Client Case Studies

Accounts Payable Audit - Entertainment Company

SCENARIO:
An entertainment company engaged CRS to provide a comprehensive recovery audit of its accounts payable (A/P) and sales/use tax departments. The company had grown through more than 60 mergers and acquisitions of smaller companies located in multiple states. The company was also under audit by the state of California for sales and use tax.

ACTION: 
CRS' consulting experts and the client's key personnel met to discuss the client's expectations for the audit. CRS analyzed the client's A/P processes and procedures by obtaining hard copy purchase documentation, an electronic download of its A/P history, and purchase order information. CRS compared the electronic data against the hard copy information to identify the client's feeding process so that custom queries could be created to identify more than 25 different types of payment irregularities. CRS exported, extracted, and filtered the data to generate reports that were used to identify overpayments in the data.

CRS then conducted a comprehensive manual audit wherein all underlying A/P documents were reviewed independent of the data. Our manual review resulted in the identification and recovery of overpayments not found within the data, including taxes overpaid to multiple states.

RESULTS: 
CRS' recovery audit reduced the client's state tax assessment by over $600,000 and yielded an additional $2.5 million in recovered monies. Additionally, CRS delivered recommendations designed to minimize future A/P overpayments and assisted the client with completion and delivery of exemption and resale certificates to reduce the overpayment of erroneous taxes.

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FedEx/UPS Small Package Audit - Clothing Retailer

SCENARIO:
With limited experience in the auditing of their small packages, the client needed a turn key solution for the recovery of late packages as well as the control of their small package logistic operations. Shipping was handled by one major carrier spread across over 50 accounts. CRS was engaged to deliver real cost savings to client and help control the annual spend on small package delivery and additional service charges including address correction and shipment delays.

ACTION: 
Gathering specific carrier account information weekly auditing was initiated. The examination of the client's small packages and service charges associated with each package resulted in immediate data for analysis and cost reductions.

RESULTS: 
The client discovered an immediate 4.6% reduction in carrier spend during the first quarter of the audit. To this day, client benefits from an average 3.7% savings across all carrier accounts. First year savings was over $60,000.

Additionally, the client benefited from CRS' control tools that are helping to further reduce their annual small package spend going forward.

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Heavy Freight Negotiations - Retail Clothing Manufacturer

SCENARIO:
With negotiated rates more than 3 years old, this CRS client was in the process of renegotiating their carrier contracts. Shipping volumes were divided between 3 major parcel carriers based primarily on service requirements. As all carriers offered minimal rate improvements in spite of the increase in business, CRS was engaged to alleviate the client's lack of carrier expertise, industry benchmarking information, and corporate resources by researching, evaluating, and negotiating the new carrier proposals.

ACTION: 
Gathering specific freight data, CRS examined the company's freight requirements and characteristics, and outlined a strategy to improve the client's carrier contracts. CRS developed and issued an RFP to carriers with instructions to provide proposals for retaining the existing business with a single-source solution. Detailed analysis of the client's characteristics and guidelines for structuring pricing contracts were delivered to all carriers. CRS then analyzed the final proposals for adherence to stated guidelines and evaluated projected performance based on cost and service. Final cost comparisons were provided to the client with CRS' recommendations for action.

RESULTS: 
The client awarded the contract to the incumbent carrier providing a single-source solution. On $4.9 million, the new proposal generated a 34% reduction in freight costs totaling $1.7 million in cost savings annually.

CRS continues the process of evaluating and establishing guidelines to help the client manage and monitor their freight program effectively.

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Utility Cost Management - National Envelope Manufacturer

SCENARIO:
A large paper manufacturer was in the process of expanding their operations and decided that this provided a good opportunity to review their power costs. They felt they had done everything they could operationally to reduce costs as they had implemented state-of-the-art technological process improvements, upgraded motors, upgraded heating, ventilation, air conditioning (HVAC), and hedged natural gas purchases by buying futures.

ACTION:
Billing histories and customer service records were gathered and a detailed audit was completed. Several key areas of interest were identified, including the evaluation of their utility service contracts. A detailed analysis determined that the tariffs for this client's rate structures had provisions for certain discounts and savings based on their utility consumption and energy trends.

CRS was able to shift their balance of purchased on-peak and off-peak power to a ratio that was more favorable to the client without their incurring any additional risk. In addition, CRS was able to take advantage of an enhanced version of the rate they were currently paying to increase savings by an additional 10%. Finally, since the company had backup generation, non-firm delivery was added without creating additional risk.

RESULTS:
In addition to the implementation of new rate structures and other billing adjustments, annual cost reductions for the client resulted in a total savings of over $680,000 with none of the changes resulting in any additional risk to the client. In addition, the client will continue benefiting from the cost savings in the future.

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Waste Management & Recycling - Automotive Parts Manufacturer

SCENARIO:
This regional manufacturer of automotive interior trim parts was awarded a large contract to make acoustic parts from a new raw material. The remnant material was causing excessive trips to the landfill and the client's waste-disposal budget skyrocketed. CRS was contracted to perform a comprehensive waste and recycling audit to determine areas for improvement. The client's project profitability was being eroded due to the unforeseen waste-disposal costs.

