Archive for January 2018

Using algorithms to fight supply-chain fraud

Using algorithms to fight supply-chain fraud

More companies are turning to data analytics to detect supply chain fraud.Supply chain fraud is hard to avoid, with the contents of a missing cargo container ending up on the black market or an overseas worker skimming off the top being the inevitable reality of global supply chains.

Companies are increasingly turning to data analytics to detect and stop fraudulent schemes, a recent Deloitte poll found.

Nearly 35% of companies are using some type of data analytics to keep eyes on their supply chains, according to the poll of more than 3,200 professionals from a variety of industries.

That’s an increase of nearly 10 percentage points from 2014, and a sign that more companies, large and small, are adopting complex technologies to closely examine their supply chains.

Companies need to constantly look for fraudulent practices in the manufacturing and shipping of goods, with those looking to steal often as crafty and innovative as the technologies that stop them, said Guido van Drunen, a principal in KPMG’s forensic advisory group in Silicon Valley.

“Fraud goes where there is the least resistance,” he said, comparing fraud detection to a game of Whac-A-Mole. Nip one scheme in the bud and another one pops up elsewhere.

A major advantage of using data analytics to examine supply chain transactions is that detection can happen much faster, said Larry Kivett, CPA, a Houston-based Deloitte Advisory partner in the firm’s forensics and investigations division.

Schemes that might have gone on for years, such as a factory operator setting aside a pallet of electronics for black market sales, can now be found out shortly after the theft begins.

Now, complex algorithms can sift through thousands of incoming invoices and work orders from third-party suppliers to find instances of double-billing, overcharging, and theft.

That saves companies money, especially those with complex, global supply chains with hundreds of vendors and suppliers to keep track of, Kivett said. In many cases, the fraud can be detected before an invoice is paid, instead of having audits years down the road reveal the problem.

Advanced algorithms can also match bills of lading, forms filled out at ports that reflect cargo shipments and times, to ensure that goods are leaving when and where suppliers say they are with the correct number of manufactured products, Kivett said.

“If you can leverage data analysis to help out, you’re getting much earlier visibility” on fraud, he said.

Even DNA has a role. Instead of taking a swipe of a criminal suspect’s cheek, DNA swabs from a crate of clothing can tell a company where a product was produced, and ensure a contractor isn’t surreptitiously having goods made in another factory by underage workers, van Drunen said.

Here are tips from Kivett and van Drunen on how to shore up supply chains to detect and prevent fraud:

Consider the risk. Ignoring problems of graft and theft at factories and subsidiaries isn’t an option, van Drunen said, calling the supply chain the “lifeblood of the company”.

Violations of child labour and corruption statutes could have major implications for a company, with exposure opening up the chance of a public relations disaster and other fines and sanctions. The US Foreign Corrupt Practices Act could also shut down a production line, for example, if a company’s representatives are linked to bribery or other corrupt practices.

That’s why companies, especially those that produce and manufacture goods in areas of the world with looser regulations, need to be diligent in looking for problems.

Go in-house or contract? It all depends on your company’s strengths and weaknesses. Companies with robust technology departments and data scientists may do well to develop their own data analytics and internal controls.

But companies that don’t have a team of analytic experts may want to bring in outside help to examine their processes and make recommendations of how to best monitor their supply chain, Kivett said. “You really don’t understand where your susceptibilities are,” he said.

Experts in fraud can help point out weaknesses and conduct an audit of current controls by using experience of dealing with widespread cases of fraud.

Realise that no one is immune from fraud. Supply chain fraud risk is fairly consistent, regardless of industry and size of the global operation, Kivett said, citing Deloitte research. It’s an indication that companies need strong internal controls and need to periodically examine the controls and see if additional measures are need.

“For organisations, there’s the tendency to say that wouldn’t happen here; we’ve got good people,” Kivett said.

That’s a foolhardy stance to take in today’s environment, especially in a business that depends on cross-border trade and can be infiltrated through cyberattacks or by other means.

WHERE TO LOOK

There’s not a single technology or area to look for fraud, Kivett said. Instead, companies should examine all their processes and try to move as much information to electronic sources as possible.

With data such as timekeeping systems, financial reports, and other information available in a searchable way, companies can periodically examine operations to look for suspect patterns.

