1. Did any business leader ever thought that scratch cards can be provided to desired customers, free of cost and that too by following all business processes? Here is how it can be done -
2. To fulfil the above requirement, the cashier shall proceed as under :-
He shall scan certain SKUs and generate the bill of the required amount which shall entitle the customer to get one scratch card. Once that is done, promotional scratch card is duly handed over to the customer (friend).
Customer scratches the card. Let’s presume customer gets the Rs 100/- as prize.
Next bill shall be generated in which all the previously billed SKUs shall be ‘refunded’ and customer shall shop for the amount which his scratch cards entitles him to.
3. In the instant case, the customer gets to buy SKUs worth Rs 100/- free of cost or I would say that he purchased SKUs at the cost of the store.
IS THERE ANY READER WHO COULD THINK OF THIS WAY OF BEATING THE SYSTEM ?
4. Not only this, smart cashiers would also know the denomination of scratch cards by merely looking at bar codes of scratch cards. Generally bar coding follow a set pattern and smart cashiers know the sequence of bar codes which indicates to them the denomination of scratch cards even without scratching the cards.
Wednesday, May 13, 2009
Monday, May 11, 2009
SMART WAYS TO DEFEAT BUSINESS CONTROLS
Business Parameters
1. It has been seen that retailers lay down lot of emphasis in controlling losses. Business rolls out lot of processes, carries out strict controls for implementation of same and continuously studies data to discern deviation. However, as the saying goes, howsoever smart someone is , there is some one else somewhere, who is still smarter. Key to controlling losses in organized is to stay a step ahead of such malicious ‘minds’.
General
2. Organised retailers have devised ways and means to MONITOR dump, line voids, refunds and shrink, because those are the avenues which are known to have been misused by staff. Even official studies of various independent bodies have established the fact that internal thefts cause losses amounting to approximately 34 % of total losses being suffered by the business.
Stores have been given specified targets of shrink, which is not permissible to be crossed or if they are crossed - they are questioned by management. Now, if some employee has to steal continuously, what he / she can do to not to raise alarm, keep the store shrink within acceptable parameters and still steal?
3. To understand the above, lets’ first discuss, how the genuine refund transaction impacts inventory and cash. Generally, for customer satisfaction, organized retailers have granted customers a facility, wherein, they (customers) can return the SKU to them (store) in case customers are not satisfied with the product for any of the defined reasons. Generally, customer has to bring back the product accompanied by original sales invoice / cash memo. That translates into following physical issues:-
· There is a person (customer) visiting the store and who is not satisfied with the product. He / family members are the ones who had purchased the product from the retailer in past (within stipulated time frame – generally not more than a week back).
· He/ She (customer) has a proof of the product being purchased on earlier occasion from the retailer outlet.
· There is a product in physical form which was purchased earlier and is now being sought to be refunded.
· All the above three sequence entail movement of men and material in the store from outside.
4. When, a cashier has to refund the product, the customer hands over the product to cashier, cashier carries out his point of sale activities, a refund invoice gets generated by the printer, showing the amount due to the customer and cash is handed over to the customer or is adjusted in customer’s bill. The faulty product received by the cashier is then placed back at appropriate shelf or is sent in back house if there are some quality issues.
5. The system data also changes and it adds one SKU to the store book count and reduces the amount given to the customer from its cash balance.
6. Now lets’ see how fraudulent store employee can manipulate above system. Malicious cashier do not wait for customer to come up with some SKU. The SKU is picked up from the store shelf only or product number is fed to the point of sale terminal by cashier himself or herself. later, refund transaction is carried out for the above bill. As given above, the terminal shall generate the cash to be given to customer. Since there is no customer, cashier picks up the cash himself / herself. As regards the SKU, since there is no SKU which has moved in physically, though the book stock shall increase by the numbers which have been refunded, but, physical stock shall not increase. NOW THAT WOULD BE COUNTED AS SHRINK.
7. Further more, smart store employees shall not permit shrink to increase in above manner. To prevent that they will simply post the refunded SKUs in dump, thereby effectively reducing refunded SKU from the store book count. Overall, NO SHRINK – NO ACCOUNTABILITY AND STILL THE STORE STAFF IS ABLE TO MAKE A KILL FOR THEMSELVES.
