Seal Off Your Profit Leaks Using Profit Leakage Analytics and Insights June 2016 1
PRESENTER Bonnie Dallum Director Consulting Bonnie has performed auditing, compliance, and analytics engagements since 1992. Her background includes business intelligence and analytics, including leading data warehouse and report development, and she has a deep knowledge of data mining, analytics, data visualization, and predictive insights technologies. Colin Wallace, CPA, CISA, CIA, CFE Director Consulting Colin has provided management consulting and internal audit services to public, private, government, and not-for-profit organizations since 2002. He has organized and performed financial, operational, and compliance audits throughout the United States and abroad, and he has worked on all aspects of the internal audit process, including planning, analysis, reporting, and project management. 2
SEAL OFF YOUR PROFIT LEAKS 3
AGENDA Define profit leakage Understand contributing factors Identify high risk areas Quantify the problem Determine root causes and solutions Develop continuous monitoring Client stories 4
WHAT IS PROFIT LEAKAGE? 5
PROFIT LEAKAGE Unnecessarily high expenses Amount of money going out the back door that is not genuine expenditure Result of one or many operating inefficiencies Direct versus indirect expenses Lost monies that impact your bottom line 6
CONTRIBUTING FACTORS 7
UNDERSTANDING CONTRIBUTING FACTORS Increasing expenses and write-offs Weak segregation of duties / approval process Multifaceted organizational structure New system conversion Recent acquisition or merger Inefficient or manual procure-to-pay (P2P) process Complex system environment Suspicious transactions or journal entries 8
HIGH RISK AREAS 9
IDENTIFY HIGH RISK AREAS 10
IDENTIFY HIGH RISK AREAS Duplicate payments Fraudulent vendors Early payments Missed discounts Contract noncompliance Late collections Inaccurate claims processing 11
QUANTIFY THE PROBLEM 12
QUANTIFY THE PROBLEM Complex data structure Several source systems and databases Large data sets Varying data formats Examine data streams and systems Leverage proprietary data mining and advanced analytic tools Focus on specific variables to test 13
DETERMINE ROOT CAUSES AND SOLUTIONS 14
DETERMINE ROOT CAUSES AND SOLUTIONS Evaluate trends, patterns and outliers Investigate questionable areas further Compare back to policy and standards Determine solutions for operations and/or systems 15
CONTINUOUS MONITORING 16
DEVELOP CONTINUOUS MONITORING Continuously monitor operating effectiveness or compliance with regular frequency Daily, weekly, monthly, quarterly, annually In-house automated solution 17
DUPLICATE PAYMENTS Client Stories 18
DUPLICATE PAYMENTS Situation o Mid-size corporation with multiple locations o Decentralized disbursement systems o Weak controls over input, approval, and payment of expenditures o Couldn t explain why expenses were increasing Risk o Significant erroneous or fraudulent payments Results o Identified nearly $400K in recoverable duplicate payments o Ineffective processes and controls identified and reported as contributing factors to duplicate payments 19
FRAUDULENT VENDORS Client Stories 20
FRAUDULENT VENDORS Situation o Mid-size corporation with multiple locations o Decentralized disbursement systems o Weak controls over input, approval, and payment of expenditures o Found a couple of examples but feared the problem was much larger Risk o Significant erroneous or fraudulent payments Results o Identified 44 instances where the vendor linked to a current employee o Identified 700 instances of potential duplicate vendors with similar names and/or addresses but different vendor numbers 21
EARLY PAYMENTS Client Stories 22
EARLY PAYMENTS Situation o Large corporation with thousands of vendors and $2B expense portfolio o Several systems used in P2P process; complex environment o No automated process for paying within established terms; manual disbursement process Risk o Loss of time value of money if paying vendors earlier than established contract terms Results o Identified $3-5M opportunity to make payments closer to terms or renegotiate contract for 45-60 day payment timeline 23
MISSED DISCOUNTS Client Stories 24
MISSED DISCOUNTS Situation o Mid-size corporation with multiple locations o Decentralized disbursement systems o Employees not fully trained in clearing SAP transactions o No one was monitoring discounts offered and realized Risk o Loss of savings by missing vendor discount opportunities Results o Identified items over 90 days outstanding o Compared back to actual contract terms o Missed discount opportunities totaled $145K for the 12-month period 25
CONTRACT NONCOMPLIANCE Client Stories 26
CONTRACT NONCOMPLIANCE Situation o Large corporation with thousands of vendors and $2B expense portfolio o Several systems used in P2P process; complex environment o Maximo, Ariba, SAP, and Excel spreadsheets o Team was manually checking line items for compliance Risk o Vendor pricing entered into the system did not match negotiated terms in the contract Results o Identified $320K where vendor pricing was above the actual negotiated terms in the contract 27
Q & A Questions? Bonnie Dallum, Director bonnie.dallum@mossadams.com (415) 677-8303 Colin Wallace, Director colin.wallace@mossadams.com (503) 478-2185 28