Malcolm Gladwell has been at the top of the NY Times bestseller list multiple times, most recently with his book Outliers: The Story of Success. In the book he studies patterns and behaviors of the ultra-successful (from Mozart to Bill Gates) and one of the most common denominators discovered is the amount of time that they put into their chosen endeavor. It turns out that there is a magic number that transforms one from “good” to “great”: 10,000. In repeated studies of these extremely successful individuals it can be traced back consistently to their having practiced their craft 10,000 hours, whether looking at professional athletes, composers, or software developers… 10,000 hours is the clear line that separates the very best from the rest of the field. So what, you are asking yourself. Profit Advisory Group, a national leader in cost reduction consulting, has well over 1,000,000 hours of experience on staff. In times where maintaining profits is increasingly difficult, should employees who have not worked extensively for your vendors, or even within the same industry, be assigned the mission critical job of securing best in class pricing, reviewing bills for accuracy or securing industry leading contractual terms and conditions, or should you entrust such important work to a firm with proven expertise in the field? Whether you want a full expense review, or have specific expense areas in mind (Telecom, Utilities, Shipping, Medical, Taxes or others) PAG can help. Work is available on a contingency basis or hourly (your choice) and savings can be in place before year end if you act now. Chances are that over the last 18-24 months you have been doing all you know to do to cut costs… if there is more there wouldn’t you want to know about it?

This morning I logged in to Google and here is what I found. A search for “Telecommunications Bill Errors” had over 8.5M matches, “Electric Bill Errors” had over 1.1M, “Water Bill Errors” had 1.3M, “Freight Bill Errors” produced 2.8M, “Healthcare Bill Errors” had nearly 15M and “Property Tax Bill Errors” resulted in over 54 MILLION matches. What does this tell you? To me it is confirmation that our business (finding billing errors, getting them corrected, recovering overcharges and reducing future costs) is in tune with market demand and awareness. Please do not continue to think that your invoices do not contain errors and that your costs cannot be reduced further (SUBSTANTIAL reductions are not uncommon), especially during this economy. The most common complaint we hear from our clients is that they did not have us come in sooner because they were “managing costs in-house”.

 Look up these same search terms, visit our website and then if you decide that you want to cut your costs then please give me a call at 704 578 2947 or reply via email (bbazen@profitadvisorygroup.com).  

 This could well be the most profitable call you make this year!                                 

The telecommunications industry is in a state of continuous change due to the economy, competition and new technologies.  The trend towards VOIP (Voice Over Internet Protocol) and cell phones has decreased the long-distance revenues significantly.  With VOIP, customers are able to have a more unified communications system that has the ability to deliver phone calls, faxes, voice mail, email, web-conferencing and more in a number of ways to any handset, including cell phones.  The reduction of costs associated with delivering voice and data communications over a single network, is very appealing to the telecom industry.  At the same time, local phone companies, led by Verizon and AT&T, are laying the fiber-optic cable directly to the neighborhood and even into the home and office in order to retain customers with promises of ultra-high-speed Internet connections and enhanced entertainment offerings online.  This is the big telco’s way of fighting back.  If cell phone owners are dropping their landlines, while VOIP over cable takes more landline customers away, then the best weapon that traditional telco’s can use in their battle for market share is the Internet.  AT&T and its peers are focusing on bundled service packages which will combine wireless accounts, very high-speed Internet access and entertainment such as video on demand and TV via IP, in addition to VOIP or landlines.  Further, the traditional telco’s look towards creating new value-added services controlled via cell phones and/or the Internet such as online services that monitor home security, services that adjust home energy usage or services that monitor the needs of elderly family members at home.  These are just a few examples of the potential to build new revenues and stop customer turnover.

Your Accounts Payable Department – Engine or Caboose?

Many companies view their A/P departments as little more than a necessity and believe the process of paying bills is far more simplistic than it is.  More often than not, the result is an A/P department from whom much is expected, but little is given.  These departments are typically staffed with personnel who are under-trained, overworked, underpaid and, for all practical purposes, overlooked.  Factor in the complexities inherent in a high volume practice with a high number of variables – purchase terms, approval amounts and payment methods – and any resulting inefficiencies and errors should come as no surprise.  
       
While an A/P recovery audit typically results in recovered funds which add to the bottom line near term, the real value lies in identifying the factors resulting in the profit leaks and designing and implementing solutions to minimize and/or eliminate those issues from recurring.  This is the essence of business process improvement.  

