continuous transaction monitoring detect and analyze anomalous transactions to address risk control...

Continuous Transaction Monitoring Detect and analyze anomalous transactions to address risk control gaps, and improve internal and external compliance

Gianni GiacomelliSenior Vice President, Genpact

Senthilvel K Vice President, Genpact

PROCESS • ANALYTICS • TECHNOLOGY 2© 2014 Copyright Genpact. All Rights Reserved.

A Global Business Process Services Leader: Process Transformation and Outsourcing, Analytics, Technology

We help leaders of some of the largest enterprises transform and run their processes and operations, including the very complex and industry-specific

What we do

Unbiased, agile combination of process science, related technology and analytics limits upfront costs and enhances future adaptability

Right critical mass:

• we are large (64,000+ global staff) but our solutions appropriately flexible

• our top management is directly involved in our client partnerships

How we do it

Our impact

We help enterprises to be more competitive by becoming more intelligent: adaptive, innovative, globally effective and connected…

…by enabling tighter management of costs, risks, regulations, and supporting growth

The results: US$22B* of impact for 800+ global clients


THE CHALLENGE


Huge transaction volumes, exception identification, sub optimal post facto recovery, inconsistent practices are key issues

Audit analytics

CTM

1. Huge transaction volumes and large number of integrity

checks

4. Organization, process and technology drive varying levels of maturity in

compliance

Causes

Excessive reliance on external parties

due to lack of internally trained

staffBusiness process breakdowns more

frequently due to higher complexity

Controls fail to keep pace with the changing

landscape

Barriers to effective controls

Accounts payable

Vendor management

Accounts receivable

Customer management

InventoryGeneral ledger

Payroll

Detection of errors from audits is too late

2. Evaluating whether an exception is genuine or not is hard due to a large number of ‘business as

usual’ exceptions

3. Traditional post facto audithas significant limitations


Inability to fix improper financial transactions in near-real time leads to high organizational risk and financial leakages

Improper financial transactions are a big issue

• Hard to find and fix exhaustively and quickly improper financial transactions in near-time, as well as to address respective inadequate controls and faulty business processes

• These misses can lead to 12-17% leakage in P2P and 20-30% in O2C

Increased organizational risk

Increased organizational vulnerability because of frauds, errors

• Increased business complexity increasing volume of transactions

• Inconsistent enterprise IT and data management systems, multiple transaction processing mechanisms in various ERPs

Increased regulatory requirements

• Greater compliance related obligations

• Serious consequences for compliance failures e.g. FCPA

Traditional measures are inadequate

Traditional protections against insider fraud, such as segregation of duties or employee authorizations, are no longer adequate


Moreover traditional post facto recovery audit has also many limitations

Limitation Rationale

Takes too long Many audits lag at least 18 months behind the transaction, by then companies have missed out on cash flow and suppliers are asked to take a hit

Proving claim validity is difficult

Lack of documentation coupled with inconsistent and sub-par claim presentations can negatively impact vendor relationships and budgets

It is expensive Audits are labor intensive and disruptive to ongoing business operations

Compliance failures have consequences

Sarbanes Oxley and other regulations mandate the need for better processes and financial oversight


THE SOLUTIONS


Companies feel a combination of on-going monitoring, process and technology can help solve their compliance challenges

• Process diagnostics • Process redesign

Top 5 compliance related challenges

% agrees

1. Identifying and documenting compliance related shortfalls and exposures

74%

2. Changes to business processes to improve compliance

64%

3. Allocating budget and resources to compliance

60%

4. Sustaining on-going compliance

51%

5. Technology changes required for compliance

42%

Top 5 mitigations % agrees

1. On-going monitoring program 64%

2. Better audit procedures and policies

61%

3. Technology for monitoring business processes impacted by compliance

51%

4. Technology for managing authorized access to applications, information and documents

43%

5. External experts in audit and compliance

28%

Source: Aberdeen Group – Survey of 500 Controllers in US, Europe and Asia across multiple industry verticals


An effective Continuous Transaction Monitoring (CTM) approach

Control environment setup

Platform hosting and data mining

Transaction analytics

Exception management

Management reporting

Extractor

• Acquires data from relevant data source

Mapper

• Maps data into normalized databases

• Continuously updates data warehouse

• Allows for reuse of similar data

• Facilitated definition of complex analytics

• Predictive analytics (e.g. fuzzy logic, pattern recognition, statistical analysis)

• Continuously improving algorithms

• Risk profiling of exceptions

• Efficient resolution and follow up of exception cases

• Looping and closing of exception cases

• Periodic updates by process, analytics, criticality, vendor

• Recommen-dations for process improvement

• Understand enterprise goals and risks to them

• Assess controls required and monitoring frequency

• Identify relevant data

• Define, manage and run CTM CoE

A B C D E


Time effective set up of effective control environment after appropriate risk assessment

A

What can be achieved

• Risk assessment and quantification, development of mitigation control plan; control environment set up within 3-4 weeks

• Continuous assessment and improvement of implemented controls

• Data cleansing to ensure optimal utilization of available datasets

Delivery approach

Domain and CTM experts work in collaboration with the client to

• Assess the current control environment and the risks to the organizational goals and objectives

• Build a complete control environment for the organization

• Determine the frequency for monitoring the controls

• Identify and capture the data which provide indicators of the health of risk management and related controls

ILLUSTRATIVE

Sample deliverable

Controls, frequency and ownership


Seamless platform hosting and improved data mining to ensure comprehensive issue detection and analysis

B


• Manual effort and errors reduced by 30-40% using automation

• Pre‐built extraction from major ERP like SAP, Oracle, JDE, PeopleSoft, Amex, Lawson, etc. (used by ~75% of global businesses)

• Increased availability of datasets for analysis through error and completeness checks

Delivery approach

• Pre built data request templates by process/vendor/analysis/ERP system type

• Custom scripts to rapidly extract data in an automated manner

• Dedicated experts with expertise in gathering data quickly and ensuring accuracy and integrity of data prior to analysis

• Collaborative approach with client to ensure contextual understanding of extracted data

ILLUSTRATIVE


In depth and near time transaction analytics for early detection of error patterns

C


• Near real time identification of error patterns improves turnaround time by 20% and recovery % between 30-40% compared to post audit

• Granular and actionable insights by process and sub-process, IT system type, nature of transaction, etc.

