Using software to stop misconduct before it starts

October 7, 2015 Christopher Sindik

Your credit card is being used to purchase a new laptop and television in Brazil. The cashier at the store takes your card and runs it through the machine. Your card is denied. They try again, but again it is denied.

This isn’t a case of the card being demagnetised while going through an MRI machine; it is fraud. Hackers stole your card details and created a new card that was sold on the internet for US$10.

However, you are not going to lose money on this transaction, because the credit card company stopped the transaction before it was processed.

The financial processing company behind the transaction raised its virtual eyebrows when it saw that you used your credit card in New York yesterday. You’ve never travelled to Brazil before, you don’t typically make large purchases with the card, and you have never shopped at that retail chain before. All of these factors combined caused a red flag in the system and the transaction was stopped. The hassle of disputing the transaction was avoided entirely by the detection and prevention system. No skipped heartbeats when the credit card bill came at the end of the month, no being bounced around a customer service centre for days disputing the charge – only a complete stonewall against the fraudulent act thanks to technology.

The same methods of identifying and investigating suspicious transactions are being applied to the world of compliance with The Red Flag Group’s IntegraAnalytics™. It is now possible to use sophisticated algorithms to flag transactions that are suspicious or could be linked to bribery, corruption, fraud or other acts of malfeasance.

The software takes in data from a variety of sources (such as Salesforce, HR tools, accounting software and third-party management databases) and looks at a variety of factors that could be cause for concern. For example, a transaction could involve:

  • a transaction in China
  • a new distributor
  • more than US$200,000
  • the end of a quarter
  • an unusually high profit margin for the distributor
  • a distributor with ties to a government official.

Looking at each factor by itself might not cause any alarm bells to go off. But when all of these are combined in a single transaction and tied together in the IntegraAnalytics™ software, the company needs to stop the transaction and do an examination. With a new distributor, in a part of the world where bribery is common, with a large deal and large margin that could involve ties to a government official, the possibility for bribery, corruption or some other misconduct is relatively high. The transaction could be all above board and completely legitimate, but the company would be wise to double-check this before such a deal is completed.

Investigations after the act has occurred can involve a major investment in time, money and resources, especially when outside law firms and auditors are involved. Flagging transactions when they are still planned but haven’t yet occurred can save the company a great deal of headache and cost in the long run. As it has been demonstrated in the past, regulators tend to act more kindly towards companies that have active controls in place to detect and prevent acts of misconduct. A real-time scanning and alerting system such as IntegraAnalytics™ is one of only a handful of ways to truly have active and ongoing monitoring.

The IntegraAnalytics™ software is a very sophisticated tool that is designed to help companies with mature compliance systems reduce their investigation costs. To get the most out of the tool, The Red Flag Group needs to understand what the company’s data looks like so that it can be fed into the IntegraAnalytics™ system in a way where the data is scrubbed clean and carefully analysed. While the data does not need to be perfect, it needs to be expertly examined to be sure that the adage of ‘garbage in, garbage out’ is avoided.

Not only is IntegraAnalytics™ a tool, it is also a process whereby The Red Flag Group works with the client to identify potential risks in their system and ensure that the tool is working optimally. Part of making everything come together with the software is talking to the client to understand its specific operations, risks, data and priorities.

As this is a tool where the quality and quantity of data is key, security of the data is also a key consideration. Companies that are putting such sensitive information into a software tool need to have reassurance that it will be kept secure and protected. The software and analysis sits behind normal company safeguards; possibly from where the pre-rendered and raw data originates. With this placement, the data is as secure as all other data on a company’s system.

The tool can be used across a variety of departments with myriad uses, such as detecting conflicts of interest, grey-market activities, and travel and expense fraud. The analysis and examination of data can take place across an entire organisation, or specific subsidiaries, businesses or product groups.

Once the tool is set up, it can be tweaked as necessary so that filters are made tighter. This increases the likelihood that suspect transactions are identified and false positives are eliminated.

 

There is always talk of technology improving the lives of ethics and compliance officers, general counsel and compliance executives; however, often this can be just that: talk. Having a software tool that automatically, accurately and immediately detects suspicious transactions can be a driver to expand business, stomp out bogus transactions and demonstrate the worth and value of the compliance function.

 

 

Previous Article
Three aspects of any KYC programme
Three aspects of any KYC programme

Irrespective of geography and industry, there are a few basic elements to any robust KYC programme.

Next Article
United States promotes Cuba and Malaysia on human trafficking list
United States promotes Cuba and Malaysia on human trafficking list

One of the revelations made in the Trafficking in Persons Report was that Cuba and Malaysia have moved from...