Replacing Human Touch Point…Not the Human Logic
Too often business improvement is just about automation without optimization. When optimizing a business process one must always ask the question “what value does this step add”? When dealing with the every growing meta data processed in an ERP such as SAP, this question becomes most relevant. The transformation from transactional to process flow requires that you take this evaluation and expand it to “what value does this step add and does it require human intervention”. Expansion of the evaluation criteria provides true optimization. As an example, consider the Accounts Payable portion of the procure to pay (P2P) process flow. Typically in a manual process flow there are numerous touch points that require a human touch point to apply logic to evaluate the invoice meta data and make a decision. These touch points include but are not limited to data capture, filing of paper invoices, evaluation of meta data for completeness and accuracy, account assignment and invoice approval. With a fully optimized accounts payable solution such as offered by SAP with SAP Invoice Management, it is possible to build a rule set that captures much of the human logic required to process an invoice and to apply that logic systematically.
Rule Categories Examples
Completeness – Most business processes are based on processing meta data. In AP, the initial meta data is on the invoice. SAP requires that certain information be provided by the supplier. One option is to have a human look at every invoice to see if all the required information is provided. Just one missing data point can result in non value adding time spent researching and collaborating to fill in the blank. Business rules utilize the human logic captured in code to test that every required field provide some meta data. At this point it may be wrong but at least it is there.
Master Data Validation – Once the meta data capture is complete, business rules compare the input against known values in master data to ensure it is valid. One example would be to ensure the purchase order provided on the invoice is within the SAP number range. If not, automatically route to a predetermine role for resolution.
Compliance (Legal Requirements) – Business rules can also ensure that information legally required or required by corporate rules is included. One example is VAT. Business rules can also ensure proper flow of information such as NFE requirements in Brazil.
Country Specific – Most countries have rules to do business in their specific country such as NFE in Brazil mentioned above or GST / PST in Canada. Human logic encapsulated in a business rule never forgets to ensure the information is there for selected countries but does not bother looking when the invoice is from another country.
Best Practice – Business rules can also ensure best practice such as capturing at least 2 approvals for invoices over a stated dollar level threshold.
Most Common / Most Practical – Business rules can also be made flexible so that while typically enforcing process flows such as the 2 approvals required, given selected variables, rules can deviate if it is more common in a specific company to acquire 3 signatures. If due to lack of staff in a remote location one person orders, received and approves purchases, rules can be set to allow one person to handle the process flow in a practical manner.
Reporting on the Rules
When the business process is initially designed for optimal results and automation is applied such as with SAP Invoice Management, it is critical reporting provides process metrics for human analysis. It may be necessary to adjust the follow due to changing business rules. In addition, automation should never be hidden in the “black box”. It is all too easy for those with fraud on their minds to use automation to their advantage if no one is watching the output…so…when you eliminate the human element during the process…do not eliminate the human element in review of the output. Even if you utilize automated trend analysis to spot trouble points, it always requires that human element to decide if variations are random or “randomly on purpose”.
Don’t Rule out Success…Rule in Success!
Not only does the application of business rules enable improved accuracy in the Accounts Payable process flow, it frees up the Accounts Payable Professional to focus more attention on those value adding task such as cash flow management and vendor relationships. The economy has resulted in cyclical employment levels in back office functions like Accounts Payable. Capturing and automating the human logic where possible, prevents the loss of critical process knowledge during economic downturns.
In my various speaking engagements, I often ask how many things typically go wrong when processing an invoice…the answers normally vary between 5 and 15. SAP Invoice Management applies 47 unique business rules and if you consider many are run twice…once for PO invoices and once for Non PO Invoices…the rules are applied 71 times. Checking an invoice with 47 rules rather than 15 yields significant improvement in the completeness and accuracy of financial data while ensuring compliance. In summary, utilize business rules as an integral component of your business process improves initiatives to drive increased success to your efforts.
Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts
Friday, July 23, 2010
Sunday, May 9, 2010
You Never Know What You Never Know
You Never Know What You Never Know
Fact or Fiction
I have heard it said that “you only know what you know and you never know what you never know”. In Corporate Accounts Payable, this is a dangerous scenario. Below is a sampling of not knowing…
How Much?
