Contractor Spend Management: The Error Proof Process to Ensure Invoice Accuracy

Written by Management Controls, Inc | Wed, 23 Jun 2021 01:00:00 Z

MCi’s TRACK Platform digitizes and automates the contractor management process from the time work begins through payment. TRACK integrates with Pre-qualification Solutions, ERP Systems, and Access Control Systems(ACS) to provide immediate availability of cost and schedule compliance information.

Financial controls are fundamental to most companies’ risk management programs. When companies are dependent on external providers for goods and services required for daily operations, it is essential that financial controls are designed and policies implemented. With the right financial controls and disciplined adherence to processes, contractor invoices will reflect what has been earned, down to the penny. Within audits, a common financial control finding is failure to follow contractor time-keeping processes. Example findings are:

Invoiced work hours exceeded approved hours in the contractor time system (CTS)
No work hours in the CTS to validate invoice
CTS work hours approved after invoice already paid

Companies using MCi’s TRACK® Platform have eliminated audit findings like those above. To prevent discrepancies between invoiced hours and CTS hours, TRACK users are effectively employing poka-yoke. Poka-yoke is a Japanese term common in lean manufacturing circles and is defined as the use of any automatic device or method that either makes it impossible for an error to occur or makes the error immediately obvious once it has occurred.

TRACK data is a true accounting of the hours a contractor spends at the work location as provided directly from a company’s access control system (ACS). The contractor and company have agreed to use badge-in/badge-out events as the single method for the measurement of time on-site. If workers are off-site in remote locations, companies leverage our mobile technology to capture activity.

Contractors and owners no longer have to estimate time and manually prepare timesheets. Companies no longer need to enter time data into a separate CTS. Instead, there is a single view of contractor hours in TRACK. This single view not only eliminates time-intensive, error-prone manual timekeeping but also effectively eliminates invoice time discrepancies. Owners and contractors have the same view of contract labor and equipment time daily and sometimes even on a shift-by-shift basis.

Contract Visibility and Consistent Application

Another common audit finding is discovering that invoices are routinely paid even though they do not comply with Contract Rates, Terms, and Conditions. Applying the correct, contractually allowed multipliers to hours worked sounds straightforward. The challenge is that each invoice likely contains dozens of labor classifications, shift schedules, and pay rates.

Knowing and consistently applying all of these variables is complex. Yet for many companies, contractor billing and company invoice approval processes are manual. First, the contractor’s billing department is expected to apply all of the Rates, Terms, and Conditions correctly as the invoice is prepared. Then the company’s approver needs to evaluate the invoice for accuracy keeping all of those same conditions in mind.

Using this traditional, manual approach, the contractor may not present an invoice to the company for days or more often weeks. By then, the company is effectively approving payments for goods and services in the dark; as approvers cannot remember details from days or weeks in the past. Consider that some companies report approving a million or more invoices every year and ensuring invoicing accuracy becomes almost humanly impossible. It is no surprise that lack of compliance with financial controls is often a repeat audit finding.

Consistent Payment of Accurate Invoices

MCi’s decades of experience indicate that companies save 5% to 15% of contracted services costs when they consistently pay vendors according to the Terms and Conditions in their contract. For companies that rely on hundreds or thousands of contract employees every day, the savings can add up to millions of dollars, annually.

For TRACK users, the secret to capturing these cost savings and maintaining compliance with financial controls processes is to automate the application of contract Rates, Terms, and Conditions to work hours. This automation reduces the probability, perhaps to zero, of human errors such as:

Manual Data Entry
Allowing charges for hours or partial hours spent on activities not contractually billable
Failing to apply the lowest rate for equipment –hourly, daily, weekly, or monthly
Double billing for the same worker or piece of equipment

Billable hours are calculated by automatically applying pay formulas with correct terms and conditions to the worker's scheduled shift and the ACS data. Then the total invoice amount is calculated by applying the correct labor and equipment rates to those hours. Invoices are more accurate for two reasons. Rates, Terms, and Conditions are correctly and consistently applied and company approvers receive Track timesheets sooner, closer to the actual delivery of goods and services. Some companies using TRACK pay their contractors every single day and can take advantage of early-pay discounts.

See how TRACK facilitates accurate and timely payments

Conclusion

Today’s modern workforce may contain more contract workers than company employees. The value of consistently paying contractors accurately can be worth millions of dollars every year and contribute significantly to improved operational efficiency. Developing the capability to consistently deliver accurate payments is difficult or impossible if the payment process is a heavily human-dependent process. Humans cannot effectively measure time on the worksite for hundreds or thousands of individual contractors nor can they remember and apply all of the contract Rates, Terms and Conditions to hundreds or thousands of invoices, consistently.

Since 1989, MCi has a proven track record of integrating with companies’ existing ACS and ERP systems to automate dependable and consistent processes to ensure that contractors are paid exactly what they have earned.

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