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The client
A Japanese-owned food manufacturer with a more than 200-year heritage acquired two large food brands from a U.S. food manufacturing conglomerate, instantly tripling its annual sales and adding over 150 employees. This acquisition positions the manufacturer as the largest U.S. market share leader in its food category.
The challenge
The food manufacturer relies on third-party food brokers to facilitate trade promotion with their customers. Months after preparing their financial statements, the company discovered they had underestimated their trade promotion accrual liability by over $5 million and needed to:
- Recalculate their trade spend through reconciling data from multiple disparate systems.
- Audit the appropriateness of their food brokers’ trade deduction clearing activity.
- Determine the root cause for the underestimated accrual liability and overspend.
- Understand overall process and internal control.
However, it was a challenge to determine the cause of the discrepancy due to poor data quality and their limited data analytics capabilities and evolving culture. The manufacturer needed a trusted advisor — a “go-to team” with the necessary expertise and experience to help identify issues and solve problems.
The solution
We assembled a cross-functional team of internal audit and data analytics experts. Our data analytics team extracted over one million rows of transactional data from their financial systems and prepared a data model, which identified customers with the greatest risk. The analysis quantified the discrepancy by customer and revealed actionable insights hidden in the data.While working closely with the sales operations team, our internal auditors collected contracts, invoices, and proof-of-performance from third-party food brokers to test the validity of trade deduction clearing activity. We identified specific root causes, which contributed to the trade promotion overspend including insufficient internal controls, system interface errors, and data-quality issues.
The food manufacturer embraced our recommendations to correct the issue and implement new controls preventing any reoccurrence. While leveraging resources from such diverse groups as enterprise risk services, data analytics, Japanese business services (JBS), and our food and beverage industry team, the company strengthened its controls and made better data-driven decisions.
The benefit
The trade promotion audit provided the food manufacturer with several benefits including:
- Strengthened internal controls to manage financial risk
- Corrected system interfaces and configurations
- Improved data quality and data accessibility
