Just before Thanksgiving, a federal judge approved an $85 million class action settlement against Pilot Flying J, the largest truck stop chain in North America. The plaintiffs were 5,800 of Pilot’s customers who were defrauded of diesel rebates since as early as 2008.
During this period, a group of Pilot employees had systematically probed their customer base to see which companies were checking fuel invoices and the associated monthly rebates. The same Pilot employees also studied the threshold for error before a customer disputed a fuel rebate based on an agreed upon percentage of the monthly volume.
Pilot experienced a windfall in the millions from this practice. With additional lawsuits from companies that did not participate in the class action suit and criminal proceedings operating in parallel, the saga of Pilot Flying J’s rebate wrongdoing will continue well into 2014.
A bigger problem
On the surface, this scandal sounds like a rouge company set on doing bad things. While Pilot’s case may seem extreme, it is clear there is a systemic problem that allows this level of fraud to occur. Simply stated, bulk fuel invoices are frequently wrong and not reconciled properly for accuracy. In fact, companies have approached FuelQuest to help remedy error rates as high as 55%. On average, FuelQuest sees 25% of invoices as incorrect in a material way industry-wide. The reason for error is not always due to malicious behavior though, but often due to human or system error.
Is this a problem isolated to fuel retail? The answer is no. Any bulk fuel buyer is at risk. Fuel is an expensive asset and if opportunities exist to commit fraud successfully, there will always be companies or individuals willing to do so.
Fuel invoicing is also hard to get right. Fuel and freight costs are often based on complicated contracts with varying terms. Taxes are also highly complex with jurisdictional variability that is often missed, especially with the frequency in which these taxes change.
The concrete industry suffers from the same issues, which is why Pilot Flying J is an appropriate cautionary tale. Buying fuel at the lowest possible price is already difficult in volatile fuel markets that suffer price swings of 3, 5, and 10 cents or more in a day, or 44.5%, 21.6%, and 3.6% of the time, respectively. With diesel prices over $3 per gallon and tanker trucks delivering $30,000 of fuel at a time, unreconciled or improperly reconciled invoices make managing fuel expenses difficult. Fortunately, companies can take steps to gain control over these large outlays:
1) Benchmark: Before making operational improvements, it is critical to understand whether the problem even exists, to what extent it impacts the business, and with which suppliers is it most prevalent. Third-party companies provide benchmarking services that provide this analysis. With a benchmark in place, a targeted plan can begin to address the most costly invoicing issues. A benchmark also gives a baseline so that companies can measure the progress of operational improvement efforts.
2) Goal Setting: Rome was not built in a day and nor is a best practice-driven invoice reconciliation process. Companies can achieve auto-approval rates for invoices as high as 90% with error thresholds of $1-$15 per invoice. Getting to this level takes time and requires working with suppliers to correct issues, but it is certainly achievable.
3) Automation: At volume, reconciling every invoice strains resources when relying on manual processes. Automation or outsourced reconciliation services allow companies to establish aggressive payment approval goals and manage suppliers for improved invoice accuracy without adding headcount. Such automation is not easily found in back-office software, as fuel and freight contracts and fuel tax determination are not always online and available within a back-office.
Boom to bust
Concrete producers must prepare for any boom in construction or they may see it turn to bust. Although more accurate invoice reconciliation may seem a small part of operational preparedness, it is the watchdog for significant outlays of money where the retail industry has shown overpayments can become common and go unchecked for years. Achieving necessary control is not easy and requires engaging fuel invoice reconciliation expertise, but the payoff can directly impact the bottom line.
David Zahn is vice president of marketing for FuelQuest. For more, visit www.fuelquest.com.