BI Forum 2012 - Continuous Monitoring for Risk & Performance
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BI Forum 2012 - Continuous Monitoring for Risk & Performance Presentation Transcript

  • 1. Continuous Monitoring for Risk & Performance Finance perspective Jan Hurda - Consider Solutions 15th November 2012© 2012 Consider Solutions All rights reserved. Do not distribute without permission
  • 2. Agenda• Introduction• Risk & Control – Prevention & Detection• Specific Exception Analytic Examples• Critical Success Factors• Questions© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 3. The CFO Office . . .• World Class Finance – Leading companies’ finance functions cost approaches 0.5% of revenue • Stewardship & Reporting • Accounting & Finance Operations • Business & Management Support• Four Pillars of Financial Management: – Efficiency: continually improve process efficiency, speed, and quality – Effectiveness: deliver expertise in financial stewardship and risk management – Relevance: provide analytical support that decision-makers need – Influence: proactively drive the business toward superior outcomes• Risk and Performance Courtesy: Hackett Group, CIMA/CGMA, CFO magazine © 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 4. Prevention & Detection© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 5. But it’s not ‘Big Brother’• We live in a complex fast-moving business world• We have global processes and organizations• We have integrated systems• No one person sees the end to end process in detail• Mistakes, errors & misunderstandings happen• Identifying, understanding, diagnosing and improving is what management is about• Judgement still matters© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 6. Exceptions impact risk ANDperformance Processes are ignored Policies cannot be cost-effectively or circumvented enforced What is supposed to happen? What actually does happen? Performance Impact Fraud & Inappropriate Inaccurate Unnecessary Transaction Audit/Compliance Waste Payments Financials Risk Costs Costs© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 7. Systems, Controls & Risk• We invest heavily in commons systems to drive: – Process standardisation – Business efficiency – Economies of scale• But do we get . . . – A standard business process? OR – A standard data input process?© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 8. Standardized processcontrolERP is configured to only allow GR if PO exists, however… 1. Truck drops off shipment, but no PO exists 2. Warehouse worker calls up purchasing to create a PO 3. GR is created against PO“The myth of automated controls in systems”© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 9. Multiple Dimensions• What to Monitor & Why?• If exceptions are found who needs to know? Who owns it? Who will do something about it?• What are the exception criteria?• What information do we need to identify and describe exceptions?• Any scenarios to exclude?• How to present and deliver results in meaningful way?• How often to monitor and what periods to monitor?• What actions to take?© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 10. What to Monitor• Inputs ... – Finance Management Consultation • What are finance leadership concerned about in context of financial processes • Where is there limited visibility? • What data is needed to drive continuous improvement? – Industry Benchmarks & Best Practice • e.g. error rates ... • Duplicate invoices / duplicate payments – 0.1 to 0.5% of annual invoice payments – Regulation • What must / must not happen within our business and processes to ensure compliance with prevailing regulations© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 11. What to Monitor• Compliance – e.g., Suspicious or proscribed payments (FCPA/OFAC)• Risk – e.g., Unbilled Revenue – Duplicate Payments – Payment to One Time Suppliers• Performance – Driving simplification & standardisation – e.g., Ensuring agreed payment terms are used – payment periods / discount terms© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 12. Examples ...Procurement: – Duplicate Payments Sales: – Goods delivered without a PO – Price Reductions – Non-standard payment terms – Undelivered orders – Invoice value greater than goods received – Exceptional customer credits/returns – Duplicate Invoices – Payment termsFixed Assets: Travel Expenses: – Inappropriate asset depreciation – Duplicate claims periods – Ineligible items claims – Misclassified capital equipment General Ledger: – JE postings into prior periods already closed – Unusually large JEs – Manual payments © 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 13. Exception Criteria? Example• Example: – Procurement: Non Standard Payment Terms – Business Criteria: • Identify any Purchase Orders where the Payment Terms used are not the standard payment terms agreed with the vendor. – Business Rationale: • Purchase orders that do not follow agreed terms can have an adverse affect on cash outflow and working capital. May also lead to problems with vendor relationships and corporate image and reputation. Excessively short payment terms may indicate potentially inappropriate relationships. Excessively long terms may indicate future period commitments. Lack of standardization impacts cost of finance function© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 14. Exception Criteria? Example• Example: – Procurement: Invoice greater than Goods Received – Business Criteria: • Invoice quantity greater than goods receipt quantity means the vendor has over billed which may lead to excess payments and cash flow issues. – Business Rationale: • Prevent excess inventory carrying cost and reduce 3- way matching errors by monitoring cases where Goods Receipt quantity is greater than Invoice Receipt quantity.© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 15. Exception Criteria? Example• Example: – Procurement: Duplicate Invoices – Business Criteria: • Duplicate invoices may result in inflated purchases or excess payments to vendor. Such invoices may lead to financial losses and affect cash outflow and working capital. – Business Rationale: • To ensure that Invoice is recorded only once to avoid duplicate payments or inflated purchases.© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 16. Priorities – Value at Stake Europe Europe Americas Americas Asia Asia MEA MEA Europe Americas Europe Asia Americas Asia© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 17. Exceptions, Root Causes &Actions• Is an Exception ... & indicates failure of process or control. Review process / policy/ control / training to address risk. Continue to monitor.• Is an Exception ... & indicates inappropriate activity. Take remedial action. Continue to monitor.• Is an Exception ... & indicates human error. Review integrity checks / training needs. Continue ...• Is NOT a material Exception. Review / modify exception / exclusion criteria to exclude given scenario(s).© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 18. CM Best Practices• A clear business objective• Start simple with a narrow path scope• Prioritize based on impact and relevance• Iterative refinement of process and scope. define ... analyze ... learn ... review ... refine ... extend.• Review current practices at all stages. Is there a better way, can we re-engineer our thinking?• Take the opportunity to engage & connect to help drive partnership with your business units• Focus on performance improvement opportunities as well as risk assurance• Embed exception thinking in the organization© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 19. Balanced Skillsets Required• Business process understanding & analysis• Business risk and performance facilitation• Data and system process knowledge• Technical data filtering & analysis skills• CM technology understanding• Business rules/filter logical design skills• Business analysis of exception impact• Diagnosis & root cause analysis• Continuous improvement/change management© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 20. Critical Success Factors:Speed & Results• Continuous Monitoring and Analytics are receiving more and more attention from the finance, risk, compliance, audit (and vendor) communities.• Beware ‘strategic’ a.k.a. ‘slow and costly’• This is not an IT strategy• Identifying and managing exceptions should already be a key focus for management• Rapid results are not only possible, but critical !• Monitor only what matters – what decisions will we make based on exceptions identified?© 2012 Consider Solutions. All rights reserved. Do not distribute without permission
  • 21. Continuous Monitoring for Risk & Performance Finance perspective Jan Hurda - Consider Solutions 15th November 2012© 2012 Consider Solutions All rights reserved. Do not distribute without permission