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HFC Bank - Case Study

Background

HFC Bank plc is the UK’s largest consumer loans specialist and the issuer of marbles™ and GM® credit cards.  In 2003 it became a subsidiary of the HSBC group of companies following the acquisition of its parent company, the US-based Household International, Inc.

HFC uses an AS400-based accounts payable system to pay approximately 1,000 supplier invoices per week using the BACS system.

At the request of its parent, HFC appointed a firm of accounts payable audit specialists to conduct an audit with a view to identifying and recovering any erroneous payments that had been made to its suppliers.  As is usual in the Recovery Audit industry, the auditor worked for a commission based on a percentage of recoveries.

The audit identified a number of duplicate payments, (though fewer than would have been expected for a usiness of HFC’s size).  The duplicates occurred for a variety of reasons, but in every case they had evaded HFC’s standard control procedures.

Often this happened simply because of typographical errors by accounts payable clerks when entering the invoice number (e.g. invoice number INV532 entered as INVS32). It was clear to management that some improvements were required to prevent similar erroneous payments in the future.

Solution

HFC recognised that, regardless of how good their systems or existing processes were, there was still a high likelihood that some duplicate payments would be made.  They realised that the human errors that often caused these erroneous payments were hard to eradicate.

They concluded that it was better to build in additional checks after the payment details have been entered, but BEFORE the payments were made.  This additional “prevention” process would trap duplicate payments before they became a problem.

HFC found a solution to their problem in FISCAL Technologies’ Duplicate Payment Finder (DPF) software.  The program uses patent pending proprietary search algorithms and sophisticated pattern matching techniques to identify possible duplicate payments.

FISCAL Technologies’ staff developed an automated system for HFC using Microsoft Excel to extract both the historic payment data and the list of invoices due for payment at each BACS run.This extracted data is then automatically fed into the FISCAL Technologies DPF software which then trawls through the data looking for possible matches between the imminent and historic payments.

The DPF software analyses the data looking for a wide variety of potential matches.  It categorises the data according to different matching criteria.  It also ranks the suspected duplicates in risk order i.e. the most likely duplicates are given the highest ranking. When the analysis has been completed the details of the suspected duplicates are written back to an Excel worksheet.

On a weekly basis, HFC’s accounts payable administrator runs the program, which takes less than ten minutes to complete.  The suspect items can then be examined in more detail by the accounts payable staff to ensure their validity.

Martin Green, HFC’s Treasury Operations Manager said “This is a very useful additional control to our Accounts Payable systems.  We now have an added layer of confidence that the payments we are making are correct.  We expect to identify potential duplicate payments totalling tens of thousands of pounds a year as a direct result of the use of the system.”

Solution Summary

Industry
Consumer Finance

• Company Profile
  HFC Bank plc is the UK’s largest consumer loans specialist and the issuer of marbles™ and GM® credit cards.
• Situation
  Following an audit which identified a number of duplicate payments to HFC’s suppliers, HFC needed a system to identify potential duplicate payments before they were made.
• Solution
  FISCAL Technologies installed a customised version of its Duplicate Payment Finder (DPF) software, which is used shortly before each BACS payment run.  HFC expect to identify potential duplicate payments totally tens of thousands of pounds a year.
• Partner
  FISCAL Technologies Limited HFC Bank plc
  Duplicate payments – Prevention is better than cure.

HFC Banks plc have partnered with FISCAL Technologies to produce a proactive solution to the problem of accidental duplicate payments.  By preventing these losses before they occur, HFC gain the dual benefits of improved cash flow and avoiding paying commissions to recovery auditors.

Conclusions
HFC are representative of many companies who have been audited for erroneous payments.  They now recognise that duplicate payments are a problem that needs addressing on an ongoing basis.

They understand that even the best accounting systems and internal procedures won’t necessarily prevent duplicates being entered.  But, by running additional prevention procedures prior to payment, they can catch these errors and stop them costing the company significant amounts of money.