ATF Compliance and Business Profits Jump With CCM

Software-based business analytics are being used to monitor transactions on a real-time basis, including but not limited to: firearm sales discounts, expense reimbursements, and even electronic A&D book transactions.

This week’s Advisory provides real-life examples about how industry leaders are using technology to meet (or exceed) compliance expectations and drive business performance.

Lets take a look at the benefits.

1. Benefits of Software Analytics to ATF Compliance and Business Performance
Compare the following alternatives.

  • Alt #1 – Wait until your next ATF inspection and see how it goes. Correct issues, repeat cycle 3 years later.
  • Alt #2 – Conduct annual paper-based audits to find problematic transactions that occurred in times past. Root causes and system problems identified and corrected? Likely not through a paper-based audit.
  • Alt #3 – Generate real-time, system-based exception reports, for example: (a) Warning signals when a Disposition Date is entered before an Acquisition Date; (b) Aging reports that identify firearm transfers from FFL #1 to FFL #2 that didn’t arrive within the expected time; (c) Generate trended charts that show the difference in sales discounts offered in International Country X vs Country Y vs Country Z.

Which alternative enables you to focus on running your business and proactively identifying compliance or profit leakage?

Alternative #3 – of course!

In an effort to meet regulatory requirements, Orchid and one of it’s largest clients are working together to design and implement analytic-based reports to drive rapid ATF compliance and business performance improvements. Take a look at these representative performance gains:

2. Let’s Define a Scope for Different FFL Types

A good data analytics program is routed in something called “Continuous Controls Monitoring” (or CCM).

These programs begin with a defined scope and targeted performance thresholds.

In this industry, our regulatory performance criteria and scope is defined in the GCA, NFA and AECA and further articulated in the ATF’s 2014 Federal Firearms Regulations Reference Guide (2014 FFRRG) and Acknowledgement of Federal Firearms Regulations Form (snippet shown to the left).

FFL Spotlight – Joe Bolmarchich, leader of Remington Outdoor Company’s compliance programs states,  “Managing ATF, Anti-Corruption, Export and other compliance areas in a complex organization requires strong internal controls and software auditing tools. Such analytics provide our management with real-time visibility to address root causes faster than ever.”

The following is a sample list of areas that you many want to consider extracting from the regulations and monitoring electronically vis-a-vis your business operations.

These concepts apply to FFLs of all sizes.

Example #1 – Basic analytics, auto-generating A&D Book exception reports
Objective – Identify data and transaction errors. Eliminate root causes.

  • Missing text in the Manufacturer, Type and Acquisition fields.
  • Firearm types that don’t meet the definitions as outlined in the 2014 FFRRG. For example: Receiver, Frame, Rifle, Revolver, Pistol, Shotgun, Short Barreled Shotgun, Destructive Device, etc.
  • Missing text in an Importer FFL A&D book’s Country of Manufacturer field.
  • FFL numbers that don’t meet the standard number of characters.

Example #2 – Intermediate analytics
Objective – Asset control and reduce theft / loss.

  • System generated aging reports showing how long an employee has held a firearm for bona fide business purposes per ATF Ruling 2010-1, Temporary Assignments.
  • A daily aging report showing the delays in movement when a firearm leaves one manufacturing operation (ex: serialization) and the next operation (ex: heat treat). Delays over 8 hours kick out as exceptions.

Example #3 – Advanced analytics
Objective – Manage distribution, inventory control and reduce margin leakage.

  • Aging reports that show delays in shipment between a manufacturer FFL and a customer FFL (i.e., distributor), triggering the aging off of Disposition date (out) and Acquisition date (in).
  • Generate trended charts showing the difference in sales discounts offered in International Country X vs Country Y vs Country Z. Clear outliers become red flags for investigation.

3. Reducing Improvement Cycle Time

Legacy approaches to operational improvement can be lengthy and dangerous in a regulated environment.

Think about it – Year 1: Audit by ATF, get issued ROV, correct those issues.

Year 4: Re-audit by ATF, get smaller ROC, correct those issues.

Cycle continues.

The pace of change towards ‘optimization’ can be lengthy and often take years, expending company resources and increasing regulator blood pressure.

A modern compliance program that relies on software based internal controls and real-time monitoring reports can accelerate the improvement cycle from five-to-ten years down to one-to-two. Concurrently, the rapid identification of errors in shipping, receiving, and inventory management have a complementary benefit to financial reporting accuracy and cost reduction.

4. Opportunities for Every Federal Firearms License (FFL)
It’s 2015 and now technology comes cheap.

Every day we learn about more and more small dealers and new manufacturing / import FFLs that seek electronic record keeping tools. Some are available online and as cheap as $99 / month – a small price to pay if you can increase your level of control and monitoring capabilities. Keep in mind that more sophisticated models are available from software firms like Epicor who fully integrate retail Point of Sales, Finance, Business Analytics, Operations and other business features with internal controls and monitoring reports.

Regardless of your size and business needs, look for a solution that offers download capability of electronic A&D records to Microsoft Excel, for example, where you can use basic analytics to monitor your performance for free.

This is a digital age and if you aren’t there yet, it’s time to hop on the bus for the benefit of your financial bottom line and compliance accuracy.

Questions?Feel free to give Orchid Advisors a call if you are interested in making a jump forward.  I bet you didn’t know that in the last few years alone, Orchid has analyzed over 80 million electronic A&D transactions using a combination of commercial audit software and our own proprietary Transaction Validation Tool (TVT)!