Can Software Avoid Fraud?

With the recent 2200 page report about the accounting gimmicks at Lehman Brothers, it's worth looking at the merger of EMC and Archer Technologies. I'm not suggesting accounting fraud. On the contrary, the merger should take Archer's SmartSuite financial data security and EMC's own services from RSA Security Practice and boost standards and compliance to the next level. The Virtualization and Private Cloud Security services are supposed to assess secure virtual desktops and private clouds. A Fraud Assessment and Strategy offers recommendations to mitigate risk. A Risk Operations Service helps companies build security centers.

It isn't easy to create a corporate entity that's in the league of companies such as Lehman Brothers, Enron, MCI WorldCom or others that fell after accounting scandals, but it is possible to nip problems in the bud. You need ethical management and auditors. But it also helps tremendously to plug security breaches. All you need is vulnerability and one sticky fingered employee or financial whiz who thinks he can razzle-dazzle upper management by falsifying data, and you've got a potential disaster.

A new survey by the Ponemon Institute and Guardian Analytics found that 55% of businesses admitted that they have experienced fraud in the past year, with 58% enabled by online banking. A full 80% of banks failed to catch the fraudulent transactions before the funds were transferred out. Slightly more than one quarter of these companies were not compensated for their losses. The bottom line is that cybercrooks are targeting online bank accounts of small and medium-sized businesses and financial institutions are not protecting their customers' assets.

While new technologies such as virtualized data centers and cloud computing are exciting and are supposed to be cost-effective, they carry additional security and risk management issues. Companies cannot wait for auditors to identify weaknesses. There must be constant automated analysis and encryption of information from multiple sources. Who can benefit from such a product? A credit card processing company such as First Data, which is testing TransArmor. It will be able to take card numbers out of merchants' point-of-sale systems just as a transaction occurs. The software encrypts the data credit card companies and card-issuing banks for approval. Stores won't have to worry about protecting their customers' credit card information.

As an investor, I look forward to the potential of other software development that makes me feel confident that when the auditors sign their standard statement in a company's annual report, the figures are indeed accurate and that my investment won't go the way of Enron.