Joni Geurts is the accounts payable manager for JetBlue Airlines and has worked in the department since 2009. JetBlue is the 5th largest airline in the U. S. Her 14 person office handles 7,500 active suppliers and 5,000 less active or seasonal suppliers. They pay approximately 180,000 invoices annually. This volume leaves lots of room for errors, but Joni and her team work hard to minimize them.
When Joni joined the department, JetBlue received less than $50,000 in discounts from suppliers. One year later that number was $650,000 and a year later, $1,200,000. Altogether, in three years, she prevented more than $7,500,000 in duplicate payments, and recovered $2,700,000 in duplicates, overpayments and fraud. How did she do it?
She started by preventing lost cash discounts. Most supplier contracts had terms of 2% discount if paid in 10 days; no discount, but due in full in 30 days (2/10 net 30). Taking advantage of discounts netted JetBlue more than 36% in annual savings. It may sound simple, but it wasn’t, as their treasury department was initially too busy to help. By nagging, forming relationships, and agreeing to review contracts themselves, accounts payable netted the savings in the previous paragraph. JetBlue now takes advantage of 100% of discounts vendors offer.
That was just the beginning. There were concerns about money lost through supplier risk and fraud, so Geurts implemented advanced analytics, making it part of the vendor vetting process. She says this made all the difference, and without those analytics, they were flying blind. The savings can be enormous and, in JetBlue’s case, recovery saved many times the cost of investment.
Continuous monitoring is a key part of the process. The majority of companies that fall victim to fraud don’t monitor or analyze their processes. It typically takes 18 months to identify a fraudulent scheme and the financial damage in that time can be enormous. Further, the traditional techniques like random-sample audits by internal audit departments are easily circumvented by those committing collusion. New techniques that allow for daily monitoring, employee-vendor matching, seeking invoice anomalies, pricing errors and similar losses are much more effective.
So, how is your accounts payable loss prevention system? Is it time to look into some new ways of controlling payments? As JetBlue learned, the investment returned many times the cost in savings. You will probably find similar results.
Craig Morris & Company
Source: Journal of Accountancy November, 2016