Robert Kugel's Analyst Perspectives

Oversight Systems Focuses on Saving Money and Preventing Fraud

Posted by Robert Kugel on May 31, 2012 11:26:44 AM

I recently spoke with Oversight Systems, an operational intelligence analytics company that uses predictive analytics and optimization to help companies save money, reduce the risk of loss and fraud, and reinforce corporate governance and compliance efforts. Ventana Research views operational intelligence as an emerging technology with the potential for a high return on investment. By continuously monitoring activities in a company’s IT systems, Oversight’s Web-based software continuously, consistently and objectively monitors all business processes to identifies opportunities to save money, cut fraud, minimize risk and provide real-time controls to support governance.

Today, corporations generate large amounts of operational data that should be monitored as part of routine management oversight. These data sets provide foundational intelligence that can be used to automatically spot deviations that require management attention. The variations may be specific values that diverge from the mean, such as an overpayment for a purchased item or excessive discounting by sales people. Variations also may stem from item repetitions, such as duplicate invoices. The data streams may reveal anomalous patterns or events that can signal emerging issues with customers or may alert the company to ongoing fraud, such as in unusual returns or changes to customer master lists. Our recent research on governance, risk and compliance (GRC) found that the majority of companies have immature governance systems in place.

The challenge confronting organizations (and anyone trying to develop packaged applications for this preventive capability) is knowing what to look for and how best to find it. There’s a heavy dose of forensic accounting and IT systems domain expertise involved. While much of the data may be in transaction systems, such as ERP or supply chain management, the oversight process may also require monitoring of email or instant messaging to detect issues or confirm patterns in transactions or systems data. As important as detecting anomalies or suspicious patterns, the system has to be able to filter its assessments to achieve the right balance between avoiding false positives, dealing with too many trivial issues and missing real incidents.

Oversight Systems’ products take on various aspects of operational intelligence in this area. For example, to ensure that a company minimizes its outlays, Assured Best Price (part of its Spend Insights software) automatically compares the value of a purchase order (PO) against the optimal amount, taking into account prices paid for those same items elsewhere and at other times within the company, making allowances for quantities and other factors. A PO that significantly exceeds the optimal amount will be flagged for review before it is issued to a vendor. The system also can be used to alert purchasing to duplicate billing or unusual orders. It can provide internal auditors, controllers and CFOs with evidence of payment fraud.

Similarly, Oversight’s Revenue Insights can detect pricing trends that indicate discounting that exceeds guidelines, preventing unnecessary margin erosion. It also detects unusual revenue patterns that may be channel-stuffing, and return and warranty events that suggest fraud. The company’s Purchasing Card risk system can analyze patterns and specific items bought in order to recognize and stop suspicious purchases, excessive or fraudulent spending or shady merchants; this is especially useful for government entities. It can spot attempts to exceed authorization limits using split purchases. In all, these capabilities can save money, limit the incidence and impact of fraud and make governance and the audit function more efficient.

Oversight is a co-innovation partner for SAP's HANA in-memory computing platform. Running Oversight’s Continuous Transaction Analysis on HANA enables companies to perform more of these functions in real time with very large data sets. It can, for example, provide individuals using predictive analytic models with more sophisticated guidance on how best to react to an emerging trend that requires their attention or to mitigate the impact of an event sooner.

Automated continuous monitoring is a smart way to avoid unnecessary costs and mitigate the risk or limit the impact of fraud, financial or operational. It is an efficient governance tool as well, providing a cost-effective control mechanism for lowering internal and external audit costs.

Big data is not necessarily a topic that interests finance department types, yet it is the ability to analyze very large data sets that makes continuous monitoring feasible. In my opinion, most companies with 1,000 or more employees and all companies with 5,000 or more employees should have continuous monitoring capabilities. I recommend that companies looking into deploying such systems put Oversight Systems on their list of vendors for evaluation.


Robert Kugel – SVP Research

Topics: Big Data, Predictive Analytics, Fraud, Governance, GRC, Office of Finance, Operational Performance Management (OPM), audit, Analytics, Business Analytics, Cloud Computing, Governance, Risk & Compliance (GRC), Operational Intelligence, Business Performance Management (BPM), Financial Performance Management (FPM), Information Management (IM), Sales Performance Management (SPM), Supply Chain Performance Management (SCPM), controls, Oversight Systems

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.