Business process improvement within the A/P context enables companies to essentially shift the function of their A/P departments from a reactive, time-intensive and low performing “caboose” to an efficient, strategic “engine” utilizing a proactive cash management approach.  

Defined guidelines for contract compliance, invoice processing and payment policies reduce cash misappropriations, minimize improper accounting practices and increase the overall efficiency of your A/P department, and your company.

Phillip Rogers; MAXIMUS/Managing Director – Recovery Audit Practice

Did you know that you have options when it comes to your Electricity provider?

Some States are deregulated which means that there are competitors offering service in addition to the primary Utility company. This competition (as opposed to a monopoly) results in lower pricing options. If you have not looked in to what options are available you should do so, and may very well find savings are possible. Whether or not you are in a deregulated State, your provider has many different tariffs or pricing plans that are available and they will almost never make you aware of these options…UNLESS YOU KNOW TO ASK. These different plans fit some users needs better than the “general rate plan” that they will put you on unless you know to ask for a different plan.

Many Utility companies also offer reps who will perform an onsite visit and analysis to help you lower your bills, but again you have to ask for their help before they will offer it. Finally, depending on usage, there are many products and services available that will lower your costs. These can range from solar lighting options, incandescent lighting, retro lighting option or even load disbursement systems. You should look into what options are best for your company and if you need additional help, do not hesitate to call us.

Checks Dated on a Weekend

This algorithm identifies any check dated on a Saturday or Sunday, which would be considered a rarity in the business world.

Vendors with an Unusual Percentage of Cancelled Checks

Cancelled and returned checks do occur in the course of a normal Accounts Payable month.  What is more uncommon is a vendor with many cancelled checks or a regular pattern of cancelled checks.  Cancelled checks are usually legitimate transactions; however, a cancelled check can be returned to the wrong hands and re-written to the fraudster.  Below is a true story of how a clerk turned a returned check into a fraudulent one:

“An uncashed disbursement check was returned to an accounts payable clerk for disposition because she originated the invoice entry. The clerk put the check in her desk and forgot about it for several months. Upon cleaning her desk, she discovered the returned check. When she checked the paid history, she realized the supplier had returned the check when it was determined to be a duplicate payment of an invoice. She also noticed that the payee name had been printed slightly below “Payee” on the check. With a bit of effort she managed to align the check and insert her name above the original payee in a print similar to the original, along with an “or” designation following her name. The fraud was caught by an accounts payable auditor searching for duplicate payments and who was asked by the supplier to furnish proof of duplicate payments by providing copies of both cancelled checks. “

This algorithm identifies vendors with cancelled checks and ranks them by the percentage of invoices that are cancelled status, so that a vendor with 80% cancelled checks will show up at the top of the list.

Above Average Payments per Vendor

This algorithm identifies invoices that are way above average for a particular vendor.  Suppose a vendor normally has invoices ranging from $1,000 to $3,000; suddenly an invoice shows up for $25,000.  You may want to investigate this abnormality and can do so using this alert pattern.  The pattern flags any amount that is 2.5 standard deviations above the mean invoice amount, per vendor.

 

Duplicate Vendor Detection

This algorithm searches for duplicate vendors in your vendor file.  It searches by 4 different criteria:

1)       by address

2)       by tax ID (EIN)

3)       by bank routing number, if available

4)       by name

In addition to matching by the exact field, this algorithm uses intelligent fuzzy-matching logic to identify non-exact matches.  It will identify an accurate duplicate match on addresses that are similar (but not exact), tax ID’s that are similar (but not exact), and bank routing numbers that are similar (but not exact).

Vendor / Employee Cross Check

This algorithm compares a vendor with an employee four different ways, via:

• Address
• Tax ID Number
• Bank Routing Number
• Phone Number

 

Using this approach, the software was able to detect a real employee (“Kathy”) whose SSN was the same as a company EIN (tax ID number).  The company name, which we will call “ABC Inc”, happened to be on the same street, city, and state as a person with the same last name as the employee (presumably her spouse).  Without this pattern, the employee fraud may have gone undetected.

Vendors with P.O. Boxes

Many vendors have P.O. Boxes as their addresses, making it difficult to sift through potential fictitious vendors and legitimate ones.  However, this report can be used in conjunction with other reports.  For example, if a vendor shows up on the PO Box report and also the rounded-amount invoice alert report, this vendor may warrant further auditing.

