The Scenario – A Newly Opened Mexican Manufacturing Facility
An Asian furniture manufacturer supplies numerous retail stores across Asia, the UK, and North America.
In response to US tariffs implemented by the Trump administration on Chinese imports, the company acquired and opened a manufacturing facility in Mexico. To meet demand and continue delivery of products to US customers, the company rushed to hire staff, set up equipment, procure materials, and ramp up production.
During the year-end financial review, the company identified a significant discrepancy in their Mexican operations. The actual cost of materials far exceeded what was recorded in their financial system, meaning they were underestimating their material costs in Mexico by 7 percent, which would cause a significant impact on their US sales margins.
Given the severity and time-sensitive nature of the issue, the furniture manufacturer needed to conduct a comprehensive forensic audit to pinpoint the cause of the discrepancy.
The Challenge – Hundreds of Thousands of Emails and Attachments
While standard financial analysis had uncovered the problem, the company was unable to identify the root cause.
Financial oversight at the time was limited because of the speed of operations and the rush to get the facility up and running. In some cases, important decisions were made over email without effective controls or documentation. Many of the emails and attachments between management and suppliers were in Spanish, further adding to the complexity of the review.
Key Challenges
- Over 250 GB of data or ~500,000 emails and attachments
- Multiple languages and jurisdictions
- Various products, suppliers, materials, and transactions
- Limited oversight and financial controls
- Tight margins meant this cost overrun would have a material impact on corporate performance that year
The Solution – Vigilant AI’s Vizschön Platform for Forensic Auditing
Vigilant AI’s Vizschön Platform simplified the data collection process and automated the initial review, significantly reducing the time and cost of conducting the forensic audit and identifying the control failure.
The intelligent data management and review platform gathered all structured and unstructured data, linked all available documentation to every accounting entry, and pinpointed potential areas of risk.
Advanced artificial intelligence and machine learning (AI/ML) automatically scanned emails, purchase orders, bills of materials, invoices, and other documents. It then tagged and linked the documents using key terms such as supplier names, product SKUs, and email addresses to allow the forensic auditor to determine the cause of the discrepancy.
Throughout the engagement, Vigilant AI’s team worked closely with the company’s internal financial analyst to confirm key terms, understand business processes, and identify other information relevant to the case.
Key Platform Features
- Automated scanning and tagging of emails and attachments
- Rapid cross-correlation of emails and attachments to accounting data
- Ability to search in multiple languages
- Secure data architecture
The Results – Faster Forensic Auditing and a Rapid Identification of Control Failure
Initial conversations with forensic auditors suggested that it would take three accountants 10-12 weeks of work at a cost of over $60,000.
Instead, with Vigilant AI’s Vizschön platform, one forensic analyst was able to identify the control failure and pinpoint the cause of the cost overrun in one week. This was done at a $20,000 price point, 1/3 the cost of manual approaches.
The platform scanned over 500,000 emails and attachments and identified critical emails and attachments that were most relevant to the audit.
Using these, the forensic auditor determined that a supplier had raised the price of a foam used in the cushions of their couches.
The supplier had notified local Mexican management, who had approved the change via email. However, the managers in Mexico had failed to update the corporate ERP system with the new price, leading to the underestimated materials cost which went undetected until the end of the year.
With Vigilant AI’s Vizschön Platform, the furniture manufacturer significantly reduced the time and cost of the forensic audit, identified control failures that led to the issue, strengthened business processes, and improved performance going forward.
In addition, the analyst at the furniture manufacturer recognized that they could have also spotted the issue earlier had they been using the Vizschön platform for continuous audit and monitoring across the year.
Recent Comments