Below are my thoughts on the article "What You Don't Know Can Hurt You" by John Verver. For background, John Verver is a semi-retired senior executive at ACL Services, a sometimes competitor of Oversight. ACL is the leader in tools for internal auditors. John is a very knowledgeable guy and true gentleman. I have had the opportunity to be on several panels with John and we spent a couple of weekends together at conferences in Italy and Amsterdam.
The US Department of Defense (DoD) is a great use case for leveraging Big Data to reduce costs, improve operating efficiencies, and protect taxpayers’ money. For over six years, the financial shared services arm of the DoD, the Defense Finance and Accounting Service (DFAS), has leveraged transaction monitoring and analysis on a daily basis to prevent over $2 billion per year in improper payments. DFAS incorporates commercial payments data from six different contracts and payments systems across all departments of the armed forces to analyze all payment transactions prior to disbursement.
The first objective at DoD is to prevent money from leaving the government that shouldn’t whether it’s because a new invoice is received that has already been paid, the invoice received is for the incorrect amount, the invoice includes items or services that cannot be invoiced to the government according to the terms of the vendor’s contract, or because the payment is headed to the incorrect vendor. This objective is focused on taking action to prevent an unexpected action from occurring. The DoD does an excellent job of not only identifying these unexpected results, but also tracking and trending them.
The second objective at DoD is to address the root cause of improper payments so they don’t recur. This involves using the transaction analysis results for root cause analysis to determine vendor actions that have resulted in erroneous invoices, or department actions that may have contributed to scheduling an erroneous payment. This results in communications with vendors who may need to change processes or train employees. Sometimes DoD needs to address processes and/or internal training and communications. The bottom line at DoD is to address the causes of improper payments in order to eliminate as many as possible.
Finally, DoD has leveraged transaction monitoring and analysis as an important control to contribute toward audit readiness. These systems make it easier for DoD to prove that controls are in place and operating as designed to prevent improper payments whether honest errors or more pernicious concealment of fraudulent intent.
And DoD isn’t the only department leveraging transaction monitoring and analysis to drive down costs, improve efficiencies, and protect taxpayers’ money. Both the Department of Education (ED) and Department of Commerce have been using the same software systems for the last four years to monitor for improper payments and ED is monitoring grants. The opportunity within the US government is for other departments and agencies to leverage the technologies that DoD, ED, and Commerce have been using. While some government systems are legacy systems and others are custom, today’s technologies can work with data originating from a variety of systems.
The challenge for other agencies and departments is to understand that the cure is not worse than the disease. Today’s transaction monitoring and analysis systems streamline the process of identifying problems before they result in downstream issues that are complex and time-consuming to address.