Mitigation Process
8. Data analyst has to study the dump data together with voided items and refund item data.
1. It has been seen that retailers lay down lot of emphasis in controlling losses. Business rolls out lot of processes, carries out strict controls for implementation of same and continuously studies data to discern deviation. However, as the saying goes, howsoever smart someone is , there is some one else somewhere, who is still smarter. Key to controlling losses in organized is to stay a step ahead of such malicious ‘minds’.
General
2. Organised retailers have devised ways and means to MONITOR dump, line voids, refunds and shrink, because those are the avenues which are known to have been misused by staff. Even official studies of various independent bodies have established the fact that internal thefts cause losses amounting to approximately 34 % of total losses being suffered by the business.
Stores have been given specified targets of shrink, which is not permissible to be crossed or if they are crossed - they are questioned by management. Now, if some employee has to steal continuously, what he / she can do to not to raise alarm, keep the store shrink within acceptable parameters and still steal?
3. To understand the above, lets’ first discuss, how the genuine refund transaction impacts inventory and cash. Generally, for customer satisfaction, organized retailers have granted customers a facility, wherein, they (customers) can return the SKU to them (store) in case customers are not satisfied with the product for any of the defined reasons. Generally, customer has to bring back the product accompanied by original sales invoice / cash memo. That translates into following physical issues:-
· There is a person (customer) visiting the store and who is not satisfied with the product. He / family members are the ones who had purchased the product from the retailer in past (within stipulated time frame – generally not more than a week back).
· He/ She (customer) has a proof of the product being purchased on earlier occasion from the retailer outlet.
· There is a product in physical form which was purchased earlier and is now being sought to be refunded.
· All the above three sequence entail movement of men and material in the store from outside.
4. When, a cashier has to refund the product, the customer hands over the product to cashier, cashier carries out his point of sale activities, a refund invoice gets generated by the printer, showing the amount due to the customer and cash is handed over to the customer or is adjusted in customer’s bill. The faulty product received by the cashier is then placed back at appropriate shelf or is sent in back house if there are some quality issues.
5. The system data also changes and it adds one SKU to the store book count and reduces the amount given to the customer from its cash balance.
6. Now lets’ see how fraudulent store employee can manipulate above system. Malicious cashier do not wait for customer to come up with some SKU. The SKU is picked up from the store shelf only or product number is fed to the point of sale terminal by cashier himself or herself. later, refund transaction is carried out for the above bill. As given above, the terminal shall generate the cash to be given to customer. Since there is no customer, cashier picks up the cash himself / herself. As regards the SKU, since there is no SKU which has moved in physically, though the book stock shall increase by the numbers which have been refunded, but, physical stock shall not increase. NOW THAT WOULD BE COUNTED AS SHRINK.
7. Further more, smart store employees shall not permit shrink to increase in above manner. To prevent that they will simply post the refunded SKUs in dump, thereby effectively reducing refunded SKU from the store book count. Overall, NO SHRINK – NO ACCOUNTABILITY AND STILL THE STORE STAFF IS ABLE TO MAKE A KILL FOR THEMSELVES.
Mitigation Process
8. Data analyst has to study the dump data together with voided items and refund item data.
Sunday, April 12, 2009
PATTERN RECOGNITION – A TOOL TO DETECT MALICIOUS USAGE OF LOYALTY CARD / CASH / GIFT COUPON
Loyalty programme, as is wildly spread today was first conceived in 1981 by
American Airlines and was known as AAdvantage. It quickly turned into a source
of competitive advantage and other airlines were forced to respond in kind.
Further development is well known: loyalty programmes soon outgrew the confines
of the airline industry. The expansion that started in closely linked industries
(e.g. car rental and hospitality industry) later advanced into retail trade,
banking and insurance, service industry etc.