It was a Friday afternoon, sun shining and birds singing…everyone was happy at a large CPG company. Everyone knew their products because they were constantly advertised. Just after lunch their major advertising vendor called and wanted to know why they had not been paid the $5,000,000 owed to them. The AP Manager reviewed the account with the CFO and they determined they only owed $500,000. They called the vendor back and told them they did not have the invoices. The Vendor explained they mailed them to several different Division VPs. When the CFO contacted the VPs, they found the VPs had the invoices on their desk. They all had reasons for not having sent the invoices to AP.
What they did not know…$4,500,000 in liabilities past due!
Why it mattered…Vendor will not do more business until paid. They want 50% payment up front. Balance Sheet would have been understated.
Give Me My Car
Business was going great for chemical company. They sales people were happy because the company had recently decided to provide nice company cars. As part of the fleet deal, the CEO was also provided a car. The cars were routinely maintained by the leasing vendor. After a scheduled maintenance appointment, the CEO stopped by to pick up the car. The dispatcher checks the computer and then told the CEO…”No. You can’t pick up the car until your company has paid its bill”. The CEO became very familiar with the Accounts Payable Manager.
What they did not know…each month the Fleet Manager had to approve the invoice. The Manager had gone out on long term disability and the person taking their place was not aware of they had to approve. They thought the invoice was just a copy for their file.
Why it mattered…Vendor was also refusing to return several cars in that time period. Several on the sales team were missing appointments. A very large early payment discount was being lost.
The Log Ride
Much like the long line at the popular log ride at the amusement park on a hot summer day, the Accounts Payable Professional at an energy company had a very long backlog. They had recently gone through a merger and their work had grown significantly…without much additional labor. Overtime became routine and temporary personnel had been brought in. It just so happened that one of the employees “retired” during the merger saw an opportunity to commit fraud through false billings. The situation was compounded in that the invoices from the “factious company” were being handled by a temp with a backlog. Only after a post merger audit was the activity uncovered.
What they did not know…significant payments were being made to factious vendors.
Why it mattered…money was lost and never recovered. Showed others how easy to commit fraud.
Only when the Accounts Payable process is under control will these stories move from real life drama to fiction. Implementation of an automated rule driven process optimization will significantly improve Accounts Payable processing. As the stories above would promote…control receipt of invoice along with movement of meta data from invoice to general ledger, strictly control and monitor invoice approval and invest in efficiency gains so that Accounts Payable Professionals have the time to properly analyze the invoices.
See SAP EcoHub for More on AP Optimization
Fact or Fiction
I have heard it said that “you only know what you know and you never know what you never know”. In Corporate Accounts Payable, this is a dangerous scenario. Below is a sampling of not knowing…
How Much?
It was a Friday afternoon, sun shining and birds singing…everyone was happy at a large CPG company. Everyone knew their products because they were constantly advertised. Just after lunch their major advertising vendor called and wanted to know why they had not been paid the $5,000,000 owed to them. The AP Manager reviewed the account with the CFO and they determined they only owed $500,000. They called the vendor back and told them they did not have the invoices. The Vendor explained they mailed them to several different Division VPs. When the CFO contacted the VPs, they found the VPs had the invoices on their desk. They all had reasons for not having sent the invoices to AP.
What they did not know…$4,500,000 in liabilities past due!
Why it mattered…Vendor will not do more business until paid. They want 50% payment up front. Balance Sheet would have been understated.
Give Me My Car
Business was going great for chemical company. They sales people were happy because the company had recently decided to provide nice company cars. As part of the fleet deal, the CEO was also provided a car. The cars were routinely maintained by the leasing vendor. After a scheduled maintenance appointment, the CEO stopped by to pick up the car. The dispatcher checks the computer and then told the CEO…”No. You can’t pick up the car until your company has paid its bill”. The CEO became very familiar with the Accounts Payable Manager.
What they did not know…each month the Fleet Manager had to approve the invoice. The Manager had gone out on long term disability and the person taking their place was not aware of they had to approve. They thought the invoice was just a copy for their file.
