IBM Launches Counter Fraud Effort With New Software, Services

By Darryl K. Taft  |  Posted 2014-03-21

IBM Launches Counter Fraud Effort With New Software, Services

NEW YORK--IBM launched new software and services to help organizations use Big Data and Analytics to address the $3.5 trillion lost each year to fraud and financial crimes.

At an event to introduce its new Smarter Counter Fraud initiative here, IBM said through sophisticated business expertise and analytics, organizations can take a holistic approach to address the financial losses caused by fraud while protecting the value of their brand.

IBM is drawing on the expertise and innovation from more than 500 fraud consulting experts, 290 fraud-related research patents and $24 billion invested in IBM’s Big Data and Analytics software and services capabilities since 2005. The initiative extends IBM's expertise in big data, analytics and cloud to help public and private organizations prevent, identify and investigate fraudulent activities.

“What we’re doing is bringing together big data and analytics and bringing that technology to bear with our clients to help them be more effective at preventing and fighting fraud,” Robert Griffin, vice president of IBM Counter Fraud Solutions, told eWEEK. “This is a new capability taking the best-of-breed technology that IBM has to offer in this area–both from acquisitions and organically developed–and providing a holistic, end-to-end approach that will cover the entire enterprise."

IBM's new counter fraud portfolio builds on the company's R&D investments as well as recent acquisitions of Cognos, i2, SPSS, Q1 Labs, Trusteer and SoftLayer. Griffin was CEO of i2 when IBM acquired the company in 2011.

IBM’s counter fraud news comes at a time when a new generation of criminals is using digital channels–such as mobile devices, social networks and cloud platforms–to probe for weaknesses and vulnerabilities. The pace of this threat continues to accelerate--every second 12 new consumers fall victim to cyber-crimes, and each day the U.S. health-care industry alone loses $650 million due to fraudulent claims and payments.

To address these complexities, IBM is delivering new software that allows organizations to gain better visibility and take a more proactive, holistic approach to countering fraud. This includes the ability to aggregate big data across a variety of internal and external sources--including mobile, social and online--and apply sophisticated analytics that continuously monitor for fraudulent indicators. The new offerings feature advanced analytics that understand non-obvious relationships and co-occurrences between entities, new enhanced visualization technologies that can identify and connect fraudulent patterns closer to point of operation, and machine learning to help prevent future occurrence based on previous attacks and behaviors.

Craig Hayman, general manager of IBM Industry Cloud Solutions, said IBM has found the recipe for keeping customers in and fraudsters out. “We need to not change with the times but change with the crimes,” he said.

IBM Launches Counter Fraud Effort With New Software, Services

Analysts estimate that market demand for fraud and risk solutions is quickly accelerating. According to Gartner, 25 percent of large global companies will have adopted big data analytics for at least one security or fraud detection use case, up from 8 percent today, and will achieve a positive return on investment within the first six months of implementation by 2016. IDC estimates that the market for financial crime solutions alone will be nearly $4.7 billion in 2014, with a 5.5 percent over the 2014-2017 forecast period.

Theresa Payton, former White House CIO and current founder and CEO of Fortalice, a security consulting firm focusing on fraud, spoke at the IBM Counter Fraud Summit on March 20. She said the average time it takes for an organization to find fraud is 18 months. She also said fraudsters tend to be ahead of the game, not only in knowing company policies and skirting them but also in leveraging big data and sharing best practices with others of their ilk.

In an interview on IBM’s Smarter Planet blog, Payton said: “There are multiple types of fraud consistently reported by businesses around the globe. They include the back office type, such as asset misappropriation, accounting fraud and procurement fraud. There are also fraud and financial crimes related to money laundering, and false claims. And then there’s also cyber-crime. With all the digital smokescreens now available, I believe you will see these types of fraud continue. But you will also see cyber-crime as a percentage of overall fraud numbers climb as the entry point to fraudulent activity.”

However, “IBM is applying many of the same tactics, techniques and procedures used by the intelligence and law enforcement communities to help commercial organizations take a holistic view of this growing and pervasive threat,” Griffin said. "These technologies allow organizations to move and adapt at the speed of threat in ways that human beings simply can't. Our new initiative puts big data and analytics into the hands of those tasked with defending their organizations from financial losses, protecting the brand and delivering exceptional customer service."

