AboutMyHOA.com
No matter how hard we try to
avoid them, accidents can and often DO happen. Just ask the stork.
Or the auto-insurance adjuster. Or the IRS auditor. A community
association is just as susceptible to these unwanted occurrences as
any other person or organization. More importantly, since
Associations tend to spend a considerable portion of their budgets
on third-party contractor services, then it might be more likely
that an erroneous or accidental overbilling occurs by these vendors.
By examining and correcting invoicing errors by contractors, the
Association can realize a monetary savings and prevent future errors
from happening by keeping contractors on alert for similar
circumstances.
The following list compiles PART ONE of 15 common invoicing errors and strategies for disputing, rectifying, or avoiding them altogether. [The remaining list will be distributed next week]:
(1) Invoice lacks description, or contains a vague work description. If you cannot determine exactly what was performed, then you cannot review whether or not the billing for these services was accurate. Instead, ask the contractor to re-submit a detailed invoice so that you can compare work order line items to billables. Beware of "miscellaneous" line item descriptors -- red flags for cost inflation and/or hidden charges -- and question these fees with your contractor directly.
(2) Work not authorized. Sometimes work will be performed without authorization or by a simple misunderstanding. Verify who gave authorization, if any, and correct any internal deficiencies in the chain-of-command for un-authorized work orders originating from the Association's staff or management company. If the contractor performed without authorization or under a mistaken assumption, then the Association will have to dispute that charge. The best way to proceed is for Associations to include a provision in their contracts stating that only authorized work will be compensated.
(3) Services not provided. Be careful for services billed, but not rendered. Be sure and question the contractor about any services that you feel may not have been completed or even attempted. You may not always win this argument if you cannot remember if the work was performed, or if there is no record of the work being done, but at least you put the contractor on notice that you are inspecting invoices closely for errors.
(4) Unnecessary work. Some working relationships allow for the contractor to make a determination of when and how work is to be performed on certain maintenance contracts. A better practice would be to include a clause in your contracts stipulating that written permission must be obtained prior to any cost-incurrence by the contractor so the Association can avoid paying for unnecessary work.
(5) Hours worked and/or number of workers not specified. Beware of padding on hours worked or number of laborers assigned to a project. The Association can keep an informal journal of hours worked and workers assigned and compare this with invoices to get a rough estimate on whether the billables are correct.
The following list compiles PART ONE of 15 common invoicing errors and strategies for disputing, rectifying, or avoiding them altogether. [The remaining list will be distributed next week]:
(1) Invoice lacks description, or contains a vague work description. If you cannot determine exactly what was performed, then you cannot review whether or not the billing for these services was accurate. Instead, ask the contractor to re-submit a detailed invoice so that you can compare work order line items to billables. Beware of "miscellaneous" line item descriptors -- red flags for cost inflation and/or hidden charges -- and question these fees with your contractor directly.
(2) Work not authorized. Sometimes work will be performed without authorization or by a simple misunderstanding. Verify who gave authorization, if any, and correct any internal deficiencies in the chain-of-command for un-authorized work orders originating from the Association's staff or management company. If the contractor performed without authorization or under a mistaken assumption, then the Association will have to dispute that charge. The best way to proceed is for Associations to include a provision in their contracts stating that only authorized work will be compensated.
(3) Services not provided. Be careful for services billed, but not rendered. Be sure and question the contractor about any services that you feel may not have been completed or even attempted. You may not always win this argument if you cannot remember if the work was performed, or if there is no record of the work being done, but at least you put the contractor on notice that you are inspecting invoices closely for errors.
(4) Unnecessary work. Some working relationships allow for the contractor to make a determination of when and how work is to be performed on certain maintenance contracts. A better practice would be to include a clause in your contracts stipulating that written permission must be obtained prior to any cost-incurrence by the contractor so the Association can avoid paying for unnecessary work.
(5) Hours worked and/or number of workers not specified. Beware of padding on hours worked or number of laborers assigned to a project. The Association can keep an informal journal of hours worked and workers assigned and compare this with invoices to get a rough estimate on whether the billables are correct.
(6) Labor rate
incorrect.
Sometimes the invoice labor rate will be higher than quoted or
negotiated. Be sure and dispute this rate with the contractor and
justify your argument by citing the relevant provision in the
services contract or bid proposal. Contracts should always specify
the labor rate for services to be performed.
(7) Subcontractors
billed, but not used.
If the Association suspects that subcontracting work was billed but
not performed, then question the contractor; get names and contact
info for these sub-vendors and contact them directly to verify
actual work performed, if any.
