Improper Payments Information Act & Recovery Audit Legislation May 23, 2006 By: Bruce LaLonde Vice President

Improper Payments Reporting Act P.L Required for: –Federal departments, agencies, instrumentalities –With erroneous program payments exceeding 2.5% and $10 million Identify reasons for erroneous payments Plan to reduce erroneous payments Assess whether infrastructure and information systems are needed

Recovery Audits - Section 831, FY 2002 Defense Authorization Act Requires program at agencies with over $500 million annual spend Provides for Agencies to recover any associated expense from amounts recovered Provides for Agencies to pay Recovery Auditor from the amounts recovered Requires reporting by December 31, 2004 on: –steps to carry out a recovery audit program –cost of program –amounts recovered –management improvement actions

Relationship of the Two Acts Both focus on reducing erroneous payments Have separate requirements Agencies may use Recovery Audit program results to fulfill the reporting requirements of the Improper Payments Reporting Act

Specialized, risk-free process introduced by PRG in 1972 Fees are a contingent share of actual amounts recovered A process to identify and recover overpayments and under-deductions inadvertently made to suppliers of goods and services that would otherwise remain undetected and lost. What is recovery auditing?

30 years of program development and refinement Accepted best business practice Used by most large companies Initial focus on disbursement errors Now comprehensive including contract compliance related errors Private Sector

Newer concept for Federal Agencies and State Governments Recognized by Congress as an efficiency initiative Initiated and implemented in a number of agencies Results vary by agency based on nature of spend and program support Public Sector

Recovery Audit Program Components Identify annual spend & categories Establish Agency champion Set stage for success internally Preliminary Program Assessment to prioritize program elements and scope

Recovery Audit Program Components (cont.) Provide purchase and payment transaction information to service provider –Includes procurement records, contracts, modifications, vendor correspondence –Payment transaction records, vendor master files, paid history files, purchase orders and invoice files, etc. Provide requisite oversight, claim approval, vendor settlements, etc. Recoup identified and validated overpayments through normal administrative processes (Administrative offsets & checks)

Categories of Overpayment Disbursement Related Errors Accounting Errors Discount and No Discount Invoice Incorrect Vendor Paid Invoice and Other Vendor Document Paid Invoice and Check Request Credit Memo Paid not Deducted Paid Voided Invoice Paid Invoice on Closed PO Interest Penalty Paid at Wrong Rate Cash/Trade Discount Earned not Taken Cash/Trade Discount Deducted at Wrong Rate Cash/Trade Discount Repaid on Return Cash/Trade Discount Repaid in Error Cash/Trade Discount Repaid Credit Memo Sales Tax Paid to Wrong State Sales Tax Paid on Foreign shipments Sales Tax Paid at Wrong Rate Restocking Charge Paid in Error Credits Due Unauthorized Charges on Invoices Interest Penalty Paid in Error Contract Related Errors Uncollected Contract Financing Uncollected Gov't Furnished Mat'l Uncollected Gov't Furnished Equip Industrial Based Maint. Contract Reimbursement Price Warranty Uncollected Warranty Late Delivery Penalty EDI Allowances Blanket PO Pricing Date errors Price Overcharge Errors Volume Rebates Inventory Returns Not Credited Price Errors on Returns Freight Paid on Returns Freight Collect Freight Allowances Freight Double Billed Shortage/Quantity Discrepancies Defective Allowance

What’s In It For You? The money Common sense business practice No risk & No cost

Government Agency Lessons Learned Results vary based on: Order of magnitude Scope Volatility Complexity Spend type Data quality & timeliness Agency support

Experience Matters First developed concept in 1972 Initially focused on private sector Gained wide acceptance as a best business practice Serve majority of Fortune 500 across 48 countries with 3,500 staff $2.3 billion recovered last year alone Massive data mining and analytical capability Limited but growing application in Federal Agencies –$182 million recovered to date

Agencies Participating In Recovery Review With PRG Social Security General Services Administration Department of Justice Department of Agriculture Department of State Department of Transportation Army & Air Force Exchange Service (AAFES) Navy Exchange Service Command (NEXCOM)

Department of Interior - Participating Bureaus Bureau of Reclamation Bureau of Land Management Office of Fish and Wildlife National Parks Service Minerals Management Service Office of Surface Mining Office of the Secretary Bureau of Indian Affairs Geological Services

Recovery Review Challenges at Department of Interior Access to data Contracting Officer Files Contracting Officer’s Intent Procurement/Financial System Interface

Summary The legislation recognizes the value of Recovery Auditing Program results can be used to fulfill the reporting requirements of the Improper Payments Information Act Good for the taxpayer and Agency Provides ongoing financial benefits and insights for improved control No Risk Streamlined acquisition vehicles available