“You can see what the baseline patterns are like and identify any anomalies,” he said.

Similarly, companies should make sure new acquisitions and new vendors are using the same internal control and data analysis procedures.

Source : FM

How to develop a global mindset

How to develop a global mindset

Today’s business world is a far cry from yesteryear. An increasing number of organizations operate worldwide, and they are more diverse internally. And that means professionals — including CPAs — must be adept at dealing not only with employees from various backgrounds, but with workers and clients in different countries as well.

But how do leaders ensure that they and their organizations are culturally savvy and prepared to deal with diversity? This was the subject of “Developing Your Global Mindset,” a one-hour talk given by Kim Drumgo, director of Diversity & Inclusion at the Association of International Certified Professional Accountants. Drumgo’s talk was the second in a series of CPA Diversity & Inclusion webcasts aired by the Association.

“In this digital age, geographical borders are no longer clearly defined, so having a global mindset while working globally has become critically important for the success of business leaders, especially in the accounting profession,” Drumgo said following her talk.

Drumgo defines “global mindset” as the “ability to adapt to a culture and influence individuals or groups whose ways of doing business are different than your own.” By having this mindset, by asking questions and engaging in dialogue with others, leaders can improve employee morale, generate greater insight into untapped markets, and gain more credibility with clients. Those who do not develop a global mindset could miss out on client and talent potential, she noted.

She outlined three work environments:

  • Multicultural environments contain several cultures or ethnic groups alongside one another, but who operate independently.
  • Cross-cultural environments include people from different cultures and some acknowledgement of the differences, though one culture remains dominant.
  • Intercultural environments are the “gold” standard for organizations to achieve, as they encompass a deep understanding and respect for different cultures and ideas.

Drumgo also described the “global mindset inventory,” a concept created by the Thunderbird School of Global Management at Arizona State University. Individuals with global intellectual capital or global business savvy have strong analytical and problem-solving skills and an ability to understand international business. Next is global psychological capital, which is an individual’s innate passion for diversity. Then, global social capital is described as a more enthusiastic and outgoing quest to “collaborate with people from different perspectives,” she noted. Those who possess each type of capital are often more effective leaders since they engage and learn across cultures. Psychological capital is the most difficult to grasp as you are “changing your thought process, breaking down biases, and beginning to challenge your old way of thinking,” Drumgo said.

Drumgo offered the following five tips for changing your global mindset:

Forget the golden rule and use the platinum rule. “Treat people the way they want to be treated. Find the positive in other approaches,” she said.

Don’t underestimate the challenge. Dealing with cultural and individual differences can be difficult, and you cannot assume that you know how to handle every situation that can arise. “Having many stamps in your passport doesn’t mean you have a global mindset,” Drumgo said. So don’t underestimate the challenge of leading and working with others across the globe.

Apply multiple strategies. “There isn’t one silver bullet as to how you can interact with everyone. There is not one proven strategy that will help you relate to your entire team better,” Drumgo said. “Applying multiple strategies is really important.”

Be sensitive to differences in language. Communicating isn’t always easy for those who use English as a second language. Be empathetic, kindhearted, and understanding.

Be patient and ask for feedback. “You can’t flip a switch and know how to interact with everyone around the globe,” Drumgo said. “You can’t be everything to everyone all of the time,” she said. “But be the best you can to somebody when it’s time.” Then, she added, you will make a huge difference in developing your global mindset.

Are Innovative Companies More Profitable?

Are Innovative Companies More Profitable?

By at least one measure, the answer is yes.

We recently researched this question across five years of data from 154 companies. Because these companies all used the same ideation management software, we were able to seek correlations between their commitment to innovation and their public financial results, such as growth and profit. (The data about individual participants at each company and about the companies themselves remains private; this study analyzed only public financial information and anonymized company metadata.)

The companies in this study all used a platform that enables employees to share ideas in response to challenges created by management, or comment or vote on ideas shared by others. As we demonstrated in our previous research, the key variable that predicts successful innovation across these companies is ideation rate: the number of winning ideas generated per 1,000 active users. In this context, winning ideas means employee-generated ideas that were finally selected by management for active development and implementation.

