Cost Excellence

Customer Default

Many FMCG companies have direct debit agreements with stockists/distributors etc. Frequent dishonor of commitment leads to adverse impact on the cash flow. It is important to watch for warning signs. It encourages to maintain good data.

Quadrisk’s solution predicts customer default by analyzing number of variables that impact customer’s ability to pay invoice.By closely monitoring a customer’s payments and credit scores, it is possible to anticipate a default.

Quadrisk uses Predictive Analytics and Machine Learning to achieve high accuracy.

Spend Analytics: Detailed insight into procurement spends using machine learning

The Client – The client is one of world’s largest consumer goods company

The Challenge –

  • Detailed analysis of Spend is not available because classification not done accurately at the time of transaction

  • More than 50 million transactions

  • For the previous year, the classification was done manually by 50 people over a period of 2 months.

The Solution – ​

  • Spend classification using machine learning algorithms

  • Cost analysis through interactive visualization and building spend cubes

  • Internal and external benchmarking

  • Monitoring variance from budget by definition of cost drivers

The Outcome – Real and sustained cost reduction using machine learning through detailed insight into procurement spends​

Does the Board ask the right questions????

By CA Anand Prakash Jangid

Off late, I question myself that whether Board or audit committee worldwide ask relevant questions to their counterparts. With Corporate scandals and Frauds impacting organization worldwide, what is that we are missing? We have so many standards & framework….But something is missing. I thought why not “crowd sourced” a list of questions which board needs to look forward from audit and risk management perspective.

 

So, Let me try to put a few of them here and would request everyone to comment on the same… Let’s keep it from the Board perspective and I would finally compile the list and share with all.

So here are my Initial 6 questions:

  • How do we manage our risk PROACTIVELY??
  • Do we have separate functions like internal audit, External audit, Compliance, Risk management, IT security, Analytics or Integrated???
  • Is each function aware of their role and responsibility? Are there any conflict or overlap. Whom do they report to???
  • Do our teams have access to best in class training and next generation Risk management tools like Big Data analytics?
  • How do we Proactively Manage Fraud & reputation Risk?
  • How current are the audit universe and methodology?

Counter Threat Finance- New way to Deal with Terrorism worldwide

by CA Anand Prakash Jangid

Terrorist groups vary widely, ranging from large, state-like organisations(ISIS) to small, decentralised and self-directed networks. Terrorists financing requirements reflect this diversity, varying greatly between organisations. Financing is required not just to fund specific terrorist operations, but to meet the broader organisational costs of developing and maintaining a terrorist organisation and to create an enabling environment necessary to sustain their activities. Also there are Failed States like Pakistan and some Middle Eastern countries who actively support this organization through their financial Infrastructure.

 

This threat includes small terrorist cells or individual terrorists capable of committing attacks and significantly harming society. It is therefore important to identify and dismantle the financial networks of all types of terrorist groups.

 

Terrorist organisations use funds for the following broad categories:

 

Operations: Terrorist organisations require funds to carry out specific terrorist attacks and undertake pre-operational surveillance. This includes travel to and from the target location, the use of vehicles and other machinery and purchase of a range of arms from light assault weapons to improvised explosive devices (IEDs). Funds are also required for false identity documents and basic living expenses such as accommodation, food and basic medical treatment. Terrorist organisations also need funds for personnel such as couriers to send messages or to transport cash within the country.

 

 

Propaganda & recruitment: Terrorist organisations require funding to successfully recruit members and raise funds, which can be expensive as this recruitment process involves using different means. The use of the Internet provides a less expensive mechanism to facilitate the initial steps of recruitment, but the follow-up actions require additional costs. The exploitation of social media for the purposes of terrorist recruitment and propaganda has become a priority Counter threat Finance(CTF) issue. While many terrorist organisations have exploited social media to solicit funds from supporters, more complex terrorist organisations are investing funds in sophisticated Propaganda war like we see in Kashmir in India where this is financed by Pakistan state.

 

 

Training: All terrorist organisations seek funds to enable training of operatives and sympathisers in a number of areas including, weapons training, bomb-making, clandestine communication and ideology. In this context, terrorist groups often acquire land for use as a training camp, buildings as a safe haven for both trainers and trainee and to provide training facilities. Virtual training is also conducted via the Internet in order to reach a wide range of sympathisers.


