CFO.com and Oracle discuss the performance improvements to the bottom line using Advanced Controls

1. CONTENTS
EXECUTIVE SUMMARY 1
THE PROBLEM ILLUSTRATED 2
SOLUTIONS 4
PROCESS RISKS AND CONTROLS 6
CASE STUDY 9
SELF ASSESSMENT 12
WHAT DOES THE FUTURE HOLD? 13
CONCLUSION 13
CFO
Improving the
Bottom Line
with Advanced
Controls

2. 1
CFO
IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
EXECUTIVE SUMMARY Issues that contribute to cash leakage, such as duplicate vendor payments
or transactions that contravene company policy, can seem insignificant
individually. But mounting evidence shows that collectively these problems
can have a dramatic and material effect on an organization’s bottom line.
This white paper examines how advanced controls can substantially improve
the bottom line, the scope of the issues addressed by advanced controls, and
the reasons why leading companies and experts who monitor cash leakage
are increasingly looking to advanced control solutions.
Cash leakage, also known as financial leakage, is the unnecessary outflows
of money due to business process errors, fraud or inefficiencies. Advanced
controls continuously monitor Enterprise Resource Planning (ERP)
configurations and transactions to identify and resolve cash leakage and
similar problems, such as cash flow issues, working capital issues and fraud.
Advanced controls address three main categories of process transaction
problems:
• Issues with a definite impact on the bottom line, such as duplicate
vendor payments
• Issues with a potential effect on the bottom line, such as split
purchase orders
• Issues with cash flow impacts on the bottom line, such incorrect
vendor payment terms
The Accounts Payable Network—a 50,000-member organization that
establishes best practices for accounts payable (AP) technologies and
controls—recommends the use of advanced controls to provide continuous
monitoring as a layer over ERP controls, especially for companies with
automated systems. The organization makes detailed recommendations in
its report, “Safeguarding Disbursements: A Technology-Enabled Approach
to Overpayment Detection and Prevention.”
Organizations that have made the most progress in shifting away from
manual controls are adopting advanced control solutions and showing what
a difference those controls make, says Rob Rogers, editorial vice president
at Financial Operations Networks, parent organization of the Accounts
Payable Network.
“There is a transformation that is in process, or an evolution, if you will,
in accounts payable processing and order to cash,” Rogers says. “The
benefits of advanced controls have been demonstrated by the best-in-class
companies that are typically the first to adopt new technologies and establish
“The benefits of advanced
controls have been
demonstrated by the best-
in-class companies that
are typically the first to
adopt new technologies and
establish best practices.”

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
CASH LEAKAGE BY INDUSTRY
Industry Average Recovered Funds per AP Audit*
Airline $450,000
Automotive manufacturing $1,500,000
High tech $650,000
Manufacturing (non-auto) $1,200,000
Transportation $500,000
*85 percent of the recoveries were from audits that covered a one-year period
best practices. Those companies have shown the considerable return on
investment for process automation.”
While all organizations can benefit from advanced controls, companies
with high transaction volumes or high-value transactions stand to gain the
most. Advanced controls replace manual controls and continuously monitor
configurations and transactions, so most issues are immediately detected
and resolved.
Advanced control solutions also offer strategic insights into emerging
internal trends to better manage operational risks. This paper provides
examples that highlight not only the bottom line benefits of advanced
controls, but also the strategic benefits for organizations.
Advancedcontrolsaddressissuesthataffectthebottomlineofanorganization
across virtually all business processes. A recent study of the AP function by
PRGX Global Inc. illustrates the nature and extent of the problems that are
addressed by advanced controls.
PRGX, which has conducted audits for over 40 years to recover funds lost
through cash leakage, analyzed 376 of its AP recovery audits over a five-
year period. Although PRGX conducts global audits for organizations in all
industries, this study focused on five specific industries.
Although the study found that organizations in all industries lost significant
sums due to AP errors, five specific industries stood out because of the scale
of the average loss:
THE PROBLEM
ILLUSTRATED
The study had three main takeaways, said Joe Collins, director of thought
leadership at PRGX and author of the study:

