Auditing Collection Partners
Katie Hebeisen, Communications Specialist
Public Description: Asset buyers should develop a formalized process to audit collection vendor partners.
Many asset buyers outsource their collections to a third-party collection agency or collection law firm. But how do buyers know if an agency or law firm is the right fit for their business?
"It's a good idea to investigate third-party collection vendors that are collecting on your accounts," said Thom Majka, project manager of DebtNextSolutions, LLC in Copley, Ohio.
One way to investigate a third-party vendor is to conduct an onsite audit. During ACA International's Fall Forum session, Outsourcing Collections: Compliance and Auditing Collection Agencies,
presenters from the agency and auditing side shared their unique perspective of how the auditing process works.
The Pre-Audit Questionnaire
Before outsourcing accounts to third-party vendors, asset buyers should question the collection vendors regarding how they will be handling the buyers' accounts.
"It's not what you expect, it's what you inspect," Majka, said. "We want to highlight the strengths of a vendor, pinpoint some weaknesses and grow revenues for everybody."
A pre-audit questionnaire should be included in the audit process. The pre-audit questionnaire is a high level overview of the operational process; accounting and receipts; and security and compliance practices of the vendor. The questionnaire is used to ensure the collection vendor complies with the terms and conditions of the client agreement.
Some common questions and areas covered on the pre-audit questionnaire are:
- What states are you licensed to collect in?
- Describe your training on the Fair Debt Collection Practices Act (FDCPA), state laws, data privacy/security awareness expectations.
- What is your record retention policy?
- What is your process for employee screening?
- What do you feel your firm's strengths are? (account type, geographic area, client type, balance size)
- Does your firm have a formal disaster recovery plan?
"It is important to get a feel for a vendor's strengths and weaknesses," Majka said.
Information from the questionnaire is then taken and shared with the asset buyer to determine whether they should start conducting business with the collection agency or law firm.
People, Systems and Processes
One way to conduct an audit is to evaluate a vendor's people, systems and processes (PSP).
"Weaknesses are either from people, systems or processes," Majka said. "The audit process should explain why a vendor has the best people, systems and processes."
If a collection agency or law firm has a successful month, or if its performance is lacking, it is important to pinpoint why. "Why did we have a bad month?" "What can we do to correct it?" If the collection agency evaluates the agency's PSP, it will give them a good idea of where things went wrong and what can be done to fix them.
In order to take a look at how a client's "people" are doing, it's important to see who the people are. This involves going through the company's internal training and monitoring processes: How do you train your people? What is the curriculum? How do you monitor your collectors?
"We put a lot of emphasis on internal training and monitoring," Majka said.
Nancy Lundeen, vice president of compliance at Northland Group in Minneapolis, Minn., trains her collectors when they are hired and annually to ensure they have proper compliance knowledge. Ensuring compliance materials are current and collectors are being monitored for compliance can help safeguard the collectors and asset buyers from unwanted legal action.
It is also important to evaluate systems of the collection agency and law firm when conducting an audit. When checking a vendor's systems, auditors look at the security systems the vendor has in place.
According to Lundeen, when auditors arrive on site, they take a tour of the facility and look at the physical security of the company. Is everyone wearing their identity badge? Are there security cameras in place? Is there limited access to where computers are stored? Auditors also inspect the data security of a facility by asking for the policies and procedures, looking into the systems and testing the firewall.
"It's important to know what you are doing with your data and how you're storing it and destroying it," Lundeen said.
Evaluating the vendor's accounting process from start (when the vendor first receives the file) to finish (when the payment final is posted) is also recommended. A process check is also essential to ensure that the operation of general collection procedures is in compliance with the FDCPA. A collection agency or law firm that has processes and procedures in place to update changing laws and regulations can help mitigate liability.
"We have found ACA's state collection laws and practice guides are very helpful," said Lundeen. "They send us updates quarterly and we review those updates and make sure that, if the updates affect us, changes are implemented in a timely manner."
In addition to the FDCPA and changes in laws and regulations, vendors may change other aspects of their businesses.