1. Underlying aim of loyalty programme was to act as exit barrier for existing customers and also to act as bait for new customers. It is widely believed Loyal customers not only shop themselves, but, if they are treated well they land up recommending others as well – mode of most potent - free word of mouth advertisement
2. To roll out an end to end loyalty programme, companies spend a lot not only in terms of visible discounts or addition of monetary value to loyal customers, but, lot of time, money, IT resources, hardware and man hours are devoted to sustain the same. Loyalty programme does not necessarily mean ‘Repeat Business’ only. The data so available to the companies is also used for variety of purposes, like :-
Discern purchasing pattern to streamline supply chain and stocking.
- Add value to company’s valuation.
- Improve customer care and relationship.
3. Overall, a company may take major marketing policy decisions based on the data available through its loyalty programme.
GROUND SITUATION
4. So far so good. But the fact is that retailers all over the world have serious problems of having dishonest employees on board. Staff dishonesty is common . To be specific, there have been serious criminal cases of loyalty programmes being misued by dishonest employees causing loss to the company to the tune of $ 80,000/- in one specific case only. Another study shows that multiple redemption of loyalty bonus costs half a billion dollars to the company
5. Since the problem of staff dishonesty is real, lets see how the loyalty programmes are being misused by dishonest employees :-
- Company can loose money or merchandise directly.
- Sweet Hearting.
- Fraudulent accumulation of bonus points on loyalty cards by internal staff.
THE CAUSE
6. Putting it simply – loose controls in the business are the primary reason for such dishonesty spreading around and that is contagious as well. Since Dishonest employees have strong code of conduct amongst themselves , it is difficult to detect as well. Most important is the fact that the victim in this case is not ‘visible’ to offender and hence no guilt feeling of offender.
MITIGATION PROCESS – RECOGNIZING THE PATTERN
7. Since most of the loyalty programmes are riding on business internal IT back bone, by default, we have data stored in data warehouse. Such data can be used to discern a fraudulent usage of loyalty card or discount coupon. Suitable data can be generated with the following threshold values indicative of fraudulent transaction:-
- Gift card / coupons have unique bar code or serial numbers. A report could be generated when such gift card / coupon have been encashed for multiple times.
- When a loyalty card has been swiped for multiple times at the same store (say for example 5 times a day), the data could be flagged for ground checks as it is generally not possible for a customer to shop that many times a day. Such situation would come up if few customers have not got themselves enrolled for loyalty programme, but, internal staff having personal loyalty card or loyalty card in the name of his / her relative, is being swiped to get accumulations for themselves or for their relatives and friends against the purchases made by customers without loyalty card.
- Businesses can design other threshold values based on specific processes of their respective businesses.
Friday, April 10, 2009
PLANNING A PLANOGRAM – LOSS PREVENTION WAY
Background
1. As Wikipedia has defined, “Planogram is a diagram of fixtures and products that illustrates how and where retail products should be displayed, usually on a store shelf in order to increase customer purchases. They may also be referred to as plano-grams, plan-o-grams or POGs.” It is required for helping customers, optimizing inventory and presenting similar looks of same format stores of retailer across city or geographical area.
2. Planograms can be ‘Demand Driven’ or ‘Supply Driven’ or mix of both of them. But, the underlying purpose of the retailer is how to sell more to earn more. I had queried from peers in our forum as to what is desirable aim for designing a store planogram. They came up with absolutely logical answers. Some logically stated that we should stock what is demanded, but, others had equal force in their comments that we can stock fresh products and create a demand. Both sides had strong reasons to support their thoughts. I was amazed to know that highest in the businesses have their feet on ground and they think of basics. And why not – there is no rocket science involved in selling. It is oldest profession in the world.
3. Whatever is the principle basis of designing a planogram by a retailer, the survey shows that faulty planogram can lead to unanticipated and unacceptable losses. (Question of what planogram should be based on is not debated here as it is exclusive privilege of retailer to decide the same on his own merits).
