Finance Reinvented

KPMG’s latest ‘fraud barometer’ for the UK shows that in 2008 fraud neared record levels – and it predicts worse is to come. The ‘highlights’ of the report included:

• Over £1.1bn of fraud comes to court nationwide– second highest level in 21 years
• Full impact of credit crunch on fraud is yet to be seen
• KPMG seeing more fraud in restructuring and insolvency projects

KPMG’s Barometer measures fraud cases coming to court where the charges are for £100,000 ($142,000 or €112,000 at today’s exchange rates) or more. There were 239 cases through the year, levels not seen since 1995.

Whilst fraud by professional gangs remained at the extremely high levels seen in previous years (£800m in 2008), athere was a marked increase in fraud by individuals.  Company managers, employees and customers together were tried for some £300m of fraud last year, three times the value seen in 2007. 

Just as predicted in our recent blog post, this is a trend emerging around the world. It can be linked to the credit crunch and recession - not just because the fraud may be being committed due to the difficult economic times, but it may be coming to light because of the increased focus back on the ‘accounting basics’ of cash flow, expenses, profit and accountability.

Worryingly, KPMG warns that the worst is yet to come: the bulk of the fraud committed since the credit crunch began in August 2007 will most likely not yet have come into the public courts.  The previous peak in 1995 of fraud in the courts was linked to the recession of the early 1990s.

As we’ve said before, accountants need to seize the initiative and make sure they are leading the charge against this trend. Like much of the economy, it’s a focus on ‘back to basics’ of ensuring the organisation’s accounting processes are robust, up to date and monitored sufficiently. There really is little excuse: there are ever better tools available to help accountants and auditors to detect the traces of fraud - unusual activities, anomolous transactions or changes in behaviours. 

Within the Unit 4 Agresso group, we have  a range of such tools. AccountAnalyser is an example, which runs reports against financial transactional data and highlights anomolous transactions or activities. Clearly other tools are available too. Not enough companies are using such technology yet, but today’s report should act as a wake up call. �

We deliberately resisted making predictions for the New Year, because they can be a bit trite and meaningless. However, the Satyam fraud highlights one area we’re comfortable to predict - more accounting fraud will come to light this year.

The scale of the Satyam fraud is astounding: according to MarketWatch:

Chairman B. Ramalinga Raju said the balance sheet as of Sept. 30 had inflated non-existing cash and bank balances of 50.40 billion rupees ($1.04 billion), understated a liability of 12.3 billion rupees, and overstated debtors’ position of 4.9 billion rupees.

The overstating of cash amounts to a stunning 94% of stated cash reserves!

I’ve been hearing from insolvency experts over recent weeks that they expect to see considerably more fraud coming to light - not necessarily of the scale of this or the Madoff case, but still significant. In these tough times, the desire to overstate your position to save your company or job, or the wish to ‘get one back’ against an employer you think is about to make you redundant is a strong driver. Companies also need to be vigilant for individuals whose personal circumstances may be dire after taking out too much credit or too large a mortgage in ‘the good times’.

There are increasingly powerful tools available to help companies - and their auditors - to detect the traces of fraud - unusual activities, anomolous transactions or changes in behaviours. Within the Unit 4 Agresso group, we have  a range of such tools. AccountAnalyser is an example, which runs reports against financial transactional data and highlights anomolous transactions or activities. Not enough companies are using such technology yet, despite the increasing signs that they should, but they are starting to get adopted. These tools are widely used by (ironically enough) PWC in Netherlands (PWC in India was the auditor of Satyam, and may well face serious consequences as a result) and we expect further interest in the current climate.

Ultimately it’s always going to be harder to detect fraud when senior executives set out to falsely represent company finances. However, you can’t help feeling that a smart auditor equipped with a tool like ours would have spotted some significantly inexplicable behaviour.

A few times a year a major IT project hits the headlines in the UK as it overruns, causes chaos or fails completely. Yesterday it was the Department for Transport’s shared services centre in Swansea - an official report from the Commons Public Accounts committee branded the project ’stupendously incompetent’ as it revealed that instead of saving £57m it will end up costing taxpayers £81m.

I recall 4 years ago at the Shared Services Week in Wales hearing a presentation by the project leader for the DVLA shared services implementation. It was clear to us in audience that they had spend 10s of millions on the software and implementation - for a relatively small sub-department of the DofT, it seemed a huge amount of money and too large a system for their requirement. They were clearly keen (or rather, desperate) for other parts of the Department to join them in the SSC, in order to share the costs…

Clearly this is another instance of ‘big ERP’ with all the associated high implementation costs. But it also highlights the critical importance of ‘post implementation agility’ - the ability for an ERP system to reflect changes in the business with minimal need for expensive consulting input. I know for a fact that various third parties made a lot of money from first implementing the original system here, then adapting it to bring on other areas of the Department.

It’s a message that Agresso has been pushing for some years now, and is getting a lot of resonance in the market and from clients. I guess high profile examples like this one will only serve to help our message get through…

Our findings seem to suggest they are. We are increasingly finding companies are looking for faster ROI from less expensive brands in the face of a global recession. 

Unit 4 Agresso, parent company of Agresso and CODA, recently reported strong third quarter results with 37% increase in revenue and sales including many significant new orders of more than €1m; this compares to leading market rivals like SAP who announced poor results for the same period leading to a 9% year on year decline in new license revenues. So clearly something is changing. 

According to Cal Braunstein, CEO and Executive Director of Research, from US analyst firm Robert Frances Group (RFG, www.rfgonline.com), “83% of companies stick with their current [ERP] supplier mostly because 1) it costs too much to switch, 2) they cannot afford to invest the time to switch, 3) it’s not the biggest pressing problem, 4) the end user training costs or other elements make the ROI too far out…”

That’s a frightening statistic, isn’t it?  (more…)

CODA and Agresso recently signed up to the BASDA Green Charter. The Charter, which is definitely a good move by the software industry, sets out four steps signatories will take to reduce greenhouse emissions :
- Take pro-active steps to increase their own carbon efficiency.
- Enhance their software solutions to help customers become part of a carbon efficient economy.
- Engage in the debate around green technology, including measurement, reporting, data requirements and standards.
- Work as an industry through BASDA to educate and increase awareness of green issues as they relate to ICT and business software.

This is  very positive, and fits well with Unit 4 Agresso’s currently roll out a new Corporate Responsibility (CR) policy and supporting programmes across the Group. This includes initiatives to formalise client and market involvement in product development, increase recycling, save energy and cut CO2 emissions, as well as initiatives to continuously improve the company’s reputation as a supplier, employer and member of its local and professional communities.

But isn’t the Green IT debate way off the mark today?

(more…)