Why it mattered…Vendor was also refusing to return several cars in that time period. Several on the sales team were missing appointments. A very large early payment discount was being lost.
The Log Ride
Much like the long line at the popular log ride at the amusement park on a hot summer day, the Accounts Payable Professional at an energy company had a very long backlog. They had recently gone through a merger and their work had grown significantly…without much additional labor. Overtime became routine and temporary personnel had been brought in. It just so happened that one of the employees “retired” during the merger saw an opportunity to commit fraud through false billings. The situation was compounded in that the invoices from the “factious company” were being handled by a temp with a backlog. Only after a post merger audit was the activity uncovered.
What they did not know…significant payments were being made to factious vendors.
Why it mattered…money was lost and never recovered. Showed others how easy to commit fraud.
Only when the Accounts Payable process is under control will these stories move from real life drama to fiction. Implementation of an automated rule driven process optimization will significantly improve Accounts Payable processing. As the stories above would promote…control receipt of invoice along with movement of meta data from invoice to general ledger, strictly control and monitor invoice approval and invest in efficiency gains so that Accounts Payable Professionals have the time to properly analyze the invoices.
See SAP EcoHub for More on AP Optimization
Thursday, January 21, 2010
AP and Hot Topics for 2010
The following are four Accounts Payable “hot topics” I see for 2010…
1) Paper is still with us! It appears that the movement to electronic invoices continues but at a slower pace than might have been expected. Paper invoices are still the most common form of invoice receipt. The good news is that Optical Character Recognition has improved and the focus is now on accuracy in reading the line item information accurately matching to the PO line. There appears to be greater cooperation between suppliers and their customers to ensure the necessary information is available on the invoice required for proper matching. The optional OCR for SAP Invoice Management by Open Text is being adopted by many SAP centric AP departments.
2) Whether driven by the economy or the desire to increase value to the corporate stakeholders, many corporations are moving to a shared service center for Accounts Payable. The concept of moving the functions to a cheaper labor pool and calling it shared services has had mixed results. What has been exposed is that locating AP in a remote geographic location can result in communication issues. Problems go unresolved for longer periods of time. To facilitate world class shared service centers, corporations are implementing enterprise solutions such as SAP Invoice Management by Open Text to provide controlled business processing. Not only are these solutions improving the day to day transactional processing they are generating information to internal and external clients that allow for continual business improvement.
3) Fraud is nothing new to corporations but too often the focus has been on reporting that detects the fraudulent activity after it has been committed. The cost of fraud recovery can be staggering. Many corporations pay out 30% - 50% of their gross revenue back out to suppliers through Accounts Payable. The fraudulent actives around AP are well documented but until recently, prevention was dependant on a human catching the attempt. In 2010, corporations are moving to implement business rule driven solutions that test for activities such as billings from suppliers not in their system. In addition these solutions provide the metrics to highlight trends such as a single vendor continually overbilling.
4) Last but certainly not least…Accounts Payable personnel are being recognized for the Professionals they are. Organizations such as International Accounts Payable Professionals (IAPP) are providing focus on the power of an Accounts Payable Professional. As mentioned above, AP is critical in fraud prevention. In addition, the optimization and automation of the day to day processing has allowed AP to focus on cash management improvements, improvement in accuracy of financial statements through accurate liabilities and proper inventory valuation and providing thorough and timely financial information to stakeholders from Operations to the CEO. It is becoming common for corporations to require a professional certification of all Accounts Payable personnel upon realization that Accounts Payable is a key component in a world class business!
See SAP EcoHub for More on AP Optimization
1) Paper is still with us! It appears that the movement to electronic invoices continues but at a slower pace than might have been expected. Paper invoices are still the most common form of invoice receipt. The good news is that Optical Character Recognition has improved and the focus is now on accuracy in reading the line item information accurately matching to the PO line. There appears to be greater cooperation between suppliers and their customers to ensure the necessary information is available on the invoice required for proper matching. The optional OCR for SAP Invoice Management by Open Text is being adopted by many SAP centric AP departments.
