In any Accounts Payable department, you may run into open-ended purchase orders. Especially in a major healthcare system, open-ended purchase orders are problematic because they prevent ERP systems from identifying overpayments or flagging duplicate invoices for review.

Avoid these issues with open-ended purchase orders by putting effective purchasing controls in place and carefully processing each invoice by your system’s standard.

Open-Ended Purchase Orders Cause Overpayment for a Health System

During a recent audit, TAG worked with a large healthcare system to find overpayments and lost funds. We uncovered that the system had an open-ended purchase order with Johnson & Johnson, and the vendor issued multiple invoices in error. The system paid the erroneous invoices against the standing purchase order.

Where an individual set of purchase orders would have reached its limit in the ERP system and triggered the duplicate invoice to be sent to Purchasing for further review, the organization’s ERP system was unable to detect the multiple invoices. Because both invoices referenced the open-ended purchase order number, both invoices were approved by the system and paid in error.

The open-ended purchase order, combined with Johnson & Johnson’s mistake of triggering duplicate invoices for the same product, led to an $18,500 overpayment. The Audit Group contacted Johnson & Johnson on the organization’s behalf to recover the funds, and the vendor credited the full overpayment back to the healthcare system.

TAG’s Tips to Avoid Open-Ended Purchase Orders

• Discourage the use of blanket purchase orders as an organization
• Set a standard for detailed and specific purchase orders for all goods and services
• Encourage users to track submitted check requests and review monthly reports for duplicates or overpayments

With many moving parts and inter-working departments, large healthcare systems have complexities in Accounts Payable and Purchasing. The Audit Group can help to uncover lost funds and inefficiencies. But it doesn’t stop there – our group of experts in the healthcare space can help develop and implement processes to ensure your organization doesn’t leave money on the table in the future. Contact us to learn more or get started.