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PIDX conference spotting fraud and kindling curiosity

Thursday, November 12, 2015

The June 3 2015 meeting of Petroleum Industry Data Exchange (PIDX) in London, covered how to use data analytics to investigate commercial fraud, using data to kindle rather than kill employee curiosity, and the plans of PIDX's new CEO.

At the PIDX conference, Richard Palmer, director of fraud investigation and dispute services with Ernst and Young, talked about how the company analyses commercial data as part of a fraud investigation.

Fraud is more common in the oil and gas sector than most other industries, he said. EY does an annual industry survey about fraud, asking respondents from different industries if their company has experienced a significant fraud over the past 2 years. In the last survey, 16 per cent of oil and gas respondents said yes, compared to an industry average of 12 per cent, he said.

When a corporate fraud investigation takes place, 'typically it will be one of the big four professional services companies doing it,' he said, referring to Deloitte, PwC, EY and KMPG.

Mr Palmer leads a team of 50 staff members, of which a third have 'an advanced degree or PhD in data'.

EY works with all kinds of electronic data, including transaction data and data recordings of telephone calls. An investigation can go back 6 years, involving massive amounts of data.

One recent example was with an investigation on a Western company in China. The EY investigation team noticed there were more taxi receipts than it expected. They found that there was an industry in China which will print taxi receipts, which can then be used as cover for a bribe payment.

Sanctions are an enormous risk for oil and gas CEOs, he said. Typically every dollar that breaks a sanction leads to one dollar fine. Companies often ask EY to go through their systems, to make sure they are not breaking sanctions, he said.

If companies do get caught up in something, the first question company executives ask is 'how bad is this going to be', followed by 'how do we stop this happening again.' This can be followed by putting controls in place.

A typical investigation can look through company transactional data, reference data, together with business intelligence data and social media data. It has investigation tools to look for patterns, and make statistical and predictive analysis.

EY has special analytic tools to evaluate unstructured data. For example, it can search financial systems for names of companies known to be in Libya (a country subject to trade sanctions) and see if any money has been paid to them.

It can look for purchases where the payment was made before the goods were received, rather than afterwards.

A bribe could be labelled in the accounts as a 'consulting fee, onetime payment, special advance, good will payment, incentive payment, donation,' he said.

You might also look at commissions at over a certain percentage, or unusual correlations between entities.

Many companies are still using 10+ year old transactional systems which typically hold bank data for 3 months, he said. 'One Middle East bank had data on Swift transactions in paper boxes.'

Better use of PIDX standards should help drive down fraud, he said. 'The more straightforward processing you have, the less opportunity there is for someone to do something fraudulent.'

Developments at PIDX

PIDX (Petroleum Industry Data Exchange), the oil and gas industry body developing standards for e-business, has appointed a new interim CEO, Alejandro (Alex) Del Palacio.

Mr Del Palacio is formerly director of business development at Sullexis, a company based in Houston. He has already been involved in PIDX for two years, being elected to serve as an acting chairperson on PIDX's Standards and Guidelines committee in December 2013 and becoming the chair of the committee in September 2014.

Mr Del Palacio has also worked with a number of National Oil Companies implementing procure to pay systems and business process re-engineering.

In his first few months at PIDX, 'I've been looking at what we've done really well and what we need to improve,' he said. We have to look at 'what we need to give our current members and what do we need to do for non-existent members.'

'Companies that are members of PIDX don't necessarily know all the standards we have,' he said.

PIDX has recently appointed three new board members: Angelica Tritzo, CIO Turbomachinery Solutions, GE Oil and Gas; Andrew Mercer, Vice President, Global Projects IT&S at BP; and John Tombari, Marketing and Sales Portfolio Manager at Schlumberger.

The main argument for PIDX standards, said Bill le Sage, a former chairman of PIDX's board of directors, is to simplify work and help improve staff productivity.

Phillips 66 - streamlining data

Steven Waegenaer, IT business analyst with Houston oil and gas midstream and downstream company Phillips 66 talked at the conference about the company's efforts to streamline its data systems, so it is easier for employees to get the data they need.

It hopes to improve the mood of its employees, so they are more interested in searching for new insights from the data, or, as Mr Waegenaer put it, the systems can 'kindle the power of curiosity in our employees.'
The company would also like to bring in more data for field staff, including weather data and traffic data.

The team to streamline the data has 7-8 members, including four IT people, one analytical business person, and two domain experts.

Currently 'employees say 80 per cent of their time is about collecting data,' he said. Behaviour is more predictive than reactive. Most of the reports are static, rather than dynamic (generated on demand).

The company's data is still 'extremely siloed', he said. The company has 950 different sites, and there's 'a lot of multiple versions of the truth.'

It has data from card processing systems, point of sale systems, suppliers, consumers and other forecourt data. The company has 915 petrol forecourts, with transactions coming through every 10 minutes.

Qlik - visual analytics

Software company QLIK, headquartered in Pennsylvania and founded in Sweden, aims to deliver visual analytics to customers to the point where people make decisions. This is where analytics can provide the most value.

Qlik's solutions are used by '5 of the 10 largest oil and gas companies,' said Niall Gallacher, global director industry solutions, speaking at the PIDX conference.

In the oil and gas sector, it is used in many sectors, including exploration and production, supply chain, asset integrity management, logistics and HSE.

It is used to help people understand what happened, why it happened and make predictions of what is likely to happen, he said.

It can be used to analyse production, supply chain management, staffing, assets, incidents, costs.

It is frequently used to combine data from multiple sources to provide additional insight, not traditionally available from individual system reports.

For example, with asset integrity management, it is often important to understand if there are correlations between downtime, asset age, rotable components, HSE incidents and the field engineering team which last undertook preventative maintenance, Mr Gallacher said.
Then you can look for similar trends in other assets, all in one place without the need to run separate reports from different systems.

As a consequence, it is also often used for scenario planning and cost planning.

Altogether, the company has 36,000 customers.

CC Hubwoo

CC Hubwoo, a cloud-based spend management and business process automation solutions company, recently helped US natural gas and coal company Consol Energy re-organise its invoices, said Karen McKeever, presales manager with CC Hubwoo, speaking at the PIDX conference.

Consol now processes 156,000 invoices annually with 5 full time employees (reduced from 14.5), she said.

The company managed to increase the number of invoices which could be matched against purchases in the system from 40 to 96 per cent.

By getting invoices ready for payment faster, it was able to take advantage of negotiated deals to make payments earlier, of $13m.

Before using CC Hubwoo, Consol 'had a big problem with invoicing and processing in a manual fashion. They were not able to match [invoices] against pricing agreed with operators.'

Data standards played an important part in the development. 'It would not have been possible without standards. From a volumes perspective it is simply not manageable,' she said.

CC Hubwoo offers a range of services to help procurement, including procure to pay solutions, catalogue management and services procurement.

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