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:      May 14, 2012

Re:         Prompt Payment Discount Statistics Summary 
               for FY2012 as of Third Quarter                                                   

  Comptroller Memo FY#2012-23


Executive Summary

The purpose of this memo is to continue to encourage the excellent growth in discount earnings being achieved by the majority of agencies.   The departments’ utilization of the Commonwealth’s Prompt Payment Discount (PPD) program during the first nine months of FY2012 continues to track to a projected annual increase of almost 20%.  Still there are more opportunities for agencies to expand discount usage in the current and future fiscal years.


  Prompt Payment Discount (PPD) Breakdown Summary by FY          
 

FY08

FY09

FY10

FY11

FY12 (through 03/31/2012)

Discounts Taken

$3,373,000

$4,099,000

$4,655,000

$5,526,000

$4,836,170

Discounts Not Taken

$1,824,000

$1,645,000

$1,519,000

$1,972,000

$1,482,889

It appears that prompt payment discount savings will reach and possibly exceed $6 million for FY12.    CTR and departments are working very hard to ensure that the success of this program continues to grow into future fiscal years.   As of March 31, 2012, 110 departments have saved $4.8 million.   The entire saving of the $4.8 has been credited back to the accounts processing timely payments with vendors offering prompt payment discount terms, increasing your department’s line item spending power.

Vendors who are not offering discounts should be approached and asked to enroll in the PPD Program now.   With a tight budget and tight credit market, PPD is a sensible way for departments to save money and provide timely cash flow to their vendors. 

Even though PPD continued to grow; during the first nine months of FY2012 there were almost $1.5 million of prompt payment discounts that were available, recorded on encumbrances, but were not taken due to department delays the processing the payments.  In other words the Commonwealth has lost the opportunity to save $1.5 million.  Departments can increase PPD dollars as well by reviewing the Discounts Not Taken Report, and instructing Accounts Payable staff to process payments consistent with discount terms.  Accounts Payable staff should realize that “Discounts Not Taken” mean savings lost for 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 posts a list of vendors that offer discounts on department contracts on our Payments web page.  This list, refreshed daily, is derived from department encumbrances in final status which offer prompt payment discounts in FY2012.

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

To analyze and report FY2012 activity, the following attachments offer department specific and summary data.

Attachment A xls format of FY12_23_Attachment A.xls is a report sorted by department for the third quarter of FY2012.  This report shows discounts taken, partial discounts taken and discounts missed due to payments scheduled after the discount terms expired.   Please note that capturing future discounts is within each department’s control.

Attachment B xls format of FY12_23_Attachment B.xls is a statewide summary discount report for FY2012 as of March 31, 2012.

To assist departments to save more money we have prepared an FY12 query that lists encumbrance activity of all departments in those object codes that generate discount savings.

Attachment C xls format of FY12-19 Attch C is a report that summarizes by department the FY2012 encumbrances on MMARS that are eligible for discounts based on the object code used as of March 31, 2012.  The charts below summarize all departments.

FY2012 Encumbrances With and Without Discount (as of 03/31/12)

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 

$2,344,560,263.08

$474,467,107.02

$1,870,093,156.06

20.2%

79.8%

 

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

58,288

29,560

28,728

50.7%

49.3%

As illustrated in the charts above, the first nine months of FY2012 activity reflects a high volume, in dollars and count, of active encumbrances that do not offer discounts.

Attachment D xls format of FY12-19 Attch D file size 4MB lists encumbrance transactions “with discount” offered on one tab and those encumbrances in selected 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 FY2012 as of March 31, 2012.  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 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.

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 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 (CIW) to identify payments made with discount terms offered.  These Discount Starter Query instructions are available here.  

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

Enc:

Attachment A xls format of FY12_23_Attachment A.xls - FY2012 Quarter 3 Department Discount Summary – Taken, Partial Taken
Attachment B xls format of FY12_23_Attachment B.xls - FY2012 Commonwealth Discount Summary Report as of March 31, 2012
Attachment C xls format of FY12_23_Attachment C.xls - FY2012 Discount Analysis Report as of March 31, 2012
Attachment D xls format of FY12_23_Attachment D.xls file size 6MB - FY2012 Encumbrance Listing as of March 31, 2012

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