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
TOP 5 AP ERRORS BY INDUSTRY
Error Airline
Auto
Manufacturing
Industry High
Tech Manufacturing Transportation
Overpayment • • • • •
Duplicate invoice payment • • • • •
Duplicate payment—paper related • • • • •
Credit memo error •
Process breakdown • • •
ERS receiving error •
ERS-related •
Sales tax—rate •
Sales tax—taxability •
Re-bill • •
LEGEND
Overpayment Overpayment unrelated to duplicate payments
Duplicate invoice payment Payment made more than once for same invoice
Duplicate payment—paper related Duplicate payment from paper invoice in an electronic process
Credit memo error Error with credit memo quantity or price, or other error
Process breakdown Error related to lapse in documented processes
ERS receiving error Error caused by process breakdown at dock location
ERS-related Error related to evaluated receipt settlement payment
Sales tax­­—rate Tax figured and paid on incorrect rate
Sales tax—taxability Tax paid for untaxed item
Re-bill Error related to inconsistent vendor corrective action
• Profit leakage is not specific to one type of industry or error type.
• Companies that don’t use recovery audits are losing out on recovered
cash.
• By understanding and quantifying past errors, companies can use
insights from recovery audits to implement stronger controls.
“Advanced controls and recovery audits work well together. Recovery audits
identify and quantify the amount of profit leakage you have and advanced
controls enable your team to proactively detect more errors,” Collins said.
“Recovery audits don’t eliminate the need for advanced controls, nor do
advanced controls eliminate the need for recovery audits.”
Besides demonstrating the immediate return-on-investment (ROI) benefits
of recovery audits, the PRGX study defined the top AP problems identified in
the audits. Three AP errors were shared on the “Top 5” list for each industry
tracked by the PRGX study: overpayments, duplicate invoice payments and
paper-related duplicate payments in an electronic process. These and the
other problems can be significantly reduced by using advanced controls.
“Recovery audits don’t
eliminate the need for
advanced controls, nor do
advanced controls eliminate
the need for recovery
audits.”

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
Organizations seeking solutions to improve their bottom line have three
approaches: recovery audits, ERP controls and advanced control solutions.
Used separately, each of the solutions has many advantages and taken
together they provide great synergies.
RECOVERY AUDITS
Recovery audits review company AP transaction histories, using data
mining and other techniques to identify overpayments and other problems
that impact the bottom line. When specific transactions are identified, the
recovery audit firm works to collect the money lost from cash leakage.
One key benefit of recovery audits is that money recovered is typically
from previous accounting periods. From a cash flow perspective, this can
be considered “found money” that can be applied straight to the bottom
line.
Recovery audits can provide insights into cash leakage risk areas and the
materiality of related errors; organizations can use this information to
strategically implement advanced controls. Advanced controls automate
the detection process and detect errors early enough to avoid erroneous
transactions that result in cash leakage.
ERP CONTROLS
ERP controls are essential to the ERP systems of organizations. Among
the many benefits to your business processes, ERP controls provide key
controls such as purchase order approvals and three-way supplier invoice
matching.
AnotherbenefitistheyareembeddedinyourERPsystemsandthusfunction
seamlessly with your business processes. To help reduce operational risk,
it is important for organizations to take advantage of these ERP controls
where appropriate.
With more scrutiny on the bottom line, the increased complexity of
business processes and a larger volume of transactions, organizations are
learning that they need another tier of controls to complement or augment
their ERP controls. By combining ERP controls with advanced controls,
organizations can focus on running their operations instead of devoting
substantial resources assessing whether there are significant process
control issues.
SOLUTIONS
By combining ERP controls
with advanced controls,
organizations can focus on
running their operations
instead of devoting
substantial resources
assessing whether there are
significant process control
issues.

