Category Archives: Finance

Are You Losing 2% of Your Revenue to Fraud? Are You Sure?

Between two thirds and three quarters of organizations experience fraud every year and the average organization affected by fraud loses 2.0% of revenue in the UK and EU and 1.7% in the US. This means that, even if your organization is not aware of fraud, there’s still a 66%, or more, chance that it is being defrauded. And it should know for sure, one way or the other. Because if fraud isn’t detected, dealt with, and discouraged quickly, you end up with headlines like this:

  • Alibaba.com CEO And COO out because of vendor fraud
    involving over 2,000 suppliers and 100 staff members
  • Former Vodafone employee facing fraud charges
    for the fraudulent requisition of €2.3 million of services
  • The great Sainsbury’s potato fraud:
    Jail for vegetable buyer who took £5 million in bribes

Which all have one thing in common — each of these frauds involved the payment of millions of dollars to fake suppliers. Not over billings, not duplicate billings, fake billings from fake suppliers. A situation that can easily be prevented with a good supplier information management or supplier visibility system that validated the accuracy of the supplier information and the legitimacy of the supplier. If the supplier information management and visibility system cannot validate the existence and legitimacy of the supplier, then AP knows that a detailed manual investigation should be undertaken before the supplier is authorized to submit invoices, and that such authorization should require at least two sign-offs by high-level personnel. This simple process, which is yet another example of the value of supply chain visibility, would prevent fraudulent invoices from non-legitimate suppliers from ever getting in the system and greatly decrease the organization’s exposure to fraud.

And this is only one example of the many types of savings opportunities that good Supply Chain Visibility can bring your organization. For a deeper insight into the other ways in which Supply Chain Visibility can bring your organization recurring year-over-year savings, download SI’s latest white-paper on The ROI of Supply Chain Resiliency: It’s More Than You Think, sponsored by Resilinc. You might be surprised at just how much hidden value you can extract from your Supply Management operations with good visibility and resiliency.

Basware: P2P for the Global “E”

Basware is one of the largest players in the global procurement arena. Founded in 1985 in Espoo, Finland (as Baltic Accounting Systems) to deliver enterprise finance software solutions, the company (which is now public and traded on the NASDAQ OMX Helsinki Ltd. as BAS1V) has grown from a small country player to a global platform with over 2,000 international P2P customers that collectively do business with almost 1 Million companies in over 100 countries. Basware supports its global customer base through its operational footprint that spans over 50 countries on 6 continents and includes over 100 partners and resellers.

It’s solutions span the entire P2P (purchase to pay) process, from requisition through payment and post-transaction analysis and includes the Basware Commerce Network that enables over 425 Billion of e-commerce annually. The network currently lists 1.9 Million suppliers and processes over 60 million e-invoices annually through the 60+ e-invoice formats it currently supports, including XML, EDI, and Virtual Printer formats. The network is growing and transaction growth is currently running at 60% year-over-year, and now that they have partnered with MasterCard to provide their customers access to MasterCard’s suite of payment products, it is likely that network growth will accelerate even more now that customers have even more payment options.

One of the most unique features of the platform is the fact that it spans the full AP and P2P cycles, whereas many of the smaller P2P and e-Procurement platforms are Procurement centric, with little support for AP. However, Basware started as a provider of finance solutions and migrated to the e-Procurement space with the birth of e-Commerce, and, as a result, has a firm command of the order-to-cash cycle from both organizational viewpoints.

From the procurement side, the platform contains modules for analytics, basic sourcing (RFX), contract management, catalog management, e-Procurement, and e-Invoicing. From the AP side, the platform contains modules for e-Invoice Processing, e-Invoice Matching, e-Payment, and Analytics. All modules are integrated with a consistent look-and-feel, and all modules are available on top of Basware’s new cloud-based Alusta platform which supports (multi-)enterprise private cloud instances. In addition, the collaboration capabilities and social integrations span the entire platform and all data in the platform is available to the analytics module.

Another unique feature is that Basware has decided that they are a procurement platform, and not a sourcing platform, and that their sourcing capability will remain basic. Basware recognizes that Procurement experts are not Sourcing experts and vice-versa, and have decided that they are going to partner to delivery an industry leading sourcing solution for those customers that need end-to-end Source-to-Pay functionality. As a result, they recently announced a major partnership with BravoSolution to deliver a comprehensive source-to-pay solution that covers all key steps of the sourcing, procurement, and finance process.

In future posts, SI will dive into key capabilities of the Basware Commerce Network; the e-Invoice processing, matching, and payment capabilities; and the analytics platform.

