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How a Fortune 100 Leader Uncovered ~$75 million in Potential Excess Payments to Vendors

Problem Statement

A Fortune 100 company operating in 190 countries was looking to identify fraud in its Source to Pay (S2P) process. They partnered with konaAI to process, host, and review two years of SAP transaction data. 

We knew investigating vendors for bribery and corruption-related risks required a comprehensive analysis of vendor transactions and employee behavior.
konaAI Solution
konaAI provided the client with a comprehensive list of over 240+ tests (with customizable options) covering the entire S2P process, including sub-processes such as vendor master management, purchase order, invoicing, and payments.
Advanced analytics and continuous monitoring were performed on the provided data to identify fraudulent transactions and vendors. This case study focuses on the results of two algorithms identifying Price variance in Split Purchase Orders.
Contract Management
konaAI’s Contract Management considered materials for which a price is fixed for a term, based on the market value and compare if the PO prices match market value. Using in-built agents, we were able to:
  • Review the contracts of the vendors
  • Compare the prices mentioned in the Purchase Orders to the prices agreed upon in the MSA’s.
  • Highlight and conclude (without manual sample checks) any price variances between the contracts and Purchase Orders
  • Reduce the false positives, if such price variation is allowed as per the contracts
The Contract Management platform also considered materials for which a price is fixed for a term, based on the market value and compare if the PO prices match market value.
The algorithm identified if the same PO Requestor raised multiple purchase orders for the same product, to the same Plant, to the same or different vendors at varying prices within a duration of 3 days. It highlighted all the purchase orders matching the logic, calculated the additional cost incurred, and flagged the PO Requisitioner responsible for the split purchase orders, vendors and materials; providing an opportunity for the client to conduct a focused review.
Result
 ~$ 75 million potential cost recovery
400+ vendors reviewed
24 months transaction data analyzed

Conducting analytics on price variance in split purchase orders identified potential additional spend worth ~~$ 75 million across 400+ vendors over a period of 24 months.

  • PO Requestor raised multiple purchase orders for the same material, to the same plant, on same/different vendors at varying prices.
    • Noted price variance of 25-45% in Raw Material (sample), ~14,000% in Packaging Material (sample) and ~92,000% in Chemicals (sample)
  • PO requestor was able to edit the per unit price in SAP, which included transportation cost and violated company policy.
  • PO requestor issued sequential purchase orders and PO’s that exceeded vendor share of business, indicating potential lapses in internal controls.
  • PO requestor bypassed the delegation of authority matrix by splitting purchase orders below threshold limits to avoid additional oversight or approvals.
  • Patterns of high value low frequency and low value high frequency are noted.
The insights confirmed a pattern of recurring fraudulent transactions and risky behavior in the organization. By partnering with konaAI, the Compliance team was able to identify significant amounts in cost recovery and working on pathway to strengthen their internal controls and processes.