Salaries and Member Compensation: Many terrorist groups set aside funds for the salaries of their leadership and members, as well as for the families of jailed or deceased members. Providing financial security and incentives to group members can cement commitment to the organisation’s goals and ideology. Terrorist groups may also provide long-term financial support to the families of deceased operatives.

 

Social Services: Many terrorist groups use their financial resources to establish or subsidies social institutions that provide health, social, and educational services. Terrorists do this to undermine the credibility of the legitimate governments – by providing services that they say the state is neglecting – and to build support within local populations and aid recruitment efforts.

 

 

Time has come to use the “Counter Threat Finance” approach and Methodology to dismantle the Terrorism Financing approach Worldwide.

Will “SKYNET” take over the Audit Profession….? No, But it will change it forever……

By CA Anand Prakash Jangid

I was very fascinated by my recent interaction
with fellow risk professionals and Chief Audit Executives from around the world
to attend the IIA international Conference at Network.  The reason for my
fascination was the new interest in using Big data and Artificial intelligence
in Risk management & Audit functions. There were a lot of enthusiasm as
well as concerns of having the “old wine in new bottle”.

15.0pt;vertical-align:baseline’>Robots and world domination have long been the
reserve of Hollywood and what-if scenarios — right up there with the zombie
apocalypse and alien abduction. An intelligence system like Skynet, aka
the “Global Digital Defense Network” that features prominently in the
Terminator franchise, starts to feel like an increasingly real possibility.
15.0pt;vertical-align:baseline’>Moore’s Law famously estimates that
computing power approximately doubles every 18 months. By that measure, a
computer with the processing power of the human brain could be a reality as
early as 2025! Now let’s see if we can harness this for Risk and Audit
functions in our organizations
15.0pt;vertical-align:baseline’>I heard an interesting panel discussion where
CAE of a large insurance company mentioned that his team spends more than 50 %
of their project time in cleaning the Audit data. That’s a criminal waste of
the finite resources which the risk and audit team have. But that’s the new
reality as we move into a “DATA ECONOMY”. We are generating data (both
Structured and unstructured at a pace which is mind blowing.
15.0pt;vertical-align:baseline’>Now it’s on us Audit & Risk Professionals
to figure how we harness the power of Big Data and Artificial intelligence.
There are many use case which I discussed and also learned from my fellow
professionals. I am sure that the time has come to use the power of “Big Data
& Artificial intelligence” in the Risk & audit functions to ensure we
deliver effective and efficient services to our stakeholders.
15.0pt;vertical-align:baseline’> I think the time is right to change our
perspective on how we handle the Risk and Audit functions and disrupt the
status quo as there go a saying –
15.0pt;vertical-align:baseline’>“You can’t do today’s job
with yesterday’s tools and still be in business tomorrow”
15.0pt;vertical-align:baseline’>Also I would be sharing more of my interesting
insights with you all in future post including some real cool use-case of using
“Big data and AI”.  Let me know your
thoughts at Anand@quadrisk.com

Why the “The future of Auditing & Risk Management” is no longer what it used to be!!!!


By CA Anand Prakash Jangid

Off late, professionals in the field of risk management and auditing have started experiencing an interesting phenomenon of a different future then what was perceived by
the thought leaders in this field to be 
the futureOne of the key challenge is the changing
business dynamics as well as the expectation from the profession. Gone are days
when Auditors were just” watchdog” and not a “blood-hound”.
But with increasing compliance and expectation worldwide have led to auditors
to start act as “blood-hounds”
One area particularly which became an offshoot of this was fraud risk to an organization. It is important in today’s world for auditors to be proactively involved in Fraud detection and prevention with the help of techniques of data analysis. The techniques of data analysis help in transformation of audit fundamentally and also improve our approach towards audit. Traditional Audit is a cyclical process which involved assessing and testing controls, identifying control objectives, performing tests in a manual manner also sampling population being considerably small to measure control effectiveness. Auditors being proactive help in carrying out number of activities that help in acquiring better quality of data which in turn results in better analysis and final output. Fraud Analytics is an analytical process that gives insights from operational, financial and many other internal as well as external electronic data. It could be Real time data or even historical data which is usually risk focused. To conclude, its results help us to identify key risk areas, errors, misuse, fraud, verify process effectiveness, improve business efficiency and also influence business decisions.