Duty Drawback – The Devil is in the Details

Duty Drawback, granted under section 313(a) of the Tariff Act of 1930, as amended in 19 U.S.C. Section 1313(a), costs North American business up to 2.4 Billion a year [Source: Neville Peterson LLP] because the process is so convoluted that most business would rather lose the money owed to them then try to navigate through a process which seemingly requires truckloads of paperwork and which can take 6 months or more to resolve. Why is it so difficult? The US has had 224 years to make it so (as it was the second law passed by the first Congress way back in 1789).

Even though the goal of duty drawback is to promote U.S. business development by allowing a company to secure refunds for products that were exported, the government considers this drawback a privilege, and one that has to be earned (through a rigorous filing process).
Duty drawback is further complicated by the fact that claims are not just limited to importers, manufacturers who purchase imported products for use in their manufactured goods that are to be exported and exporters who purchase products made from imported merchandise are also eligible to make drawback claims, because drawback is paid to the exporter (under the assumption that the importer they bought the goods from charged the buyer enough to make a profit, and thus recovered the duty in this way), who has to have proof that the product is eligible for duty drawback. For a product to be eligible, it has to be an imported product on which duty was paid and which was subsequently substantially transformed and then either exported within five years of import, rejected upon import, or unused and exported or destroyed within three years of import.

What is a substantial transformation? It is one that is complicated, requires money and labour, and results in a new and different product, which has a new name, character and usage. Detailed documentation of the process may be required in filing the claim.

To file a claim on the product that was substantially transformed, the filer needs to prove that the resultant product contains an imported product on which duty was paid. This requires an exact paper trail that documents the product, either by batch, lot, or serial number that was consumed and the product that was produced. If the merchandise that was imported is then exported or destroyed within three years in an unused state, the organization is also eligible for drawback. In this situation, the organization will need to keep a paper trail that proves the unused merchandise that was exported or destroyed was the same merchandise that was subject to an import duty. Finally, an organization also has the option of rejecting import merchandise that does not conform to specifications, that was shipped without its consent, or that was determined to be defective, and file a drawback claim on this merchandise, but to do so the merchandise must be returned to customs. Unless the merchandise has no resale value, this is generally not a good option.

Unless the claim is for goods imported from Canada or Mexico under NAFTA, which has its own drawback filing process, the steps involve:

    • applying for a ruling
      this provides an organization with permission to submit a claim, and will generally require that the organization provide a detailed description of the process that demonstrates it substantially transforms the product on which the organization is intending to file a drawback
    • file the claim
      including all of the paperwork required, which, at a minimum will require the following for proof of import

      • Customs Form 7501
      • Commercial Invoice
      • Documentation necessary to support use of products in a substantial transformation manufacturing process
      • Waste summary documentation for any products discarded
      • Certificate of Delivery

and, at a minimum, the following for proof of export

    • export declaration
    • invoice
    • bill of lading
    • purchase orders and receipts from the customer

And it will take time. As the CBP site says be aware the process of filing for drawback can be involved and the time it takes to receive refunds can be lengthy. But if you do a lot of exporting, the cashflow could make even a six month wait worth it.

H.R. 2775, By the Numbers

Now that H.R. 2775 has passed, the US Government is back to work, for now. (The deal only funds the government until January 15, 2014 and only raises the debt ceiling until February 7, 2014, so Americans face the possibility of another government shutdown early next year.) But what does H.R. 2775 really mean? It means that the government may spend “such amounts as may be necessary, at a rate
for operations as provided in the applicable appropriations Acts
for fiscal year 2013 and under the authority and conditions provided
in such Acts, for continuing projects or activities (including the
costs of direct loans and loan guarantees) that are not otherwise
specifically provided for in this joint resolution, that were conducted
in fiscal year 2013, and for which appropriations, funds, or other
authority were made available in the following appropriations Acts.

And what was specifically provided for in the joint resolution that was H.R. 2775? Not much. While the bill is 14 pages, there are only 18 specific numbers specified. Specifically, in decreasing order of magnitude, it allocates the following 10 amounts:

$9.248418 B for the “Department of Transportation – Federal Aviation Administration – Operations”

$4.821181 B for “The Judiciary – Courts of Appeals, District Courts, and Other Judicial Services – Salaries and Expenses” (and at most 25M shall be available for transfer between accounts to maintain minimum operating levels)

$2.455490 B for the “Department of Veterans Affairs – Departmental Administration – General Operating Expenses Veterans Benefits Administration”

