ISSUE: An equipment rental company was excessively charging its client by misapplying the rental period for the rented equipment.

FINDINGS: Herrod & Associates reviewed all aspects of equipment rental, including rental rates and rental duration. In the review, it was observed that the equipment rental company was invoicing its client using a flat daily equipment rate which resulted in duplicate daily charges for equipment when it was returned from service and placed in service on the same day.

FINANCIAL IMPACT: Misapplied rental periods resulted in approximately $345,000 in overcharges over a two year period.

SOLUTION: This resulted in recovery claims of approximately $345,000. Herrod & Associates recommended that contract language be written to support the position that rental equipment be invoiced based on a 24 hour period, thus eliminating the overcharging of rental equipment due the use of a flat daily rate.

ISSUE: An equipment rental company continued to invoice its client for long term equipment rental when the cumulative rental charges exceeded the appraised value of the equipment.

FINDINGS: Herrod & Associates reviewed all aspects of equipment rental, including rental rates and rental duration. In the review, it was observed that the equipment rental company was invoicing its client for long term equipment rental even after the equipment’s appraised value was met or exceeded.

FINANCIAL IMPACT: Excessive cumulative rental charges resulted in approximately $475,000 in overcharges over a two year period.

SOLUTION: This resulted in recovery claims of approximately $475000 in two years, will result in over $2.4 million in 10 years. Herrod & Associates recommended that contract language be written to support the position that continuous rental equipment charges be invoiced up to and not to exceed the appraised value of the equipment. For the rental period after meeting the appraisal value, a fee of 8% is accessed to cover the maintenance of the equipment.

ISSUE: A refinery inspection company applied an exaggerated payroll tax withholding rate in determining its billable labor rates.

FINDINGS: Herrod & Associates reviewed all aspects of invoiced labor, including labor rate build up calculations and applied cost adders. In the review, it was observed that the inspection company had applied excessive SUI/FUI withholding rates to its invoiced labor resulting in a large overpayment of the payroll tax burden.

FINANCIAL IMPACT: Excessive cumulative rental charges resulted in approximately $845,000 in overcharges over a two year period.

SOLUTION: This resulted in recovery claims of approximately $845,000. Herrod & Associates recommended that contract language be written to support the position that payroll tax withholding rates be reviewed annually and adjusted to reflect past payroll tax withholding rate experience levels to avoid excessive over or underpayment of the annual payroll tax burden. The audit firm also recommended that the client’s tax group review the payroll tax for each supplier with significant labor at the end of each year to ensure that this tax overpayment is recovered by the client’s own employees each year and not as a re-occurring audit finding.

ISSUE: A refinery MRO supplier was incorrectly invoicing pipe, values, and fitting due to unit of measure, quantity and incorrect use of contractual pricing terms and conditions.

FINDINGS: Herrod & Associates reviewed all aspects of the multi-year contractual terms and conditions and analyzed every item for correct price, quantity, and unit of measure. A complete diagnostic review of the supplier’s invoicing of millions of line items pipe, valve, and fitting sales to oil & gas refiner over a two year period compared the pricing against list price less discount from pricing manuals and contractual price sheets. Total billing to the client was in excess of $80 million per year. When the audit was completed, the auditors had identified, validated and received agreement on over $4 million dollars in overcharges due to pricing, unit of measure, or quantity issues. The supplier’s invoice prices were based on cost plus and client required items to be listed in a price sheet. Suppliers cost changed drastically over the 2 years due to cost increases and decreases. Supplier had trouble correctly updating the contract with prices, UOM, and quantities. Client also had difficulty in issuing all the change orders due to pricing issues. Due to these issues the audit firmed identified thousands of invoiced lines of overcharges and undercharges.

FINANCIAL IMPACT: The net result was a $4.1 million in overcharges of pipe, valves, and fittings over the two year contract period.

SOLUTION: The immediate result was a recovery claim of $4.1 million. Herrod & Associates recommended that contract language be written to simplify the pricing model to a cost plus of all items supplied by the vendor. This reduced the amount of pricing errors, simplified the invoicing process and since the supplier was attempting to attain a cost plus 12% which was acceptable to the client anyway, the client actually realized long tern savings of millions a year over the next several years