Can COBIT 5 helps us in the challenges of Companies Act, 2013?

By CA
Anand Prakash Jangid and CA Anish Jain

 INTRODUCTION

15.0pt;vertical-align:baseline’>Change
is a key to growth and success. The same is applicable to our enactments also.
If enactments do not change with time, they will lose their value and
effectiveness. We have already observed incidents that have been reported due
to ineffective law effectiveness and enforcement. Talking of such change in
regulations, there is a lot of buzz around the amendments and additions made in “THE
COMPANIES ACT, 2013”
. We are going to discuss the following: –

  • What is COBIT 5?
  • How COBIT 5 is related
    to Companies Act, 2013?
  • What are the challenges
    posed by Companies Act, 2013?
  • How COBIT 5 can be used
    to face those challenges?

15.0pt;vertical-align:baseline’>INTRODUCTION TO COBIT 5

  • Meeting stakeholder
    needs
  • Covering the enterprise
    end-to-end
  • Applying a Single,
    Integrated Framework
  • Enabling a Holistic
    Approach
  • Separating Governance
    from Management
  • 15.0pt;vertical-align:baseline’> 

    15.0pt;vertical-align:baseline’>Regulations
    like Companies Act, 2013 and other governs the operations of an enterprise by
    defining the limits or boundaries within which organization needs to operate.
    However, all the operations of the enterprise can be categorized in two
    categories i.e. IT related processes and Non-IT related processes. COBIT
    Framework governs and manages the IT related processes. For large companies,
    more than 70-80% of their processes are IT-enabled. Hence internal controls are
    automated or semi-automated to a large extent. COBIT framework can help to put
    a process to design, implement and monitor internal controls on a sustainable
    basis. So, what we conclude from here is an enterprise using COBIT Framework
    can operate in best possible manner within the boundaries defined by the
    regulation i.e. provisions of Companies Act, 2013 and that’s how they are
    related to each other.

    15.0pt;vertical-align:baseline’>CHALLENGES POSED BY COMPANIES ACT, 2013

  • a) There shall be
    attached to statements laid before a company in general meeting, a report
    by its Board of Directors, which shall include a statement indicating
    development and implementation of a risk management policy for the company
    including identification therein of elements of risk, if any, which in the
    opinion of the Board may threaten the existence of the company.
    (Sec-134(3n))
  • b) The Independent
    director shall help in bringing an independent judgment to bear on the
    Board’s deliberations on risk management resources and satisfy themselves
    that financial controls and the systems of risk management are robust and
    defensible. (Sec-149(8))
  • c) Every audit committee
    shall act in accordance with the terms of reference specified in writing
    by the Board which shall inter alia include evaluation of internal
    financial controls and risk management systems. (Sec-177(4)(vii))
  • d) Such class or classes
    of companies as may be prescribed shall be required to appoint an internal
    auditor, who shall either be a chartered accountant or a cost accountant,
    or such other professional as may be decided by the Board to conduct
    internal audit of the functions and activities of the company.
    (Sec-138(1))
  • e) The auditor’s report
    shall state that whether the company has adequate internal financial
    controls system in place and the operating effectiveness of such controls.
    (Sec-143(3)(i))
  • 15.0pt;vertical-align:baseline’>SOLUTION FROM COBIT 5 FRAMEWORK

    15.0pt;vertical-align:baseline’>Solution
    for the given challenges is as follows: –

    15.0pt;vertical-align:baseline’>Step 1: Identify Stakeholder Drivers

    15.0pt;vertical-align:baseline’> 

    15.0pt;vertical-align:baseline’>Stakeholder
    need is to comply with all the provisions.

