Comptroller Fiscal Year Memo Letter Head


M E M O R A N D U M

To:Chief Fiscal Officers and MMARS Liaisons
From:Martin J. Benison, Comptroller
Date:Nivember 24, 2009
Re:Prompt Payment Discount Statistics for FY 2010 - First Quarter

Comptroller Memo
FY#2010-12

Executive Summary

The purpose of this memo is to update CFOs and MMARS Liaisons on the departments' utilization of the Commonwealth's Prompt Payment Discount program in FY10 and offer opportunities to expand use in FY10.


FY 07 FY 08

FY 09

FY 10

1 st QTR

1 st QTR

1 st QTR

1 st QTR

Discounts Taken

$546,000

$689,000

$1,025,000

$1,242,000

Discounts Not Taken

$462,000

$496,000

$449,000

$567,000

As the success of this program grows so, too, could your department's line item spending power.

The Commonwealth's Prompt Payment Discount Program (PPD), has always resulted in savings to our vendors and department budgets. During the first quarter of FY2010, the Commonwealth continued to favorably increase its opportunities for discount savings . Vendors who have not offered discounts in the past should be approached again and asked to enroll in the PPD Program now. With a tight budget and tight credit market, PPD is a sensible way departments can use to save money and provide timely cash flow to their vendors.

In FY09 $1.6 million of discounts that were available, recorded on encumbrances, were not taken, a lost opportunity. Departments can save thousands of dollars by reviewing the Discounts Not Taken Report, and instructing Accounts Payable staff to process payments consistent with discount terms. Realizing the "Discounts Not Taken" would mean further savings to your appropriations. CTR continues to assist department CFOs by identifying additional contracts that could potentially offer prompt payment discounts. In addition to the listing of Active MAs that offer Prompt Payment Discounts that is available on the Contracts page of the CTR Web Portal, and in order to provide departments a quick and easy way to take advantage of more discounts, CTR now posts a on department contracts on our Payments page. This list, refreshed daily, is derived from department encumbrances in final status which offer prompt payment discounts in FY2010.

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. Departments processing invoices in a timely manner should assure that the discounts offered are taken automatically.

To analyze and report FY10 activity the following attachments offer department specific and summary data.

Attachment A xls format of fy2010-12_attch_a.xls
is a report, sorted by department, for the first quarter of FY2010. This report shows discounts taken, partial discounts taken and discounts missed due to payments scheduled after the discount terms expired. Capturing future discounts is within each department's control.

Attachment B xls format of fy2010-12_attch_b.xls
is the statewide summary discount report for the 1 st QTR, FY 2010.

To assist departments now for FY10 business we have prepared the query of encumbrance activity to include all departments' FY10 encumbrances in those object codes that generate discount savings.

Attachment C xls format of fy2010-12_attch_c.xls
is a report that summarizes by department the FY10 encumbrances on MMARS that are eligible for discount based on the object code used. The charts below summarize all departments.

FY 2010 Encumbrances With and Without Discount

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

$971,675,880.63

$226,646,748.71

$745,029,131.92

23.3%

76.7%

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

31,579

13,582

17,997

43%

57%

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

Attachment D xls format of fy2010-12_attch_d.xls
file size 5MB lists encumbrance transactions with "with discount" offered on one tab and those encumbrances in discount friendly object codes 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 can be filtered by department. Those encumbrances in the tab "no discount" should be reviewed with the vendor for the addition of prompt payment discount terms. It is crucial that department CFO's 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.

The Prompt Payment Discount Policy, updated March 9, 2007, 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 Prompt Payment Discounts 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 so that your department can 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 xls format of fy2010-12_attch_a.xls
- FY 2010 Quarter 1 Department Discount Summary - Taken, Partial Taken, No Discount Taken
Attachment B xls format of fy2010-12_attch_b.xls
- FY 2010 Commonwealth Discount Summary, 1st Qtr, FY 2010
Attachment C xls format of fy2010-12_attch_c.xls
- FY 2010 Encumbrance and Discount Opportunities Summary
Attachment D xls format of fy2010-12_attch_d.xls
file size 5MB - FY 2010 Encumbrance Listing

cc:MMARS Liaisons
General Counsels
Payroll Directors
Internal Distribution