From the September 2008 issue of Treasury & Risk magazine

Raising Red Flags

With corruption charges swirling around Siemens AG for more than a year in one of the biggest corporate scandals in German history, the writing was on the wall. If the electronic engineering conglomerate did not install automated technology to continuously monitor critical financial transactions and detect irregularities, and install it quickly, it would also be locking horns with the U.S. Securities and Exchange Commission (SEC) and the Department of Justice.

With so much at stake, Siemens turned to ACL Services Ltd. for help. The Vancouver, B.C.-based provider of automated business assurance software for auditors is collaborating with Siemens to customize ACL transaction monitoring technology for use on a massive scale. Siemens wants to avoid even the appearance of impropriety after charges that the company was channeling illegal payments into slush funds to pay for kickbacks and bribes led to a massive European Commission fine earlier this year.

With continuous monitoring solutions that warn executives about suspicious and inconsistent transactions, Siemens might have avoided the humiliation and expense of the corruption scandal, says John Verver, ACL vice president of alliances and products. The technology that Siemens is now implementing supports governance, risk and compliance activities and ensures the integrity of internal controls and the transactions underlying key business processes, Verver says.

The Siemens project, which was formally announced in July, will pull and analyze data from 800 SAP AG enterprise resource planning (ERP) implementations and 500 other ERP systems across 1,300 business units in 190 countries. "This is the largest implementation of continuous monitoring purchase-to-pay (P2P) technology ever undertaken," says Verver. The companies have been quietly working with each other since September, The ACL technology has been implemented in more than 250 Siemens units so far and worldwide implementation is scheduled for completion by the end of the year.

Siemens' endgame: to alert executives to potential fraud, abuse and errors in time for remediation before they blow up into front-page news and painful SEC retaliation. News reports indicate Siemens has promised to meet certain SEC-imposed transparency and compliance benchmarks to avoid a full-scale investigation by the Department of Justice.

Enter ACL. "ACL technology, with its continuous auditing and monitoring capabilities, supports these goals by flagging exceptions within our purchase-to-pay process (P2P) for immediate remediation action," says Michael Brauer, program manager for Siemens' P2P data assurance.

It's apparent why the $112.6 billion Siemens is so highly motivated. But Siemens isn't the only corporation seeking timely testing of financial controls. Indeed, some consultants reckon, this technology will be a prerequisite for long-term survival. "To remain relevant in 2012, internal auditors need to move beyond a static, cyclical approach and adopt a continuous, comprehensive approach to audit and risk assessment," PricewaterhouseCoopers experts decreed in their Internal Audit 2012 report.

What's more, says John Van Decker, Gartner Inc. research vice president, companies that think they are safe with ERP systems may be disappointed. "Analytical audit controls that span feeder applications and general ledgers to catch inconsistencies in how data is passed and transformed from one application/process to the next, typically, are not built into ERP solutions because these activities are outside the ERP system's control," Van Decker says.

ACL, founded in 1986 as an auditing-specific software company, has for the past five years specialized in automated audit tools. The business has grown in tandem with the mammoth installation of controls monitoring systems ordered by Section 404 of the Sarbanes-Oxley Act passed in 2002, although Verver says the technology was in the works long before the government mandate. While the Siemens installation illustrates ACL expertise on a broad scale, the company also provides a spectrum of auditing software products that reduce risk and enhance profitability by monitoring and testing data and sharing the results, Verver adds.

Its newest introduction is AuditExchange. "In its broadest context, AuditExchange helps the audit team provide assurance and insight into the integrity of business activity for the enterprise," says ACL President and Chief Executive Harald Will. "Built to meet the needs of the whole department, it enables the audit team to more efficiently manage the entire analytics process," he adds.

AuditExchange's central data repository provides all internal auditors with a single point of view into critical corporate financial information. It also gives them the analytical skills they need to recognize inconsistencies and mistakes long before regulatory agencies do.

ACL customer UPC Ireland, the country's largest pay TV provider, was among the first to acquire AuditExchange--after finding success with the company's other tools. After a merger, UPC Ireland wanted to develop a system to reconcile billing, analyze multiple data sources and embed business logic into applications.

With ACL's combination desktop and server technology, UPC is saving hundreds of thousand of euros a year, says Glen Winn, revenue assurance, fraud and risk manager. "ACL has been essential in developing a solid, cost-effective revenue assurance and compliance environment," he says.

Another customer, Tulsa, Okla.-based Dollar Thrifty Automotive Group Inc. says ACL technology has cut manual staff labor 10,000 hours a year, reduced commission expense by $75,000 a year and pinpointed cases of fraud. As its revenue grew, totaling $1.76 billion in 2007, and its global footprint expanded, the rental car agency wanted to move beyond random sampling to provide full coverage of its 500,000 monthly retail transactions a year, explains Alan Nixon, senior vice president and general auditor. "There is no way we could have been as successful assessing risk and detecting fraud without ACL," says Nixon.

Now, based on its success with retail transaction monitoring, Dollar Thrifty says it intends to expand ACL services to monitor financial reporting, accounts payable, travel, entertainment expenses, fleet reconciliations, system logs and segregation of duties.

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