Transcript Slide 1
© 2011 Financial Operations Networks LLC Leveraging Productivity through Outsourcing Phil Binkow Financial Operations Networks Tuesday, April 12, 2011 Today’s Objectives Provide an overview of proven strategies, controls and best practices • Lower risk • Lower cost • Increase productivity • Increase value and ROI • Make managing the operation easier www.TheAPNetwork.com Page 2 Accounts Payable … the last control point before as much as 60%-70% of revenue goes out the door www.TheAPNetwork.com Page 3 Increased Resource Scarcity • More work • Less time • Staff cuts • Budget constraints www.TheAPNetwork.com Page 4 Increased Scrutiny • Increased regulatory compliance mandates • Processing cost concerns • Cost reduction initiatives • Increased focus on risk www.TheAPNetwork.com Page 5 Today’s Environment • Economic considerations • Increasingly complex processes • New technologies • Fraud • Significant volatilities and associated risks • Business process impact of global sourcing www.TheAPNetwork.com Page 6 To Outsource or Not? • Business objectives • Departmental objectives • Cost • Quality • Verifiable value proposition • Process/complexity considerations www.TheAPNetwork.com Page 7 What is Usually Outsourced? • Selected transactions • Disbursements • Document management • Specialized functions • All functions www.TheAPNetwork.com Page 8 Commonly Outsourced Functions • Freight • Telecom • Recovery • 1099 processing • Supplier self service • Vendor master file cleansing • Scanning • All processes www.TheAPNetwork.com Page 9 Why Not Outsource? • • • • • • • • • • • Loss of control over own destiny Confidentiality To “fix” a broken process Loss of expertise internally Provider risks Process complexity that affects quality Timeliness, time zone differentials Language barriers Management availability and ability No real benefit Wage differential may not last forever www.TheAPNetwork.com Page 10 Why Outsource? • Reduce/control costs • Focus on core business • Increase productivity • Conserve capital • Economies of scale • Implement new technologies • Improve processes • Draw on special expertise • Fix “broken” processes • Data utilization www.TheAPNetwork.com Page 11 Questions • Do you currently outsource any functions? • Do you plan to outsource any functions? www.TheAPNetwork.com Page 12 Issues • People • Current level of internal optimization • Provider selection process • Contract terms • Service level agreements (Win-Win) • Conversion www.TheAPNetwork.com Page 13 Considerations • Control • Standards • Minimized transaction cost • Information www.TheAPNetwork.com Page 14 Control • Process • Separation of duties • Staff • Disbursements www.TheAPNetwork.com Page 15 Control (Cont’d.) • Process ― Manual ― Electronic ― Combination of manual and electronic ― Flow diagrams ― Control points (Sarbanes Oxley/internal audit) www.TheAPNetwork.com Page 16 Control (Cont’d.) • Separation of Duties ― Incoming mail ― Audit ― Coding ― Data entry ― Disbursement ― Outgoing mail ― Reviews ― New vendor setup ― VMF maintenance www.TheAPNetwork.com Page 17 Control (Cont’d.) • Staff ― Aptitude ― Attitude ― Experience ― Background checks ― Training ― Supervision ― Productivity and performance management www.TheAPNetwork.com Page 18 Control (Cont’d.) • Disbursement controls ― Positive pay ― Checks ― Electronic www.TheAPNetwork.com Page 19 Standards • Process standards • Productivity standards • Error rate standards • Accuracy drivers • Timeliness • Service level agreements www.TheAPNetwork.com Page 20 Minimized Transaction Cost • Staff productivity • IT — yours and theirs • Process efficiency • Software • Cost per transaction ― Manual ― Electronic ― Combination ― Type or vendor specific www.TheAPNetwork.com Page 21 Use Information to Improve Operations Effective information and reporting can increase knowledge to yield significant increases in ROI. www.TheAPNetwork.com Page 22 Best Practices for Managing Outsourced AP Functions • Well defined metrics ― Current costs ― Proposed costs ― Actual costs • Current process documentation • Process change procedures • Benchmark internally and externally • Documented setup and implementation plan • Operational audits www.TheAPNetwork.com Page 23 Best Practices for Managing Outsourced AP Functions (Cont’d.) • Documented processing procedures • Scheduled stakeholder report cards • Historical archiving and retrieval procedures • Verified financial controls • Separation of duties www.TheAPNetwork.com Page 24 Best Practices for Managing Outsourced AP Functions (Cont’d.) • Report of uncashed checks • Report of suppliers’ unapplied cash • Use of positive pay • Check stock security features www.TheAPNetwork.com Page 25 The Eleven Deadly Sins of Outsourcing • Not properly documenting the current process • Not engaging all the stakeholders • Failure to do effective due diligence on the provider • Outsourcing to “fix” broken processes • Failure to get periodic financials from provider • Failure to have insurance certificate on the provider www.TheAPNetwork.com Page 26 The Eleven Deadly Sins of Outsourcing (Cont’d.) • Failure to perform periodic operation audits • Failure to consider compliance requirements • Not using disbursement controls • Not using information to improve process • Not having good termination provisions in the agreement www.TheAPNetwork.com Page 27 Contract Checklist • Third party fidelity and E/O coverage • Protection and liability for errors • Right to financial audit • Right to operational audit • Separate bank accounts, no co-mingling • Ownership and right to data www.TheAPNetwork.com Page 28 Contract Checklist (Cont’d.) • No hidden or undocumented fees ― Review the “fine print” • Contract language specifying ― Permitted use of funds ― Payment cycle • Supplier verification of timely payments • Creditors’ waiver of creditors’ right to offset providers’ deposit accounts • Feasibility of making your own disbursements and/or using your check stock www.TheAPNetwork.com Page 29 Contract Checklist (Cont’d.) • Statement of Work • Performance Standards and Service Level Agreement • Positive pay • References • Termination provisions ― Conversion assistance ― Acceptable penalties www.TheAPNetwork.com Page 30 The Pros and Cons of Off-Shoring • Cost differential • Controls • Quality • Timeliness, time zone differentials • Travel expense • Language barrier • Management availability and ability www.TheAPNetwork.com Page 31 The Pros and Cons of Off-Shoring (Cont’d.) • Process definition • Internal culture • Provider culture • On-site presence www.TheAPNetwork.com Page 32 Summary • Know your processes • Know your costs • The pace of change will increase • Accounts payable remains complex • Technology streamlines and adds value to the process but must have effective control points • Visibility into the processes and controls are essential www.TheAPNetwork.com Page 33 Summary (Cont’d.) • Adhere to controls • A good staff makes for better processes • Measure and manage • Information from the process can drive down costs • Have an out www.TheAPNetwork.com Page 34 © 2011 Financial Operations Networks LLC Thank You!