Strengthen The Three Lines Of Defense With Forensic Apps

Jerome Pugnet

Implementing the three lines of defense approach, and more broadly a complete set of governance, risk, and compliance (GRC) solutions, has never been more critical. There are several reasons for this, from regulatory pressure with continuously evolving obligations and legal requirements to the spread of risks such as fraud, threat on reputation, third-party and cyber risk, and so on. In parallel, CFOs are concerned more than ever with the costs associated with these requirements, as reactive approaches to compliance and scattered responses to the diverse types of risks have generated silos and duplications.

Establishing a strong, automated three-lines-of-defense platform

At SAP, we’ve recently commissioned research to better understand and measure these challenges and how companies are planning to solve them going forward. For example, last summer we published with Forrester Research a Technology Adoption Profile on the three lines of defense.

To break silos and improve performance, more and more companies seek to re-centralize GRC information and automate GRC processes. This is also important to gain consistency—with increased efficiency and effective responses to risks and compliance needs—and improve assurance.

This often translates into opting for a three lines of defense approach, supported by a robust, integrated technology platform. This is key to allowing organizations to share critical GRC information (such as info on risks, controls, and issues) and ensure that stakeholders in each line (operations, central functions, internal audit) collaborate effectively, and efficiently.

But there’s more

The automation and integration brought by GRC technology to better monitor risk and controls has created the need to go further and check for deeper, hidden issues that might expose companies to fraud and financial losses, negative impacts on their brand and reputation, or compliance fines. Technology innovation around Big Data capabilities, predictive analytics, and cloud has brought opportunities to develop solutions that can:

  • Tackle these less visible risks and issues
  • Better predict their occurrence
  • Improve even further the high level of protection already delivered by a strong, integrated three line of defense platform

In this way, they very effectively complement the risk and compliance core, providing an extra layer of protection and helping improve business integrity in key processes like finance, procurement, treasury, tax, and so on.

One of the first areas where these innovative complementary solutions have been developed is in the fight against fraud. This is a logical response given the growing concern it represents for companies in all industries, and their increased exposure to this type of risk in a more connected world and fast digitizing economy.

In the same way, companies also develop their business network and partner with more and more third parties to grow their business (suppliers, sub-contractors, service providers), and they seek to connect and interact faster and more efficiently with their customers. All this also de-multiplies the level of their risk. Their need to screen and monitor these third parties also calls for specialized solutions to complement existing control and risk oversight processes.

Lastly, the notion of business integrity extends to the protection against any types of anomalies or issues that require deeper analytical capabilitiesmisuse, errors, waste, compliance misses, wrong tax postings, and so on. The need for these additional solutions that can identify and help remediate these issues is expanding rapidly in the world of live business (digitization, networks, business velocity, and so on).

The forensic approach: a useful analogy

The requirement to chase for potential fraud, anomalies, or waste and abuse in business transactionswhich often is like looking for the needle in a haystackcan be compared to what police and specialized investigators do when searching for clues after a crime. They need to look deep into all the information, relationships, and evidence they can find while also relying on a level of intelligence, methodology, and experience to conduct their investigation.

Business integrity solutions developed to complement the GRC core around the three lines of defense also need these capabilities:

  • Analyze deep into the data
  • Rely on detection rules and strategies
  • Leverage predictive analytics
  • Continuously improve based on earlier findings in similar patterns

And if we think about fraud as an example, patterns are elements that these solutions look for to identify potential cases, just like a forensic investigator would do.

In both cases, there is also a predictive dimension, and looking at historical data and patterns makes it easier to predict and anticipate a fraud case or other anomaly, just like police investigators learn from experience.

With this sum of similar characteristics, we could designate these fraud detection and investigation, third-party screening, compliance checking, and other anomaly-scanning capabilities under a term like “forensic solutions.” As part of GRC, they powerfully help manage a set of risks and compliance needs.

Learn more

To learn more on how to manage risk proactively by enhancing the “three lines of defense” model, please attend this presentation at SAPPHIRE NOW, Heighten GRC Maturity by Embedding Control in Related Business Processes, Thursday, May 18, 1 p.m. EDT by Bob Crochetiere, executive solutions advisor at SAP.

And:

This article, GRC Tuesdays: Using New Forensic Applications in GRC to Strengthen the Three Lines of Defense, originally appeared on the SAP BusinessObjects Analytics blog and has been republished with permission.

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The Forgotten Part Of Leadership: Followership

Eman Goubran

Why do you think your finance team follows your leadership? Hopefully, it’s not just simply because of your job title. As the pace of change disrupts our business models, our corporate structures, and our styles of management, our definition of leadership is changing, too.

