Some State Agencies Behind By Months And Millions In Vendor Payments

State agencies work with hundreds of independent vendors and contractors. Those vendors submit invoices for payment of work or services performed. 

Recently state lawmakers learned that some agencies pay more quickly than others, what they owe, and how that adversely affects private businesses and a taxpayer funded government. . 

The State Auditor’s Office is the payment processor for the state. In recent testimony before the interim legislative Joint Committee on Finance, Deputy State Auditor Anthony Woods spoke about issues involving state agencies that experience delays in paying state vendors. The session contrasted finances with the Division of Highways and The Department of Health and Human resources.

Auditor records show that in 2022, the DOH had more than $1 billion in invoiced work. The agency took more than 90 days to pay more than $50 million of those invoices – it took more than a year to pay $2.5 million. Woods said the DOH has greatly improved making timely payments after working with an auditor’s team on efficient invoice processing.

“Say we know that these payments have been sitting out there a while,” Woods said. “We can move that ahead of all the other payments in line. Typically, we process payments on a first in, first out basis. But when there are delayed invoices or things that are urgent and priority, we can bump those to the front.”

Bryan Hoylman is president and CEO of Associated Builders and Contractors of West Virginia. Hoylman said his 200 or so commercial and industrial construction company members do a sizable amount of work with the state of West Virginia, especially with the DOH. He said the more than $200 million in DOH invoices paid after 45 days hurts a company’s bottom line.

“When you perform a job and six months, eight months go by and you’re owed a half a million dollars and you’re working on additional projects, cash flow can become a very serious issue,’ Hoylman said. “Issues that have caused a number of problems where you have to lean on lines of credit. It’s just very frustrating when it’s the state that is letting the projects. These are taxpayer funds.”

Woods told the committee the Auditor’s office gets a lot of vendor invoice contact concerning the Department of Health and Human Resources.

The Auditor’s records show in 2022, DHHR had more than $857 million in invoiced work or services performed and more than $187 million was paid in more than 90 days’ time. Woods said DHHR has a lot of steps in the invoice payment process.

“At DOH there might be two or three folks who need to review that invoice and sign off on it but DHHR has more decentralization in some areas, particularly their finance functions,” Woods said.

Woods was asked by Senate Finance Committee Chair Eric Tarr, a Republican from Putnam County, about the scope of DHHR delinquent payments. He began by contrasting with DOH.

“If I recall, when we were working on some of this for the Prompt Pay Act, they (DHHR) had about 3,000 or 4000 invoices during this same time frame that were paid greater than a year,” Woods said. 

In a response statement, DHHR said it understands the problem and hardships caused. 

“The West Virginia Department of Health and Human Resources (DHHR) understands the importance of paying invoices timely and the hardship delayed payments can cause for entities relying upon payments to fund operational costs,” the statement reads. “DHHR is committed to streamlining processes where possible while maintaining accountability.  Delays can result from many factors, such as delayed receipt of funding, delayed receipt of invoices, requests for needed corrections by vendors, and requests for supplemental documentation to ensure compliance with State of West Virginia invoicing policies.  While the number of invoices noted is significant, it represents 3% of the invoices for that time period.  According to the data for that time period, 80% of invoices received were paid within 90 days.”

State Auditor J.B. McCuskey said his office has streamlined a large portion of invoice processing, with a turnaround time of about three business days. McCuskey said when invoices aren’t received in a timely manner, like those from DHHR, the public suffers.  

“It keeps the money that is owed to West Virginia businesses, small businesses, and vendors in the hands of the government, as opposed to into the hands of businesses and nonprofits,” McCuskey said. “Companies who would either redeploy that capital in growing their business and paying their employees or doing the very important work that our various nonprofits do on behalf of the state and for the state taxpayers.”

McCuskey said non-profit vendors are jeopardized by late state agency payments. 

“Many are grant agencies, so they are granted this money,” he said. “However, they’re paid in reimbursements. They have to manage their cash flow based on how frequently the state government can pay them. And very frequently, they are forced to open lines of credit to ensure their operating revenue. And those lines of credit aren’t free.”

During the recently ended legislative session, the Auditor’s office put forward a bill that would penalize agencies that were slow to pay their invoices. Senate Bill 436, the Prompt Payment Act of 2023, died in the House Finance Committee. The bill would impose interest to agencies 45 days from the submission by vendors of proper invoices. The interest would be paid from the agency to the vendor, with the goal of getting agencies to process their invoices faster. Hoylman said bill passage would have made a big difference.

“It would allow our contractors to know that we’re going to have payment in a designated time frame based on the statute,” Hoylman said. “If not, there would be at least some interest to offset the issues that are caused by having hundreds of thousands of dollars in certain cases, lay out there for six, eight months, sometimes over a year.”

Woods said the auditor’s office is working with numerous vendors, stakeholders and state agencies to identify process improvements.