We examined the relationship between ideation rate and several publicly reported financial metrics (based on generally accepted accounting principles [GAAP]) for the 28 public companies in our data set for the time period between 2014 and 2016. We found a significant correlation between the ideation rate at these companies and growth in profit or net income: The more ideation, the faster they grew. (See “Profit Growth Is Correlated With More Accepted Ideas.”) While the correlation is far from perfect, this clearly is not a random effect; you’d expect to see a correlation this strong by random chance less than one time in 100.

Each data point here is a fascinating case study. For example, the enterprise with the highest ideation rate was a large health care company in which a highly active ideation program generated 500 winning ideas per 1,000 active users — and where the net profit grew 6% over the two years we studied. And the company in the sample with the fastest-growing profit, a semiconductor company, was generating a healthy 340 winning ideas per 1,000 active users.

The left side of the chart is illustrative, too. When we look at the ideation laggards — companies with ideation rates below 100 winning ideas per 1,000 active users — about half of them had no growth in profits at all.

Growing companies need ideas, and companies that generate lots of good ideas tend to have profitable growth. But it’s unlikely that simply goosing up the ideation rate is what made these companies grow profitably. A more likely explanation is that both healthy ideation and net income growth are a result of a third factor: a culture of innovation.

When a corporate culture is designed not just to encourage innovation but to systematically nurture employee ideas, the results are dramatic. Companies like this boost employee participation in innovation challenges created by management, generate more actionable ideas, and then implement those ideas in a way that generates profitable growth. As a result, you can actually assess the level of innovation at a company on a quarter-by-quarter basis by measuring its ideation rate.

When you visit one of these innovative companies, you can feel a palpable difference in the way the company welcomes ideas from employees.

Consider the case of a company that operates hundreds of medical clinics. Because of the decentralized nature of this business, the company empowers its field workers to solve problems. The mindset of employees is, “I have a voice; my opinion and ideas matter.” So it made sense to tap into that same problem-solving energy across the company to improve operations and efficiency.

For example, a local worker at one of the company’s clinics identified a common problem: helping patients who experience dry mouth during a time-consuming type of therapy but are on a restricted fluid intake. The solution they came up with was to create a spray bottle that was printed with reminders of the best ways that patients could manage their fluid intake — educating the patient with the actual device they were using to cure the dry mouth problem.

Problem-solving of this kind happens in every company. But with this company’s culture of innovation, the workers solving the problem naturally thought, “Who else could benefit?” As a result, they posted their solution on the company’s idea hub, and it eventually became a nationwide standard that improved the patient experience in all the company’s clinics.

Because of the company’s culture, the commitment to innovation spans from the mass of employees to the ranks of management. Ideation challenges put this commitment into practice. Managers show their commitment to the ideation program with internal marketing to drive engagement: They conduct “innovation road shows” locally and use March Madness-style brackets to surface the best ideas in each region. Local winners present their ideas to senior leadership with support from corporate. This way, a nurse in a facility anywhere in the country can get the opportunity to deliver a professional-quality presentation on his or her idea to people who can actually make it effective across all the company’s clinics.

These attitudes have led to a healthy ideation rate and an 11% growth in profit over the two years we studied. But what these numbers can’t measure is the attitude of the staff. At this company — and at all the successful companies we’ve monitored — the culture of innovation is woven throughout the workday. Managers know that ideas will come from the rank and file, while workers recognize that they have an important role to play in identifying problems and spreading solutions that may ultimately affect operations and products far beyond their day-to-day experience. Growth and profitability spring directly from this culture, which energizes employees. As one clinic administrator at the medical company told the people running the innovation challenges, “Thank you so much for what you are doing. I finally feel like we have a voice, and our ideas aren’t dropping into a black hole.”

Another company, EDF Energy PLC in the United Kingdom, had a similar experience. Consumer supply of energy in the U.K. is highly competitive; EDF, which delivers one-fifth of the U.K.’s electricity, has 45 competitors. Its management wanted to harness the ideas of as many of its workers as possible to improve its service to customers, so they launched an ideation challenge to more than 6,000 employees, including meter readers, call center staff, back-office workers, human resources staff, and IT employees.

Because they wanted to show rapid results, they framed the challenge with this question: “What ideas do you have for products and services that can be implemented in the next 12 months?”