According to Majka, in the current economy, collection agencies and law firms may need to cut back and make changes to their dialer and mailing campaigns, staff, or other items in the original client contract.
Asset buyers should anticipate these changes may occur; however, they should also expect that collection vendor partners communicate any updates regarding the changes back to the asset buyer.
"Collection vendors need to call clients to let them know when changes occur," Majkasaid.
Audit Recommendations, Recap and Summary
At the end of the audit process asset buyers and vendors will have the opportunity to assess the audit findings, interpret the results and ask questions. The auditor will point out strong points and areas of weakness within the vendor. The summary will also discuss any previous audit findings to make sure the collection vendor followed up on their plan to fix any prior problems.
"The meeting is a very comprehensive, thorough and to the point description of the agency's strengths and areas of improvement," Majka said. "It should be an action plan for improvement."
When placing their accounts with various collection agencies and law firms, asset buyers want to ensure the vendor does quality, honest and safe work.
Having an audit program in place for outsourcing accounts proves to be an effective way for both sides of the industry to conduct business. The asset buyers know their portfolios are in good hands and any updates will be thoroughly communicated to them and the collection agencies are able to successfully collect debts by keeping their systems and processes compliant and updated.
"You're trusting millions of dollars with your outside collection vendors," said Majka. "Why wouldn't you want to develop a formal program to ensure they're protecting your best interest?"
© 2012 ACA International. All Rights Reserved. Reprinted with the express written permission of ACA International.
DebtNext Solutions, LLC Joins TECnet™
TECnet Network Expands Integration of DebtNext Account Management Solutions
Copley, OH, July 15, 2011 - DebtNext Solutions, LLC, a leading software and solutions provider for the accounts receivables management industry, has selected TEC Services Group's TECnet Network to extend its solution integrations with the Accounts Receivable and Legal Collections markets. The TECnet Network provides DebtNext with seamless, on-demand data integration capability with thousands of collection agencies and law firms, enabling them to integrate with customers more quickly, efficiently, and with greater flexibility.
The TECnet Network
is a single source, web-delivered, integration solution that facilitates data exchange between solution providers and collection organizations (creditors, debt buyers, collection agencies and law firms). Eliminating the data exchange problem increases customers' access to a greater number of data driven products and services, and reduces current dependencies on everyone's IT resources to deliver and receive those services.
"TEC has been working with collection agencies and law firms for over a decade and we've helped over 150 organizations improve their collection performance through technology and operational optimization. As a result, we have a unique perspective on which technology solutions really improve collection performance." said Tom Sweat President of TEC Services Group. "We believe, DebtNext offers a comprehensive platform to evaluate, manage, sell and support charged-off receivables and we are honored to have them as a member of our TECnet Network.
"We are excited about our relationship with TEC Services Group. The TECnet Network dramatically multiplies our internal capabilities to reach customers", said Paul Goske, President of DebtNext. "TEC Services Group's demonstrated ability to overcome data exchange challenges and provides us with a solid alternative to offer our clients. Their TECnet Network enables us to better serve customers, on-board new customers more quickly, and reach entire markets more efficiently."
About TEC Solutions Group
TEC Services Group has been providing "real world" technology and operational consulting to the Accounts Receivable and Debt Collection industries for more than ten years. With experience that comes from the field, the staff at TEC Services Group truly knows the meaning of "real world." They have assisted scores of collection organizations with services and projects to improve efficiencies and increase recoveries through the usage of systems and best practices. For more information, visit www.tecsg.com
DebtNext Solutions provides applications that encompass the entire life cycle of charged-off accounts. From analysis of potential purchase files, management of accounts placed with third party agencies and law firms, to the handling of post-sale support document requests, our solutions are designed to meet the business process needs of our clients. Solutions developed by the DebtNext team have been utilized by many of the world's largest financial institutions, utility companies, and debt buyers as a secure and efficient way to analyze, manage and sell their charged-off portfolios. For more information, visit www.debtnext.com or call 330.665.0400.