Ok, so we've recovered from
the first seven contractor overbilling errors as outlined last
week, now as promised, I am filling out the list and telling you
about errors # 8 through 15.
(8) Use of non-essential personnel. As a rule of thumb, you shouldn't have to pay for your contractor's on-the-job training of new hires, or for personnel that didn't directly affect your community's services or projects. Be sure and examine your contractor invoices for excessive labor charges and inquire as to who exactly was working, on what, and when. If trainees were used on a project, demand that a reduced rate be charged for their time since by default the trainees would not possess the same skills as that of a seasoned professional.
(9) "Rounding Up" the Hours. Be sure that invoices follow the correct procedure as detailed in the contract for billing hourly time, whether it be in hourly, quarter-hour, or other increments. Contractors may sometimes "round up" the time spent on a project both accidentally and purposefully. If your contract doesn't specify incremental billing, it would be a good idea to institute that change upon the next extension or modification of same.
(10) Overbilled Travel Time. Like for personnel, avoid rounding up of travel time, or excessive travel charges. Ask the contractor for schedules to show trip routes and/or mileage to prove or disprove any excessiveness on travel billables.
(11) "Past Due" Amounts already paid and/or non-existent. Make sure that any invoice alleging past due amounts is reviewed for accuracy. Sometimes, payments can get delayed in the mail, or the contractor's accounting system generated the bill before applying payment, etc, which might indicate a past-due when the condition doesn't really exist.
(12) Double-billing for back ordered items or work not yet performed. Some contractors as a strictly housekeeping issue and for accounting purposes, will enter charges in their system to bill you for parts that are backordered or for labor that is scheduled but not yet performed. Then, when the parts arrive, or the work is performed, the contractor makes another entry, whether by accident or otherwise. This double-billing can be costly if the contractor is not aware of its own internal accounting procedural mistake. Review invoices for any incidence of this billing error and discuss with your contractor.
(13) Late fees or penalties not in the contract. This is simple. Don't let your contractor bill you for items not enunciated or detailed in the services contract.
(8) Use of non-essential personnel. As a rule of thumb, you shouldn't have to pay for your contractor's on-the-job training of new hires, or for personnel that didn't directly affect your community's services or projects. Be sure and examine your contractor invoices for excessive labor charges and inquire as to who exactly was working, on what, and when. If trainees were used on a project, demand that a reduced rate be charged for their time since by default the trainees would not possess the same skills as that of a seasoned professional.
(9) "Rounding Up" the Hours. Be sure that invoices follow the correct procedure as detailed in the contract for billing hourly time, whether it be in hourly, quarter-hour, or other increments. Contractors may sometimes "round up" the time spent on a project both accidentally and purposefully. If your contract doesn't specify incremental billing, it would be a good idea to institute that change upon the next extension or modification of same.
(10) Overbilled Travel Time. Like for personnel, avoid rounding up of travel time, or excessive travel charges. Ask the contractor for schedules to show trip routes and/or mileage to prove or disprove any excessiveness on travel billables.
(11) "Past Due" Amounts already paid and/or non-existent. Make sure that any invoice alleging past due amounts is reviewed for accuracy. Sometimes, payments can get delayed in the mail, or the contractor's accounting system generated the bill before applying payment, etc, which might indicate a past-due when the condition doesn't really exist.
(12) Double-billing for back ordered items or work not yet performed. Some contractors as a strictly housekeeping issue and for accounting purposes, will enter charges in their system to bill you for parts that are backordered or for labor that is scheduled but not yet performed. Then, when the parts arrive, or the work is performed, the contractor makes another entry, whether by accident or otherwise. This double-billing can be costly if the contractor is not aware of its own internal accounting procedural mistake. Review invoices for any incidence of this billing error and discuss with your contractor.
(13) Late fees or penalties not in the contract. This is simple. Don't let your contractor bill you for items not enunciated or detailed in the services contract.
(14) Improper tax
calculations. Some contractors may charge sales tax for
items that are either non-taxable, or tax-exempt depending on
the taxing regulations for your state or municipality. If you
suspect that you are paying sales tax incorrectly, have your
accountant or an auditor verify that the sales taxes assessed
are proper.
and finally...
(15) Used vs. New
parts. Be careful if a contractor is billing you for
new parts but installing refurbished ones. This can become a big
profit center for contractors by saving money on the purchase
then marking up for "new" to their clients. Check invoicing for
product identifiers and descriptions to ensure that the parts
installed can be verified in the field.
*Thanks to the Insider's Guide to Managing Community Associations for excerpts used in creating this article.