Until fairly recently, followership didn’t get much airtime when leadership was mentioned. But leading is as much about listening and being the person people are motivated to follow, as it is about knowing where your own team is headed. And that means creating a culture and team dynamic that actively encourages people to express themselves and their ideas, doubts, or different points of view.

Toward creative thinking

It’s something I’ve deliberately introduced into my own team. My team members know I don’t override anyone or shoot down new ideas in public. I make a point of making them feel empowered to express themselves, which in turn leads to greater engagement. It makes them more vocal, comfortable enough to make decisions under pressure, and less apt to stay silent if they spot a potential problem or issue. This is incredibly valuable – especially at intense periods, such as quarter-end, when we ask a lot of people in their time, attention to detail, and commitment. It’s also something we’re adopting as a team externally in our customer meetings, and elsewhere internally as we collaborate with other areas of the business.

After all, we as leaders aren’t always right, and the right answer certainly is not the sole domain of the person with the biggest job title in the room. No CFO wants to be surrounded by nodding heads that are full of silent doubts or end up making critical errors because of “group think.” That’s where followership really comes into its own. It stands to reason that if leadership is important to performance, followership must have something to do with it, too.

The value of a fresh perspective

Actively listening and fostering a culture of engagement means great ideas can come from the bottom up, not just the top down. A new perspective, fresh eyes, or just a younger viewpoint can often make the difference between being good and being great.

Of course, teams still need a strong leader to follow, but they must work collaboratively and cooperatively. The concept of followership plays an important part in the success of any group task, yet in my view, it’s an area of leadership that’s still largely overlooked.

With the current shift in the CFO role, where the expectation is to be more customer-facing and act as an active business consultant, followership adoption will give you the needed fresh perspective on various topics.

As management author and speaker Tom Peters once said, “Management is about arranging and telling. Leadership is about nurturing and enhancing.” The same could be said for followership.

Learn more about why Everything You Know About Leadership Is Wrong.

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Eman Goubran

About Eman Goubran

Eman Goubran is CFO of SAP MENA (Middle East and North Africa). Eman has been working with SAP since 2011, and has nearly 25 years of business experience predominantly in the software industry. Eman has a special passion for customer-facing activities and how to help SAP customers run better. She is a member of the Member of the Institute of Chartered Professional Accountants of Ontario, Canada and holds a CPA from the University of Illinois, USA.

Machine Learning: The Next Evolution Of Automation And Accuracy For Finance

Peter David

The role of finance is in a constant state of metamorphosis, shedding traditional fiduciary control and compliance to form strategic partnerships and spread its wings as an indomitable catalyst for business growth. However, many day-to-day activities still require considerable manual intervention, which is hampering the full benefit of any digital strategy.

For years, CFOs have invested in various technologies to maximize the potential of their entire organization. Analytics – historical, real-time, Big Data, and predictive – are connecting operations, functions, and individuals to provide full visibility and access to insights. Then, more recently, blockchain and the Internet of Things have come on the scene, enabling sophisticated data collection and analysis to deliver actionable insights that can help build a competitive advantage.

Now, CFOs are considering the promise of intelligent automation through machine learning. Instead of just capturing and reporting data, computers can “think,” make better decisions, and research faster by creating mathematical algorithms based on accumulated data. But are finance organizations ready to fully trust that these automated systems are operating alone with the right information?

The journey to digital maturity builds the foundation for trusted data

Data accuracy is one of many topics associated with an abundance of clichés and shareable quotes from various experts. Personally, I believe Aaron Koblin, an entrepreneur best known for his innovative use of data visualization, crowdsourcing, virtual reality, and interactive film, concisely summed up the current state of data: “I think you can have a ridiculously enormous and complex data set, but if you have the right tools and methodology, then it’s not a problem.”

Every step taken along the evolutionary trail of finance organizations has played some part in setting the stage for greater automation with improved data accuracy. No matter how small or large the digital investment, organizations are moving closer to gaining trust in the accuracy of automated data analysis, while processes accelerate and require less human interaction.

Take, for example, blockchain. Companies are finding value in this technology, beyond bitcoin, to monitor and manage resources at the enterprise and local level, leverage validated information, and deliver better insights on how to maintain compliance, seize new opportunities, and deflect risk. Companies then gain the right methods, powered by in-memory computing, to gain better visibility into operational performance and leverage Big Data to make insight-driven decisions.