2) Whether driven by the economy or the desire to increase value to the corporate stakeholders, many corporations are moving to a shared service center for Accounts Payable. The concept of moving the functions to a cheaper labor pool and calling it shared services has had mixed results. What has been exposed is that locating AP in a remote geographic location can result in communication issues. Problems go unresolved for longer periods of time. To facilitate world class shared service centers, corporations are implementing enterprise solutions such as SAP Invoice Management by Open Text to provide controlled business processing. Not only are these solutions improving the day to day transactional processing they are generating information to internal and external clients that allow for continual business improvement.
3) Fraud is nothing new to corporations but too often the focus has been on reporting that detects the fraudulent activity after it has been committed. The cost of fraud recovery can be staggering. Many corporations pay out 30% - 50% of their gross revenue back out to suppliers through Accounts Payable. The fraudulent actives around AP are well documented but until recently, prevention was dependant on a human catching the attempt. In 2010, corporations are moving to implement business rule driven solutions that test for activities such as billings from suppliers not in their system. In addition these solutions provide the metrics to highlight trends such as a single vendor continually overbilling.
4) Last but certainly not least…Accounts Payable personnel are being recognized for the Professionals they are. Organizations such as International Accounts Payable Professionals (IAPP) are providing focus on the power of an Accounts Payable Professional. As mentioned above, AP is critical in fraud prevention. In addition, the optimization and automation of the day to day processing has allowed AP to focus on cash management improvements, improvement in accuracy of financial statements through accurate liabilities and proper inventory valuation and providing thorough and timely financial information to stakeholders from Operations to the CEO. It is becoming common for corporations to require a professional certification of all Accounts Payable personnel upon realization that Accounts Payable is a key component in a world class business!
See SAP EcoHub for More on AP Optimization
Monday, October 19, 2009
AP Fraud Follow Up
n a prior blog I made a few comments about the growing problem of fraud. I took part in a webinar sponsored by SAP through IAPP a couple of weeks back and I learned a lot from my co presenters. The focus was on AP Fraud and how SAP Invoice Management by Open Text helps eliminate fraud before it happens. I encourage you to check out the webinar on IAPP and download the associated white paper.
One interesting question during the Q&A session was “has the control mandated by SOX reduced the occurrence of fraud”. The answer was … no! A case can be made that economic pressures may be driving individuals to seek ways to cope with personal financial problems. My observation is that many companies have focused on the control of the individual transaction as opposed the process. SOX section 404 talks about “process control” and not transactional control. I feel it is essential to remove as many non valuing adding human touch points as possible not only to streamline the process but to also remove temptation. For those touch points that remain, utilizing a rule based solution such as SAP Invoice Management by Open Text to involve the right person at the right time with the right information provides the opportunity to tighten controls and ensure compliance.
Another importance aspect of the overall process control is to immediately secure the original invoice source document and access the image during controlled processing. It is not only costly to route around the original or copies of the invoice, it also opens the door for manipulation of the document. Paper invoices should be digitized immediately upon controlled receipt. Immediate scanning secures the source document while reducing the cost to copy and distribute the invoice.
See SAP EcoHub for More on AP Optimization
One interesting question during the Q&A session was “has the control mandated by SOX reduced the occurrence of fraud”. The answer was … no! A case can be made that economic pressures may be driving individuals to seek ways to cope with personal financial problems. My observation is that many companies have focused on the control of the individual transaction as opposed the process. SOX section 404 talks about “process control” and not transactional control. I feel it is essential to remove as many non valuing adding human touch points as possible not only to streamline the process but to also remove temptation. For those touch points that remain, utilizing a rule based solution such as SAP Invoice Management by Open Text to involve the right person at the right time with the right information provides the opportunity to tighten controls and ensure compliance.
Another importance aspect of the overall process control is to immediately secure the original invoice source document and access the image during controlled processing. It is not only costly to route around the original or copies of the invoice, it also opens the door for manipulation of the document. Paper invoices should be digitized immediately upon controlled receipt. Immediate scanning secures the source document while reducing the cost to copy and distribute the invoice.
See SAP EcoHub for More on AP Optimization
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