Vendors with a Mail Drop as an Address

This algorithm compares vendor addresses with mail-box drop address such as “Mail Boxes, Etc”.  Some fraudsters will use mail drops as their address instead of a P.O. Box, to hide their fraudulent activity.  Craig Greene, a well-reputed CFE from Chicago, developed the mail-box drop table and helped formulate this algorithm.  Not all of the vendors appearing on this list will be fraudulent, because a vendor may in fact be right next to a Mail Boxes, Etc. company.  However, the list provides a unique approach to reviewing vendors who also may show up on another alert list.

What do all of the following case study summaries have in common?  Initially, each case study client told us,  “we do this internally”.

• We reduced a client’s annual Property Tax bills by over $400k and recovered over $35k in billing mistakes.
• We reduced another client’s annual Telecom spend by over $600k and recovered over $150k in credits due to billing errors.
• We saved a client over 60% on their Teleconferencing.
• We reduced another client’s Cellular expenses by almost 50% and consolidated 27 invoices into 2.
• We helped another client renegotiate their contracts early due to billing mistakes, saving them in excess of $200k annually.

 

The list goes on and on: a 14% reduction in Electricity costs, a 34% reduction in 401k plan administration costs, over $100,000 recovered during an Accounts Payable audit, etc., etc.

All to clients who ALMOST did not have us come in to help them because they felt that they had these expense areas under control internally.

The single biggest mistake we see is companies allowing their belief in their internal processes to interfere with profit enhancement opportunities.

Check Register Cross-Walk with A/P File

 

Our unique, proprietary method of searching for stolen checks involves electronically scrubbing your check register file for check numbers, dates, payees, and amounts.  Once identified, we merge this information with your Accounts Payable file to identify checks not recorded in the A/P file.  This is a proven way to identify not only stolen checks but checks paid twice inadvertently (perhaps one manual check and one electronic payment).  

 

 Benford’s Law

What is it?

Benford’s Law (which was first mentioned in 1881 by the astronomer Simon Newcomb) states that if we randomly select a number from a table of physical constants or statistical data, the probability that the first digit will be a “1″ is about 0.301, rather than 0.1 as we might expect if all digits were equally likely. In general, the “law” says that the probability of the first digit being a “d” is

          P{d} = 1n(1+1/d) / 1n(10)

 

This implies that a number in a table of physical constants is more likely to begin with a smaller digit than a larger digit. It was published by Newcomb in a paper entitled “Note on the Frequency of Use of the Different Digits in Natural Numbers”, which appeared in The American Journal of Mathematics (1881) 4, 39-40. It was re-discovered by Benford in 1938, and he published an article called “The Law of Anomalous Numbers” in Proc. Amer. Phil. Soc 78, pp 551-72.

Source:  http://www.mathpages.com/home/kmath302/kmath302.htm

How is it used to identify fraud? 

 If we know the normal frequency of digits, then we can identify digit frequencies that violate that normal behavior.  For example, Benford concluded that, out of a group of numbers, the first digit will be “1” about 30% of the time.  By the same law, we would also expect the first digit to be “8” about 5.1% of the time.  If we review Accounts Payable invoices and determine the first digit of the invoices is “8” 50% of the time, then we may have either many legitimate payments that start with “8”; or we may have fictitious invoice amounts.  Fraudsters will often create an amount that starts with a higher number, like 8 or 9, not knowing that auditors are now equipped to identify these abnormal payments. 

Our in-house algorithms identify vendors with payments that consistently violate Benford’s Law of Numbers.  If their digit frequency distribution varies widely from the below graph, the vendor is flagged for further investigation. 

 

Rounded-Amount Invoices

People who commit fraud often create invoices with rounded amounts, which are invoices without pennies.  Our proprietary software identifies these invoices and ranks them by the vendors who have the highest percentage of rounded amount invoices.  For example, a vendor having 100% of their invoices without pennies would appear first on the list.

Vendors Consistently Paid Quickly

Vendors who are consistently paid quickly may be suspect of an unusual, or fraudulent, agreement involving kickbacks.  Our in-house software calculates the difference between the invoice date and check date, and ranks vendors who are consistently paid in 10 days or less.  Vendors with the greatest percentage of quickly-paid invoices are listed first on the alert list.