    15.0pt;vertical-align:baseline’>Step 3: Relate Needs to Enterprise Goals

  • a) IT compliance and
    support for business compliance with external laws and regulations.
  • b) Managed IT-related
    business risks.
  • c) IT compliance with
    internal policies.
  • 15.0pt;vertical-align:baseline’>Step 4: Align IT-Related Goals with Enterprise goals

    1. a) Compliance with
      external laws and regulations.
    2. b) Compliance with
      internal policies.
    3. c) Managed business risk
      (safeguarding of assets)
    4. d) Business service
      continuity and availability.
    5. e) Optimisation of
      service delivery costs.

    15.0pt;vertical-align:baseline’>Step 5: Select Processes based on IT-Related Goals

  • a) Ensure Governance
    Framework Setting and Maintenance.
  • b) Manage Service
    Agreements.
  • c) Ensure Risk
    Optimisation.
  • d) Ensure Stakeholder
    Transparency.
  • e) Manage the IT
    Management Framework.
  • f) Manage Risk.
  • g) Manage Security.
  • h) Manage Changes and
    many more….
  • 15.0pt;vertical-align:baseline’>Hence,
    COBIT 5 Framework proves to be the ideal framework for any enterprise to adopt
    and get the desired results (value creation) in form of:

    • Benefits Realisation
    • Risk Optimisation
    • Resources Optimisation



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    Big Data – The Next Big Thing for Finance Professionals

    Diversification as to, how the decision making strategies
    are being influenced, is being witnessed. Reliance on Big Data by companies for
    decision making is gaining momentum. Hence it is very important to influence
    all to think analytically, think strategically in a total context, deliver
    insight through analytics, monitor organisational performance in an analytical
    context, develop innovative business models and use analytics to transform
    finance. A CA can diversify his services and provide management consultancy
    services in providing Big Data Solutions to the client. A CA being exposed to
    variety of business, data, knowledge etc. would be considered the right person
    to provide solution for a company to implement Big Data Platform. Creativity is
    the main factor for arriving at a able design of the framework. Hence it is
    necessary to think out of the Box. Chartered Accountants now have the capacity
    for rendering a new breed of services which would lead to immense growth and
    development in the society.

    History

    Civilisation has been built on the foundation of
    preservation of records and dependence on these records. Hence the importance
    of identification, Analysis and Storage of records and data was recognized by
    the dwellers of the past. Ever since, ‘Data’ has been the next most important
    resource as ‘Time’ being the most important one to mankind. Data has been given
    high relevance from then on.

    Data includes any piece and bit of information which can be
    recorded and stored to be put in use in the future. Civilization has realised
    that efficient utilization of data would lead to effective growth. And over the
    years man has continuously putting efforts to make the best use of data. New
    ways of capturing data and analytics of the data is being constantly evolving
    and has now become a field itself. Many terms have been coined for these series
    of activities. Some of them are Data Warehousing, data analytics and presently
    is being termed as Big Data.

    Big Data Analytics

    The industry now has a buzzword, “big data,” for
    how we’re going to do something with the huge amount of information piling up.
    “Big data” is replacing “business intelligence,” which
    subsumed “reporting,” which put a nicer gloss on
    “spreadsheets,” which beat out the old-fashioned
    “printouts.”

    Big Data is a scientific field of information analysis
    wherein the following processes are part. They are –

    • Data
      Identification
    • Data
      Source Identification
    • Data
      Storage
    • Data
      Categorization
    • Data
      Analytics
    • Data
      Reporting
    • Life
      of Data

    Big Data Analytics is now a huge field of Business itself.
    Big data is a more complicated world because the scale is much larger.
    Sophisticated tools have been developed to compliment Big Data Analytics. Open
    Source tools such as Pentaho, Hadoop, Tabeleau, Splunk etc. are powerful tools
    used for Big Data. Companies have been incorporated with the purpose of
    providing Big Data Solutions.

    Who uses Big Data?

