“ACL technology has been a tremendous asset for RLI. We’re less dependent on sampling and provide greater assurance by embedding analytics in each and every audit project.”
Seth Davis, Vice President, RLI Insurance
Founded in 1965, RLI insurance is a specialty insurance company that offers a diversified portfolio of property and casualty coverage and surety bonds serving niche markets. Products include contractors’ general liability, earthquake coverage for commercial properties, oil and gas surety bonds, and directors and officer’s coverage. With headquarters in Peoria, Illinois, RLI operates from over 35 office locations in all 50 states across the U.S.
RLI is focused on profitable growth and bottom-line results and requires all departments, including internal audit, add value to the organisation. For the company’s small audit team, ACL analytics provide broad coverage and significantly reduce the risks associated with manual sampling. The RLI audit group implemented ACL technology and worked closely with ACL’s expert support services to effectively access files, scrub data, develop extracts and analyse results. This success led to more analytic-enabled audits and after consultations with executive management and the audit committee, the team developed regular repeatable analytics to use on an ongoing basis.
Armed with a clear mandate to become more effective and focus primarily on fraud and lost revenue, the RLI internal audit department leveraged the ACL solution to develop a fraud indicator approach that looks for red flags such as P.O. box payments and missing tax ID numbers to highlight anomalies. As the team gained greater comfort with the data, they created a weighted analysis system that prioritises transactions with the greatest propensity for fraud. Vendors or payments flagged in multiple tests, for example, will rank higher than a single anomaly from a low-priority indicator, such as a weekend invoice. This strategic fraud analysis has cut review times by at least 25% and helps to minimise false positives.
Each new audit now begins with a three-week planning phase, throughout which the team develops narratives, workflows, risk assessments, audit programs and performs a walkthrough to explore all related risks and controls. Each test must leverage ACL analytics – or provide justification for their exclusion. For the next three weeks, auditors apply the technology to quickly extract files, conduct targeted testing and review the results.
Every employee undergoes ACL training to ensure they have appropriate skills and the knowledge to develop innovative new analytics. At the end of each audit, the team evaluates the testing and migrates the most valuable analytics into repeatable routines.
The audit group initially focused on areas in claims, which are high risk, such as missed subrogation, payee matches and personal mailboxes. They also expanded their focus on fraud and fund leakage to examine Accounts Payable (AP) data, procurement card transactions and journal entries. AP tests include over 30 analytics that identify single vendors with different phone numbers, addresses or tax ID numbers. The procurement card analytics highlight instances where the cardholder and approver are the same person, plus inappropriate procurement transactions and split billing to avoid authorisation limits. Other tests examine journal entries made by an executive, entries that affect payroll, write-off journal entries, and more. The analytics extract data overnight and flag anomalies for monthly review. The results can then be summarised and presented to senior management and the RLI audit committee.
RLI Insurance has used ACL solutions to:
With a focused mandate and repeatable analytics, the RLI audit group has used ACL to uncover conflicts of interest, missed subrogation, and abuse of company assets. Most dramatically, the team used ACL technology to recreate a flawed liability deductible query that revealed over £2.45 million in missed billings, a large percentage of which were successfully recovered. The audit group worked with management to strengthen the associated controls and has created a monitoring routine to ensure the problem does not occur again.
In addition, RLI continues to identify over £61,000 a year in revenue leakage – representing an annual ROI of over 400%. By embedding ACL in each audit project, the team is less dependent on sampling and can deliver more meaningful results to senior management. The analytics are fast, easily updated, and effectively level the playing field to give this small team the same coverage as large corporate audit divisions.
The strategic fraud indicator approach has also enabled staff to cut review times by more than 25%. Weighting anomalies according to RLI’s unique data patterns ensures auditors can prioritise their time and leverage maximum value from the technology.
The department has also equipped external auditors to expand their journal entry testing and minimise fees by providing timely, independent data extracts.
The team is currently developing trending analytics to track key ratios, including profit margins, return on assets, working capital, debt-to-equity ratios, and more. These ratios are then trended over time to pinpoint unusual activities. Auditors will also examine employee-level data trends and patterns including claim payments, premium volume, and profitability by underwriter. With ACL analytics and a strategic audit mandate, the RLI team is moving beyond transactional data review to provide invaluable business foresight.