Inforum 2013: Get Tighter Controls with Efficiency

2Copyright © 2012. Infor. All Rights Reserved. www.infor.comCopyright © 2012. Infor. All Rights Reserved. www.infor.com 2
IFIN-6024
Infor Financials Today:
Get Tighter Controls with
Efficiency
Dan French, CEO Consider Solutions
Pramod Mathur, Product Management Director

• Introduction
• Landscape of risk & control assurance
• Managing risk and managing control
• Risk, control & business performance
• Continuous Monitoring
• Case study examples
• Pitfalls and critical success factors
• Questions & Discussion
Session outline – 60 minutes

Context – Consider Solutions
• Delivering Solutions for World Class Finance
• Controls & Compliance
• Risk Management & Assurance
• Finance Process Optimisation
• Solution focus
• Infor Approva (CCM/CM) Implementation
• CCM/CM Optimization
• Consulting services
• Custom solutions
• Sourcing solutions
4 © 2013 Consider Solutions All rights reserved
World
Class
Finance
Business Results
Cost of Finance
Cash flow
Risk Management

5

Question for YOU!
What is your primary job role related to risk & control?
1. IT
2. Finance
3. Risk & Compliance
4. Internal Audit
5. External Audit
6. Consultant
7. Other

Risk & Control Assurance Landscape
• IIA 2013 Pulse of the Profession - Outlook
Source: The Institute of Internal Auditors

Relevance of Analytics &
Continuous Monitoring
• Stakeholder expectations are rising
• Complexity
• Interconnection
• Reputation
• Data

Managing Risk vs Managing Control
11

Risk, Controls & Performance
• Effective controls are designed to mitigate risk
• Business is focussed on performance
• Performance measures are lagging indicators
• Exceptions are Leading Indicators for both Performance & Risk
• Performance KPI (Measure)
• DSO
• A/R Risks & Exceptions (Barriers)
• Credit check
• Payment terms
• Delivery quantity & quality
• Unintended Consequences
• Managing by KPI can drive suboptimal business results

The Standardization Myth
• We invest heavily in ERP implementation to drive:
• Process standardisation
• Business efficiency
• Economies of scale
• However, only some of the value gets released . . .
• Businesses implement standard systems and achieve
• A standard data input process
NOT
• A standard business process

GR is created
against PO
Purchasing
creates
PO for Shipment
Truck drops off
shipment,
but no PO exists
Warehouse calls
up Purchasing to
create a PO
ERP is configured to only allow GR if PO exists, however…
ERP standardization example
‘First time match’ KPI looks good despite process breakdown!

What are Exceptions?
• An exception is
• A mismatch between expected vs. actual performance
• Something that generally should not happen but does
• Something that should happen but doesn‟t
• Happening on purpose or by accident
• Occurring in single digit percentage-wise but with an asymmetric impact on effort and
efficiency (not to mention RISK!)
• Often influenced by Performance Measures!

Standardization & Exceptions

Approach, Examples &
Results

Continuous Monitoring (CM) Cycle
CONTINUOUS
MONITORING
Scoping &
Planning
Technology
Deployment
Exception
Definition
Define
Remediation
Process
Managing
Business
Exceptions
Business
Process
Improvement

CM drives value
P2P/Accounts Payable
‐ Duplicate Payments
‐ Retrospective POs
‐ Changing payment terms
‐ Duplicate Invoices
O2C/Accounts Receivable
- Price Changes
- Undelivered orders
- Exceptional customer credits
- Payment terms
Fixed Assets
‐ Inappropriate asset
depreciation periods
‐ Misclassified capital equipment
Travel & Entertainment
- Duplicate claims
- Suspicious claims
- Ineligible items claims
General Ledger/Record to Report:
- JE postings into prior periods
already closed
- Manual payments

Example 1: Invoice Processing
• Desired process
• Purchase Order to initiate and approve purchase
• Touch-less Invoice/Payment approval on match
• KPIs
• First time match rate
• Invoice processing cost/effort
• What can go wrong
• Duplicate Invoices, duplicate vendors, duplicate POs
• Discovery
• 3% duplicate invoices causing re-work and cash loss
• Root Cause
• Duplicate vendor data, Imprecise PO data
20