IBM is combining software, services and research capabilities to address the full spectrum of fraud and financial crimes--from tax evasion, money laundering and cyber-attacks to threats from inside the organization. For example, the new offerings can detect cross-channel mobile fraud and prevent cyber-crime enablers like phishing scams. They can enable an insurance company to review thousands of claims in real-time to flag potentially fraudulent activity while processing legitimate claims faster, or help a global bank more accurately detect and investigate money laundering activities to meet regulatory compliance.

The new software and services include counter fraud management software in the form of a single offering that brings together IBM’s Big Data and Analytics capabilities to help organizations aggregate data from external and internal sources and apply sophisticated analytics to prevent, identify and investigate suspicious activity. It includes analytics that understand non-obvious relationships between entities, visualization technology that identifies larger patterns of fraud, and machine learning to help prevent future occurrence based on previous attacks.

To enhance these capabilities as new threats emerge, IBM also launched a new counter fraud intelligence task force--IBM Red Cell--that will work in tandem with the IBM X-Force unit to continuously research trends, develop strategies and deliver enhancements to the software and services R&D team.

IBM Launches Counter Fraud Effort With New Software, Services

Big Blue also announced counter fraud service offerings that combine IBM’s consulting, software and technology expertise to help clients improve their counter fraud programs. And the company is offering a portfolio of customizable, research-developed assets that use analytics to discover fraud, waste, abuse and errors in data intensive industries and functions. These assets analyze an organization’s internal data to measure behavior, and then compare the results within specific peer groups to identify anomalies that indicate suspicious activity. Based on the results, an investigation recommendation is made. The assets are available across industries for enterprisewide discovery. The fraud discovery assets will be available in the cloud, enabled by IBM Softlayer.

The assets will focus on the following areas:

·         Medical Fraud: Discovers fraud during provider, beneficiary and internal employee profiling using IBM's Fraud Asset Management System (FAMS). 

·         Insurance Claim Fraud: Enables insurers to detect suspicious activity for claims submitted by vendors, brokers and individuals using IBM's Loss Analysis and Warning System (LAWS). 

·         Public Tax Fraud: Empowers governments to address tax gaps by uncovering tax evasion activities and filing inaccuracies using IBM's Tax and Audit Compliance System (TACS). 

·         Occupational Fraud: Helps organizations discover fraud for accounts payable, travel and expense claim, and other frauds committed by employees.

In addition, IBM will offer four levels of counter fraud capabilities as a service--including hosting, application management, behavior modeling & scoring and analytics & referral generation--that use a subscription-based model to give clients flexible choices that match their business needs and technical requirements. IBM's Counter Fraud Center of Competency gives clients global access to expertise including fraud industry experts, advanced analytic capabilities and technical implementation services.

IBM has a long history working with hundreds of counter-fraud clients such as the London Borough of Camden in the UK, which is using IBM Big Data and Analytics technology to streamline processes, improve services, reduce tax fraud and increase revenue. Working with IBM, Camden has been able to create a "Residents' Index," uniting information from multiple services to create a single, consistent view of all resident data, including the services they're accessing.

“Information we once considered unobtainable is now within our grasp," said Hilary Simpson, head of ICT Business Partnering at London Borough of Camden, in a statement. "We have identified at least a dozen specific examples where a Residents’ Index, based on IBM Big Data and Analytics technology, can help us. We have estimated that the solution could help to cut single person council tax discount fraud by five percent, potentially delivering major savings for our borough.”

Meanwhile, “Companies are used to taking some percentage of fraudulent activities as a cost of doing business,” Griffin told eWEEK. “But if we can reduce that by some percentage, that number will go straight to our client’s bottom line.”

Though only now being announced, the IBM counter-fraud solutions have been used in several proof of concept projects for customers, with “outstanding results,” Griffin said.

A next step for the technology will be for IBM to deliver a cognitive element to its counter-fraud offerings. “Right now, we have aspects that feed into Watson, but we are not using Watson as an engine for this as of now,” Griffin said. “However, I’m a strong believer that cognitive will take a place in all the areas we cover.”

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