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:August 20, 2009
Re:Prompt Payment Discount Statistics from FY07 through 4th QTR, of FY2009

Comptroller Memo
FY#2009-41


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 FY10.








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

$821

$326

$468

$328

4th QTR

$709

$1,100

$1,418

$363

$456

$528

Total

$2,294

$3,372

$4,099

$1,522

$1,824

$1,645

The Commonwealth's Prompt Payment Discount (PPD) Program, has resulted in savings for our vendors and to Department budgets. During the fourth quarter of FY2009, the Commonwealth continued to increase its discount savings opportunities over the previous fiscal years. However, as the chart above illustrates, over $4.9 million in discounts that were available (recorded on encumbrances) in the last 3 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 offered 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 assures 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    fy2009-41_attach_a.xls  is a report, sorted by Department, for the 4th Qtr of FY2009 showing discounts taken, partial discounts taken and discounts missed due to payments scheduled after the discount terms expired. 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. It is crucial that CFOs and Accounts Payable Managers review the discounts missed reports 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.

Attachment B xls format of    fy2009-41_attach_b.xls  is the statewide summary discount report for the 4th QTR, of FY2009.

Attachment C xls format of    fy2009-41_attach_c.xls  is a report that summarizes by department the FY10 encumbrances on MMARS that are eligible for discount, based on selected object codes. The table below summarizes Departmental discount data for BFY2010.

FY 2010 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

$501,466,644.29

$114,360,969.69

$387,105,674.60

22.8%

77.2%

Count Total Encumbrances Eligible for Discount

Count Encumbered with Discount

Count Encumbered with no Discount

% of encumbrances with Discount

% of encumbrances without Discount

9,777

3,578

6,199

36.6%

63.4%

As illustrated in the table above, the FY10 activity reflects a high volume, both in dollars and count, of active encumbrances/contracts that do not offer discounts. 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."

Attachment D xls format of    fy2009-41_attach_d.xls  file size 14MB 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 FY10. 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.

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.

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 xls format of    fy2009-41_attach_a.xls  - Department Discount Summary Q4 FY09 Encumbrances with Discounts Offered, by Department Discount - Taken, Partial and No Discounts Taken
Attachment B xls format of    fy2009-41_attach_b.xls  - FY 2009 Commonwealth Discount Summary, 4th Qtr, FY 2009
Attachment C xls format of    fy2009-41_attach_c.xls  - FY 2010 Encumbrance and Discount Opportunities Summary
Attachment D xls format of    fy2009-41_attach_d.xls  file size 14MB - FY 2010 Encumbrance Listing





cc:MMARS Liaisons
General Counsels
Payroll Directors
Internal Distribution