How do you identify fraud, waste, and abuse when your procurement office handles more than a million transactions a year and $2.2 billion in disbursements? Manually, if you’re Stanford University, just like most institutions of higher education do. But, faced with a changing audit landscape, the California school is now looking to analytics to help detect transaction irregularities.
The need for a new approach is rooted in two factors, one old and one new. First, the sheer volume of transactions makes it impossible for the university to monitor them all manually. “We knew our existing approach just wasn’t sustainable: The number of individuals who can audit these transactions is small,” said Ben Moreno, chief procurement officer for Stanford. “Obviously, we can’t look at every transaction, so we audit only a certain number of transactions on the back end to see if they fall within our standards for federal regulations, our admin guide, our policies, and procedures.” In the case of business expenses, for example, Stanford has been looking at only 40 percent to 50 percent of the transactions that come through the procurement office.
Second, the university noticed that some of the external auditors, especially for government-funded programs, had abandoned their old sampling approach in favor of analytics software that looked at an entire year or two of transactions. “Their analytics software was picking out trends, picking out outliers, and really focusing on certain transactions,” said Moreno. “We started to have concerns around the level of due diligence that we could achieve doing our own self-audits with a manual approach.” That’s when he reached out to FICO, an analytics software company, with an idea to use their experience with algorithms to help the university score and profile every transaction in a standardized way.
Two years later, the system, known as Falcon Assurance Navigator, is up and running at Stanford. “We’re using the solution for every financial transaction that comes through our department that requires a payment from Stanford,” said Moreno. “It could be a transaction, it could be a purchase order, it could be something that faculty members require to do their research that’s not part of a grant.”
(Next page: How the system works; Stanford’s implementation plan)