The Study
4. A dip-stick survey across various organised retail departmental stores was carried out in East Delhi (An area dominated by low income group in Delhi, India. The area is densely populated inviting number of organised retail chain shops. The study showed that most retailers have stocked latest brands of daily use items and most of these products remained unsold till they neared their Expiry or Best Before Date. At this stage, the products were marked down and the stocks got cleared, triggering fresh supplies and the cycle goes on. Under mentioned data is eye opener in itself :-
6. The basic reason for above mentioned losses is NON MOVEMENT OF STOCK FROM DISPLAY SHELVES TO CUSTOMERS. But the fact is that they impact bottomline. First problem is how to identify such stocks. The answer lies in analysis of store sales data over a period of time. For example, if data can indicate what all merchandise have not moved from the store for last 30, probably it is time to take note of this report. In other words, Data Analyst can be tasked to establish a pattern between the planogram and non moving inventory.
The Mitigation Process
7. After having identified non moving stock, then comes the issue of identifying reasons for the same and addressing the root cause. There could be variety of reasons why a particular product is not saleable from a particular store – could be there is no demand for that stock in the store catchment area or the product does not match customer satisfaction or could be pricing is not correct or some other issue. The concerned merchandising team and store team is best equipped to handle particular situation.
8. What ever the reason, some of the the solution lie in one or all of the following:-
(a) Non Selling Stock could be moved inter-store for liquidation and / or placement of fresh orders suspended.
(b) Planogram could be changed for the particular store in which there in Non Moving Inventory and be replaced with the products which will sell in the geographical area (unless business is stocking SKUs to build up a demand)
(c) Article could be replaced with similar product which has a history of good sales. Say for example Old Spice talcum powder is not selling over a period of time, but, Cinthol powder is doing fine, then, probably Old Spice needs to be removed from store planogram or promotion could be designed to help customer go for old spice.
Wednesday, April 1, 2009
IN THE DEFENCE OF MOHAMMED AJMAL AMIR KASAB
1. After serving in Indian Armed Forces for 22 years (most of it fighting terrorists) and now being in the business, one thing I can safely conclude that for national economy to grow, we must provide safe and secure environment for business to flourish.
2. Under the prevailing circumstances, I am afraid, the situation is changing negatively for the business. 26/11 attack in Mumbai, not only had shaken the general population, but, a grim reality dawned on business community that they will have to share heavy burden of securing their own businesses. By not providing credible defence to the accused of these barbaric attacks, we are not helping the matter. That would amount to playing in the hands of destructive forces.
3. Though the government would be doing its own bit to re assure population, but, we as citizens, must also join hands with government to help ourselves. There is nothing better than to help own self.
4. I was alarmed to read press reports that there were serious protests against the employment of defence lawyer to defend the case of lone accused survivor of these attacks Mohammed Ajmal Amir Kasab, a Pakistani National.
5. As one of the largest democracies of the world, it is our duty to prove to the world that we cherish the dream of being a democratic nation and we enjoy an independent judiciary. That can be proved by providing not only legal aid to Kasab to defend himself, but, the defence has to be very credible, honest and impartial. By protesting against such defence, we are projecting an image that we do not have credible evidence against the accused and in the event of such a situation, we must overcome the deficiency by mob mentality and try accused by extra judicial means.
6. If we are able to prove to the world (world is watching us), that we ARE NO BANANA REPUBLIC, we stand to gain a lot in our fight against terrorism and shall be able to score a major JUDICIAL victory against our adversaries. Independent trial shall force world to join hands with us to root out the menace of terrorism from this continent atleast.
7. In our own self interests and in the interest of India, Let’s promise a fair trial to the accused.
2. Under the prevailing circumstances, I am afraid, the situation is changing negatively for the business. 26/11 attack in Mumbai, not only had shaken the general population, but, a grim reality dawned on business community that they will have to share heavy burden of securing their own businesses. By not providing credible defence to the accused of these barbaric attacks, we are not helping the matter. That would amount to playing in the hands of destructive forces.
3. Though the government would be doing its own bit to re assure population, but, we as citizens, must also join hands with government to help ourselves. There is nothing better than to help own self.
4. I was alarmed to read press reports that there were serious protests against the employment of defence lawyer to defend the case of lone accused survivor of these attacks Mohammed Ajmal Amir Kasab, a Pakistani National.