$1.012 B for “The Judiciary – Courts of Appeals, District Courts, and Other Judicial Services – Defender Services”

$600 M for the “Department of Agriculture – Forest Service – Wildland Fire Management” for urgent wild land fire suppression activities

$273 M to meet the terms of section 251(b)(2)(B)(ii)(III) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. and $469.369 M in additional new budget authority pursuant to 251(b)(2)(B) of such act from the amounts made available for “Social Security Administration, Limitation on Administrative Expenses”

$186 M for the “Maritime Administration – Maritime Security Program”

$36 M for the “Department of the Interior – Department-wide Programs – Wildland Fire Management” for urgent wild land fire suppression activities (with $15 M earmarked for burned area rehabilitation)

$3.1 M for the “Privacy and Civil Liberties Oversight Board”

$174 K payment to Bonnie Englebardt Lautenberg, widow of late New Jersey Senator Frank R. Lautenberg

And it sets the following three limits:

Amends Public Law 100-676 to $2.918 B from 775 M

Limits the amounts made available to carry out section 125 of title 23, United States Code, under Chapter 9 of Title X of Division A of the Disaster Relief Appropriations Act, 2013 (Public Law 113-2; 127 Stat. 34) to $450 M

Amends Division F of Public Law 112-74 to may retain up to $1.499M instead of $2.499 M

So what does this mean?

Given that it only (re)sets funding levels for about 0.5% of the annual budget (18B of 3.8T), it means its business as usual until the Republicans decide to holde the senate hostage again in January over the Patient Protection and Affordable Care Act.

The real impact is the 17 days of Government shutdown that preceded it and the detrimental effects it had on your (global) supply chain(s).

Banks Have A Place In The Supply Chain – But That Place is Simply Financial!

Supply chains require capital. Lots of capital. And the role of a bank is to provide that capital through financing, even though, these days, private lenders are sometimes doing more through Supply Chain Finance platforms (like those offered by Prime Revenue, Oxygen Finance, and Orbian) than the banks are.

However, and in the United States in particular, the role of a bank is not to invest in, and retain the majority control of, companies that control significant stores of commodities that drive the markets that banks run. It’s an indirect route to a price-fixing monopoly, which is a criminal federal offense under section 1 of the Sherman Antitrust Act. It seems that the banks realize this, and, according to this article on CFO.com that states “A Bank Is Hiding Inside Your Supply Chain”, they’ve found a new way to inflate commodity prices and make extra profit off of your supply chain at your expense.

According to Tim Weiner, Global Risk Manager of Commodities and Metals at MillerCoors LLC, who recently testified at a senate hearing, bank holding companies are slowing the load-out of physical aluminum from warehouses controlled and owned by these U.S. bank holding companies to ensure that they receive increased rent for an extended period of time. According to MillerCoors, they have to wait as long as 18 months for the metal (that is just sitting in a warehouse ready to be used) or pay a high premium in a market where there has been massive oversupply and record production.

And according to the article, and the hearing of the Financial Institutions and Consumer Protection Subcommittee of the Senate Committee on Banking, Housing & Urban Affairs that took place this summer on July 23, 2013, this isn’t the only instance where large U.S. banks have diversified into commodities-markets operations, stretching the limits of rules designed to separate banking and commerce to the point where part of the high prices and price volatility some commodities have experienced is likely due to the banks’ increased involvement in the storage, transportation, and trading of these physical commodities (when they are supposed to stick to the non-physical futures and options markets).

In SI’s view, banks shouldn’t own any business that has any control over a commodity. As the CFO article clearly states, through bank ownership of a commodities business, a financial institution can place its hand on the scale of supply and demand for a commodity and distort the free market. Furthermore, a bank can not only affect the price of the commodity, it can also make profitable bets on its direction in the futures markets. Plus, and this is really scary, a bank that owns a commodities business could choose to deny lending or underwriting to a competitor of that commercial business or even lend at preferential rates to its own commercial commodities business. Thus, SI is in full agreement that regulators need to force banks to be more transparent about their commodities’ operations and divest them where appropriate.

So what does this mean for your supply chain? It means you have to be ever vigilant and know where banks are in, or may be able to take, control in your supply chain and plan appropriately for the disruptive actions to cost or supply that they could take. It means that visibility is key, that transparency from your supply chain partners is more important than ever, and that good record keeping is a must. If banks start to unduly pressure your business, as they are doing to MillerCoors LLC and others, you need to have the data to stand up to them. Price-fixing and manipulation is illegal, and if enough companies stand up to it, it’s a safe bet that something will be done about it (unless the TPP passes. Then all bets are off).