CONFIDENTIAL 2015

Vendor Master Detox:

How to Sanitize & Stabilize

your VMF Process April 30, 2015

LIVE WEBINAR

Speakers:

Jon Casher, Casher Associates, Inc.

Josh Morrison, Lavante Inc.

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Panelists

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Introductions – The Panelists

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Josh Morrison, Sr. Consultant, Lavante

• Former F200 AP & Strategic Sourcing Senior Manager

• Extensive background in Procure-to-Pay & Supply Chain Relationships

• Expertise in Audit Controls, Compliance & Enterprise P2P Systems

• Leading Process Improvement and Business Strategy Thought LeaderJosh.morrison@lavante.com

http://www.linkedin.com/in/joshmorrison

Jon Casher, President, Casher Associates

• Founded Casher Associates, Inc. in 1976 to design custom financial systems

•Co-founded CM Associates in 1985 to provide financial industry software products

• Co-founded RECAP, Inc., an A/P Audit firm, in 1988

• Director of NASDAQ company from 2000-2006JCasher@casherassociates.com

http://www.linkedin.com/in/joncasher

Agenda

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Vendor Master Detox: How to Sanitize & Stabilize your VMF Process

• Criticality and Impact of the VMF

• The Three Pillars Maturity Model

• Prepare for Your Detox

• Execute an Effective Cleanse Process

– The Data

– The Process

• Summary

Criticality and Impact of the VMF

Why do we care

– Penalty

– Price of Non compliance

– Reduce Potential for Supplier Fraud

What is in it for me

– Enterprise coordination

– Leverage

– Decision support

– Standardizations

– Accountability

– Visibility

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Why is a Sanitary, Healthy VMF so Critical

VMF is Center of all P2P Decisions

- Cornerstone of every P2P transaction

- Facilitates accurate withholding & reporting

- Aids in government & regulatory compliance

- Data framework for completeness & accuracy

- Serves as base for Key Performance

Indicators

- Supports adherence to contract terms &

corporate policies

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Reduce Fraud

Main Types of Vendor Fraud

– Requests that look like invoices or government forms with a filing fee

– Invoices for goods not delivered or services not provided

– Checks that sign you up for a service if you deposit them (may appear to be

refunds, rebates or credits for a small amount)

– Intentional double billing

– Collusion with an employee, kickbacks, bribes

– Fictitious companies

The Size of the Problem

– Kroll Global Fraud Report

o 19% of companies experienced vendor fraud in 2013

– ACFE

o 5% of revenues lost due to fraud

o billing fraud is approx. 24% of the total monetary amount of fraud

VMF Impacts on Enterprise Decisions

Decision Support Scenarios

Scenario 1

Purchasing needs to have accurate expiry

information to manage supplier contracts for Legal

Scenario 2

Strategic Sourcing needs to analyze supplier

spend and usage data to reduce costs for HR

benefits

Scenario 3

Executive Mgt. needs to report diversity and

charitable contributions to support Compliance and

Tax as well as Sales initiatives with Customers

Scenario 4

Operations needs to find a new service provider

for security services to protect their Employees

and engages AP or Purchasing

Many Others….

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Impacted Areas

VMF Impacts on P2P Functions & Processes

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The Supplier Affect™

Agreements

• Document Retention

• Terms & Expiry

• Deliverables Management

• Notifications

• Service Levels

• Contract Compliance

• Business Segment Alignment

• Pricing & Specifications

• Statement of Work/Effort

• Change Collaboration & Management

Systems

• Vendor Master File

• Data Collection & Validation

• Approvals & Workflows

• Notifications

• Regional & Local Considerations

• Accurate Capture of Agreement Terms

• Accurate Capture of Pricing & Attributes

• Supplier Collaboration

• Updates & Change Management

• Supplier Self-Service

Transactions

• Purchase Orders

• Order Confirmations

• Hosted Shopping (Punch-Out)

• Shipments & Receipts

• Invoices

• Payments

• Bank Reconciliations

• Discrepancy Management

• Quality & Errors

• Contract Compliance

Analytics

• Effectiveness & Quality

• Efficiency & Throughput

• Service Levels

• Risk & Fraud Mitigation

• Regulatory Compliance

• Benchmarking & Scorecards

• Growth & Development Strategies

• Trending & Forecasting

• Value Chain Partner Alignment

• Corporate & Social Responsibility

Relationships

• Quality

• Service Levels

• Errors

• Defects & Returns

• Strategic Alignment

• Growth & Development Partners

• Preferred Supplier/Customer Designation

• Operational Continuity

• Risk & Fraud Mitigation

• Cash & Working Capital

Suppliers & Supplier Relationships

The Best-In-Class VMF Process

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• Duplicates

• Missing Data Points

• Inactive Accounts

• Inter-relationships

SYSTEMS, GOVERNANCE, TRANSACTIONS, ANALYTICS, PEOPLE

BEST-IN-CLASS VENDOR MASTER FILE PROCESS

SANITIZE

• Naming Conventions

• Segregation of Duties

• Add/Change Workflows

• Profile Completion

STABILIZE

• Regulatory Compliance

• Validation at On-Boarding

• Fraud Protection

• Supplier Self-Service

OPTIMIZE

The Three Pillars

Typical State• Large, Outdated VMF• Few Controls• Low Automation• High Risk of Fraud,