    The Big Data revolution began immediately soon after the
    advent of the Word Wide Web. Ever since the e-platform was built and stabilized,
    techniques of using the Internet for Business was developed, and thus, a new
    market-place was born. Companies who use this market for their business
    operations use big data to achieve the following objectives –

    • Demand
      and Supply Analysis
    • Improvisation
      of the Product Life cycle
    • Better
      rendering of services
    • Market
      Research
    • Customer
      Behaviour
    • Decision
      Making
    • Market
      Diversification
    • Market
      Penetration
    • Product
      Penetration

    There are many classic examples of companies who make of
    data to achieve the growth that they currently are having. Some examples are as
    follows –

    • Flipkart,
      e-bay, Amazon (e-commerce giants) use big data to understand the needs of
      the consumer and hence always publishes those products on their respective
      websites for sale at a price that the customer cannot refuse.
    • Google,
      Microsoft, Yahoo use big data to understand the browsing patters of the
      customer and make sure to target the correct advertisements that would be
      needed to the user. Even their search engines provide those results,
      against the search phrase inputted by the user, which are of high
      relevance and would solve the problem faced by the buyer.
    • Facebook,
      Google Plus and other social networking sites use big data for the purpose
      of Consumer behaviour and give those advertisements, communities, pages
      etc. that would favour the user.
    • Telecom
      Companies use Big Data to understand the Calling, SMS, Internet and
      Roaming Patterns of their customers in order to provide better call
      tariffs and plans so that they capture the entire market.

    From the above, one can conclude that, companies use big
    data so that they are able to capture the customer and more importantly, retain
    the customer.

    Drawbacks of Big Data

    Big data in the present era makes use of a lot of data for
    analytics and storage. This means that the Confidentiality and Privacy of data
    is now questionable. Privacy concerns are being developing as personally
    identifiable information is used for analytics. Big Data, no doubt is a
    powerful tool, but if misused, then the effects can be proven hazardous.

    Numerous regulations have been passed by the legislation of
    various countries to protect the integrity and availability of data and thus
    the confidentiality and privacy of the data is secured. This entire acts of
    restrictions have given rise to a whole new concept which is called as “Data
    Localization”.

    Data Localization, in simple words, refers to applying of
    restrictions on the travel and storage of Data to the limit of a geographical
    boundary.

    Analytics from big data may not be always right due to the
    constantly changing macro and micro factors of environment and change of human
    behaviour.

    Misuse of Big Data Analytics would lead to the following
    other drawbacks –

    • Wrong
      sale of product and services
    • Advertisement
      Abuse
    • Sale
      of Personally identifiably information.
    • Financial
      Losses

    Big Data Analytics as
    a Fresh area of Consultancy

    It is clear that companies harness the power of big data
    analytics for their growth and Market Presence. It is however not clear to
    those companies as to “Which is the best way to make use of Data”. There was a
    proliferation of so-called unstructured data generated by all of the digital
    interactions, from email to online shopping, text messages to tweets, Facebook
    updates to YouTube videos. According to computer giant IBM, 2.5 Exabyte’s –
    that’s 2.5 billion gigabytes (GB) – of data was generated every day in 2012.

    Data is only as good as the intelligence we can glean from
    it, and that entails effective data analytics and a whole lot of computing
    power to cope with the exponential increase in volume.

    Big Data and business analytics are two of the most exciting
    areas in business and IT these days — but for most enterprises, they are still
    developmental. Although the opportunities are boundless, the road to an
    effective Big Data operation is fraught with challenges. Here are some of the
    obstacles companies are being encountered –

    • Budget
    • Data
      clean-up
    • Data
      Retention
    • Business
      and IT Alignment
    • Developing
      new talent

    A Chartered Accountant plays a vital role in assisting
    businesses to improve the use of their resources, increase their efficiency and
    achieve their objectives. As a management consultant CA can also identify,
    evaluate and recommend ways to increase revenue and reduce operating costs,
    analyse operations and suggest changes in structure and individual
    responsibilities, conduct special studies, prepare recommendations, plans and
    programs, and provide advice and technical assistance in their implementation.
    Chartered Accountants by application of their technical knowledge and business
    experience have been able to cater to the client’s changing needs.