ACTION:
CRS was provided with waste-hauling invoices from the past several months, as well as contracts and receipts from existing hauling and recycling vendors. A detailed analysis of the paperwork revealed several things: (1) the client was being oversold by their hauling company, (2) recycling rebates were not accurate, and (3) the municipally run landfill was improperly assessing a "density tariff". CRS negotiated a new hauling service agreement to its specifications, located a new recycling vendor, and was able to adjust the density tariff to accurately reflect the client's situation.

RESULTS:
The client has effectively cut their solid waste-hauling and disposal costs by over $300,000. This represents a 62% cost reduction across the board from their previous spend. Recycling rebates are at a historical high, with the client receiving an increase in revenue of $24,000 per year — an increase of 700% from the previous years of activity. The client is looking to expand their engagement with CRS to include freight management and utility cost-reduction opportunities.

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Real Estate Lease Audit - Catholic University

SCENARIO:
A premier Catholic urban university located in New York City was concerned with the performance and compliance of its larger contractual obligations such as real estate leases, third party service providers and energy management services. The owners of the property successfully challenged the assessed value of the building in court ("Certiorari"), and tax refunds were issued. Service based contracts were implemented by the Landlord with third party vendors, after the establishment of the Operating Expense base year amount. Electricity consumption was based on a non metered basis, and subject to surveys provided by licensed electrical engineers and escalated by cost of living adjustments tied to specific economic indexes.

ACTION:
The Real Estate Tax refunds issued by the City of New York reduced the base tax amount and therefore increased the University's tax obligation for the remainder of the Lease term. The contract did not provide favorable language to address this issue. CRS had to establish the various components of the rent and taxes, and apply economic data to establish new rates. CRS had to calculate the costs of the new services taking into account the effect inflationary increases have had on the market rates and determine what the cost of the new third party vendor contracts would have been during the Operating Expense base year. CRS had to reconstruct the billing history of all electrical consumption and demand for the premises, apply the agreed upon cost of living adjustments to these audited quantities and determine the financial impact of the inaccurate billings. CRS had to research and determine the apparent intent of the parties to the original transactions and formulate models to reflect these objectives.

RESULTS:
Data was gathered and analyzed covering a seven-year occupancy period to determine actual costs. Arithmetic formulas were implemented to recalculate the correct allocation of the expenses. An agreement was negotiated and agreed to with the facility owner regarding the correct method of calculating expenses. A revised base operating expense amount was negotiated and agreed to by all parties. Rents were adjusted downward to compensate for the Certiorari decision. The client received a large cash settlement and continues to save money and maintain mutually beneficial relationships with the facility owner and third party vendors. The savings will be realized for the next 23 years.

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Cost Segregation Study - Office Building

SCENARIO:
A taxpayer owned an office building with a value of $5.5 million and placed it into service in 1999. Initially, $500,000 was identified as furniture and equipment, such as cubicles, phone system, security cameras, etc. The remaining $5 million in project costs was treated as 39-year property. A 41% federal and state tax rate and an 8% expected rate of return were assumed.

ACTION:
A Cost Segregation Study was completed, and the specialist found that 8% of the construction-related costs should have been classified to a 5-year depreciable life, 7% should have been classified to a 7-year depreciable life, and 12% should have been classified to a 15-year depreciable life.

RESULTS:
The Cost Segregation Study resulted in an increase of $808,250 in depreciation deductions for Year 1, translating to $331,382 in increased cash flow after tax. The net present value of these savings after tax was $261,574, and the benefit-to-cost ratio was 35 to 1.

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Healthcare Cost Control - Recreational Vehicle Manufacturer

SCENARIO:
Employing over 300,000 people worldwide and earning $32 billion in revenues, this company's domestic medical expenses exceeded $2,500 per employee. Although operations are located throughout the U.S., their Southwest location was hit with a "rent-a-patient" fraud scheme. During the audit, a series of contractual issues were noted and it was determined that out-of-network claims were funding a fraud scheme commonly targeted at employer benefit plans. The company utilized a third-party administrator (TPA) to process their claims. The TPA was not only unable to accurately connect members to the contracts associated with their specific network, but they also generated significant problems in payment accuracy in the area of contract compliance because their internal controls did not catch these fraudulent claims.

ACTION:
A comprehensive healthcare audit identified problems with duplicate payments, eligibility, and out-of-network benefits, with contract compliance isolated as the largest single area of inaccuracy. A focused audit isolated the claims associated with the rent-a-patient fraud scheme totaling $3.5 million during a 1-year time period. The rent-a-patient fraud scheme was submitted to the employer's fidelity crime policy.

RESULTS:
Roughly $1 million, or 5%, of total medical expenses were identified as overpaid during the comprehensive audit. Contractual changes were made to avoid these losses in the future. After a successful investigation and proper crime policy submission, the employer recovered 100% of the losses associated with the rent-a-patient scheme.

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