Sequentially-Numbered Invoices

Sometimes you run across vendors who have sequentially-numbered invoices such as “0001”, “0002”, “0003”, which may be legitimate.  However, if this pattern is stretched over time, it may suggest that this vendor only does business with you, which is extremely rare in the business world.  Although the vendors appearing on this alert list may be legitimate, some may be worth investigating further.

Invoices Just Below Approval Amounts

Inside fraudsters often know the Accounts Payable manager approval amounts and may sometimes submit a fraudulent invoice that falls just below an approval amount.  (For example, $2,999 may be a fraudulent invoice falling just below the $3,000 approval level).

Our proprietary algorithms identify invoices that fall up to 3% below the approval amount. Then, vendors are ranked according to their percentage of invoices falling just below the approval amount.

Vendors with a Rapid Invoice Volume Increase

The in-house accounts payable fraud detector identifies vendors who have a rapid increase in invoice volume.  The increase may be legitimate, but also may warrant further investigation.  Suppose a vendor has 2 invoices one month and 70 the next – you may want to know why even if the reason is not a fraudulent one.  The algorithm detects only consecutive-month changes in the number of invoices.  If the percentage increase is 250% or greater, then the vendor is flagged and put on the alert list.  This would include a jump from 5 invoices to 13, which is not particularly interesting, but will also catch an invoice jump from 50 to 126, which may be more interesting.

Healthcare costs account for 16% of the nation’s economy. For most companies, the necessity to outsource most of the claim adjudication processes makes it the least monitored corporate expense. Claims are often overpaid due to fee structure misapplication, duplicates, unimplemented benefits, CPT coding errors and claim payer errors. Due to the complexity of healthcare issues and ever-increasing medical costs today, relying solely on traditional in-house or third-party review is simply not cost-efficient.

Our solution encompasses a suite of comprehensive examinations including analytical, prospective and retrospective audits. Utilizing unique proprietary electronic edits, database analyses and focused audit procedures delivered by healthcare industry claim experts, we stand as the leading one-source provider of claim cost containment and recovery services. With documented audit results of up to 8% identified overpayments, our unique approach provides direct impact on financial and service quality improvement.

Initially, clients may elect to adopt a specific service based on immediate needs, and evolve to the full scope of the program over time for maximum and sustained benefits. Cash savings and future healthcare savings are generated through three major program components:

Identification and Recovery

Systematic retrospective claims audits scrutinize all aspects of the claims process for error identification and correction. Typically, retrospective audits analyze 2 years of paid claims history and recover on average 2 to 3% of the total claims paid. Errors found in retrospective audits often identify system-wide issues that require correction to control future errors. This can lead to cost reduction prospectively in addition to the money recovered on overpaid claims.

 

Operations Review and Recommendations

An independent and objective view of the claims processing practices and procedures is conducted during the claims recovery process to evaluate administrative and claims policy compliance, assess performance standards and identify processing issues. Our analysis can assist Benefit Administrators in measuring program performance and monitoring ongoing effectiveness of cost-containment initiatives and benefit changes.

Ongoing Prospective Savings

For clients with a need to continue monitoring potential overpayments, we can utilize our claims analysis tools to proactively monitor claims data to ensure accuracy on a more timely basis than the 2-year retrospective audit. This can be structured in coordination with Human Resource and Internal Audit personnel to educate them on identifying potential errors.

The Healthcare claims review, in light of the current changes taking place today, might be a smart move to insure you are not wasting any of your hard-earned profits!

Increased Vendor Loyalty =Decrease Leverage

Organizational Barriers

• Risk Taking/innovation is not rewarded
• Corporate structure causes fragmented purchasing
• Business Units pursue independent paths

Informational Inadequacies

• No awareness of much is spent enterprise wide on a category or with a supplier
• Multiple, fragmented sources of information
• Lack of knowledge about new or alternate vendors
• Basis of pricing may not be apparent

Inefficiencies in Monitoring and Tracking

• Need for improved accounts payable practices
• Non- negotiated extras added on to invoices
• Initial purchase order rarely compared to final invoice
• Need to consolidate systems

Entrenched Behavior

• Buyers restricts themselves to familiar vendors
• Suppliers in comfortable, cordial relationships
• Incremental, not zero-based, buying is typical
• Ad hoc and informal purchasing is an accepted practice

Internal routines that develop over time can hide savings opportunities. A comprehensive examination of all transactions will identify opportunities for recovery. The above points illustrate the need for reviews of key spend areas for any size business. At worst, you will receive a no cost, independent 3rd party verification that all contracts, processes, etc are up to date