5. As one of the largest democracies of the world, it is our duty to prove to the world that we cherish the dream of being a democratic nation and we enjoy an independent judiciary. That can be proved by providing not only legal aid to Kasab to defend himself, but, the defence has to be very credible, honest and impartial. By protesting against such defence, we are projecting an image that we do not have credible evidence against the accused and in the event of such a situation, we must overcome the deficiency by mob mentality and try accused by extra judicial means.
6. If we are able to prove to the world (world is watching us), that we ARE NO BANANA REPUBLIC, we stand to gain a lot in our fight against terrorism and shall be able to score a major JUDICIAL victory against our adversaries. Independent trial shall force world to join hands with us to root out the menace of terrorism from this continent atleast.
7. In our own self interests and in the interest of India, Let’s promise a fair trial to the accused.
ATTENDANCE RECORDING DEVICES AS CONTROL ON FRAUDULENT EXPENCE AND TRAVEL REIMBURSEMENT CLAIMS
1. In organizations where there is a weak ethical culture - improper or illegal activity is virtually certain to flourish. Where "tone at the top" is especially lacking, frauds by managers and employees can ultimately devastate the organization's financial health and threaten its long-term viability. Among the most easily-exploited procedures in such organizations are those governing travel and expense (T&E). Some of the ways, the employees claim falsified reimbursements are as follows.:-
Putting up claims for the duties which were never performed.
Putting up claims for excessive mileage travelled.
2. Though the businesses are aware that such issues can come up and they have been making efforts to build some business processes to control them, but, most of the controls are human based and can easily be defeated for various reasons. Such issues cause pain, both to the company and to the employee alike
Proposed Preventive Process
3. In today’s world, most of the businesses have attendance recording systems in terms of photo Identity Cards containing embedded electronic chip, Biometric Cards, Code Punching card etc. Aim of each being – to record attendance and to act as access control devices.
4. These devices can be multi tasked to fruitfully detect cases of falsified Expense and Travel claims as well, if they can be integrated with payroll compensation data ware house, as is given below in simple flow chart :-
CARD SWIPE AT ATTENDANCE RECORDING TERMINAL
↓
SWIPE DATA TRAVELS TO DATA STORAGE DEVICE
↓
DATA TRANSFERRED TO MASS DATA STORAGE DEVICE →ATTENDANCE IS RECORDED
↓
DATA LATERALLY TRANSFERRED TO PAYROLL COMPENSATION DATA WARE HOUSE
↓
AS AND WHEN AN EMPLOYEE PUTS UP A CLAIM FOR LOCAL CONVEYANCE – THIS DATA IS MAPPED AGAINST THE ID CARD SWIPE DATA
5. From the above, if it is found that employee was in his routine place of duty at a date and time for which Expense and Travel has been claimed, the system can reject the claim and the employee can be questioned for the reason for such claims
6. Excessive mileage issues can be tackled by getting the correct mileage from originating point to destination point from publically available data base like yahoo map or google map etc.
Putting up claims for the duties which were never performed.
Putting up claims for excessive mileage travelled.
2. Though the businesses are aware that such issues can come up and they have been making efforts to build some business processes to control them, but, most of the controls are human based and can easily be defeated for various reasons. Such issues cause pain, both to the company and to the employee alike
Proposed Preventive Process
3. In today’s world, most of the businesses have attendance recording systems in terms of photo Identity Cards containing embedded electronic chip, Biometric Cards, Code Punching card etc. Aim of each being – to record attendance and to act as access control devices.
4. These devices can be multi tasked to fruitfully detect cases of falsified Expense and Travel claims as well, if they can be integrated with payroll compensation data ware house, as is given below in simple flow chart :-
CARD SWIPE AT ATTENDANCE RECORDING TERMINAL
↓
SWIPE DATA TRAVELS TO DATA STORAGE DEVICE
↓
DATA TRANSFERRED TO MASS DATA STORAGE DEVICE →ATTENDANCE IS RECORDED
↓
DATA LATERALLY TRANSFERRED TO PAYROLL COMPENSATION DATA WARE HOUSE
↓
AS AND WHEN AN EMPLOYEE PUTS UP A CLAIM FOR LOCAL CONVEYANCE – THIS DATA IS MAPPED AGAINST THE ID CARD SWIPE DATA
5. From the above, if it is found that employee was in his routine place of duty at a date and time for which Expense and Travel has been claimed, the system can reject the claim and the employee can be questioned for the reason for such claims
6. Excessive mileage issues can be tackled by getting the correct mileage from originating point to destination point from publically available data base like yahoo map or google map etc.
