In this fourth installment of our series, we examine how implementing a workflow system reduces the business risks associated with day-to-day operations.
Which operational risks are we examining?
Although operational risks span a very broad spectrum, we will focus on areas that can be managed or minimized through a well-prepared workflow implementation and the associated process design. As we will see, workflow implementation can directly address risks involving substantial financial exposure in a wide range of situations.
A financial control perspective
Of course, we recognize that financial controlling is a profession in its own right, and no system can fulfill that role, at least not on its own. However, when we approach the issue from a business process perspective, we can see that adopting a similar mindset can help prevent major losses and other situations that cause financial difficulties. A system that properly supports the relevant checkpoints, items and approvals can help achieve this. Let us look at a few examples of these operational processes and how to manage them.
Order fulfillment errors
Today, it is rarely possible to manage an order—particularly in a B2B environment—with just a few phone calls or notes. Price negotiations, availability, volume discounts, shipping arrangements, insurance and tax compliance for international transactions: most of these need to be addressed during order fulfillment. As order administration becomes more complex, both the number and likelihood of potential errors increase. In the best-case scenario, these errors come to light before handover, so the customer does not notice them, or at least not directly. If we are less fortunate, however, fulfillment will be incorrect and the customer dissatisfied. Such errors may include incorrectly assembled orders, delivery inaccuracies, incorrect documentation—such as an improperly issued invoice—unacceptable fulfillment, the delivery of defective products, and so on. In most cases, these issues only come to light when a customer submits a complaint about their order. This damages our company's reputation, particularly if the complaint appears on a public online platform. The customer's frustration is, at least in part, justified: they ordered and paid for something, yet did not receive what they wanted. They may have received a defective product, or their order may not have arrived on time. These problems and errors can be addressed immediately if order management is built on strictly regulated business processes managed in an appropriate system. For example, when an order is placed, the customer must confirm the items ordered, the suitability of the delivery deadlines, the prices and any other terms and conditions. This already addresses a number of potential problems. However, the order still needs to be assembled. First, the confirmed order must reach the colleague responsible for picking it, and the items must then be checked against the order details. A workflow system can partially automate this. At the same time, the process checkpoints themselves—which must be completed when working in a workflow system—help ensure accurate order picking. Importantly, the system can also automatically generate the corresponding invoice and delivery note based on the order, preventing errors in these documents as well. It can also help organize shipping if this activity is managed as a process. Together, the processes and checkpoints, along with the system's automation capabilities, make order fulfillment more accurate and faster, resulting in more satisfied customers.
Incorrect payments
Paying incoming invoices is another area where incorporating appropriate checkpoints into processes is particularly important. Consider an example from a few years ago. A Lithuanian man named Evaldas Rimasauskas devised the following easy—but far from legal—way to make money. He established a company with a name very similar to that of a Taiwanese company used as a subcontractor by Google and Facebook. Naturally, his “business” carried out no actual activities. Instead, he began sending invoices to the two tech giants in the name of the genuine Taiwanese company with the same name. He continued this activity for years, managing to defraud BOTH corporations of USD 100 million each, causing total losses equivalent to approximately HUF 60 billion. The invoices were for small amounts and included items that both companies genuinely purchased regularly from the other company with the same name. The fraud was uncovered after five years, and Rimasauskas went to prison, but no reports indicated whether the victims recovered their money. How can workflow help prevent this type of fraud? The answer lies in transferring data between documents. If, for example, we create or manage a contract in a workflow system, we can make it mandatory at the process level for every purchase order to be linked to that contract. This means that every purchase order identifies the contract to which it relates, and only products included in the contract can be ordered, strictly in the quantities specified. In addition, incoming invoices must always be linked to purchase orders; otherwise, the system automatically rejects them. This ensures consistency from contract to invoice, so that only invoices containing the correct data can be paid. It prevents the organization from accepting invoices specifying a different bank account or a company name that differs by even a single character. It also prevents any contractual data from appearing differently on the invoice than in the contract. Let us take this a step further, since fulfillment has still not been verified. A workflow system also allows an invoice to be accepted only if it is accompanied by a certificate of completion—with the correct contractual and other details mentioned above, of course. If this is missing, the system will not allow the invoice to be accepted, immediately preventing payment for incorrect fulfillment or an invoice for which no goods or services were delivered. Naturally, additional checkpoints, cross-checks and even multi-level approvals can be incorporated into the processes. This means that individual purchase orders or invoice acceptance may require approval at several levels of the organization before payment is made.
Conclusion
The examples above clearly show that implementing a workflow system can make it relatively straightforward to prevent a range of fraudulent practices, deception and malicious attacks that cause direct financial losses. Let us be honest: no security or control solution is perfect. Yet if Google and Facebook had not fully resolved the problem outlined above, it is likely that the vast majority of Hungarian businesses have not either. By carefully reviewing our processes and implementing an appropriate workflow system, we can do a great deal to prevent sophisticated fraud and theft—and see a direct financial benefit, potentially immediately!
