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The Dark Side Of Outsourcing Utility Bill Payment
There have been at least a half a dozen cases over the last five years of skimming and stealing since third parties began auditing and paying bills.
In 2009 LGI Energy Solutions which was in the business of providing utility audit and bill payment services were accused of embezzling millions and millions of dollars. In a nutshell the utilities would send the bills to LGI. LGI would process the bills. LGI would send the customers a spreadsheet with a bill consolidation showing the amounts owed the utilities. The customers would transfer the amounts owed. LGI would deposit these funds into comingled bank accounts. LGI would pay the money from the comingled account to the utilities.
According to the trustee, due to the volume of the bills LGI was paying they were able to obtain discounts from some utilities and were paid a percentage in addition to a monthly commission?
In the court records, the trustee stated that LGI was siphoning money and engaging in a Ponzi scheme and a check kiting scheme to conceal the theft. The trustee contends that LGI shuffled money around from account to account comingling the payments from their utility clients along with their own funds.
LGI did not dispute the fact that the dollars used to pay the utility bills were not necessarily the same dollars paid by the customer. In other words, LGI conceded that the customer’s bills did not necessarily tie out to what was paid by the customer. The question that arises is it possible LGI was making up the bills? According to the trustee the money obviously went somewhere.
In the spring of 2013, two freight bill payment firms with a combined 80 years in business (Trenset Information Systems & Trans Vantage Soultion Inc.) paying 45 billion dollars in freight bills both filed for bankruptcy were accused of embezzling over $100 million dollars.
In April of 2014, the Pa. U.S. Attorney’s office ordered Trans Financial Services, a Pittsburgh corporation in the business of auditing and paying freight bills were forced to pay $2.9 million dollars to its victims.
These days, almost every major company has outsourced its utility audit and bill payment to a third party provider. At first, this would seem like a no brainer to outsource the function to reduce costs.
But is it? After all what could go wrong with outsourcing the utility audit and bill payment function?
Plenty can go wrong. It starts off innocently enough. The accounts payable department is overburdened with paying the utility bills on time and it may be cheaper to outsource it. The company contacts several bill payment providers. Typically, the company will choose the vendor with the lowest cost. This is possibly mistake number one, as the less costly solution might not be the right solution.
Every month utility audit and bill payment firms process billions of dollars in utility bills. The utility company sends the invoice to the bill payment provider. The bills are then scanned and entered into the bill payment system. The system audits the bills for legitimate discrepancies. The bill payment provider consolidates the invoices for payment. The company wires the money to the bill payment provider. The bill payment provider wires the utility company with the funds the company has entrusted to it.
How do errors happen and how to prevent them? Utility audit and bill payment companies should never co-mingle your funds with other company’s funds for what they refer to as so called efficiencies.
As Steve Applebaum, CFO of Cass Information Systems, Inc, a St Louis based company owned by Cass Bank stated “reputable audit and payment firms will never consolidate funds for the sake of expediency out of some misguided sense of efficiency”.
If your company outsources its utility bill payment function, check to see if there is a separate bank account set up for utility payments. .
Unlike outsourcing payroll, where every company knows what it pays to their employees. However, an increase in the monthly cost of electricity, gas, water of 10%-15% would typically go undetected as utility charges fluctuate from month to month on an annual basis.
Trying to prevent these errors after a function has been outsourced and put on auto pilot is an afterthought for most companies. However, the risk can be eliminated by proactively auditing the bill payment provider on an annual basis.
The famous bank robber Willie Sutton was once asked, “Why do you rob banks”. He responded “that’s where the money is”.
Unlike banks, accounts payable is where the money is and where the fraud can be prevented.
Controls and Prevention:
- Separate the bill payment function from the audit function
- On an annual basis bring in an outside utility audit firm to audit the bill payment provider
- Separate the vendor set up from the bill payment process.
- Always require original invoices and not EDI bills
- On a monthly basis check to see if there is an image for each bill
- Insist on a separate reconcilable bank account
- Rigorously vet all new vendors and accounts
- Conduct a physical inventory of how many meters there are at each location
- Reconcile all utility rebills or outsource it
- Insist on the right to bring in an outside audit firm to audit the bill payment provider. Do not sign an agreement which prevents you from doing this as this could be a “red flag”.
Remco Energy has been in the business of auditing utility bills for fortune 1000 companies for over three decades. REMCO offers a suite of products and services designed to proficiently audit, manage, reduce and control related utility expenses in a manner which turns lost profits into revenues.
Remco Energy has been in the business of auditing utility bills for fortune 1000 companies for over three decades. REMCO offers a suite of products and services designed to proficiently audit, manage, reduce and control related utility expenses in a manner which turns lost profits into revenues.
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Posted: 3/6/2017 1:33:49 PM by
Global Administrator | with 0 comments