Payments to Individuals for Services – (G forms replacement) – Process Improvement Project

1. Payments to Individuals for Services – (G forms replacement) – Process Improvement Project Project Update Joint Financial/HRMS UL Meeting December 15, 2006

2. Agenda • Overview • Project charge and team • Accomplishments to date • Proposed implementation approach • Next steps • Discussion / questions

3. Overview • ‘G forms’ (G/G1/G2/GQ) are currently used to process special payments to individuals • See appendix I • Approximately 16,000 payments totaling over $25 million in FY 2006 • Central approval and processing performed by HR, Payroll and Office of Contract Administration (OCA) • Payments made from Payroll and AP systems

4. What’s Wrong with the Current ‘G Forms’ Process for Non-Employees? Units can select to pay non-employees through either purchase order process or through ‘G Forms’ resulting in: • Inconsistent controls depending on process that user selects to pay non-employee individuals for services • ‘G Forms’ process generally bypasses the following controls: • Conflict of interest requirements • High dollar value (> $5000) competitive bid processing requirements OR sole source justifications requirements • Personal services contract requirements • W-9 vendor certification form requirements • Purchasing process bypasses the following controls: • Verification of working relationship status (form GQ type information not currently used in purchasing) • Check for non-resident alien status and proper withholding treatment • Confusing to users as to appropriate pay approach • Process and form names not intuitive to end users • Unclear to some end users which payment option to choose • Process inefficiencies exist (ie. OCA review of G2 requests)

5. What’s Wrong with Current ‘G Forms’ Process for Employees Units can select to pay employees for additional services performed through either an additional appointment or through ‘G Forms’ if they are exempt employees resulting in: • Possible misuse of employee employment arrangements • Used to bypass obligation to pay retirement contribution • No pre-approval of salary payments by department, other employing unit,… • Makes it difficult to track total effort and total pay of individuals • Confusing to users as to appropriate pay approach • Process and form names not intuitive to end users • Unclear to some end users which payment option to choose • Process inefficiencies exist (ie. OCA review of G2 requests)

6. Project Charge and Team • Charge • Eliminate various ‘G Form’ uses by integrating into existing processes to pay individuals for services and incorporate full set of controls in new integrated process. • Team began meeting in March, 2006 on a bi-weekly basis • Team members: • Lori Burger - College of Engineering • Brent Dickman – Law School • Deborah Erskine – College of LSA • Janet Finfrock – School of Public Health • Jeanette Frost – Procurement • Debra Komorowski – School of Medicine • Eric Kruse – Chair – Financial Operations • Susan MacDavitt – HRRIS, HR/AA • Jennifer Mitts – Compensation/Classification, HR/AA • Jim Murdock / Shane Fortune– School of Business • Jim Ollar – University Audits • Dorothy Russell / Kurt Rigg – Institute for Social Research • Norel Tullier – Financial Operations Payroll Office

7. Accomplishments to Date • Developed a plan to simplify the payment process for individuals by replacing the G forms/processes with a web-based tool focused on types of transactions • Reviewed current processes and gaps • Assessed current system capabilities and options • Develop proposed future processes and system requirements • Identified procedure and policy considerations • Drafted redesigned forms to support new processes • Drafted revised employee / independent contractor criteria (form GQ replacement) • Developed proposed implementation approach and plan

8. Proposed Implementation Approach • Phase 1 • Develop a web based “Wizard” application to guide users to the appropriate method for all payments to individuals • Single consistent process with appropriate controls • “G forms” replaced by specific information and support requirements for specific payment purposes • Includes updated employee / independent contractor relationships criteria (form GQ replacement) to increase compliance with IRS guidelines • (see attached process flow document) • Change to payment processing • Payments for non-employee relationship payments to US citizens processed in purchasing department / system • Payments for employee relationship payments and non-US citizens processed in payroll department / system • Utilize Additional Pay functionality within the HRMS system for payments to employees • Use a phased roll-out approach that will allow for initial testing/tweaking of new system and processes with a smaller user group before full university wide roll-out • Initial roll-out currently targeted for June 2007 • Phase 2 • Identify opportunities for further process/policy changes and integration with appropriate workflow, HRMS and Financials systems (reduce need for paper forms and routing)

10. Next Steps • Finalize implementation approach and timeline, and identify appropriate resources • Secure decisions on identified policy and procedure items • Finalize detailed designs for business logic, application, processes and forms • Develop change management plan • Build and test new application and processes • Conduct phased roll-out

11. Policy and Procedure Items for Consideration Include… • Types of payments are allowed to be exempt from retirement contributions including retirement contributions for Continuing Education instructors • Conflict of interest rules and procedures for payments to individuals • Sole source/non-competitive bid requirements and process • E.g. $5,000 threshold for requiring bid or sole source justification • Rules for employee vs. non-employee classification criteria (form GQ replacement) • E.g. employee status for teaching non-credit courses

12. Operational Considerations – Earnings Codes and GL Account Values

13. Feedback Needed • Review new draft forms and provide input to Norel (norel@umich.edu) – (sent as email attachments) • Preferences for GL account codes • Use one of the existing codes for non-employee payments, or • Create a new code • Preferences for Earnings Code • Continue to use one code (replacing FGE), or • Create several new codes based on type of payment • Volunteers for departments to participate in initial rollout (currently planned for June ’07)

14. Discussion / Questions

15. AppendixCurrent ‘G Forms’ and Uses • Form G – Used for special compensation provided by eligible staff and non-staff for a nonrecurring service they have performed for a department. It is also used to reimburse moving expenses, royalty payments category II Risk payments, awards and honoraria. This form is not used for businesses or persons using a tax I.D. number. See SPG 201.85 for details. • Form G2 – Used for payment to non-university employees engaged as independent consultants and is handled by the office of Contract Administration. Used for recurring payments. For individuals who are not U.S. citizens, payments must be requested on either the form G or the Form G-2. See SPG 201.86 for details • Form GQ – Used in conjunction with a Form G-2 or a Form G, when paying a non-employee and not submitting an I-9. This form assists the University in determining whether the individual performing the services will be classified for federal, state and FICA tax purposes as an employee of the University or as an independent contractor • Form G1 – Used to facilitate request for payment to multiple individuals, all of whom must be US citizens and not members of the University staff of faculty. See SPG 201.85 for details.