Lost Profits

Sanitize• Duplicates Removed• Relationships Identified• Validation Points• Aged Vendors Purged

Stabilize• Naming Conventions• Workflows• Complete Profiles• Segregation of Duties• Centralization• Reporting• Transparency

Optimize•On-Boarding•Fraud Protection•Supplier Self-Service•Data Collection•Data Validation•Roles & Permissions•GRC Controls• Integrated Workflow•3rd Party Validation•Enterprise

Collaboration

Vendor File Process Maturity Model

Reactive Tactical Strategic

Define Measure Analyze Improve Control

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Typical State• Large, Outdated VMF• Few Controls• Low Automation• High Risk of Fraud,

Lost Profits

Sanitize• Duplicates Removed• Relationships Identified• Validation Points• Aged Vendors Purged

Stabilize• Naming Conventions• Workflows• Complete Profiles• Segregation of Duties• Centralization• Reporting• Transparency

Optimize•On-Boarding•Fraud Protection•Supplier Self-Service•Data Collection•Data Validation•Roles & Permissions•GRC Controls• Integrated Workflow•3rd Party Validation•Enterprise

Collaboration

Vendor File Process Maturity Model

Reactive Tactical Strategic

Define Measure Analyze Improve Control

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What to know before you Sanitize

Preliminary Steps before you Detox

• Understand the complexities of

managing your Vendor Master

– Data Decay - Document and data collection,

validation & ageing

– Processes – Cross department Communication

– Benchmark Statistics

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S a n i t i z e

The VMF Problem - Simplified

Supplier data constantly decays

Many data & documents required

Diverse supplier population

Communication complexity

Multiple internal locations &

division

Compliance to internal controls

Data Decay and Manual Processes Complexity

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The Human Element within the Process

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Effect

- Errors

- Fraud

- Duplications

- Regulatory Infractions

- Overpayments

Cause

- Human Error

- Multiple Owners

- Decentralization

- Conversions

- Uploads

Purchasing and AP can use Different Files and/or Multiple Systems

Data Quality and Consistency– Missing

– Non-standard

– Invalid

– Obsolete

Why Vendor Files Grow– Name entered differently by your staff

– Vendor changes its name

– Street Address and/or Lock Box changes

– Mergers o By your organization and by your vendors

– Acquisitionso By your organization and by your vendors

– Divestitureso By your vendors

Other Vendor Master File Issues

Vendor Master Data Benchmark Metrics

• 20% - 80% of vendors in current vendor master files have had no activity

within the last 12 months

• 35% - 65% of “active” vendors are one-time vendors

• 7% of vendors change their name annually

• 20% of vendors change their HQ address annually

• Phone #(s), Contact Name(s), Email Addresses and Banking Information also

change

• The bigger your vendor file, the more duplicates you probably have– 1-100 vendors - no duplicates

– 100 - 1,000 vendors - 1% - 3% redundant

– 1,000 - 10,000 - 2% - 6% redundant

– 10,000 - 100,000 - 4% - 10% redundant

– > 100,000 - > 10% redundant

The Data - Vendor Master Cleanse

Strategic Data Control Statement

– What are the acceptable sources of Data?

– What are the desired types of Data?

– How will you validate the data?

– Create a Data Guideline.

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The Data - Sources of Supplier relationship data

Sources of Supplier Relationship Data

1. Client data – Data that resides in ERP

or Procurement

2. Supplier Data – Data that supplier fills

in self service

3. 3rd Party data – Government & non

government

4. Data aggregators – Supplier

Intelligence

5. Lavante Network Data – Data that LSN

provides – Fraud score

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The Data - Score Your Current Data

Different Types of Supplier data

– Primary

o Core Supplier Name and Address

– Secondary

o Contact and Supplier Intelligence

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Regulated

Tertiary

Secondary

Primary

37.50%

17.50%

20.00%

88.24%

– Tertiary

o Documents and certifications

– Regulated Data

o Data that needs to be validated

The Data - Ad Hoc Data Quality Query Capability

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Ad Hoc Data Quality Query Tool

- Filtering

- Scoring

- Exporting

- Graphing

Create field guidelines for data format, validation and control

– Vendor Type and/or Class

– 1099 Type (Box)

– Phone Numbers

– Taxpayer Identifiers

– Payment Terms

– ACH, P-Card, EDI, etc.

