It has never been a more opportune and uncertain time to be in business. Amidst the growing wave of technological breakthroughs, digital revolutions, and overnight trends, the risks of refusing to adapt are just as relevant as the risks of adopting new tools and approaches without having a solid foundation.
KPMG in Canada has repeatedly observed that deviations between business requirements and system calculations have caused large financial and operational impacts on organizations. That is why, before charging ahead, it pays to look within to uncover hidden assets and liabilities in the organization.
Organizations are increasingly reliant on sophisticated systems to accurately and quickly process data and complex calculations. Changes in personnel, systems and business processes, and the increasing complexity of calculation formulas and data inputs can cause calculation errors in two ways: (1) system anomalies/glitches, and (2) deviations in business requirements and coded system logic.
These system errors and deviations in business requirements can result in hidden assets and liabilities that go unnoticed, resulting in various risks and opportunities for an organization.
Through our experience, we know how common it is for system discrepancies to operate undetected, often for long periods of time, resulting in material financial, operational, and reputational impacts.
Discrepancies in system calculations occur across industries and company sizes. Failure to identify said discrepancies can also lead to consequences in all company functions such as:
The advance of data modelling software and the use of artificial intelligence (AI) makes it quicker and more cost effective to do system 'deep dives', resulting in more breadth and accuracy in findings.
Organizations can mitigate risks and identify opportunities at their source by using the following steps:
Conducting a 'deep dive' for hidden assets and liabilities is key to avoiding unwelcome surprises down the road. In recent years, KPMG has helped numerous clients navigate complex business rules and IT systems to uncover errors and quantify, manage, and limit their liability exposure during litigation.
In addition to liability management during litigation, these 'deep dive' investigations have proven to be effective in a wide range of other sectors. For example, KPMG helped financial institutions gain clarity over their sophisticated transaction processing calculations in order to:
KPMG also worked with a telecommunications firm to identify the cause of an apparent revenue leakage that resulted from non-billing in a network area. By analyzing all available quarterly data for the given time period, including all billing and financial calculations, we were able to:
It is through engagements such as those described in this article that KPMG has noted, in both large and small organizations, the prevalence of system errors and the magnitude of the financial, operational and reputational consequences that resulted from the discrepancies hidden below the surface. We have demonstrated that it is possible to rebuild complex calculation systems in a robust and agile manner, as well as process massive amounts of data over a short period of time.
Time and time again, we have observed that proactively planning to find hidden assets and liabilities is much more effective and is much less disruptive to business operations.
While AI, automation, and machine learning can enable tremendous innovation and growth, their outputs are not immune to error. Decisions made by AI algorithms (e.g., to approve a loan application) will be challenged. The onus will be on the company to ensure they are not inadvertently breaking competition, consumer protection, or other laws and requirements through AI automation.
As such, internal assessments will become even more critical to ensuring intelligent machines are doing what they are supposed to do, and complying with contractual/business rules and regulations.
There are significant benefits to be gained from proactively identifying hidden assets and liabilities. It is key to carry out these investigations in advance of disputes, regulatory challenges, or irrevocable damage. Companies reacting to liabilities that surface will focus solely on addressing the liabilities to limit the disruption to their business, and will often miss the opportunity to identify hidden assets.
By planning ahead and investing in processes to uncover the hidden assets and liabilities within, organizations can mitigate the impact an error can have on its reputation and liabilities, minimize the disruption to the business, and improve their financial results.