Example 2: Fixed Assets
• Risk
• Assets if depreciated to zero in shorter than required period can be disposed of to third
parties at preferential rate
• Exception Rules
• Fixed Asset Records where depreciation periods are not in line with statutory guidelines for
asset class, especially with shorter periods
• Company vehicles with lower than advised depreciation of 3-5 years
• Other examples ... Buildings (40 years), New Machinery & Equipment (15 years), Office
Technology (3 years)
• Discovery
• Company vehicles depreciating in 1 year and then being disposed of ... value in in $millions
• Buildings depreciating in 1 year
21

Example 3: Travel & Entertainment (T&E)
• Risk
• Fraudulent and “creative” use of expense claims
• Exception Rules
• Identify expense records with suspicious characteristics, e.g.;
• Duplicate expense items (same item, same amount)
• Multiple claims just under threshold of proof of purchase needed
• Cross claims between P-Card and expense claim
• Discovery
• Same meals & hotels claimed again a month later
• Personal expenses claimed for – taxis / trains / travel agent fees
• Cross claims
• “Gifts”
• Value may not be material but cultural impact is
22

Example 4: Purchase Order Processing
• Desired process
• Purchase Request to approve expenditure
• Purchase Order to initiate and approve purchase
• KPIs
• Spend under PO
• PO processing cost
• Multiple touch POs, changes to PO Pricing & Terms
• Discovery
• 11% POs change activity
• Root Cause
• Pro-forma POs, Master Data inaccuracy
23

Example 5: Accounts Receivable
• Desired process
• Sales Invoicing
• Accounts Receivable
• KPIs
• Days Sales Outstanding (DSO)
• What can go wrong (Key Exception Indicator)
• Sales Order to Delivery to Invoice delay
• Discovery
• Excellent cash collection metric undermined by use of Pro-forma invoices to confirm
customer payment
• Root Cause
• DSO KPI, Invoicing errors
24

Example 6: Accounts Payable
• Desired process
• Purchase Orders
• Goods Receipt & Invoice Processing
• KPIs
• Cost per Invoice – Touch-less invoices
• What can go wrong (Key Exception Indicator)
• Over-payment – GR > PO, IR > GR
• Discovery
• 4.5% over payment in certain areas
• Root Cause
• Vendor „enthusiasm‟ with payment tolerances, vendor performance issues, system controls
25

Example 7: Sales Price Changes
• Risk
• Changes to prices may lead to fraudulent / inappropriate pricing of Sales Orders.
• Price changes after creation can be a tactic to by-pass controls / approvals / workflows in
place for order creation
• “Local agreements” / “Unapproved discounting”
• Prices being increased to finance intermediary
• Impacts cash flow forecasting & margin
• Exception Rules
• Identify Sales Orders with prices changed after initial creation
• Discovery
• 16% of orders within 1 month period had price changed
• Plus 1000s more changed from placeholder values (e.g., 0.01) – circumventing system
control & distorting financial numbers
• Many changes – post order creation / discounting / avoiding approvals26

Example 8: Non Standard Payment Terms
• Risk
• Unnecessary effect on cash outflow and working capital.
• Excessively short payment terms: potentially inappropriate relationships
• Excessively long terms may indicate future period commitments
• Multi-touch POs increases cost of processing
• Exception Rules
• Identify any Purchase Orders where the Payment Terms used are not the standard payment
terms agreed with the vendor
• Discovery
• >8% of POs with Payment Terms Non Standard
• Many terms changed after PO creation from standard to non
• Many with reduced payment periods for same discount model
example - 30 days / 2% (standard terms) to 10 days / 2%
27

So What?
• 100%
• Of transaction data continuously monitored
• Not sampling
• Facts
• Not opinions
• Exceptions
• Sharp focus; minimal noise
• Technology
• Used effectively to take care of the leg-work
• Freeing high value resources for high value work
• Business Value Driven
• Enabling better business partnering

Question for YOU!
What is the status of Continuous Monitoring in your
organisation?
1. Well embedded mature model
2. Emerging scope / programmed roll-out
3. Limited scope / first attempts
4. Planning stage
5. Not under consideration

The Gearbox of Risk & Performance

Business Process Performance

Cost of Finance
From > 1% Towards 0.5%
26%
25%
49%
39%
28%
33%

33Copyright © 2012. Infor. All Rights Reserved. www.infor.com33
Classic Process Improvement Cycle
Define
Measure
AnalyseImprove
Control
A Miracle
Occurs !

