The Daily Dividend

News, notes and insights from around the industry

JULY 16, 2019
AI and Fraud
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

There are many potential uses for artificial intelligence (AI), but one of the most promising for banks and credit unions may be fraud detection. New research predicts that using AI for fraud detection will triple in the next two years. 

Today only 13% of organizations use AI to detect and halt fraud, but another 25% plan to implement the technology in the next two years. Those numbers are higher for financial institutions – 20% of U.S. banks are currently using AI and machine learning to fight fraud, with another 27% hoping to do so soon. That means by 2021, almost half of U.S. banks will be using AI as an anti-fraud measure.

U.S. financial institutions are also using data analytics to fight fraud, with 60% using some form of analytics to detect money laundering. An additional 57% use analytics to detect customer fraud. 

James Ruotolo, senior director of products and marketing for fraud and security intelligence at SAS, a analytics firm that collaborated on the study, pointed out that while criminals use technological advances to target victims, organizations can use that same technology to catch those criminals before they do damage. “The dramatic rise of AI, machine learning and predictive modeling reveals that, beyond the hype, advanced analytics is helping investigators keep steps ahead of increasingly sophisticated fraudsters,” he said.

JULY 15, 2019
Value Management
By Mark Loehrke, Editor, Financial Managers Society

Risk management is often seen as a cost center within institutions, but thanks in part to a few subtle recent tweaks to the COSO ERM framework, it may be reasonable to start viewing the risk management function as a contributor of value to the organization instead. 

Specifically, as COSO’s definition of risk no longer contains the word “adversely,” risk is no longer something that must be prevented from happening, but rather can be seen as an opportunity for the organization to advance strategy and business objectives through periods of uncertainty. For internal auditors, a value management approach that focuses on the quality of decision-making within the organization can help assess to what extent decision-makers possess the right competence and integrity to reconcile dilemmas caused by the conflicting interests of stakeholders. 

In other words, with a view of managing risk as creating and protecting value, risk management can now be seen as a positive rather than simply the avoidance of a negative. A few examples of how a value management approach can change things for internal auditors:

Instead of focusing on the organization’s biggest vulnerabilities, IA focus instead on assessing the quality of management, since decisions made when planning, executing, monitoring and improving business activities always have potential positive and negative effects.

Instead of embracing in-control statements oriented to the past, IA realizes that the key question is to what extent decision-makers at all levels of the organization are capable of creating and preserving value for key stakeholders in the future.

Instead of assuming that the future is makeable and perfectible through risk analyses, risk matrices and control testing, IA acknowledges that the world is volatile, unpredictable and ambiguous – requiring a considerable degree of agility and flexibility.

JULY 12, 2019
Great Expectations
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

Great ExpectationsConsumer expectations drive the strategic priorities of not only banks and credit unions, but the economy in general. That’s why so many businesses pay attention to the Survey of Consumer Expectations from the Federal Reserve Bank of New York’s Center for Microeconomic Data, which often sheds new light on what exactly is on the mind of today’s customer. Some of the findings from the recently released June edition include:

Overall, consumers were more optimistic about their financial situation and about the labor market, with sunny expectations for the U.S. unemployment rate, as well as their prospects for finding or losing a job.

Respondents were especially positive about being able to find a new job if they lost their current one, with 63.7% saying it was probable – a new high since this survey’s initial appearance in 2013.

Survey participants were also more confident in their ability to pay their debts, with the average estimated probability of missing a minimum debt payment over the next three months declining to 10.6% – a record low since the survey’s beginning.

However, a positive attitude about their own situation did not extend to consumers’ views of Wall Street. Only 38.8% of respondents believed that U.S. stock prices will be higher over the next twelve months, the lowest level since October 2016.

JULY 11, 2019
FMS Webinar: Demystifying the World of Occupational Fraud
By Mark Loehrke, Editor, Financial Managers Society

FMS Webinar: Strategic Implications of CECLFraud detection and prevention isn’t solely a management or IT responsibility anymore. As the potential for fraud has grown in recent years – and occupational fraud in particular – so too has the need for organizations to treat the threat with an all-hands-on-deck approach.      

On Thursday, July 18, learn more about one of the most prevalent schemes facing institutions these days as Nancy Wu of SkyStem breaks down the ACFE’s biennial Report to the Nations to outline the cost and methods of occupational fraud and provide recommendations for how your institution can be better prepared in her live FMS session Demystifying the World of Occupational Fraud

As always, this webinar is complimentary for FMS members. (Not a member? Join today!)

JULY 10, 2019
An Argument for a Joint CFO-COO
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

An Argument for a Joint CFO-COOEveryone seems to agree that the role of the CFO is expanding and changing. Now new research seems to endorse the notion of giving one person the reins of both finance and operations. (Full scholarly article available for American Accounting Association members here.) The recently published study of 3,500 companies over 16 years found that organizations with a hybrid CFO-COO benefited from more accurate financial reporting with fewer adjustments and corrections – all while seeing no negative affect on operations.

In some ways, CFOs are indeed ideal candidates to take on operations, with the study finding they were largely efficient and capable in the role of COO. In fact, one of the subjects of the study noted that taking on the COO role made him a better CFO: “Knowing the customer well and knowing the data analytics on our machines give me a much better sense of risk and reward.”

For institutions looking to improve financial reporting and reduce common miscommunications between the operations and finance departments, this hybrid role may be something to consider. After all, his long-term study says it can deliver the combination that banks and credit unions love – plenty of reward and very little risk.

JULY 9, 2019
Optimal Risk Management
By Mark Loehrke, Editor, Financial Managers Society

Optimal Risk ManagementWhile almost all institutions subscribe to some variation on the three-lines-of-defense model when it comes to risk management, exactly how those three lines intersect and collaborate in today’s changing risk environment may be worth re-examining

With the financial crisis in the rearview mirror, banks and credit unions now have an opportunity to reflect on what an optimal operating risk management model may look like, including where synergies may exist between current capabilities – specifically those of the first (business line) and second (operational risk and compliance) lines. Because while operational risk and compliance functions both work to provide oversight to the first line and challenge the execution of their risk management practices, this shared responsibility may create some challenges that result in inefficient processes depending on how the functions are organized.   

In looking to transform their risk management operating models, institutions may start by trying to identify potential synergies that can bring greater transparency and higher value intelligence to management and the board. Some of the most fertile areas for synergy include governance, issue management, evaluation of controls and reporting – all of which can be greatly aided by advancements in technology and communication over the past decade. But for any transformation to unfold successfully, a clear, well-articulated and communicated vision must first be established. 

And regardless of potential synergies, the top priority must of course continue to be the ongoing integrity of each respective risk discipline.

JULY 8, 2019
FMS Perspectives: ERM for the Boardroom
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

FMS Perspectives: ERM for the BoardroomHave you ever felt challenged while preparing an enterprise risk management (ERM) program presentation? Ever had one go badly?

ERM, by definition, is a process itself, so reporting of your program’s results to your board of directors is also considered a process. In our new FMS Perspectives piece, Enterprise Risk Management for the Boardroom, Randy Marsicano of WolfPAC Solutions Group dismantles four myths and offers three tips for how to effectively communicate your ERM progress to leadership.


Mark Loehrke
Editor and Director, Publications and Research

Hilary Collins
Specialist, Publications and Research