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
ADVANCED CONTROLS
Advanced controls augment ERP standard controls by providing an added
tier of controls: they monitor ERP controls, they detect configuration
changes, and they review 100% of transactions.
Advanced controls automate most of the remaining manual controls. This
“last mile” of manual controls tends to be the ones that cause the most
pain to an organization, in terms of cash leakage. And advanced controls
provide distinct advantages over manual controls: they provide 100 percent
coverage instead of relying on audit testing, they provide timely feedback
about exceptions, they utilize sophisticated rules to detect challenging
issues, and they efficiently track and resolve identified issues.
Advanced controls can identify and prevent problems that have a direct,
significant and easily measured impact on a company’s bottom line. Some
examples include:
• For the PTP process, advanced controls ensure the integrity of vendor
master records and monitor for duplicate invoices.
• For the OTC process, advanced controls improve credit memos
processing to minimize the extent of customer account write-offs.
• For expenses management, advanced controls can detect when
employees obscure their buying and expensing of items not authorized
by company policies.
While the direct, easily measured effects of advanced controls are easy
to tabulate for an ROI calculation, advanced controls also produce
improvements to the bottom line that are harder to measure—the ROI
frosting on the cake. Examples of these less obvious impacts include
identifying split purchase orders, and identifying unreasonable customer
payment terms that can lead to excessive account write-offs.
Advanced controls also identify issues related to cash flow that affects
the bottom line, such as incorrect vendor payment terms that result in
unnecessarily early payments.
In addition to helping improve the bottom line, advanced controls improve
the effectiveness of processes and reduce operational risk. For example,
advanced controls reduce the incidence and impact of errors by identifying
them through increased coverage, find errors sooner and even prevent
“While the direct, easily
measured effects of
advanced controls are
easy to tabulate for an
ROI calculation, advanced
controls also produce
improvements to the bottom
line that are harder to
measure—the ROI frosting on
the cake.”

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
them in some cases. Advanced controls also allow process controls to be
quickly adapted as requirements evolve, but without having to change the
underlying processes.
Another advantage of using advanced controls is that they allow companies
to focus their efforts on more value-added activities, such as reviewing
and analyzing items that can be overlooked when trying to apply manual
controls to large volumes of transactions, says Rob Rogers of the Financial
Operations Network.
“Whether it’s your vendor master file review and cleanup and check;
your approval levels—your invoice data; statement authorization; card
reconciliations; your bank reconciliations; or bypasses in your system,”
he said. “All of these are things that should be looked at, in some way.
And frankly, the sheer volume can be overwhelming. When you bring in
advanced controls, you can get all of those things done, and not have things
slip through the cracks because of the reality of the crush of incoming
transactions.”
Simply stated, advanced controls allow for much more effective and
comprehensive coverage than manual controls ever could, and at a fraction
of the cost.
When an organization considers business problems that affect its bottom
line, those problems generally fall into three categories:
• Definite impacts: activities that always affect the bottom line
• Potential impacts: activities that may affect the bottom line
• Cash flow impacts: activities that may affect the bottom line due to
less-than-optimal cash flow
The following tables provide process risks, bottom line impacts and
solutions for the PTP and OTC processes for the three categories. These
two processes were chosen because they are particularly vulnerable to cash
leakage.
“When you bring in advanced
controls, you can get all of
those things done, and not
have things slip through the
cracks because of the reality
of the crush of incoming
transactions.”
PROCESS RISKS AND
CONTROLS

