By David Griffiths, CEO, FISCAL Technologies
As the economic impact of the pandemic deepens across the globe, the ability of organisations to procure products and services in a timely, yet safe manner has never been more important.
As the pandemic spread across the world, a number of factors impacted global supply and demand, and sadly, within this environment, human error and crime thrive. Any gaps or weaknesses between the procurement department, accounts payable and audit can allow things to fall through the cracks which will be exploited for criminal gain, impacting the bottom line.
The purchase to pay process (P2P) is the process that glues these departments together and during the crisis, is an essential line of defence at the bottom line. It’s therefore crucial that organisations are taking steps to protect their bottom line across people, processes and technology to manage these risks.
Some businesses have been quite innovative in terms of coping with these stresses. The first thing they've done is to shift orders to secondary or tertiary suppliers to offset issues with their primary suppliers and other companies have brought activities back in house.
Others have retooled to make completely different products, as seen with the likes of Dyson creating ventilators. Alternative workforces have come to the fore, with hospitality organisations doing deals with frontline organisations such as supermarkets to temporarily transfer their staff and we’ve also seen armies of volunteers being recruited for jobs as diverse as delivery drivers to fruit picking. Additionally, there is an increased use of automation and the introduction of new technologies to do crash training for newly recruited manual workforce.
Each of these measures has solved an operational issue, however they've also introduced some extra risks that could destabilise the global supply and demand system further. These include:
- Geographic dependencies – direct operational impact and reduction in stakeholder confidence
- Low visibility – inability to see all supply tiers reduces the chances of seeing and dealing with capacity restraints in a profitable and timely manner
- Relaxed regulations – increased chance of fraud and other criminal activity
- Unsuitable IT systems – IT systems that are not ready for sudden increase in activity may become unstable and fail
- Staff shortages – lockdowns, travel restrictions and school closures together with sickness causes staff shortages and increases chances of human error
- Demand instability – acute demand for medical equipment and changing consumer demand due to lockdowns changes dynamics, which in turn threatens financial position
In any crisis, criminals cash in and there is no exception throughout the world during the crisis. The key to stopping this is to follow the money and make sure that procurement, audit and accounts payable are joined. Through this, anomalies can be spotted early and that will provide much needed protection to the bottom line in this very uncertain world.
After speaking with all of our customers over the past few months, we have established five key areas for reducing P2P risk:
- Fortify your controls
If we look at what's happened over the last four weeks and take on board the feedback from our customers, we can see that there has been a number of new processes implemented within businesses, which drives up risk. For example, businesses have had new people doing different things, people having access to new controls and new rights. With this in mind, you should now be reviewing systemic controls around you ERP system, looking at who's got access to that ERP system, and allocate somebody within your team to go through your checklist or accounts payable processing policy with these individuals. It’s also worth going through that policy and establishing what needs updating because undoubtedly some of your processes or signing authorities will have changed. These policies are essential and it’s also essential that you clearly communicate the changes to these policies. P card programmes should also be audited and finally running a P2P controls assessment would be very useful.
- Empower your team
This is really dear to my heart, especially as the accounts payable teams have been split up through working remotely. But do not lose faith in your accounts payable team. We had a similar situation on 2008 in the sense that we experienced a deep recession, and what we came up with back then was to empower your frontline teams, elevate them and support them with the best tools. Ultimately, they need to be very much part of the solution and feel empowered to be part of that solution, creating much stronger internal partnerships with other teams. With AP people being at home, they potentially have more time, so this is a good time to allocate internal projects to some of the team members. They can provide oversight and look for areas of weakness, doing spot checks on suppliers, double checking payments and running just an internal audit cross the P2P team.
Ultimately, there is a formula and if you give your P2P team that sense of ownership and that confidence that you believe in them and provide them with the right tools, something magical happens and the accounts payable team start on trying to work out why some of these issues happen.
- Defend your supply chains
There's a number of different ways that you can defend your supply chains. For example, some of our customers run reconciliation statements across the top 20 or 20 percent of vendors. While it would be tough in the current climate, this can be done manually. On the other hand, you could run a reconciliation service and have that reconciliation service working in the background and supporting your accounts payable team, which I think is vital.
Running a supply detection on a daily basis is also crucial. This involves looking at any payments, all the invoices that are coming through, looking at the master supply and running a check across all the suppliers. This can actually be quite difficult without the automated tools but the below provides a brief checklist for the accounts payable team to do some sort of sensitivity analysis:
- Bank changes
- Credit notes
- Date entered
- Date paid
- Invoice numbers
- Low activity
- Purchase order rate
- Round amounts
- Transactions spikes
- Conserve and collect cash
Conserving and collecting cash is paramount right now. I would recommend creating a P2P cash task force, get them working together against target APIs and what they can do around AP to generate cash. A lot of organisations are extending payment terms, which is a tough thing to do, but there is a unique way of generating cash. This can be achieved through what we call an API working capital review and it's a forensic analysis all of your payments and processes. Five key transactional risks are assessed; process errors, supplier related, overpayments, potential fraud and non-compliance. This will review master supplier files, highlight high risk suppliers, provide recommendations for improvements and generates immediate cost savings.
- Strengthen financial systems
It might seem obvious, but we've had some very interesting feedback from a lot of our customers that many of the big ERP projects have been put on hold, unless you were four weeks ago just about to kick it off. The bigger projects that require a lot of hands on support and a lot of professional services have been put on hold, but finance teams still need to drive some process improvement.
According to the Purchase to Pay Network, the key criteria any financial service controllers looking for projects that they need to invest in should be looking at are that typically all the projects really need to have very little time involved; Any project needs to have remote training and the ROI needs to be phenomenal. Security is paramount, so any organisation has to be ISO27001 accredited and finally, you need to run a proof of concept.
In conclusion, the pandemic world we’re currently living in has created an increased risk environment for organisations and it’s therefore critical that those organisations focus on their people, trusting accounts payable and giving them the best tools to elevate and empower them, particularly at this time where they're all remote working. Having double checks in place and doing an audit of all the processes and the systemic controls out there is really important for assurance and payables assurance, and also using technology to drive process improvement across the business.