To properly fight fraud it is not enough to use leading technology solutions without using knowledgeable auditors.  It is necessary to use both, says Patrick Taylor, founder and CEO of Oversight Systems, an Atlanta-based firm that provides businesses with real-time continuous transaction monitoring technology.

“Ideally, a company would want to marry the best of both approaches, particularly on the fraud detection side,” says Taylor.  “Fraud is a singular event.  You are looking for needles in a haystack.  With technology, we can drill through the haystack and find the small pile of sharp things.  Then we can use people to look through that small pile and see what those sharp things really are.”

Taylor uses a technology analogy to illustrate his point, “In theory, we could build a firewall to keep out every hacker, but in reality we cannot perfectly configure a system or anticipate everything a hacker might try.  So, we also end up monitoring activity.  The same thing holds true with fraud.  We need to do both virtual and human fraud detection and prevention because nothing is perfect.  Virtual systems and human fraud auditing complement each other.”

While automated technology can be designed to monitor every transaction and flag every item that falls outside certain parameters, it cannot apply judgment.  “It is easier for a human to say there are too many things that look weird,” Taylor says.  “A person can look at those weird things and determine if there is a problem or if it is something that is acceptable.  A person can make a phone call or walk down a hallway and ask for additional information to make a more accurate judgment.” 

The Human Element

Personal judgment also must come into play on certain issues, such as setting pension reserves, evaluating construction projects that may be delayed because of bad weather, and other items that fall outside workday routines.

“Humans have a huge advantage in looking at the non-routine transactions,” Taylor says.  Technology though, has its own significant advantages especially when it comes to volume.  A global health services company with 5,000 corporate cardholders learned this after Oversight Systems helped the company consistently review all cardholders’ transactions for compliance with company policies and government regulations.  Before implementation of this technology solution, the company could not manage the volume of transactions for across-the-board review.

Oversight extracted data directly from the company’s IT outsourcer and transaction records from American Express.  Oversight then objectively applied advanced analytics, which combines the tests and heuristics used by forensic accountants, auditors and fraud examiners to identify transactions that might constitute policy violations.  Oversight’s workflow system flags potential “exceptions” and automatically logged them with all investigation and resolution data, created a permanent audit log for review of policy management and enforcement, and documented actions taken.

Taylor says the company can now cover all of its cardholder activities to efficiently and consistently handle policy violations, with just two “humans” assigned to the task.  Within the first few months of implementation, the system had audited nearly one million transactions.  Oversight also created custom analytics to focus on specific problem areas, such as repeat offenders.  High-volume business processes such as general ledger, accounts payable, and accounts receivable are areas where virtual fraud auditing technologies work best, Taylor says.