonym Satoshi Nakamoto. The white paper detailed an innovative peer to peer electronic cash system (Bitcoin) that enabled online payments to be transferred directly, with no need for an intermediary. Blockchain is a type of distributed ledger (decentralized database) that keeps records of digital transactions. A distributed ledger (unlike a central administrator for a traditional database) has a network of replicated databases, synchronized via the internet and visible to anyone within the network. Blockchain networks can be private (with restricted membership similar to an intranet) or public, like the internet.
21 Blockchain - The Future When a digital transaction is carried out, it is grouped together in a cryptographically protected black with other transactions that have occurred in the last 10 minutes, and then sent out to the entire network. MINERS (members in the network with high levels of computing power) compete to validate the transaction by solving complex coded problems. The first miner to validate the block receives a reward (in the Bitcoin realm, for example, a miner would receive Bitcoins.) The validated block of transactions is then time stamped and added to a chain in a linear, chronological order. The entire chain is continually updated so that every ledger in the network is the same, giving each member the ability to prove who owns what at any given time. This block cannot be altered.
22 Blockchain The Future
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25 Blockchain The Future Data is centralized with individuals and devices Service providers compete to connect trusted peers Marketplace improvement: increased efficiency of sharing resources and determines a more fair rate of exchange
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28 Blockchain - The Future Current (and potential) uses for blockchain technology include: Smart contracts Crowdfunding Corporate governance File storage Protection of intellectual property Identity management Anti-money laundering (AML) and know your customer (KYC) practices Land title registration Stock trading Voting in elections
29 Blockchain - The Future Most investment in blockchain technology has focused on the financial sector. Thirty of the world s biggest banks have joined a consortium to build blockchain solutions. NASDAQ is working on a blockchain powered private market exchange. The basic elements of the current value transfer process have been in place for 150+ years. The need for the middleman in a transaction can be eliminated. Any transaction involving a middleman will be affected by blockchain technology. The blockchain reduces the settlement window for any transaction from X number of days to just a few minutes or hours, at most. Blockchain technology fills three important roles to eliminate the middleman: recording transactions, establishing identity and establishing contracts.
30 Blockchain - The Future NEXT
31 A Summary The A/P function for higher education is a very critical part of the financial management of the school s operations. However, it is many times lacking in resources to provide efficient, effective and timely production. Change is slow to come to any school. Any change in A/P process or structure will require a champion in senior management of the school to make it happen. New processes, technology and operating circumstances will bring about change in A/P processing whether a school wants to change or not. It is best to be at the forefront of the changes that are coming.
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