2011-08-01
“ACL technology has transformed how we assess risk in our organization. ACL is here to stay and will continue to make substantial contributions to our improved performance in the months and years ahead.”
David Riddell, Automated Audit Solutions Manager, Fidelity National Financial
Fidelity National Financial, Inc. (FNF), through its subsidiaries, provides title insurance, specialty insurance, and information services. As the largest title insurance company in the U.S., the company provides title insurance, escrow, and other title-related services, including collection and trust activities, trustee sale guarantees, recordings, and reconveyances. FNF also offers specialty insurance products, such as flood, home warranty, homeowners, automobile and personal insurance products. Headquartered in Jacksonville, Florida, FNF has 17,000 employees and over £3.4 billion in annual revenues.
The FNF Audit Services Department (ASD) is responsible for auditing direct title operations, agency title operations, and the wide-ranging corporate function. The team has successfully applied ACL analytics to all three areas. Direct title operations, however, represent the highest level of business risk with the greatest potential for process improvements. To mitigate this risk ASD wanted to move from managed analytics to continuous auditing in this area.
Throughout a real estate transaction and the process of securing property titles, FNF escrow and closing services securely hold customer funds in trust. Each operation uses a digital production system to manage these funds, account for deposits and disbursements, and generate closing paperwork (called a HUD-1 settlement statement) as mandated by the U.S. federal government. FNF currently relies on eight production systems in 200 title offices across the U.S. and Canada. Each field system operates, stores data, and connects differently with corporate systems, but must comply with HUD-1 statement formatting. FNF processes approximately 200,000 new title orders each month, which generates a large volume of critical data. Above all, FNF must properly manage this data to protect funds held in escrow from employee theft, parties masquerading as buyers and sellers, fraudsters, unethical mortgage agents, and more.
To ensure the validity of internal controls, the ASD team performs periodic escrow and title transaction audits in all its title offices. In the past, ASD selected a sample of escrow/title orders for each office and manually investigated the files on-site. The team was eager to implement continuous auditing with full-population data analysis and selected ACL AuditExchange. The ACL solution runs in a server environment and enables staff to access, review and share analytics through a secure, browser-based interface.
The ACL analytics investigate escrow files for fraud, fund misappropriation, suspicious ledger activity, and patterns of known fraud schemes. The tests also evaluate compliance with regulations and company policies. Fraud analytics focus on parties involved with the transaction (primarily buyers and sellers) and parties receiving financial disbursements. For example, Fidelity employees should never receive funds from an escrow transaction, so the analytics use pattern matching to highlight errors, misspellings and intended variations in name records. Other analytics look for escrow/title orders opened on the same property within a short period of time, which can indicate a common fraud scheme known as “stacking and slamming.” In this common ploy, a seller attempts to simultaneously sell the same property multiple times with the help of a straw buyer. The seller then walks away with multiple instances of the property sale proceeds.
Each analysed file is automatically assigned an overall score, which is matched against a risk tolerance matrix. If a test score exceeds a designated threshold or an individual test with a high risk factor reports an exception, the anomaly will be flagged for follow-up and resolution.
RLI Insurance has used ACL solutions to:
The title insurance industry is regulated at the state and federal levels. Rule violations can lead to significant penalties and compromise the company’s ability to sell title insurance. Fraud and inefficient business processes can also create revenue leakage and expose FNF to unacceptable risks. With automated analytics, the ASD team has moved from a manual sample process to complete coverage of the company’s escrow operations. The solution has identified inappropriate disbursements to employees and has flagged potential violations of regulatory rules or company policies. Full-population visibility enables the audit team to see ongoing issues, avoid errors and detect potential fraud schemes on a near real-time basis.
The continuous auditing solution runs 24 hours a day, seven days a week to analyse escrow orders, payroll entries and AP transactions. Field auditors simply need a secure Internet connection to access approved analytics, view results and use the data to perform their on-site work. Business stakeholders in AP and payroll are also using the ACL solution to review anomalies and work with ASD to resolve exceptions and improve business processes. This cooperative environment promotes a positive working relationship between auditors and business units, while positioning the ASD as a trusted corporate partner.
The ASD team is also leveraging ACL technology to aggregate findings and sort data by geographic locations, business areas, and spot trends as they develop. With deeper business insight, FNF can encourage cross-department synergies and promote cost savings. Scheduled, automated audit analytics have helped the ASD to focus its expertise by researching issues, studying exceptions and resolving control gaps, rather than poring over paperwork that represents a tiny fraction of corporate data.
The ASD’s work with audit analytics and continuous auditing has attracted heightened interest across the organisation. The solution provides unprecedented visibility into some of Fidelity’s most critical business risks. For the first time, the team can quantify production-side risks and potential control issues. Auditors are also working closely with corporate business owners to identify and resolve control issues. The ASD continues to expand its use of ACL technology to find errors, enhance controls and detect fraud in a complex and fast-moving industry.
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