Valire Software: the End of Malfeasance?

Cognitive Fraud Detection Software Locates Black Holes in Organizations From human error through systems abuse to deliberate embezzlement, AI-based Valire Software raises a red flag in real time to avert organizational catastrophe

Guy Ronen, partnered with Valire Software
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The Valire Software Team
The Valire Software TeamCredit: Yarin Tarnos
Guy Ronen, partnered with Valire Software
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In one of the biggest financial scandals of recent years, employees at Wells Fargo, the United States’ third largest bank, opened fictitious accounts in the names of real clients in order to meet their sales targets. The bank’s CEO, fined $3 billion as part of a plea bargain, and acknowledged this as criminal conduct, which blatantly violated the values for which the organization stood.

Valire Software’s fraud detection system, powered by a groundbreaking artificial intelligence (AI) application, automatically detects internal fraud, and can thus close loopholes such as that driven through the Wells Fargo Bank by some of its employees.

To understand the technological gospel of Valire Software means going back to the beginning of AI. In its first incarnation, it was little more than symbolic, putting logic into the rulesets of software engines. As structures grew more complex and data evolved into big data, machine learning was born. AI systems were designed to identify patterns and derive insights from the masses of data with which they were bombarded in an ongoing process of optimization. Machine learning continued to grow, acquiring a subfield known as deep learning, which handles increasingly complex tasks using artificial neural networks.

But there was still something missing. This was common sense, the uniquely human way of thinking that even small children possess, which determines what is reasonable. This is the current AI challenge: cognitive computing.

It is a concept that has fascinated Valire Software’s founder and CEO, Amir Weinberg, for many years. With a background in software and two successful companies founded prior to Valire, he has developed a platform that, unlike standard engines, can be read in ordinary rather than mathematical language. If, for example, two suppliers are identified for a single business event, it is likely to be either erroneous or fraudulent. The Valire system allows the user to examine the software’s conclusions and ‘explain’ its mistakes to it, with the system then able to correct itself in what is known as symbolic reinforcement learning.

Fake Invoicing

There are a range of applications for Weinberg’s technology, but in financial services, where tight regulation and error can result in collapse, its technological capability became a business opportunity. This happened when Valire Software linked up with Shlomo Gilad, now its COO and business development director, who comes with a rich background in banking analytics and insurtech. It was he who instantly realized the software’s potential.

“Errors aren’t unusual, he says. “They occur often and everywhere — deliberately or because of human fallibility, through systems overload or systems abuse. Only in banks, with their rigid controls, is there an obligation to report them.” The enormous advantage of the Valire platform, he points out, is that only a small quantity of data is needed to teach the machine. While this gives no added advantage in an area such as algorithmic trading, it comes into its own with the ‘black holes’ in company systems that are so easily overlooked without prior experience or familiar patterns. Here, Valire Software can make the difference, warning of large-scale fraud and ruinous error through its real-time detection, rapid reporting and fast repair.

Able to recognize human error, compliance issues and embezzlement, the platform is designed for the internal organizational processes which have human input. It performs process monitoring, tracks the activity of employees, suppliers and business associates, and identifies customer abuse. It is equipped to connect the dots, and, where patterns are breached, to raise a red flag and deliver an event analysis that can be understood without a data analyst. Along with the alerts it sounds, the platform has a dashboard, which displays risk levels relating to vendors, processes, vendor-employee relationships and more.

Valire software serves all of the three main areas of an organization. In operations, it reduces tedious and costly manual labor, and gives risk managers and second-line compliance improved supervision and control. In compliance and internal audit, it provides mapping and exposure rating in processes and units, together with detailed documentation of irregularities.

In a fast-changing world, Valire software’s flexibility allows it to be rapidly updated , as well as speedily adjusted for the different regulations that govern different organizations and institutions. If, for example, the system picks up a change resulting from an adjustment or update, it is taught to recognize it, and costly false warnings are thus avoided.

Funds raised by Valire to date total some $ 4.5 million. Its Israeli investors include banks, a major insurance company and a leading communications company, as well as one of accounting’s international Big Four. From its offices in Raanana and Boston, the company is attracting clients at home and overseas. They are running pilot programs with them that display the software’s identification of bogus invoices, double billing and abuses in invoicing systems and the supply chain, shortcuts which dispense with customer signatures, circumvention of authority or tender obligations, insurance claim cycles, supplier preferences, suspect supplier-employee relationships and more.

“It’s not the mouse which steals, but the hole!” says Gilad, quoting the Babylonian Talmud (Kiddushin 56b). “That is, the failure is not with the individual but with the system which failed to prevent his or her stumble. Our platform is needed wherever there are compliance officers, auditors, budget controllers and control processors, because it’s in the nature of such systems that there will be shortcomings. Valire is there to detect and permanently block them.”