Friday, March 27, 2009
PROTECTING THE BUSINESS – LOSS PREVENTION AND INTERNAL AUDIT WAY
Background
1. Major Corporate Houses in India, besides making efforts to design a foolproof business process, spend lot of efforts and money in designing various control teams within a business (major Infrastructure businesses, tyre manufacturers, retailers, auto industry players etc). Invariably, such teams shall consist of Internal Audit Team (IA) and Loss prevention team which is termed differently in different business. It may be called Security and Loss Prevention Team (SLP) or Asset Protection Team or Security and Administration Team or Security Team etc. (to remain in sympathy we shall be terming this team as Loss Prevention Team or LP team). Underlying difference between the two lies in the fact that the talent pool from which they are picked up and thought process in their tasking are different. IA teams draw their manpower pool from Charted Accountants while LP team has members drawn from Security background - be it civilians those who have turned security experts or from Para Military Forces or Local Police or from defence forces.
2. In order to not to mix up the issues, employment of Information Technology Security Team within the business has not been discussed further, despite their having a strong relevance in the current issue of preventing losses.
Current Scenario
3. Indian businesses feel that since these two teams have been drawn from different specializations, their command, control and employment structures also need to be different, despite the fact that both of the teams are trying to protect the interest of the business, however, both employ different tools for the same. Consequently, IA team reporting structure is built around reporting to company CFO while reporting of LP team has a separate reporting channel and report to LP head who in turn reports to the Chairman bypassing the CFO.
The Conflict
4. While both teams are supporting business to remain healthy, the reporting structure entails a serious conflict in employment of these teams by default. In simpler terms it sets of ‘Battle of Turf’. Both teams, though claim, that they are working together for the betterment of the business but still they NEVER SHARE the inputs available with them or share the inputs at a stage when the input holder can proceed no further in investigations. The experience shows that on some occasions major loss could not be detected due to the fact that the LP team did not know technicalities of commercial audit and in some cases, Audit team had the input but did not know what to do beyond identifying the process failures or compliances. In both cases – a huge waste of efforts and resources. Overall, a classical case of LEFT HAND NOT KNOWING WHAT RIGHT HAND IS DOING.
LIMITING FACTORS
5. Internal Audit Team. They are proven experts in their field of commercial and compliance audit. It is also not disputed that they are known to be doing excellent work in protecting the interest of the businesses. Their known Return On Investment to the business is also impressive. Despite their above laurels, they are POOR reader of “INTENT” behind the lapses which they discover as part of their job.
6. This translates into the fact that though the corrective measures, in terms of strengthening of processes is immediately taken, there is no action on “MIND” behind those lapses. The catch comes now, the brain behind such lapses knows that if he has to be successful again, he has to devise some other method to defeat internal controls. In a way, this 'brain' is wiser now, as no action was taken against him and he remains invisible to internal auditors. He will harm the business next time in more intelligent ways.
7. LP Team. This team has expertise in the fields of physical protection of company’s assets, identifying external and internal threats to business, prophylactic security, questioning of suspects, gathering information of malicious activities within the business etc. These teams have also proven record and their achievements can also be talked about in any given business. Though they are expert reader of mind behind a particular loss causing activity, but, they are POOR JUDGE of commercial figures. Most of the time, they do not even know how to read profit and loss statement in a critical manner, because their core competency is different.
BEST OF BOTH WORLDS
8. If a business has to derive the maximum benefits out of employment of these two teams and yet remain cost effective, it has to devise a structure wherein both teams work in perfect synergy without any ego clashes or protecting turfs. The organogram should encourage site level joint audits or as and when one team takes up an audit the other team shall provide required expertise for end to end closure of case.
ADVANTAGES
9. Though, advantages accruing out of such synergized efforts are self explanatory, it is still felt that they be summed up, which is as follows :-
(a) Better cost to benefit ratio to business.