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
Process Risk Bottom Line Impact ERP or Manual Control Advanced Controls Solution
Invalid entry of
supplier invoices
Single supplier invoice
entered and paid multiple
times
Prevent same invoice
number from being
entered for the same
supplier
Detect invoices with similar invoice
numbers and similar invoice amounts for
the same supplier
Untimely
payments to
suppliers
Lose out on opportunity
to take early payment
discounts
Run payment processes
based upon terms and/
or specify to always take
discounts on supplier
records
Notify when supplier invoices with
discount terms are coming due and that
the payment process needs to be run
Inappropriate
purchase
transactions
Payment for goods or
services that lack a valid
business purpose
Perform manual review
of business application
security
Alert management about users with
incompatible duties; for example, who
can maintain supplier master records and
enter purchase orders
PROCURE TO PAY
ORDER TO CASH
Process Risk Bottom Line Impact ERP or Manual Control Advanced Controls Solution
Incorrect pricing Invoices are created and
recorded for a lower
amount
Require approval for
invoice pricing changes
Compare invoices to historical averages
and alert management when materially
different from threshold
Incorrect credit
memos
Credit memos for higher
pricing than invoice
pricing;
Credit memos for higher
quantity than actually
returned by customer
Utilize automated ERP
functions to compare
credit memos to sales
documents
Alert management when policies and
procedures are not followed by users
Inappropriate
access to write
off accounts
Credit memo issued but
goods not returned or
valid services already
rendered
Require account write-
off approvals if above a
threshold
Require additional approvals based on
specified conditions; for example, require
additional approval if account has recent
history of write-off’s
DEFINITE IMPACTS TO THE BOTTOM LINE
In this category, for the PTP process, the bottom line is typically affected
either because expenses or costs of goods sold (COGS) are increased. For
the OTC process, the bottom line is typically affected because revenue is
decreased.

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
POTENTIAL IMPACTS TO THE BOTTOM LINE
In this category, for the PTP process, the bottom line is typically affected
either because expenses or COGS are increased. For the OTC process, the
bottom line is typically affected because bad debt expenses are increased
or revenue is decreased.
PROCURE TO PAY
Process Risk Bottom Line Impact ERP or Manual Control Advanced Controls Solution
Split purchase
orders (POs)
to work around
approval
thresholds
Excessive purchase of
goods or services
Purchase orders (POs)
over a certain threshold
require approvals
Identify all POs that are within a rolling
window (seven days, for example) from
the same user and for the same supplier,
then sum the group of POs and compare
total to approval thresholds
Unapproved
suppliers, goods,
and services
Pay more than would
have been paid using
approved suppliers
Have purchasing
contracts in place and
review maverick ‘off
contract spend’
Provide real time review of unique, non-
compliant POs; for example, check if
supplier has a contract, require
additional approval if no supplier contract
ORDER TO CASH
Process Risk Bottom Line Impact ERP or Manual Control Advanced Controls Solution
Inappropriate
terms assigned to
customer
Excessive account write-
offs
Only certain people are
able to create new terms;
define policies regarding
terms
Provide management with insight
between customer account write-offs and
corresponding extended terms
Unreasonable
sales discounts
Excessive sales discounts
are provided reducing
revenue
Enforce approvals on
sales discounts given
Define rules that compare sales discounts
to historical averages and obtain excep-
tion approval for unusual sales discounts

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
CASH FLOW IMPACTS TO THE BOTTOM LINE
For both the PTP and OTC processes, the bottom line is typically affected
because interest expenses are increased or interest income is reduced due
to lost opportunities.
Process Risk Bottom Line Impact ERP or Manual Control Advanced Controls Solution
Inappropriate
access to change
payment terms
Invoices paid sooner than
necessary per policy
Require approval for
changes to payment
terms
Define rules to review changes to payment
terms and report to management when
changes are made
PROCURE TO PAY
ORDER TO CASH
Process Risk Bottom Line Impact ERP or Manual Control Advanced Controls Solution
Incorrect credit
memos
Credit memo errors
cause customer payment
delays
Review reports and follow
up on credit memos not
created timely
Develop rules that will prevent incorrect
entry of customer credit memos
CASE STUDY A health services organization that recently considered advanced
control solutions provides an illustration of a return-on-investment
(ROI) calculation. The organization, with more than 1 million customers,
examined the potential bottom-line affect of advanced controls in a
detailed study late in 2012. Based in part on the ROI analysis, the company
formed a plan to implement advanced controls during its ERP upgrade
project and began implementation in the first quarter of 2013.
In 2012, the organization was interested in increasing its focus on
controlling administrative costs, in part because of healthcare reform.
At the same time, it faced increased risks because of its growth through
acquisitions and geographic expansion, and it was planning an ERP
upgrade in 2013.