    With reference to Big Data Analytics, A CA can render the
    following Management Consultancy Services –

    • Big
      Data Pre Implementation Preparation
    • Big
      Data Analytics Framework Design
    • Big
      Data Design of Dashboards, Reports and Visuals
    • Big
      Data Assurance

    Big Data Pre Implementation Preparation –

    A CA based on his knowledge, skills and judgement can
    firstly help the company to facilitate a smooth big data implementation. While
    accomplishing this goal seems realistic given the progression of technology and
    the commoditization of infrastructure, there are common pitfalls that
    companies, in particular, need to avoid when planning and implementing a big
    data program. By avoiding these drawbacks, outcomes can enhance an
    organization’s analytical insights and decision support processes. –

    • Developing
      a business case
    • Maximizing
      data relevance
    • Correct
      Estimation data quality
    • Ensuring
      data granularity is not overlooked
    • Contextualizing
      data in the correct manner
    • Grasping
      Data Complexity
    • Facilitating
      data preparation
    • Creating
      organizational maturity at the correct stage
    • Design
      of data governance methodology
    • Consideration
      of Privacy Laws and Data Localization Laws
    • Leveraging
      on cloud service vendors for implementation of Big Data platform

    Big Data Analytics Framework Design –

    Preparation for the implementation has to be given the most
    importance and due care is to be taken for smooth implementation of the Big
    Data platform. It is the very foundation and depending on the strength that is
    present in the foundation, further expansion of the platform can be performed
    smoothly.

    The next step is the design of the Analytics Framework. A CA
    can add maximum value addition as designing the analytics model is the very
    solution for the Big Data Platform. This model has the following components –

    • Data
      Identification
    • Data
      Categorization
    • Linking
      of Data
    • Analytics
      on the data – It includes performing calculations, ratio analysis, trend
      analysis, linking of data etc. A CA can leverage the analytical methods
      that has been given under Standard of Audit 520 which is about Analytical
      Review Procedures.
    • Design
      of a scoring system and a decision making criteria
    • Design
      of Reports

    All of the above constitute the model/framework which would
    be then tested with data. The data may or may not be live data. However, a CA
    can facilitate the test.

    Upon successful completion of the tests, the framework would
    have to be implemented in the production/live Big Data Platform. In simple
    words, the Big Data Analytics tool would be configured to identify the data and
    capture it from the source, link and categorize the data, perform analytics on
    the data as per the parameters that have been set, assign scores and ratings on
    the processed data and generate a report with a conclusion that would
    facilitate the management to come to a decision regarding a problem.

    Big Data Design of Reports and Dashboards –

    As Big Data is a implementation of significant size, it
    would involve many users using the solution. The users would may not be in the
    same position of the organisation chart. Hence it is crucial that the employee
    in his respective position of the organisation chart to have adequate access to
    data which is sufficient, limited and in a logical presentation manner. A CA
    can facilitate in design of different types of Reports, Dashboards and Visuals
    that can be used by the appropriate personnel.

    Reports –

    A Report is a type of visual which would consist of data
    which is processed, visuals and a conclusion to which a decision can be made by
    the user of the report. The structure of the report is usually custom made and
    this design is loaded to the tool.

    It is important to note that only those information which is
    material to the position is displayed in the report.

    Dashboards –

    A Dashboard is a real-time visual display of various data,
    reports in the home-screen of the user’s account in the Big Data Platform. A
    Dashboard would facilitate the user for smooth navigation among the available
    Big Data inbuilt tools, reports, open items, pending decisions etc. A Dashboard
    would contain visuals mainly of charts, status updates, links, List of reports
    to be generated etc.

    Big Data Assurance –

    This is completely a new field under Big Data Analytics
    itself. A CA will be able to provide assurance to the client regarding the
    following scope of activities –

    • Privacy
      Laws and Data Localization Laws are complied with
    • Sufficient
      preventive and detective controls are in place and are continuously
      monitored against the identified risks
    • Ensuring
      that there is no data leakage from the platform
    • Reviewing
      the Big Data Analytics platform is loaded with the framework that is
      actually providing the value that is expected by the company.
    • Reviewing
      the storage controls that is implemented keeping in mind of the various
      Privacy and Data Localization laws
    • Reviewing
      that sufficient and adequate security measures have been deployed to
      protect the personally identifiable information of others
    • Ensuring
      that the data which is being captured by the Big Data Platform is legal
      and is from legal sources

    Conclusion