– Diversity:o Women, Minority, Small Business

Veteran, Disabled Veteran, etc.

– Insurance Certificate(s)

– Tax Certificate(s)

– Certifications

– Contacts

– Email addresses and web sites

The Data – Create Guideline of Data Controls

Field ControlsSize – Format Score WeightingOwnershipPrivilegesIncluded in WorkflowWho can see itFrequency of updatingValidation SourceMore…

The Process- Vendor Master Cleanse

Strategic Process Control Statement

– Define the Roles?

– Define the Supplier Communication Strategy?

– How will we perform Validations and Verifications?

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Owner should be responsible for– Defining data requirements

– Setting, maintaining and monitoring standards and data quality

– Coordinating the activities of those who use, enter and update vendor information

Well Documented and Tested Procedures – Define the process for doing business with new vendors

– Ensure that only authorized individuals can make changes, additions, deletions

Segregation of Duties Controls– People allowed to make changes must not be able to process

transactions such as issuing purchase orders, posting invoices, disbursing funds or making accounting entries

Audit Trail of Changes– All additions, changes and deletions should be logged, reported, reviewed

and signed off by someone in management other than the person posting updates

Reconcile and Synchronize– If multiple systems have vendor information, reconcile common information

The Process – Define the Roles

The Process – Simple Supplier Communications

Have general conventions and standards

– Use a new vendor form with field names and positions similar to where they are in your vendor setup screenso Require names and signatures of requestor, person doing setup and person

reviewing and verifying correct setup information

– Standardize how vendor names are enteredo Insist that the guidelines be followed – verify periodically

- Punctuation

- Abbreviations

- Name Prefixes and Suffixes

- Name Qualifiers

Provide to Vendors

– Send out a welcome letter and information packet that identifies:o What to do to get paid

o When a contract or Purchase Order is required

o Whom to contact regarding issues

o Optionally, ethics and dispute resolution guidelines

Regulatory

– Ensure that you are not doing business with a prohibited party

on the OFAC, FTO and BIS lists or other lists of denied,

debarred, excluded or restricted parties

– Check GSA System for Awards Management

– Verify that information for regulatory reporting is correct

o Get W-9s for US vendors and appropriate W-8 for non-US vendors

o Use IRS TIN Matching

o Check State of Incorporation or Local Jurisdiction

- Secretary of State or Office of Corporations

o Determine State Reporting Requirements

- State Withholding and “1099” Reporting

- Office of Child Support for Deadbeat Parent

– Check Industry Specific lists

The Process - Validations and Verifications

The Process – Ongoing Regular Communication

Communicate regularly with vendors

– Prepare a document that explains how a vendor should conduct business with your firm

– Require vendors to sign a business practices statement

– Use email intelligently

– Accept electronic input

– Provide sufficient remittance information to vendors so that they can properly apply payments

– Provide on-line inquiry and self service capability (Vendor Portal)

– Monitor vendor performance – accuracy and timeliness of invoices

– Consider having “Service Level Agreements” with your strategic vendors

The Power of the VMF

Leverage

– Fraud detection and prevention

– Strategic Suppler Relationship Management (SRM)

– Create value chain partners,

o Improve working capital

– Improve accuracy of business transactions

– Document solicitation and retention

o (W9, W8, COI, Diversity)

– Accurate metrics and analyses

– Spend management

– Strategic Sourcing

– Exclusion list management

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Summary

• The secret is outYOUR VMF IS CRITICAL

• Tell your secrets– Executive Management

– Tax, Legal, Compliance– Department Heads– Supplier Relationship Owners

– Align AP, Purchasing, & Sourcing

• Achieve Best-In-Class– Automate, Stabilize, Optimize– Streamlined & Controlled Processes– Compliance; Regulatory, Corporate, Contract

– Real-Time, Collaborative, Documented– Comprehensive Profile Validation & Completion– Supplier Self-Service

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Next Thought Leadership Events

"Secrets You Need to Know About your Vendor Master File."

March 26, 2015 - 11am PST

"Detox Your Vendor File."

April 30, 2015 - 11am PST

Jon Casher and Josh Morrison outline that much of the data and records

residing in your vendor file are unnecessary and even damaging to your

ability to complete your daily tasks and hit your strategic goals.

"How to Take your Vendor File to the NEXT LEVEL"

June 23, 2015 - 11am PST

Jon Casher and Josh Morrison walk through the six indispensable steps

of the ideal master vendor file. Learn what it takes to be among the

industry's best of breed.

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