By Andrew Jesse | 1 November 2011
The public sector is losing millions of pounds a year on overpayments. But there are simple ways to keep track of what goes in and goes out
Earlier this year, the Cabinet Office’s Counter Fraud Taskforce showed that the government could save £264m per year by eliminating overpayments. So what can departments do to minimise their losses?
Having worked with many different sizes of government departments, I have seen many of the challenges they face when it comes to losing money when paying bills. The loss usually happens when the document or project’s disjointed journey through the payment lifecycle hits undefined areas of responsibility.
In the case of the government, the Cabinet Office’s interim report revealed that the Department for Transport had saved £500,000 by identifying losses from payments made to suppliers. It commissioned an audit of its systems to detect and recover overpayments.
The Home Office did the same and detected £4m in overpayments. ‘With government spending £66bn on procurement in 2009/10, applying these techniques across all departments could identify and recover £264m on just one year of spending,’ said the report.
Research also shows that 23% of companies duplicate invoices being paid; 26% pay the wrong supplier and 10% pay for goods that haven’t been received. A review of procedures can stop these leaks and save organisations as much as 80% of their lost cash.
There was a case in August this year when a ‘business process’ error caused two Somerset councils and a police authority to make duplicate payments totalling £4.6m to suppliers.
There was a scanning problem in the initial set-up of their software, which meant that staff at Southwest One – a joint venture between Somerset County Council, Taunton Deane Borough Council, Avon and Somerset Police – were unable to tell staff at the county council where invoices were in the system, and whether they had been paid, or were soon to be paid. Staff therefore bypassed the scanning system by making payments by cheque, to avoid delays in urgent payments – for example, to foster carers. This caused a large amount of duplicated and overpayments.
These kind of disastrous results crop up where best practice procedures are not fully in place for the set-up, control and execution of procurement and invoicing processes.
Following best practice steps will improve operations in local authorities and government departments and should avoid overpayments.
The first step is obviously to cross-check all purchase orders and invoices before they are paid.
All documentation should have a failsafe procedure to ensure that payments are accurate – both in terms of participants and details.This will verify incoming payment requests and alert the accounts payable team to any exceptions and anomalies. The other benefit of doing this is that it helps to prevent fraud.
Secondly, a single, uniform process is needed. If this procedure is designed, communicated and enforced throughout the entire department, the risks of duplication are significantly reduced.
Having one copy of a document also ensures that approvals and input processes do not lead to multiple copies of documents and ensures all relevant stakeholders have their feedback incorporated.
Step three is to analyse the data. This is highly important to diagnose any unnecessary or duplicated payments. Sometimes these can hide away deep in different processes, but a single, bird’s eye view of all purchases, invoices and payments can identify cash leaks.
Improving payments processing can save significant sums. One other way that companies can do this is by automation, which will increase access to documents and essential information and ensure the vital cross-checks and failsafes are made.
If all of these improvements happen, we could see that extra £264m go back into the government’s budget.
Andrew Jesse is vice president at Basware UK, which specialises in financial process automation software, including Basware's invoice automation solution
The public sector is losing millions of pounds a year on overpayments. But there are simple ways to keep track of what goes in and goes out
Earlier this year, the Cabinet Office’s Counter Fraud Taskforce showed that the government could save £264m per year by eliminating overpayments. So what can departments do to minimise their losses?
Having worked with many different sizes of government departments, I have seen many of the challenges they face when it comes to losing money when paying bills. The loss usually happens when the document or project’s disjointed journey through the payment lifecycle hits undefined areas of responsibility.
In the case of the government, the Cabinet Office’s interim report revealed that the Department for Transport had saved £500,000 by identifying losses from payments made to suppliers. It commissioned an audit of its systems to detect and recover overpayments.
The Home Office did the same and detected £4m in overpayments. ‘With government spending £66bn on procurement in 2009/10, applying these techniques across all departments could identify and recover £264m on just one year of spending,’ said the report.
Research also shows that 23% of companies duplicate invoices being paid; 26% pay the wrong supplier and 10% pay for goods that haven’t been received. A review of procedures can stop these leaks and save organisations as much as 80% of their lost cash.
There was a case in August this year when a ‘business process’ error caused two Somerset councils and a police authority to make duplicate payments totalling £4.6m to suppliers.
There was a scanning problem in the initial set-up of their software, which meant that staff at Southwest One – a joint venture between Somerset County Council, Taunton Deane Borough Council, Avon and Somerset Police – were unable to tell staff at the county council where invoices were in the system, and whether they had been paid, or were soon to be paid. Staff therefore bypassed the scanning system by making payments by cheque, to avoid delays in urgent payments – for example, to foster carers. This caused a large amount of duplicated and overpayments.
These kind of disastrous results crop up where best practice procedures are not fully in place for the set-up, control and execution of procurement and invoicing processes.
Following best practice steps will improve operations in local authorities and government departments and should avoid overpayments.
The first step is obviously to cross-check all purchase orders and invoices before they are paid.
All documentation should have a failsafe procedure to ensure that payments are accurate – both in terms of participants and details.This will verify incoming payment requests and alert the accounts payable team to any exceptions and anomalies. The other benefit of doing this is that it helps to prevent fraud.
Secondly, a single, uniform process is needed. If this procedure is designed, communicated and enforced throughout the entire department, the risks of duplication are significantly reduced.
Having one copy of a document also ensures that approvals and input processes do not lead to multiple copies of documents and ensures all relevant stakeholders have their feedback incorporated.
Step three is to analyse the data. This is highly important to diagnose any unnecessary or duplicated payments. Sometimes these can hide away deep in different processes, but a single, bird’s eye view of all purchases, invoices and payments can identify cash leaks.
Improving payments processing can save significant sums. One other way that companies can do this is by automation, which will increase access to documents and essential information and ensure the vital cross-checks and failsafes are made.
If all of these improvements happen, we could see that extra £264m go back into the government’s budget.
Andrew Jesse is vice president at Basware UK, which specialises in financial process automation software, including Basware's invoice automation solution