Machine learning is the next logical step to use this enriched, validated, and accurate data to liberate finance professionals from at least five kinds of redundant, low-value – yet necessary – work.

1. Digital business assistants

Voice-activated intelligent assistants, based on machine learning technology, will understand the business context of processes in different areas. These digital assistants can create a holistic view of a specific business situation providing, for example, an overview of customer status. Finance experts can then analyze the information and make proposals to optimally handle a particular situation. They gain transparency into the situation instantly, equipping them with the insight needed to make the best decisions without investing time to research.

2. Financial planning and analysis

Machine learning capabilities, built into predictive analytics, go far beyond pure analysis of existing data. Based on various data sources, the functionality identifies trends, predicts impacts on your business numbers, and determines a view into the future of your business with intelligent projections and what-if analysis. This enables finance professionals to make better decisions for a brighter future for the business. The resulting capability is a clear driver for elevating the office of the CFO as a valuable partner of the business and a strategic advisor to the CEO.

3. Finance operations

Most finance operations still rely heavily on manual, time-consuming activities. Consequently, digital technology offers vast potential to increase automation and focus more on exception-handling and service quality. Take, for example, a receivables management process where incoming payments need to be matched with invoices. Thanks to pooling, discounts, and other factors, matching becomes anything but trivial. With machine learning, matching rates are not only better, but also improve over time by learning from the data and human-exception decisions.

The next step is to add the remittance advice extractor. In turn, matching rates increase because machine learning extracts information from unstructured advice and translates them into structured data, which automates the clearing process. Financial service customer requests are then highly automated, unstructured requests are analyzed, context is identified, and answers are proposed to the service agent or proactively addressed. With this task automated, agents are freed up to focus on critical special requests.

4. Enterprise governance, risk, and compliance

Machine learning helps detect and prevent fraud by identifying and ranking information that positively correlates with defined attributes of duplicitous activities. Investigators learn from their company’s history to detect new fraud patterns and reduce false positives. These predictive detection methods can be incorporated into existing methods and fraud management strategies.

It’s time to embrace machine learning as part of continuous data innovation

Increasingly, CFOs are acknowledging that the digital transformation of finance is an essential, urgent, and ongoing task. In fact, the Oxford Economics study, “How Finance Leadership Pays Off,” sponsored by SAP, revealed that 73% of surveyed finance leaders believe that automation is improving their function’s efficiency and giving employees more bandwidth for value-added tasks.

Recognizing the importance of such an evolution does not always – or automatically – open the door to the need for more resources. Through machine learning, finance organization can do more than ever before with lower or current support levels, innovate new ways to work, and increase efficiency, output, and, ultimately, profitability.

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Peter David

About Peter David

Peter David has been regional chief financial officer of Europe Middle East and Africa at SAP since December 2014 and served as its chief financial officer of Latin America and The Caribbean from September 2012 to July 2013. Mr. David established a strategic direction and oversees its financial and operational activities region-wide. He joined SAP in 1995 and served as its chief financial officer and chief operating officer in the past.

The Future Will Be Co-Created

Dan Wellers and Timo Elliott

 

Just 3% of companies have completed enterprise digital transformation projects.
92% of those companies have significantly improved or transformed customer engagement.
81% of business executives say platforms will reshape industries into interconnected ecosystems.
More than half of large enterprises (80% of the Global 500) will join industry platforms by 2018.

Link to Sources


Redefining Customer Experience

Many business leaders think of the customer journey or experience as the interaction an individual or business has with their firm.

But the business value of the future will exist in the much broader, end-to-end experiences of a customer—the experience of travel, for example, or healthcare management or mobility. Individual companies alone, even with their existing supplier networks, lack the capacity to transform these comprehensive experiences.


A Network Effect

Rather than go it alone, companies will develop deep collaborative relationships across industries—even with their customers—to create powerful ecosystems that multiply the breadth and depth of the products, services, and experiences they can deliver. Digital native companies like Baidu and Uber have embraced ecosystem thinking from their early days. But forward-looking legacy companies are beginning to take the approach.

Solutions could include:

  • Packaging provider Weig has integrated partners into production with customers co-inventing custom materials.
  • China’s Ping An insurance company is aggressively expanding beyond its sector with a digital platform to help customers manage their healthcare experience.
  • British roadside assistance provider RAC is delivering a predictive breakdown service for drivers by acquiring and partnering with high-tech companies.

What Color Is Your Ecosystem?