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
“The organization was
overly dependent on manual
controls, which were
inefficient and exposed
the company to fraud and
spending leakage.”
The organization faced several problems. The organization was overly
dependent on manual controls, which were inefficient and exposed the
company to fraud and spending leakage. The company had 40 to 60 users
spending four to six weeks per year on testing, and it could take as long
as three years between testing cycles for duplicate invoices. It was also
difficult for the company’s users to track changes to key setups and values,
such as chart of accounts, Social Security numbers and other master data.
The company lacked automated detection, remediation and prevention of
segregation of duty (SOD) violations. And its IT staff had to spend too
much of its time tracking patches and upgrades.
The opportunity for benefits from implementing advanced controls was
calculated in four quantifiable areas:
• Reduced fraud, waste and abuse
• Redirected external auditing fees
• Redirected internal auditing effort
• Decreased IT effort during routine upgrades
The ROI analysis established baseline figures for each area and calculated
improvements based on data from the company and industry averages,
including figures from the Perspectives in Health Information Management
journal and studies from Gartner, Forrester, Foley Lardner, Financial
Executives International and Compliance Week.
The analysis concluded that advanced controls would drive benefits in
three main categories for the company:
• Continuous monitoring of key financial controls that direct efforts
to recover or prevent fraudulent transactions
• Reduced exposure to access security risks for fraud, waste and
abuse
• Improved business processes and reduced effort spent on manual
controls
The analysis calculated a range for the possible financial benefit outcomes
in each of the four quantifiable areas, with a conservative estimate, a most-
likely estimate and an optimistic estimate. The analysis showed, under
the most-likely estimate, that the company would reach the break-even
point by using Advanced Controls after 26 months. And after five years,
the most-likely estimate showed a total net benefit of $2.4 million, using a
Net Present Value calculation, which translates to a 259 percent ROI.

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
Item Conservative Most-likely Optimistic
Recurring benefits $ 2,062,331 $ 3,130,656 $ 4,800,537
One-time benefits $ 146,484 $ 195,300 $ 244,141
Ownership costs $ (925,599) $ (925,599) $ (925,599)
Net financial benefits $ 1,283,216 $ 2,400,357 $ 4,119,079
Return on Investment (ROI) 139% 259% 445%
Break-even point (months) 33 26 20
CASE STUDY: FIVE-YEAR QUANTIFIABLE COST AND BENEFIT OUTCOMES
If your organization is considering whether it could benefit from advanced
control solutions, it makes sense to perform your own ROI analysis. But
even before the analysis, answering some basic questions can help with
the decision-making process. Ask yourself: How significantly is the bottom
line affected by cash leakage at your organization? Does your company
have the risk indicators that point to a need for advanced control solutions?
The following self-assessment provides a thought-provoking guide to
whether your organization might benefit from advanced control solutions.
SELF ASSESSMENT

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IMPROVING THE BOTTOM LINE WITH ADVANCED CONTROLS
# Question Yes or No
1 Has your organization had any recent, significant ERP system changes such as a major upgrade,
chart of accounts redesign or changes in ERP vendors?
2 Does your organization have multiple ERP systems?
3 Is your organization considering or planning any initiatives to streamline processes across multi-
ple ERP systems, and/or to provide consistent metrics across ERP systems?
4 Has your organization had any recent, major process changes (e.g., integrated purchasing and
payables activities, integrated human capital management and payroll activities)?
5 Do any of your organization’s sub-processes have a significant percentage of manual transac-
tions or activities? For example, are a large percent of vendor invoices entered manually?
6 Is your organization considering or planning any initiatives to improve process efficiency and
effectiveness through such activities as further automation?
7 Has your organization encountered business process errors that require significant time to inves-
tigate and resolve the errors?
8 Has your organization either encountered fraud or suspected fraud related to your business
processes?
9 Has your organization’s auditors identified any opportunities to make significant improvements
to your business processes?
10 Has your organization recently moved toward a shared-services model or moved away from a
shared-services model?
11 Is your organization considering or planning any initiatives to improve cash flow or to improve
working capital?
12 Is your organization considering or planning any type of upgrade to your ERP system (i.e., techni-
cal, functional, new modules, transformation)?
Count the number of “yes” answers, then assess your organization as follows.
11-12: Extremely high benefit to your organization from using advanced control solutions
8-10: Very high benefit to your organization from using advanced control solutions
5-7: High benefit to your organization from using advanced control solutions
3-4: Medium benefit to your organization from using advanced control solutions
0-2: Low benefit to your organization from using advanced control solutions
Bonus Question: If you answered yes to question #12, your organization is a prime candidate for advanced
control solutions.
WOULD MY ORGANIZATION BENEFIT FROM ADVANCED CONTROL SOLUTIONS?