Delivery approach

• List of analytics performed under each area – sub area with detailed sub analytics by process/vendor/ ERP system, etc.

• Heuristic algorithms which learn and improve continuously

• Findings are presented graphically using user friendly and configurable GUI

• Collaborative approach with client to ensure that the right analytics are performed and corrective action taken

Analytics example

ILLUSTRATIVE


Risk profiling of exceptions and follow up till closure of genuine exceptions

D


• Exception reduction by 20-25% YoY

• Detailed listing of exception cases for proactive process improvement

• Ideas and initiatives to eliminate exceptions

Delivery approach

• Risk profiling of exceptions based on type, criticality, etc.

• Collaborative approach with client to determine “genuine” exceptions to reduce handling time of false exceptions

• Integrated exceptions in instances where exceptions are linked to each other

• Follow up of genuine exceptions and recommendations on process, technology fixes, etc. to eliminate them

Listing of exceptions

ILLUSTRATIVE


Frequent and granular management reporting

E


• In depth reports at an agreed frequency

• Comprehensive view of all relevant exceptions that cause fraud, errors, compliance failures etc.

Delivery approach

• Granular reporting of exceptions based on process type, ERP system, vendor etc.

• Assessing the root cause of the exception and validating the same with the business/process owner

• Detailing of initiatives (e.g. process changes, technology improvements, etc.) to eliminate exceptions

• User friendly dashboards with slicing and dicing capability

Example report

ILLUSTRATIVE


Significant improvement potential in operating and process metrics through CTM

P r o c u r e - to -p a y

Procure-to-pay

O r d e r - to -c a s h

Order-to-cash

T r a v e l & l iv in g

Travel & living

G e n e r a l le d g e r

General ledger

F C P A

FCPA

P -C a r d

P-Card

Top 3 leakage pointsBusiness process

• Data errors and omission• Unauthorized payments• Overpayment

• Delayed collections• Unauthorized changes in masters• Invoice and billing mismatch

• Policy non-compliance• Overpayment• Unauthorized payments

• SoD conflict• Whole number entries - rounding off • Unusual account pairing analysis

• Out of country payments• Gift /sponsorships/government

payment analysis• Unusual payments

• Purchases from approved/ regular vendors

• Policy non compliance• Improper/illegal payments

% transaction value at stake

1 2 -1 7 %

12-17%

2 0 -3 0 %

20-30%

7 -1 2 %

7-12%

1 1 -1 7 %

11-17%

6 -7 %

6-7%

1 0 -1 5 %

10-15%

% prevented through CTM

~ 9 0 %

~90%

~ 9 7 %

~97%

~ 8 5 %

~85%

~ 9 7 %

~97%

~ 8 0 %

~80%

~ 8 0 %

~80%

O perating m etric• D ecrease in w orking

cap ita l by up to 3-

5%• Increase in cash

flow by 2-3%• Bottom line

im provem ent by up

to 0 .1-0 .2% of

revenues• Im prove revenues

up to 1%• D SO reduction by

10-15%

Process m etric• 10-15% savings

from em ployee

recoveries • P revention o f

accounts m is-

reporting • P revention o f

fo re ign corrupt

practices by up to

80% , reducing

probability o f

penalties

Operating metric• Decrease in working

capital by up to 3-5%

• Increase in cash flow by 2-3%

• Bottom line improvement by up to 0.1-0.2% of revenues

• Improve revenues up to 1%

• DSO reduction by 10-15%

Process metric• 10-15% savings

from employee recoveries

• Prevention of accounts mis-reporting

• Prevention of foreign corrupt practices by up to 80%, reducing probability of penalties


CONTACT GENPACT TO EXPLORE THE “ART OF THE POSSIBLE”


About Genpact

Genpact Limited (NYSE: G) is a global leader in transforming and running business processes and operations, including those that are complex and industry-specific. Our mission is to help clients become more competitive by making their enterprises more intelligent through becoming more adaptive, innovative, globally effective and connected to their own clients.

Genpact stands for Generating Impact – visible in tighter cost management as well as better management of risk, regulations and growth for hundreds of long-term clients including more than 100 of the Fortune Global 500. Our approach is distinctive – we offer an unbiased, agile combination of smarter processes, crystallized in our Smart Enterprise Processes (SEPSM) proprietary framework, along with analytics and technology, which limits upfront investments and enhances future adaptability.

We have global critical mass – 62,000+ employees in 24 countries with key management and corporate offices in New York City – while remaining flexible and collaborative, and a management team that drives client partnerships personally.

Our history is unique – behind our single-minded passion for process and operational excellence is the Lean and Six Sigma heritage of a former General Electric division that has served GE businesses for more than 15 years.

For more information, visit www.genpact.com. Follow Genpact on Twitter, Facebook, and LinkedIn.

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Gianni.giacomelli[at]genpact.com

Senthilvel.K[at]axisindia.co.in

www.genpact.com/home/solutions/risk-management-services/continuous-transaction-monitoring

Thank You

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