Abandoning long-held notions of business value creation in favor of an ecosystem approach requires new tactics and strategies. Companies can:

1.  Dispassionately map the end-to-end customer experience, including those pieces outside company control.

2.  Employ future planning tactics, such as scenario planning, to examine how that experience might evolve.

3.  Identify organizations in that experience ecosystem with whom you might co-innovate.

4.  Embrace technologies that foster secure collaboration and joint innovation around delivery of experiences, such as cloud computing, APIs, and micro-services.

5.  Hire, train for, and reward creativity, innovation, and customer-centricity.


Evolve or Be Commoditized

Some companies will remain in their traditional industry boxes, churning out products and services in isolation. But they will be commodity players reaping commensurate returns. Companies that want to remain competitive will seek out their new ecosystem or get left out in the cold.


Download the executive brief The Future Will be Co-Created.


Read the full article The Future Belongs to Industry-Busting Ecosystems.

Turn insight into action, make better decisions, and transform your business.  Learn how.

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About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

About Timo Elliott

Timo Elliott is an Innovation Evangelist for SAP and a passionate advocate of innovation, digital business, analytics, and artificial intelligence. He was the eighth employee of BusinessObjects and for the last 25 years he has worked closely with SAP customers around the world on new technology directions and their impact on real-world organizations. His articles have appeared in articles such as Harvard Business Review, Forbes, ZDNet, The Guardian, and Digitalist Magazine. He has worked in the UK, Hong Kong, New Zealand, and Silicon Valley, and currently lives in Paris, France. He has a degree in Econometrics and a patent in mobile analytics. 

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Blockchain: Much Ado About Nothing? How Very Wrong!

Juergen Roehricht

Let me start with a quote from McKinsey, that in my view hits the nail right on the head:

“No matter what the context, there’s a strong possibility that blockchain will affect your business. The very big question is when.”

Now, in the industries that I cover in my role as general manager and innovation lead for travel and transportation/cargo, engineering, construction and operations, professional services, and media, I engage with many different digital leaders on a regular basis. We are having visionary conversations about the impact of digital technologies and digital transformation on business models and business processes and the way companies address them. Many topics are at different stages of the hype cycle, but the one that definitely stands out is blockchain as a new enabling technology in the enterprise space.

Just a few weeks ago, a customer said to me: “My board is all about blockchain, but I don’t get what the excitement is about – isn’t this just about Bitcoin and a cryptocurrency?”

I can totally understand his confusion. I’ve been talking to many blockchain experts who know that it will have a big impact on many industries and the related business communities. But even they are uncertain about the where, how, and when, and about the strategy on how to deal with it. The reason is that we often look at it from a technology point of view. This is a common mistake, as the starting point should be the business problem and the business issue or process that you want to solve or create.

In my many interactions with Torsten Zube, vice president and blockchain lead at the SAP Innovation Center Network (ICN) in Potsdam, Germany, he has made it very clear that it’s mandatory to “start by identifying the real business problem and then … figure out how blockchain can add value.” This is the right approach.

What we really need to do is provide guidance for our customers to enable them to bring this into the context of their business in order to understand and define valuable use cases for blockchain. We need to use design thinking or other creative strategies to identify the relevant fields for a particular company. We must work with our customers and review their processes and business models to determine which key blockchain aspects, such as provenance and trust, are crucial elements in their industry. This way, we can identify use cases in which blockchain will benefit their business and make their company more successful.

My highly regarded colleague Ulrich Scholl, who is responsible for externalizing the latest industry innovations, especially blockchain, in our SAP Industries organization, recently said: “These kinds of use cases are often not evident, as blockchain capabilities sometimes provide minor but crucial elements when used in combination with other enabling technologies such as IoT and machine learning.” In one recent and very interesting customer case from the autonomous province of South Tyrol, Italy, blockchain was one of various cloud platform services required to make this scenario happen.

How to identify “blockchainable” processes and business topics (value drivers)

To understand the true value and impact of blockchain, we need to keep in mind that a verified transaction can involve any kind of digital asset such as cryptocurrency, contracts, and records (for instance, assets can be tangible equipment or digital media). While blockchain can be used for many different scenarios, some don’t need blockchain technology because they could be handled by a simple ledger, managed and owned by the company, or have such a large volume of data that a distributed ledger cannot support it. Blockchain would not the right solution for these scenarios.