The Myth of Measures
© 2013 Consider Solutions All rights reserved34

World Class Continuous Improvement

Question for YOU!
In which financial process area do you see the biggest benefit of
monitoring business exceptions?
1. Purchase to pay/accounts payable
2. Record to Report/general ledger
3. Order to Cash/accounts receivable
4. Treasury
5. Other

The Business Case
• Depends
• Organization
• Situation
• Bolting the Stable Door
• The objective is typically
• Assuring reputation
• Reducing cost of control
• Cost avoidance & Cash recovery
• Driving financial process cost efficiency
• Identify
• Direct benefits: Cost/Effort - Savings/Avoidance
• Soft benefits: Attitude/Image - Change/Improvement
• Benchmarks: Continuous Improvement
• A scoped pilot can quickly validate value

Pitfalls & Critical Success Factors

What could go wrong?

Balanced Skill-set
• Analytical/critical thinking
• Process/risk understanding
• Data structure knowledge
• Data filtering & data analysis skills
• Design for Exception Analytics
• Diagnosis & root cause analysis
• Communication skills

Critical Success Factors
• Continuous Monitoring and
Data Analytics are receiving more
and more attention – plan . . .
• Focus on genuine business risk
• . . . or business performance !
• Use CM to enhance the business partnership
• Identifying and managing exceptions should already be a key
focus for management
• Rapid results & quick wins are critical
• Keep track of value delivered

The Red Ferrari Test . . .

Question for YOU!
Where is the value in Continuous Monitoring to monitor risk
in your organisation?
1. Cash recovery / cash saving
2. Effort reduction/Effort avoidance
3. Improved testing depth, scope & quality
4. Improved business relationship
5. Other

Developing the Case for Action
• Pilot – Proof of Concept
• Scoped process & risk theme
• One-time extraction and analysis of relevant
system data and transactions for the period
• Analysis performed on 100% of transactions
against agreed risk thresholds
• Aggregate & detail exception reporting
• Review of exceptions found and exploration
of underlying issues
• Agree the value of findings !
• Develop Business Case

• Introduction
• Landscape of risk & control assurance
• Managing risk and managing control
• Risk, control & business performance
• Continuous Monitoring
• Case study examples
• Pitfalls and critical success factors
• Questions & Discussion
Topic Review

Hits & Myths
1. The Controls Myth
• Controls are only a tool
• Focus on the risk and performance drivers
• Exceptions to expectation expose the real issues
2. The Standardisation Myth
• Will give economy of scale
• Will lead to uniform data
• Will not automatically lead to standard process execution
3. The Efficiency Myth
• You need to know what is sub-optimal (exceptions) to drive efficiency gains
• Analysis of exceptions drives Continuous Improvement
• Exceptions should have a MONETARY value
• Tightening the right Controls in this way will drive BUSINESS efficiency
46

The pessimist complains about the wind. The optimist expects it to change.
The leader adjusts the sails.”
47

Dan French Pramod Mathur
dfrench@consider.biz pramod.mathur@infor.com
Experiences & Observations . . .
http://consider-ations.blogspot.com/

Learn more about Infor Approva
Day ID Session Time Location
Sunday April 21 IFIN-5009 Focus Group: Governance, Risk and Compliance 1:00 pm - 2:00 pm W311G
Monday April 22 IFIN-6024 Infor Financials Today: Get Tighter Controls with Efficiency 11:15 am - 12:15 pm W311H
Monday April 22 IFIN-6026
Advances in General Ledger Process Optimization: Cut Inefficiencies and
Reduce Fraud
3:15 pm - 4:15 pm W311H
Monday April 22 IFIN-6025
Driving Financial Assurance by Eliminating Inefficiencies and Risk in Your
Procure-to-Pay Process
4:30 pm - 5:30 pm W311H
Monday April 22 IFINS-9005 Stop the (Controls) Madness with InforApprova 4:30 pm (20 minutes) HUB
TuesdayApril 23 IFIN-6003
Enforce Segregation of Duties with InforApplication Security and Identity
Management
4:30 pm - 5:30 pm W311H
Wednesday April 24 IFIN-6027 Advances in User Access Certification and Compliant Provisioning 8:30 am - 9:30 am W311E
Wednesday April 24 IFINS-9012 Simplify the Internal Controls and Compliance role with InforApprova 10:00 am (20 minutes) HUB
Wednesday April 24 IFIN-5010 Informally for Continuous Controls Monitoring 11:00 am - 12:00 pm W311G
Wednesday April 24 IHEA-1014 InforApprova: Continuous Controls Monitoring for Healthcare 11:00 am - 12:00 pm W202B
Wednesday April 24 HOSP-700
Security and compliance: Enabling tracking of key control points for
compliance across the organization
11:00 am - 12:00 pm W204C

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