By David Griffiths, CEO at FISCAL Technologies 

When executed correctly, the right Purchase-to-Pay (P2P) system results in increased efficiency, cost savings, and increased financial and procurement visibility. However, today’s organisations face an unprecedented rise in risks to their P2P cycle because of old legacy technology. Alongside this, never before has the impact of regulations and supplier non- compliance been higher. The increasing speed and complexity of transaction processing further add to the challenge of protecting an organisation from payment risks, fraud, and compliance breaches.

As such, relying on traditional controls and audits is no longer sufficient and it’s time to adopt a new holistic view of P2P risk management. Below are the five proactive steps that organisations can take to address the risks, reduce costs and drive process improvement –while boosting the effectiveness of purchase-to-pay operations and enhancing the role of the finance department as a business enabler.

1. Fortify your controls with daily self-auditing 

Traditionally, internal and external auditors have been the guardians of risk assessment, supported by three-way matching, other basic controls and reporting to find anomalies. This is no longer sufficient to protect spend in the continuously evolving business world.

The retrospective nature of audits means that corrective action is taken after the event so the irregularities and errors found have been in place since your last audit. Furthermore, most risks are in transactions below the value that audits review. In many cases this means that working capital has left your account and will only be identified 12 months later when the next audit takes place, if even at all. During this time your working capital is not working for your organisation. In addition, there are more ways to receive invoices and to make payments, which of course introduces more payment errors and fraud. Automation can speed up the reviewing process, but it often leads to fewer people reviewing transactions, which passes responsibility for protection to audit teams.

A solution to this is to empower your teams to self-audit, through technology implementation. Enable them to be proactive in their identification and analysis of irregularities, to remove the reliance on audit teams, and to reduce the lifespan of any issues found to 24 hours.

P2P teams should work hand-in-hand with internal and external auditors to strengthen the organisation’s overall system of controls. By applying agreed control measures continuously, the impact of issues identified is reduced and annual audits run more smoothly.

2. Supercharge your actionable insight

Every system deployed within the finance function will generate its own set of reports and dashboards, so there are typically too many disparate reports being generated by multiple systems at present and these reports are often too general and don’t highlight the most important P2P specific risks. Business Intelligence (BI) tools are churning out more information than ever before, but these can be time-consuming and expensive to maintain and most of the reports they produce don’t offer a deep enough analysis to uncover root causes and new insights. The paradox is that all this information and data being generated is actually obscuring the view of what matters most when it comes to identifying unknown risks and provides little in the way of actionable insight. This inevitably makes the P2P process more vulnerable to risks.

Finance departments need to be able to find, understand and then act upon irregularities in the P2P transactions they process. When analysed correctly, this data will provide insight into specific risks and any shortfalls in the P2P process for both immediate and long-term benefit.

Using continuous monitoring, deep forensic analysis and artificial intelligence capabilities to find exceptions will provide the specific insight needed to drive process improvements in a P2P team seeking strategic risk and cost reduction imperatives.

3. Add oversight to your automation

In the rush to automate repetitive P2P processes, companies are now foregoing much of the monitoring that previously came from human involvement and are not replacing it with anything else.

It is estimated that in 75% of cases, a large organisation’s spend is now protected mainly by automated three-way matching, a 40-year-old standard control that can be bypassed in a number of ways and is now wholly inadequate for a modern finance organisation. This coupled with increased reliance on automation systems that don’t manage exceptions well and supplier portals and other changes to the P2P landscape have changed the risk profile.

Some of the time saved by automation must be used to oversee your operations – ensuring there are robust controls protecting working capital is equally as important as automation.

Giving finance teams the tools they need to continually analyse automated payments, and interrupt and act on risks before they have any impact is the most powerful control you can implement, and will radically reduce payment errors and associated costs.

Automation is essential, but oversight, exception handling and the insight to improve processes will provide the efficiency gains and working capital protection that automation alone cannot.

4. Step-up your fraud prevention

The risk of fraud is growing rapidly. It is growing in tandem with the complexity in P2P operations and pressure to reduce costs in supply chains. New technologies enable fraudsters to carry out ever more sophisticated scams and automation has removed countless human checks, alongside it, removing opportunities for people to spot anomalies. Organisations are also battling with overall increased complexity of financial operations, inadequate procedures for maintaining the master supplier file and a global supplier base which can expose gaps in control processes.

Against this backdrop, the absence of a coordinated and comprehensive company-wide fraud strategy leaves organisations dangerously exposed.

The P2P team must become the cornerstone of an organisation’s fraud risk reduction strategy, generating insight from the P2P data that only they hold. This will identify potential fraud all the way up the supply chain.

For example, continuous and proactive master supplier file maintenance is vital to reducing fraud and other payment risks. The key is implementing a standard process that goes beyond periodically deleting inactive suppliers. Procurement and AP need to collaborate and act cohesively on insight found by analysing the P2P cycle as a whole, intelligently identifying high-risk suppliers from cross-functional data.

5. Transform your finance team’s skills profile

As the operating budgets of organisations contract and market pressures intensify, the spotlight inevitably turns to internal “overhead” functions to play a more proactive role in an organisation’s success.

Long seen as a cost centre, back-office functions like Accounts Payable, Purchase-to-Pay and Shared Service Centres now have to generate increasing value through savings, efficiencies and deeper analysis and interpretation of data – not the traditional skills found in transaction processing teams.

Senior finance executives have the opportunity, perhaps the obligation, to develop the skills in their teams to adapt to evolving requirements, to use new technologies, and to contribute more towards their organisation’s strategic objectives.

Executives looking to transform the P2P function into a strategic asset can begin by empowering it with the appropriate tools and authority to generate increased value.

With access to best of breed tools, P2P teams can generate the evidence and actionable insights needed to raise performance and benefit the organisation overall. When invested with a level of authority to match their full potential, P2P teams can fulfil their expanded mandate and offer real strategic insight into company spending and its impact on working capital.

Moving forward

Through supporting your organisation in these five steps to improved effectiveness, you can take the lead in safeguarding your organisation’s supplier spending, driving efficiencies and supporting strategic objectives. To help you improve P2P effectiveness, look for a company that offers a no-cost, no-obligation risk review to provide an independent analysis of your organisation’s P2P spending risks that highlights areas needing increased controls and the potential value of your risk exposure.