RD454 - Annual Report on the Commonwealth’s Recovery Audit Program - December 23, 2008


Executive Summary:
In accordance with section 2.2-1822.1 of the Code of Virginia the Department of Accounts entered into a contract with PRG-Schultz USA, Inc. (auditors) in early 2005 for recovery audit services. The audit process involves review of state agency expenditures made to vendors for payment for goods and services. Reports regarding the status of these services have been submitted to the respective Chairs of the Senate Finance and House Appropriation Committees for the previous three calendar years.

The Contract with PRG-Schultz will expire on December 31, 2008. As a result, this will be the final report to the money committees on the results of the cost recovery audit services. Beginning in fiscal year 2011 the Department of Accounts will give careful consideration to implementing a new cost recovery audit initiative.

Review of Fiscal Years 2002, 2003, and 2004 Expenditures

The cost recovery audit for this period is complete and $502,517 in erroneous expenditures has been recaptured from vendors. Most of the collected refunds were transferred back to the state agency for which the claim was written in January 2006, net of the auditor’s 20% fee. General Fund collections were retained in the General Fund. DOA submitted $60,587 in claims that the auditors could not collect to the state Debt-Setoff program for collection. As of this report date nearly $30,000 of these claims have been collected. Expectations for further collections from these claims are low.

Review of Fiscal Years 2005 and 2006 Expenditures

The cost recovery audit for this period is also complete and $304,750 in erroneous expenditures was recovered from vendors. These collections, net of the auditor’s 20% fee were returned to the agency that originally made the erroneous payment. General Fund collections are not returned to the agencies but are returned to the General Fund after deducting auditor fees.

Any claims the auditors were not able to collect after extensive efforts are submitted to the Debt-Setoff program for collection. These claims total approximately $44,000 and a portion of these claims will be collected through this process. However, some will ultimately be proven invalid once the vendor finally responds to DOA by providing documentation that proves the claim was invalid. The auditors are not paid any fees for collections made through the state Debt-Setoff process.

Review of Fiscal Year 2007 Expenditures

The auditors are currently in the final stages of auditing the fiscal 2007 expenditures for erroneous payments. They are concentrating their efforts on collecting as many outstanding written claims as possible before the contract expires at the end of December.

As of mid-November the audit has generated $173,300 in payments from vendors who were overpaid erroneously by state agencies and institutions. The auditors are in the final stages of attempting to collect the remaining $59,000 in written claims. While some of these claims will be collected, many will not. The auditors will be paid their fee for any collections received from vendors by the end of December.