Improving the Effectiveness of Your Claims Auditing Process

Local Government Management Guide

Claims Auditing

Auditing claims demands more than a “rubber stamp” of the claim packages. Instead, it should entail a thorough and deliberate examination to determine that the claim is a legal obligation and a proper charge against the local government or school district. As a general rule, a claim package should contain enough detail and documentation so that the auditing body or official is supplied with sufficient information to make that determination.

When auditing claims, the following questions should be asked:

  • Is the claim for a valid and legal purpose?

    First and foremost, each claim must be for a legitimate purpose of the local government or school district. Examples of claims that are not for a legitimate purpose include:
    • Gifts and donations to private entities in violation of the New York State Constitution, Article VIII, Section 1;4
    • Travel expenses of spouses of officers and employees;
    • Personal entertainment expenses; and
    • Any claim for which services or goods were not received.

    Expenses for alcoholic beverages generally are not proper local government or school district purposes.
     
  • Was the purchase authorized and approved?

    All required approvals and authorizations should be documented or attached to the claim form. The official who initiated the purchase should document his/her approval of the claim, even when not required by law. If vendor certification or verification of claims is required, the claim should be scrutinized to ensure proper certification or verification.
     
  • Are there sufficient appropriations to pay the claim?

    Generally, no claim can be paid if sufficient budgetary appropriations are not available. In many cases, the availability of appropriations is verified electronically, usually as part of the purchase order or the accounts payable software. In other units (especially small units), it may be necessary to check the availability of appropriations manually.
     
  • Is the claim mathematically correct?

    Claims paid should be mathematically correct. Attached receipts and invoices should total the sum of the claim packet. Calculations for discounts should be verified when necessary and purchases are generally exempt from New York State sales.5
     
  • Is the claim sufficiently itemized?

    The claim should be understandable to someone unfamiliar with the transaction. Information such as weight, quantity, size, grade, unit price and totals should be provided. Part numbers or abbreviations should be supplemented by a full description of the goods or services provided. Claims for multiple deliveries of similar items, such as gas and fuel oil, should be supported by delivery tickets signed by the person accepting delivery.
     
  • Does the claim meet the legal and policy requirements in relation to competitive bidding or, when permitted, competitive offering, and the requirements of the locality’s procurement policy?

    Competitive bidding is generally required for the purchase of goods exceeding $20,000 and for public work contracts (e.g., construction) exceeding $35,000. Local governments and school districts may elect to award purchase contracts in excess of the monetary threshold based on "best value" (competitive offering), instead of competitive bidding.

    If the claim is for an expenditure that required competitive bidding or competitive offering, documentation should be retained to support that the lowest responsible bidder was awarded the contract, after public advertisement for sealed bids, or that the contract was appropriately awarded on the basis of "best value."6 A locality’s procurement policy generally should establish requirements for obtaining quotations or proposals for procurements of goods and services below the monetary thresholds and for other procurements that are exempt from bidding requirements, such as professional services.
     
  • Have other adopted policies been followed?

    In addition to each locality’s procurement policy, there may be other adopted policies that cover specific types of expenses such as travel and conference expenses and reimbursement for meals or other food served at meetings.
     
  • Was the purchase made by using a State, county or other permissible government contract (as an exception to soliciting competition) and is this information included on the claim form?

    If the purchase was made from a State, county or other government contract that has been extended to local governments and school districts as an exception to the requirements for soliciting competition, the contract number should be referenced on the claim. The person who approved the purchase should be able to provide a copy of the contract that was used.
     
  • Are there any sales tax charges for exempt expenses?

    Your local government or school district is generally exempt from paying sales tax. Therefore, sales tax should not be included on the claim.
     
  • Does the claim include all discounts to which your local government or school district is entitled?

    Bulk purchases or early payments may entitle you to receive discounts on purchases.
     
  • Has this claim been paid before, in whole or in part?
    For vendors with frequent and similar claims, ensure that the current claim is not a duplicate of a previous claim and that the current billing does not include the same goods or services included in a prior claim. For installment purchases, it may be necessary to ensure that the payment is not for an expired contract and that the entire contract has not been paid previously.
     
  • Does the attached documentation support the claim being audited?

    The approved purchase order, if applicable, should match the goods or services on the original invoice and/or the claim form. The original invoice should agree with the total being claimed for payment. We generally recommend that you do not pay aggregate "past due" amounts unless the original invoices are attached to support the amount claimed as past due.
     
  • Were the goods or services actually received?

    There should be documentation that confirms that the goods were received or services rendered, e.g., a receiving slip.7

    If the auditing body or official is satisfied that the claim is a legal obligation and proper charge against the local government or school district, the body or official may initial or sign each claim to indicate their approval. However, signing each claim form is not required by statute. If the governing board is the auditing authority, the minutes of the board meetings should reflect what claims have been audited and whether they were allowed or disallowed, in whole or in part. If another body or official is the auditing authority, then suitable records should be maintained to identify what claims have been audited and whether they were allowed or disallowed, in whole or in part.8 Generally, claims are required to be numbered consecutively. Even when not required by law, this is a good business practice.

    It is important that the auditing body or official’s authorization to pay claims is documented. This documentation is provided generally through preparation of an abstract of audited claims. An abstract is a listing of all claims audited and approved for payment. Minimum requirements for an abstract generally include the claim number, name of claimant, amount approved, fund and appropriation account chargeable. Abstracts can be prepared weekly, biweekly, bimonthly or monthly, depending on when claims are audited. Once prepared and executed, the abstract of audited claims should be forwarded to the disbursing officer. The exact procedures to be followed will vary depending on the specific applicable statute or charter provision.

    When a locality utilizes an integrated software program for accounting purposes, a document that contains all the information required to be included in an abstract may be produced through the purchasing or accounts payable function. This document may be provided for use as an abstract. Such a process could be a convenient method of producing the abstracts if all required information is presented. In those instances, the official designated to prepare the abstract should verify that all claims listed have been audited and approved for the amounts listed.

4 Article VIII, Section 1 of the New York State Constitution prohibits local governments and school districts from making gifts or loans of money or property to or in aid of any individual, or private corporation, association or undertaking.

5 Because it is not practical to present a sales tax exemption form for individual restaurant meals and it is not a common practice for restaurants to accept exemption forms, your local government or school district may consider sales tax as an actual and necessary expense incidental to the meal when incurred in connection with travel on official business.

6 For additional documentation requirements relating to the monetary thresholds and awards on the basis of "best value," see our Local Government Management Guide - Seeking Competition in Procurement.

7 The Town Law Section 118(1) requires that such claims be accompanied by a statement by the officer whose action gave rise or origin to the claim that he or she approves the claim and that the service was actually rendered or goods actually delivered.

8 The minutes should indicate the beginning and ending claims numbers approved for payment and the total amounts approved by fund.