Comptroller Fiscal Year Memo Letter Head


M E M O R A N D U M

To:Chief Fiscal Officers
From:Martin J. Benison, Comptroller
Date:February 17, 2009
Re:Prompt Payment Discount Statistics from FY 07 through 2QTR, of FY 2009Comptroller Memo
FY#2009-24

Executive Summary

The purpose of this memo is to update CFOs and MMARS Liaisons on Department utilization of the Commonwealth's Prompt Payment Discount program in FY09 and the opportunities for the program's expanded use in FY09.


The Chart below shows that there has been a steady increase in discounts taken by Departments since the program's inception

*in Thousands

DISCOUNT TAKEN* DISCOUNTS NOT TAKEN*



FY07

FY08

FY09



FY07

FY08

FY09

1st QTR

$546

$689

$1,025



$462

$496

$449

2nd QTR

$482

$707

$835



$371

$404

$340

3rd QTR

$557

$876

----



$326

$468

----

4th QTR

$709

$1,100

----



$363

$456

----

Total

$2,294

$3,372

$1,860



$1,522

$1,824

$789

The Commonwealth's Prompt Payment Discount Program (PPD), has resulted in savings to our vendors and to Department budgets. During the second quarter of FY2009, the Commonwealth continued to increase its discount savings opportunities over the previous fiscal years. However, as the chart above illustrates, over $4.1 million in discounts that were available (recorded on encumbrances) in the last 2 and one half years were not taken. These opportunities were missed primarily because Departments did not enter payments in a correct or timely manner. It is imperative, especially in the current fiscal climate, that Departments take advantage of every tool available to provide further savings to their budgets.

CTR continues to assist department CFOs by identifying additional contracts that could potentially offer PPD. In addition, a list of Active MAs that offer PPD is available on the Contracts page of the CTR Web Portal. Also, on the Payments page of the Web Portal, CTR now posts a on Department contracts. This list, refreshed daily, is derived from Department encumbrances in final status which offer PPD for FY2009.

Successful discount implementation needs the full support and participation of each Department's payment, contracting, and vendor management staff. Departments should verify that the discount terms entered on encumbrances are accurate in both the vendor and commodity sections in MMARS. Departments processing invoices in a timely manner should assure that the discounts offered are taken automatically.

To analyze and report FY09 activity, the following attachments offer Department specific and summary data.

Attachment A xls format of Attachment A--FY09_Q2 Discount Summary - Taken Par is a report, sorted by Department, for the 2nd Qtr of FY2009 showing discounts taken, partial discounts taken and discounts missed due to payments scheduled after the discount terms expired.

Attachment B xls format of attachment B--FY09_Discount Summary_December 2008. is the statewide summary discount report for the 2nd QTR, of FY 2009.

Attachment C xls format of attachment C--Encumbrances and Discount FY09 month is a report that summarizes by department the FY09 encumbrances on MMARS that are eligible for discount, based on selected object codes. The table below summarizes Departmental discount data for the first two quarters of BFY2009.





FY 2009 Encumbrances With and Without Discounts



Dept

Total Dollars Encumbered Eligible for Discount

Dollars Encumbered with Discount

Dollars Encumbered without Discount

% of total dollars with Discount

% of total dollars without Discount

All

$1,480,992,060.27

$245,075,451.10

$1,235,916,609.17

16.5%

83.5%

Dept

Count Total Encumbrances Eligible for Discount

Count Encumbered with Discount

Count Encumbered with no Discount

% of encumbrances with Discount

% of encumbrances without Discount

All

45,013

18,748

26,265

41.7%

58.3%

As illustrated in the table above, the 2nd quarter of FY09 activity reflects a high volume, both in dollars and count, of active encumbrances/contracts that do not offer discounts.

Attachment D xls format of attachment D--QUARTER 2.xls file size 7MB lists encumbrance transactions with "with discount" offered on one tab and those encumbrances offering "no discount" on the second tab. It is sorted by department, transaction, and object code; it includes the discount percentage, commodity line number, accounting line number, and line amount for FY09. Records may be filtered by department. Those encumbrances in the tab labeled "no discount" should be reviewed with the vendor for the addition of Prompt Payment Discount terms. It is crucial that department CFOs and contract managers review these contracts and take the initiative to capture lost opportunities by encouraging the vendors to offer a mutually agreeable discount rate.

Departments can save thousands of dollars by reviewing the Discounts Not Taken Report and instructing Accounts Payable staff to process payments consistent with the discount terms. The Prompt Payment Discount Policy, states that "Even if a Department has not included the Prompt Payment Discount Form as part of the RFR process, or for contracts when a procurement is not required, the Department is strongly encouraged to have a Contractor complete a Prompt Payment Discount Form during the contract execution, renewal or amendment process to ensure that PPD are available to Departments to the maximum extent possible."

Through queries, CTR has identified eligible contracts with many vendors who offer discounts on other Department contracts. This information is forwarded to department fiscal staff to assist them in requesting discounts directly from vendors. It is crucial that CFOs and Contract Managers review the discounts missed report and instruct relevant staff to ensure that payments are processed on a timely basis in order to receive the maximum discount offered under the contract.

To assist with Department analysis, CTR has provided starter queries that Departments can run in the Commonwealth Information Warehouse to identify payments made with discount terms offered. These Discount Starter Query instructions are available here doc format of dept_discount_starter_qry.doc . In addition, report NAP630W, available in DocDirect, provides a month end listing of discounts missed.

Please review your discount statistics and, if you have any questions, please contact Michael Weld Eyob at (617) 973-2310.

Enc:

Attachment A - Department Discount Summary Q2 FY09 Encumbrances with Discounts Offered, by Department Discount - Taken, Partial and No Discounts Taken xls format of Attachment A--FY09_Q2 Discount Summary - Taken Par
Attachment B - FY 2009 Commonwealth Discount Summary, 2nd Qtr, FY 2009 xls format of attachment B--FY09_Discount Summary_December 2008.
Attachment C - FY 2009 Encumbrance and Discount Opportunities Summary xls format of attachment C--Encumbrances and Discount FY09 month
Attachment D - FY 2009 Encumbrance Listing xls format of attachment D--QUARTER 2.xls file size 7MB

Cc: General Counsels

Payroll Directors

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