(b) Sharper teeth to auditors and to investigators.
(c) Higher efficiency of controls leading to reduced financial leakages.
(d) Reduced time in detection of loss causing activities.
(e) Dominance of business controls over malicious intent.
1. Major Corporate Houses in India, besides making efforts to design a foolproof business process, spend lot of efforts and money in designing various control teams within a business (major Infrastructure businesses, tyre manufacturers, retailers, auto industry players etc). Invariably, such teams shall consist of Internal Audit Team (IA) and Loss prevention team which is termed differently in different business. It may be called Security and Loss Prevention Team (SLP) or Asset Protection Team or Security and Administration Team or Security Team etc. (to remain in sympathy we shall be terming this team as Loss Prevention Team or LP team). Underlying difference between the two lies in the fact that the talent pool from which they are picked up and thought process in their tasking are different. IA teams draw their manpower pool from Charted Accountants while LP team has members drawn from Security background - be it civilians those who have turned security experts or from Para Military Forces or Local Police or from defence forces.
2. In order to not to mix up the issues, employment of Information Technology Security Team within the business has not been discussed further, despite their having a strong relevance in the current issue of preventing losses.
Current Scenario
3. Indian businesses feel that since these two teams have been drawn from different specializations, their command, control and employment structures also need to be different, despite the fact that both of the teams are trying to protect the interest of the business, however, both employ different tools for the same. Consequently, IA team reporting structure is built around reporting to company CFO while reporting of LP team has a separate reporting channel and report to LP head who in turn reports to the Chairman bypassing the CFO.
The Conflict
4. While both teams are supporting business to remain healthy, the reporting structure entails a serious conflict in employment of these teams by default. In simpler terms it sets of ‘Battle of Turf’. Both teams, though claim, that they are working together for the betterment of the business but still they NEVER SHARE the inputs available with them or share the inputs at a stage when the input holder can proceed no further in investigations. The experience shows that on some occasions major loss could not be detected due to the fact that the LP team did not know technicalities of commercial audit and in some cases, Audit team had the input but did not know what to do beyond identifying the process failures or compliances. In both cases – a huge waste of efforts and resources. Overall, a classical case of LEFT HAND NOT KNOWING WHAT RIGHT HAND IS DOING.
LIMITING FACTORS
5. Internal Audit Team. They are proven experts in their field of commercial and compliance audit. It is also not disputed that they are known to be doing excellent work in protecting the interest of the businesses. Their known Return On Investment to the business is also impressive. Despite their above laurels, they are POOR reader of “INTENT” behind the lapses which they discover as part of their job.
6. This translates into the fact that though the corrective measures, in terms of strengthening of processes is immediately taken, there is no action on “MIND” behind those lapses. The catch comes now, the brain behind such lapses knows that if he has to be successful again, he has to devise some other method to defeat internal controls. In a way, this 'brain' is wiser now, as no action was taken against him and he remains invisible to internal auditors. He will harm the business next time in more intelligent ways.
7. LP Team. This team has expertise in the fields of physical protection of company’s assets, identifying external and internal threats to business, prophylactic security, questioning of suspects, gathering information of malicious activities within the business etc. These teams have also proven record and their achievements can also be talked about in any given business. Though they are expert reader of mind behind a particular loss causing activity, but, they are POOR JUDGE of commercial figures. Most of the time, they do not even know how to read profit and loss statement in a critical manner, because their core competency is different.
BEST OF BOTH WORLDS
8. If a business has to derive the maximum benefits out of employment of these two teams and yet remain cost effective, it has to devise a structure wherein both teams work in perfect synergy without any ego clashes or protecting turfs. The organogram should encourage site level joint audits or as and when one team takes up an audit the other team shall provide required expertise for end to end closure of case.
ADVANTAGES
9. Though, advantages accruing out of such synergized efforts are self explanatory, it is still felt that they be summed up, which is as follows :-
(a) Better cost to benefit ratio to business.
(b) Sharper teeth to auditors and to investigators.
(c) Higher efficiency of controls leading to reduced financial leakages.
(d) Reduced time in detection of loss causing activities.
(e) Dominance of business controls over malicious intent.
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