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Software uncovers white-collar crime.

Software

White-collar crime costs companies an estimated $40 billion every year. But while risk managers realize that white-collar crime represents a major risk for most businesses, they also know that it is one of the most difficult risks to detect and prevent.

In effect, no statistic can reflect the true financial toll of embezzlement, fraud, theft and errors and omissions. Undoubtedly, these crimes cause major operational disruptions and impact the corporate bottom line not only in terms of financial loss, but in adverse publicity and large fees for criminal proceedings as well.

That's why risk managers have begun to tackle white-collar crime by making its detection and prevention an integral part of their corporate loss control program. Software firms specializing in crime prevention are following this trend by developing products to assess and prevent these losses.

"The risk manager has an increasingly important role in financial reporting requirements," says Stanley Halper, president of the Audit Committee Support Network Inc., a consulting firm based in Plainview, NY. "It is usually the risk manager who, in being responsible for the loss control program, must present and certify internal audits to the board."

Risk Reporter, a software program developed by Kilclare Software in Dublin, Ireland, is designed to reveal a company's potential exposure to white-collar crime and thereby mitigate the likelihood of criminal losses. By pinpointing flaws and loopholes in a company's internal control system, the software allows risk managers to identify and quantify their organization's vulnerability to loss due to fraud and other criminal acts.

The user begins the program by choosing a risk area such as sales, payroll, information security or purchasing and then responds to a series of questions designed to provide a profile of the company's control objectives in this area. Using this data, the software provides "what can go wrong" scenarios if the objectives are not achieved, highlighting areas vulnerable to kickbacks and fraudulent payments. It then recommends procedures to help the risk manager achieve the control objectives. For example, to prevent fraudulent payments, the program might recommend using identification numbers, security codes and passwords for terminal users.

Kilclare Software offers a discount to companies with fidelity coverage from National Union Fire Insurance Co. of Pittsburgh, PA, a member company of American International Group Inc. According to Louis Lubrano, assistant vice president of National Union's Fidelity Division, the software makes insureds a better class of risk by allowing them to get a handle on white-collar crime in their companies.

According to Mr. Halper, Risk Reporter can also help risk managers prepare their reports on internal controls and loss prevention for company directors and officers and/or board members who may be held responsible if a loss occurs. By assessing the effectiveness of internal controls already in place, compliance with policies, plans and procedures and how well valuable and moveable assets are safeguarded, the software can be used to back up or defend claims against directors and officers. In addition, it can be used in audit reporting and in evaluating and satisfying regulatory requirements dealing with internal control such as the Foreign Corrupt Practices Act.

Kilclare Software is developing industry-specific add-on modules to identify transactions unique to various industries. For instance, the banking module contains risk information on consumer loans, deposits, trade finance as well as options and commodities.

Risk Reporter runs on an IBM PC or compatible and contains a data base of loss control data modules and a decision support system.

Index System Goes Electronic

For 60 years, the Index System made detecting insurance fraud easier. Now its developer, New York-based American Insurance Services Group Inc., has taken a giant leap into the 21st century by computerizing its data base of about 40 million bodily injury claims. The move can help risk managers reduce the possibility of paying duplicate or fraudulent claims.

A cooperative effort of more than 2,500 insurers, self insureds and claims administrators, the system electronically researches and generates reports of prior claims histories. It receives as many as 9 million inquiries each year and generates nearly 2 million reports, which can be retrieved within 24 hours, according to Gerald Murphy, vice president of claims and underwriting operations for AISG.

One way the system detects fraud is by cross-checking a claim file with a claimant's Social Security number. "People who intend to commit fraud can easily change their names and addresses, but not their Social Security numbers," says Mr. Murphy.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Computer Developments
Author:Oshins, Alice H.
Publication:Risk Management
Date:Apr 1, 1991
Words:736
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