By Paul McCormack, CFE, MBA
According to the Association of Certified Fraud Examiners, companies lose approximately 5% of their revenues to fraud, waste, and abuse, costing them trillions of dollars a year. Yet despite a crowded marketplace that includes an increasingly confusing array of technology solutions designed to stem the never-ending stream of losses, fraud and process noncompliance remain a pervasive and largely unsolved problem.
Control’s Force, a pioneer in context-aware computing, detects discrepancies long before they create catastrophic losses. While its competitors depend on complex algorithms to detect well-formed patterns of fraud and abuse, Control’s Force uncovers individual discrepancies – without false positives – using methods that detect all discrepancies long before significant losses result. During a recent engagement involving the analysis of 12 months of accounts payable data, Control’s Force helped a company detect $33 million in discrepancies (risk of financial loss) that had escaped their accountants and auditing teams.
In the midst of an uncertain economic environment that stands in the shadow of the Great Recession that began in 2008, and what many believe are the early signs of a coming recession, companies continue to globalize their operations in an effort to earn profits. In addition to the current trying market, regulatory oversight and the associated fines and penalties continue to increase around the globe. In turn, companies often find themselves responding to fraud perpetrated by employees or third parties as well as burdensome and far-reaching regulatory investigations triggered by the loss.
Unfortunately, companies appear increasingly unable to divert critical resources to mount a sustained effort to combat the threat. When it comes to estimating their fraud losses that form the basis of the cost / benefit analysis, companies don’t know what they don’t know. While they may incur sufficient losses to justify the investment in a fraud detection tool – even with an onerous ROI – the companies cannot commit, as they are unable to detect fraud without suitable technology. A classic catch-22 scenario results: the company must forecast its fraud losses in order to justify an investment when they have no means of forecasting fraud losses. As a result, fraud losses along with routine error and omissions continue to erode the bottom line.
How Do Companies Combat Fraud Today?
Many companies rely upon the use of advanced data analytics to detect patterns of activity indicative of fraud, waste, and abuse. While such an approach can uncover evidence of wrongdoing, by definition, it requires the existence of a fully formed pattern of fraudulent activity. On the other hand, data analytics employed in this manner cannot identify small problems before they become big problems that merit intervention.
In addition to its inability to detect losses before they have reached a critical point, a fraud detection engine based on pattern detection typically places considerable burdens on a company’s IT department to install and maintain. Consequently, investing in a typical fraud detection solution requires the realization of unrealistically high ROI targets.
A Complex Problem Requires an Elegant, Simple Solution
Given where most companies find themselves when it comes to eliminating revenue leakage, they often end up doing nothing, which plays into the fraudster’s hands and destines the organization to a future of losses inflicted at the criminal’s choosing.
In order to mitigate their losses, companies need access to disruptive technology that applies a rigorous yet easily adopted approach to detecting fraud within their value streams.
Control Force’s approach analyzes a company’s transactions for the hallmarks of data inconsistencies or discrepancies before the frequency and magnitude make them all but impossible to ignore.
Whether the intelligence uncovered by Control Force’s solution uncovers fraud by employees; the use of employee identities by third parties to conduct fraud; the theft of sensitive data by employees or third parties; or relatively simple problems such as employee errors, negligence, or system-related errors; it does so long before a pattern and material losses result.
A Proven Solution with the Ability to Generate a Remarkable ROI
When a company asked for Control’s Force assistance in analyzing their accounts payable data for a 12-month period, they uncovered $33 million in exceptions. The analysis determined that 15.88% of the company’s data contained discrepancies and noncompliance within their accounts payable value stream, including payments of ghost invoices or ghost purchase orders, item prices on invoices that exceeded the purchase order, and the inclusion of items on invoices that did not appear on the original purchase order. The company also uncovered paid invoices that included duplicate invoice numbers and amounts.
Over a three-year period, the company estimates that its paid invoices included a staggering $100 million of exceptions.
Critically, Control’s Force’s solution does not generate false positives results, and its solution analyzes both real-time and historical data of targeted value streams as requested by the company. As such, it does not rely on complex patterns to appear before it identifies transactions that require further investigation. In addition to its efficient approach, Control’s Force seamlessly functions alongside existing ERPs and security infrastructure, as it does not require integration or update synchronisation with the company’s ERP systems in order to begin uncovering discrepancies.
Creating and relying on complex value streams exposes companies to considerable fraud risk. Accounts payable is just one of the value streams that the Control’s Force solution can analyze in real-time or on a historical basis. There are a number of additional internal processes that are susceptible to errors and fraud, including the order-to-cash, procure-to-pay, and payroll processes.
With the appropriate fraud detection mechanisms in place, companies can operate and, when needed, expand their operations with confidence, knowing that the mechanisms exist to police the value streams they need to facilitate their growth.
Control’s Force: Next-Gen Fraud Fighting Technology
In their rush to capitalize on the opportunity associated with the detection and prevention of fraud and errors, traditional solution providers have over-engineered their approaches and overlooked the simple, yet highly effective approach Control’s Force now embodies.
Yet the real heroes that emerge when companies adopt Control’s Force’s solution are the investigators tasked with resolving discrepancies. The Control’s Force solution does not require waiting for a “black box” that houses complex statistics and protocols to analyze the company’s value streams and flag questionable activity. Instead, Control’s Force delivers real-time as well as historical discrepancies as defined by the company for immediate investigation and remediation by the company’s personnel.
Finding fraud or errors before they have a chance to grow is akin to finding an acorn before it has the chance to become an oak tree. By extension, revenue leakage does not have to become as big as an oak tree before the company can act. With Control’s Force, companies don’t need to wait. Uncovering a single discrepancy translates to immediate action that protects the company and limits losses.
To learn more about Control’s Force’s disruptive and scalable approach to mitigating fraud, waste, errors, and abuse, visit www.controlsforce.com or call (734) 344 5083.