The launch of the challenge, using the company’s idea management software, included a high degree of visibility from senior managers, many of whom made sure to comment on the ideas flowing from workers. Constant communication — both digitally and in physical locations — ensured that people remained aware of how they could contribute and how their contributions would be visible to management and colleagues. Over a four-week challenge, employees generated 151 ideas.

“The thing that was most surprising was the number of people who engaged in the process from our operations part of the organization,” said Shetal Edwards, EDF Energy’s head of innovation partnerships. She pointed out that 60% of the ideas came from the operations staff.

After participants had voted on the best ideas, the company selected 10 finalists and brought in professional coaches to help them perfect their presentations to top management, which then selected a winning idea.

The winning idea actually came from a call center worker. This staffer had noticed that a significant number of the company’s complaints came from customers seeking explanations for increases in their electric bills — increases that in many cases were due to new appliance purchases. She suggested creating an app that would enable customers to estimate the likely cost of electricity for new appliances they were considering purchasing.

After that audacious start, EDF has gone on to run many more challenges and has generated many more useful ideas from its employees. It eventually attained an ideation rate of 224 winning ideas per 1,000 active users, one of the highest levels of ideation of any of the companies we tracked.

Our research shows a similar pattern across energy companies, telecom companies, retailers, manufacturers, financial services providers, and health care companies. The companies that have the greatest level of participation have the best ideas. They also have the strongest profit growth. And it all stems from a culture that recognizes that effective innovations can come from a call center worker, a clinic staffer, or just about anyone else in the organization bright enough to identify where the right ideas could make a difference.

Take a hike: Ending client relationships

Take a hike: Ending client relationships

Consider this scenario: A key deadline is nearing, and the client is just now returning your calls and emails. But instead of responding to the open issues, the client indicates there is no real problem and irately demands that services be completed immediately. It is clearly time to end this client relationship.

Many accountants confess to daydreams of uttering “Take a hike!” to a less-than-ideal client. While it may seem like a good idea in the moment, such phrasing is not the most desirable way to terminate a client relationship. However, the process of telling a client to take a hike provides a useful analogy to guide a more professional, less risky end to contentious and cooperative client relationships alike. Treat a client termination as if it were a hike through uncharted lands.

STEP 1: PREPARE FOR THE JOURNEY

Most journeys take expert planning and attention to detail. A client termination requires similar efforts. It is important to remember that both good and bad client relationships may need to end unexpectedly. No signpost indicates when a client relationship takes a wrong turn. The following are tools that may be useful in preparing for an unforeseen client termination:

  • Termination provisions: Including a clear termination provision in an engagement letter, indicating an engagement can be terminated without completion for any reason, can provide significant latitude, if termination becomes necessary. By including such a provision, the CPA firm may reduce the likelihood of a client asserting that the firm cannot withdraw from the engagement.
  • Deadline communication: Clients that are chronically noncompliant with terms of the engagement may need a gentle reminder of their responsibilities in the form of a written communication. Deadlines should be communicated in an engagement letter. A separate stand-alone letter or email may be appropriate if there are concerns about a client’s ability to meet the identified timing. A properly timed communication could even prevent the need for a client termination.
  • Ideal client profile: CPA firms should establish an ideal client profile and regularly evaluate the existing client base against the profile to identify clients that are no longer a fit for the firm. This protocol helps identify potential problem clients before the relationship becomes tenuous.

STEP 2: BE AWARE OF THE DANGERS

Any journey will have its own set of pitfalls and obstacles. The same can be said of client relationships. Though no maps, GPS, or satellite imagery guide a termination, awareness can help CPAs through the dangers of a contentious client relationship. It can be easy to overlook negative indicators, especially if the fees are substantial, the relationship is long-standing, or new clients are hard to find. Even more difficult to overcome are strong interpersonal connections between the engagement team and the client. Recognizing a bias toward retaining a client and being mindful of already serious or mounting issues can be the difference between exiting a client relationship unharmed or falling into a conflict. Common indictors may include:

  • Concerns regarding client integrity.
  • Fee or service complaints.
  • Disputes within the client organization.
  • Untimely or incomplete responses to requests.
  • Negative responses to constructive suggestions.
  • Poor attitude toward internal controls.
  • High accounting or management turnover.
  • Dismissive treatment of engagement team members.
  • Disrespectful treatment of client employees.