Here are some common factors that can help identify potential blockchain use cases:

  • Multiparty collaboration: Are many different parties, and not just one, involved in the process or scenario, but one party dominates everything? For example, a company with many parties in the ecosystem that are all connected to it but not in a network or more decentralized structure.
  • Process optimization: Will blockchain massively improve a process that today is performed manually, involves multiple parties, needs to be digitized, and is very cumbersome to manage or be part of?
  • Transparency and auditability: Is it important to offer each party transparency (e.g., on the origin, delivery, geolocation, and hand-overs) and auditable steps? (e.g., How can I be sure that the wine in my bottle really is from Bordeaux?)
  • Risk and fraud minimization: Does it help (or is there a need) to minimize risk and fraud for each party, or at least for most of them in the chain? (e.g., A company might want to know if its goods have suffered any shocks in transit or whether the predefined route was not followed.)

Connecting blockchain with the Internet of Things

This is where blockchain’s value can be increased and automated. Just think about a blockchain that is not just maintained or simply added by a human, but automatically acquires different signals from sensors, such as geolocation, temperature, shock, usage hours, alerts, etc. One that knows when a payment or any kind of money transfer has been made, a delivery has been received or arrived at its destination, or a digital asset has been downloaded from the Internet. The relevant automated actions or signals are then recorded in the distributed ledger/blockchain.

Of course, given the massive amount of data that is created by those sensors, automated signals, and data streams, it is imperative that only the very few pieces of data coming from a signal that are relevant for a specific business process or transaction be stored in a blockchain. By recording non-relevant data in a blockchain, we would soon hit data size and performance issues.

Ideas to ignite thinking in specific industries

  • The digital, “blockchained” physical asset (asset lifecycle management): No matter whether you build, use, or maintain an asset, such as a machine, a piece of equipment, a turbine, or a whole aircraft, a blockchain transaction (genesis block) can be created when the asset is created. The blockchain will contain all the contracts and information for the asset as a whole and its parts. In this scenario, an entry is made in the blockchain every time an asset is: sold; maintained by the producer or owner’s maintenance team; audited by a third-party auditor; has malfunctioning parts; sends or receives information from sensors; meets specific thresholds; has spare parts built in; requires a change to the purpose or the capability of the assets due to age or usage duration; receives (or doesn’t receive) payments; etc.
  • The delivery chain, bill of lading: In today’s world, shipping freight from A to B involves lots of manual steps. For example, a carrier receives a booking from a shipper or forwarder, confirms it, and, before the document cut-off time, receives the shipping instructions describing the content and how the master bill of lading should be created. The carrier creates the original bill of lading and hands it over to the ordering party (the current owner of the cargo). Today, that original paper-based bill of lading is required for the freight (the container) to be picked up at the destination (the port of discharge). Imagine if we could do this as a blockchain transaction and by forwarding a PDF by email. There would be one transaction at the beginning, when the shipping carrier creates the bill of lading. Then there would be look-ups, e.g., by the import and release processing clerk of the shipper at the port of discharge and the new owner of the cargo at the destination. Then another transaction could document that the container had been handed over.

The future

I personally believe in the massive transformative power of blockchain, even though we are just at the very beginning. This transformation will be achieved by looking at larger networks with many participants that all have a nearly equal part in a process. Today, many blockchain ideas still have a more centralistic approach, in which one company has a more prominent role than the (many) others and often is “managing” this blockchain/distributed ledger-supported process/approach.

But think about the delivery scenario today, where goods are shipped from one door or company to another door or company, across many parties in the delivery chain: from the shipper/producer via the third-party logistics service provider and/or freight forwarder; to the companies doing the actual transport, like vessels, trucks, aircraft, trains, cars, ferries, and so on; to the final destination/receiver. And all of this happens across many countries, many borders, many handovers, customs, etc., and involves a lot of paperwork, across all constituents.

“Blockchaining” this will be truly transformational. But it will need all constituents in the process or network to participate, even if they have different interests, and to agree on basic principles and an approach.

As Torsten Zube put it, I am not a “blockchain extremist” nor a denier that believes this is just a hype, but a realist open to embracing a new technology in order to change our processes for our collective benefit.

Turn insight into action, make better decisions, and transform your business. Learn how.

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Juergen Roehricht

About Juergen Roehricht

Juergen Roehricht is General Manager of Services Industries and Innovation Lead of the Middle and Eastern Europe region for SAP. The industries he covers include travel and transportation; professional services; media; and engineering, construction and operations. Besides managing the business in those segments, Juergen is focused on supporting innovation and digital transformation strategies of SAP customers. With more than 20 years of experience in IT, he stays up to date on the leading edge of innovation, pioneering and bringing new technologies to market and providing thought leadership. He has published several articles and books, including Collaborative Business and The Multi-Channel Company.