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Industry experts predict that advanced control solutions will provide
companies with several new capabilities in the future, as the solutions are
developed further and become more sophisticated.
One feature being considered is incorporating closed-loop recovery audits
into the solutions, so advanced controls will not only detect incorrect
payments but also provide a single, enterprise repository and related
workflows to manage and track recovery projects.
Future advanced control applications will likely use high-end analytics,
such as “big data” techniques to evaluate large transaction system data
sets for anomalies and suspicious correlations and “machine learning”
concepts to create controls that learn from the data.
Another area where advanced controls of the future are expected to have
an impact is by integrating their automated risk monitors with enterprise
risk management. Under this concept, exceptions to advanced controls
would be linked to documented risks as part of the risk assessment process.
In the future, advanced controls could provide digital assessments of risk to
enhance an organization’s annual risk assessments with more data-driven
approaches. The controls could also enable external audit functions to
go far beyond their traditional random sampling approaches by providing
near-complete data coverage.
And advanced controls of the future will probably be capable of digesting
multiple types of heterogeneous data sources, increasing the accuracy of
the controls in finding exceptions.
Process transaction issues—from errors, fraud and inefficiencies—cause
cash leakage and similar problems. These problems can have a dramatic
and material impact on the bottom line. The definite, direct impacts
include duplicate vendor invoices for the PTP process, and incorrect
credit memos for the OTC process. Problems with a less direct but also
significant impact include split purchase orders for the PTP process and
unreasonable payment terms under the OTC process.
WHAT DOES THE
FUTURE HOLD?
CONCLUSION

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Advanced control solutions identify these issues—both those that have
the direct, measurable effects on the bottom line, and the problems with
a less direct impact. Advanced controls alert management to these issues,
remediate the problems and close the issues after they are resolved. They
provide continuous monitoring, and they provide flexible solutions that
can quickly adapt as process requirements evolve.
Advanced controls are not limited by the transaction volume of an
organization—they monitor every transaction, whether the volume is 100
or 100 million. The solution provides bottom-line benefits to all companies,
and particularly those with high volumes of transactions or high value
amounts per transaction. Beyond the bottom line, advanced controls also
allow companies to evolve their finance functions to provide strategic
insight into emerging internal trends to better manage operational risks.
Recovery audits also help with cash leakage issues, identifying
overpayments and related AP issues and collecting those overpayments
on behalf of the client. ROI for a recovery audit is relatively simple to
calculate, and leading recovery audit firms conduct audits that are paid on
a contingency basis.
Advanced control solutions and recovery audits are both recommended as
best practices, and adopted by best-in-class organizations. As organizations
consider whether to adopt advanced control solutions, they should consider
their individual circumstances and whether they’ve encountered the issues
outlined in this white paper. They should also study the potential ROI, and
weigh the experience of best-in-class companies and industry leaders that
have adopted advanced controls.
Improving the Bottom Line with Advanced Controls is published by CFO
Publishing LLC, 51 Sleeper Street, Boston, MA 02210.
August 2013
Copyright © 2013 CFO Publishing LLC. All rights reserved.