While counterintuitive, a client’s rapid success or expansion also could be an indicator that the relationship may need to be reevaluated. The client’s successes may require services and expertise that are beyond the CPA firm’s capabilities. However a proactive plan may prevent the CPA from making unintended errors that could result in professional liability claims, if services were to continue.

STEP 3: MAP OUT YOUR PATH

Whether the end of a client relationship is ambiguous or obvious, a client termination is not complete until it is formalized in a written communication to the client. Guidance on drafting the letter is as follows:

  • Omit the reason for the termination: A termination letter is not the time to win an argument with a client. The letter simply represents a method to inform the client that you are no longer providing services and identify the client’s responsibilities going forward. Explaining why the firm is ending services may only upset the client further or create a problem that previously did not exist.
  • Items for client followupAfter parting ways, your client will need to be pointed in the right direction to complete its journey. The letter should clearly map out the client’s responsibilities going forward and issues that should be raised with a successor CPA. Matters of particular importance to include are deadlines (statutory, regulatory, or operational), internal control weaknesses or breakdowns, and indicators of potential fraud or violations of laws and regulations. If deadlines are missed or a theft occurs and the CPA had not informed the client of those in writing, the client may blame the CPA firm.
  • Fees: At times, clients assert that CPAs knew they did not provide proper services because they do not request outstanding fees. As a result, whether or not you expect to collect unpaid fees, a termination letter should state the outstanding balance of fees due. A final billing statement may resolve any confusion and could be included as an enclosure with the termination letter.
  • Send a hard copy: Advances in technology have made most interpersonal communications nearly instantaneous. Yet, the professionalism and permanence of an actual mailed letter cannot be ignored. Unless there is a looming deadline or other rare situation, a hard copy of the termination letter should always be sent by a method that will confirm receipt by the client. Further, the letter should be sent via a traceable method to demonstrate delivery andreceipt.

STEP 4: FINISH THE JOURNEY

The client termination process is no walk in the park. It involves a commitment of will, time, and professionalism. It is not an easy choice or one that should be made on a whim. Once started, the process should be seen through to completion. The following tips will assist in managing this process:

  • Evaluate your mindset: While it is important to assess the client’s actions in making a termination decision, it is equally important to assess your own mentality once the decision to terminate has been made. The goal of a termination is to lessen or avoid a conflict with a client. Failing to maintain a professional attitude throughout the termination could elicit a client response that results in unnecessary stress, reputational damage, or even a professional liability claim.
  • Stick to the path: Once your services have been officially terminated, do not continue to provide services or reengage with the client for additional services. Allowing a client to talk you into providing services is akin to traversing a bridge that you already know to be perilous. It may seem as though you are performing just one more task before concluding the engagement, but continuing to provide services lessens the likelihood that the client will ever accept that the relationship has ended. Just remember, when the relationship terminates, it is a final decision.

 

9 tips for being more responsive to clients

“One of the top reasons accountants lose clients is because they are not responsive enough,” said Edward Mendlowitz, CPA, partner at WithumSmith+Brown in New Brunswick, N.J.

But being responsive isn’t always easy. CPAs and their firms face daily pressures and have hectic schedules. Clients contact them via phone, email, and text. Multiple clients may want attention simultaneously. And clients may expect their CPAs to be on call day and night.

If communication is light or lacking, sometimes CPAs do not realize that clients are dissatisfied with their level of responsiveness.

How can CPAs and their firms ensure they are being sufficiently responsive to their clients? Leaders in the profession offer the following advice:

  • Return calls, emails, and texts in a timely manner to establish trust. It’s all too easy to push things off until the next day. Many firms have a 24-hour rule, stressing the importance of callbacks or returned emails or texts within that time frame. “I try to return every client phone call by the end of that day,” Mendlowitz said. “Returning phone calls is an indication of availability. Clients want to know that you are there if they have a real serious problem. If a client calls you at an inconvenient time, ask them when you can call them back.”
  • Establish a response policy. Firm leaders should create a policy that explains how quickly clients must receive a response, and then communicate that policy to employees, said Hank Levy, CPA, founder of The Henry Levy Group in Oakland, Calif., and a partner at ELLO, an MGO member firm. Joseph Tarasco, CPA, founder and CEO of consulting firm Accountants Advisory Group in Cold Spring, N.Y., advises firms to drop everything if a client has a crisis. “With competition you have to respond,” he said. “That’s today’s world—everyone is walking around with cellphones, and clients know this.”
  • Choose to communicate in a way that suits your client. Some clients prefer emails; others prefer texts or phone calls. Some want to meet in person. So know how your clients want to communicate. “Respond back in a fashion that will retain that client and keep that client happy,” Tarasco said. Also, reach out to clients occasionally just to say hello, as that can help build relationships as well.
  • Prioritize. Make lists of clients you need to contact and/or respond to. Take advantage of different productivity tools, such as spreadsheets and apps, and keep revisiting and updating your lists, Levy said. Also, if at all possible, don’t delegate client-related tasks that are priorities and time-sensitive. “If you do delegate, make sure you follow up. Do not assume that it will always get done,” Tarasco said.
  • Use language your client will understand. Your clients “are not tax accountants with advanced tax degrees,” Tarasco noted. So avoid sending them jargon-filled emails and instead explain things to them in layman’s terms.
  • If a client wants to meet, do it. If a client requests a meeting, “do not make an appointment for two weeks out,” Mendlowitz said. Instead, try to meet as soon as possible, even the next day if you have time. Doing so highlights your availability and responsiveness. Similarly, don’t write a 10-page email if there is a lot to discuss. In addition to the necessary written documentation, you also should meet face-to-face for something that is important or complicated, Tarasco advised.
  • Be compassionate. Clients should view you as a trusted adviser, and that means being a good listener. “If a client has pain, try to find out the pain and meet with the client to help them through it,” Mendlowitz said. “Empathize with the client and feel what they are going through.” Also, be sensitive to clients’ changing needs.
  • Follow up. Even if a client seems satisfied with your response to issues that arise, contact them again within a few days. Ask, “How are things going? Did it work out as planned? Did my advice help? Did anything else get uncovered?” Tarasco said. “Follow-up is key.”
  • Keep your client roster manageable. While it’s great to add more clients to your roster, having too many can make it difficult to serve all of them in a timely manner and keep them happy, so don’t take on too much. “If you are not responsive to clients, you give them a reason to leave you, look outside, and complain,” said Richard Lash, CPA, managing partner at Walthall CPAs in Cleveland.

Most partners in public accounting firms achieved their success because they were responsive to their clients. “That’s the No. 1 commandment,” Tarasco said. “So if you are breaking that No. 1 commandment, you can’t stay in business.”

Delegating like a boss

It isn’t always easy. Delegating can be difficult because many people link accomplishments with working hard. They may also fear being viewed as bossy or lazy. But delegation can help advance careers. “If you’re focusing on the most important things that need your attention, you’re going to make more impact on the organization and more impact on your career success,” said Joel Garfinkle, an executive coach and author of Getting Ahead: Three Steps to Take Your Career to the Next Level. “Shift the mindset from ‘I’m going to do everything myself’ to ‘I’m going to let people learn.'”

Here’s how to get started:

Think about what you can give up. Consider what only you can do and keep that. Anything confidential, essential, or sensitive likely needs to stay with you. Client meetings might be kept, but scheduling those meetings could be passed along to someone else. But don’t focus on just the mundane tasks, Garfinkle said. Delegate things that will help colleagues enrich their jobs and feel empowered.

Identify to whom you can delegate. People have to have the “skill and the will,” said Lisa Barrington, a workplace strategist and speaker based in Phoenix. An employee with more experience may not be interested, but a lower-level staffer may be willing to take on the task. You can also consider peers at your level, provided they can benefit from the work. Remember that everyone can “get bored if they’re not trying new things or learning new things,” Barrington said. Of course, beware of overloading someone.

Do the heavy lifting early. To ensure the task is done properly, delegating requires ongoing communication. First, explain that this as a growth opportunity, provide detailed instructions, and be specific on outcome expectations. “The more you’re involved upfront, the less time you need to be later on,” Garfinkle said. Then, set up check-ins to discuss progress and issues. Express gratitude for a job well done.

Alter guidance. Be available for questions, and be willing to make adjustments as needed. Then, as the person masters the task, reduce your oversight. “You can pull back on the direction to more of a guide,” Barrington said. Then, let them “come to you if they need to.”