With quotes and insights from Jay Qatato, Senior Director of Internal Audit at Calpine.
Calpine is America’s largest independent power producer, with over 2,500 employees and $10 billion in annual revenue. Calpine has 76 power plants that generate nearly 26,000 megawatts of electricity – enough to power approximately 20 million homes.
Calpine has a dedicated internal audit team that includes identifying and eliminating duplicate payments across a portfolio of over 16,000 vendors nationwide.
Calpine’s internal audit team initiated an effort to efficiently and effectively identify and correct duplicate payment errors. The team understood the importance of the verification and recovery processes and had established an in-house software solution to address this need. However, the team faced three consistent challenges:
- Their process was cumbersome and presented a significant burden on the team: they had to program their in-house software, manually extract their data and run the software multiple times before they could initiate collection processes.
- The team had to go vendor by vendor through their vast portfolio of 16,000 vendors, which was tedious and inefficient.
- This process also produced a significant number of false positives, leading to ineffective use of resources.
“Our software was administrative and hard to manage… Basically, we were on a treadmill trying to work through false positives.”
Calpine’s internal audit department therefore challenged themselves to seek a solution that would solve these challenges. Above all, they sought a way to identify, understand and address the magnitude of duplicate payment errors that was not reliant on time-consuming, manual work.
The Right Partner: Technology Insight
The Calpine team felt that they had three options to address these challenges. The first was to continue performing the work themselves and look for opportunities to optimize that process. The second was to hire a third party to run audits; that external team would use their own software and take a high portion of recovered revenue as commission — up to 35%. The third solution was a partnership with Technology Insight.
Calpine decided to partner with Technology Insight for the following reasons:
- Technology Insight was a proven partner of other significant organizations;
- Technology Insight offered a pilot program of their software to demonstrate its value;
- The software solution, DataShark, was both powerful and easy to use;
- DataShark categorized all duplicates by their likelihood of being a duplicate payment, enabling the Calpine team to identify false positives and focus their resources where they would have the highest payout; and
- The software had powerful reporting capabilities to support the team’s collection efforts and reports to senior management.
Calpine knew that no other partner offered the value of Technology Insight, and there was no comparable software that met all of the team’s needs so effectively. Using these factors, Technology Insight implemented a solution to address the specific needs of the Calpine team.
Technology Insight implemented its DataShark tool to solve the challenges of the Calpine internal audit department. This tool is a cloud-based software program with over 400 powerful scripts and algorithms.
The implementation process was smooth: the teams collaborated to set definitions and attributes, and from there, Calpine simply had to extract and remit their financial data. Technology Insight used DataShark to analyze that data, identify potential duplicate payments and make recommendations to the Calpine team.
DataShark also sorted all potential errors into categories to determine the likelihood of a duplicate payment error, such as 90%, 75%, 50% or 25%. This stratification enabled the audit team to allocate recovery resources appropriately and dedicate time and efforts toward the highest likelihood of duplicates.
The Calpine team then used that analysis to prioritize recovery efforts and seek out lost money from duplicate payments. The team also used DataShark’s reporting features to build the case for each refund and report quarterly results to senior management.
“[Technology Insight] gave me consistency, accuracy and reliance. Then all I had to do is chase the dollars — which is always a lot more fun.”
During the initial setup, Technology Insight used DataShark to audit data from the preceding few years to find residual duplicates; afterward, the team has continued to use DataShark on a monthly basis.
Technology Insight’s solution enabled Calpine to both solve their initial identified problem — efficient duplicate payment analysis — and save significant time, money and resources in the process:
- Reduced false positives by almost 75%
- Recovered over $500,000
- Saved $55,000 per annum on resources
- Reduced time required from one week to one day
- Improved audit team training
- Provided additional operational key performance indicators to reduce risk
- Provided robust, unmatched customer support
Improved Error and False Positive Analysis
Technology Insight’s solution enabled Calpine to solve their initial identified problem: to identify, understand and address the magnitude of duplicate payment errors without time-consuming, manual work and time lost to false positives. DataShark reduced Calpine’s false positives by almost 75%.
In addition, any false positives that did make it through DataShark’s algorithms were transactions that still required attention and deserved to be flagged — those false positives often resulted in employee training, indicated a control issue or provided for process improvement despite not being a true duplicate payment.
Return on Investment
Calpine’s investment in DataShark paid for itself within the first three months by recovering funds from the preceding few years. Additionally, over this two-year relationship, Technology Insight has recovered over US $500,000 for Calpine.
The operational improvements created by this solution paid significant dividends in resource cost savings. The team saved 11 days each quarter. Using a “billable” model and a blended rate of $150 per hour, that time saved equated annual savings of approximately $55,000 in resource costs.
Reduced Time and Workload
With DataShark, Calpine was able to execute the duplicate discovery process 5 times faster, taking only one day per month versus one week. Using the software, Calpine’s team was able to analyze data in under an hour and from there capitalize on the recommendations provided by DataShark.
“When you reduce your workload from one week to a day and your results improve significantly, it’s a no-brainer.”
Moreover, Calpine was able to use the likelihood rating of potential duplicate errors to effectively allocate time and ensure that their efforts would have the highest payout. The internal audit team also used DataShark’s reporting capabilities to quickly obtain significant evidence to build a case to present to accounts payable for a speedy recovery of funds.
Root Cause Analysis and Training
Calpine was also able to identify and address common causes of duplicate payment errors with DataShark’s analysis, from problematic vendor files to human error. Even in the case of human error, Calpine was able to turn this insight to its advantage. The team communicated information to Accounts Payable (A/P) and raised awareness of common causes of errors among those keying invoices based on real-life examples.
The Human Element
Though the primary element of this relationship was a software application, the human side of things was just as impactful, from strong collaboration to high team morale.
Technology Insight backed up DataShark with a helpful, knowledgeable support staff that could answer all of Calpine’s questions. For Calpine, this support was crucial to an effective partnership:
“While the software is effective and the reporting is effective, if you don’t have support staff that’s effective, you’re basically buying a car from a bad dealership. Instead, we’re buying a quality car from a reputable dealership with a strong service department, and that provides a lot of confidence to the team.”
Moreover, Calpine saw intangible results from this partnership. The internal audit team saw additional and tangible value and assisted in further developing relationships both internally and externally. The software removed the vast majority of a frustrating manual processes. Rather than grinding through duplicate payment analysis, the team has been able to use DataShark’s automated processes to augment their work and focus their efforts on communications with vendors.
Want to learn more about a partnership with Technology Insight can improve your Accounts Payable department? Get an assessment from our team!