Walter Becker died on Sunday. For anyone who went to college during the 1970s, he will be forever known as one-half of the team behind the legendary band Steely Dan. I hesitate to call them a rock band for although they did play some good old rock and roll, their music was much broader than one genre. As much as any “rock” group, they (and a long-lost friend, Bobby Dobbins, who turned me on the Dan) introduced myself and an entire generation (or maybe two) of rock and rollers to jazz.

Iconically, the group was named for a motorized sex toy portrayed by William Burroughs in The Naked Lunch. The group’s star rose and shone most brightly from the early to mid-seventies; in the most formative and influential period of my rock and roll education. From their debut album of Can’t Buy a Thrill (1973) which included the classic guitar song “Reelin’ in the Years” (Skunk Baxter playing the iconic solo) to Pretzel Logic (1974) with “Rikki Don’t Lose that Number” to Katy Lied (1975) with the darkly comic yet icon “Black Friday” to 1976’s Royal Scam with the ultimate druggie tribute, “Kid Charlemagne” (I thought it was about the Elvis movie Kid Galahad – boy was I wrong; it was about the premier LSD concocter of the 60s) to the album which took them into the stratosphere Aja (1977). This final album of the 70s included the title song of the same name, “Peg”, “Deacon Blues” and “Black Cow”. After one more album in 1980, the group broke up for 13 years until a reunion in the 90s.

Steely Dan was legendary for its recording perfectionism, reportedly with up to 60 takes for a song. Unfortunately for me, the group stopped touring in 1974 so I did not see them live until the summer of 2016. Even then, to hear that guitar solo in “Reelin’ In the Years” was worth the price of ticket. As much as I love that song, there is one which is more meaningful to me “Midnight Cruiser” which (I think) is about low riders in Brooklyn and Queens in the 70s. I cannot explain why but the opening line of Felonious my old friend, step on in and let me shake your hand got under my skin the first time I heard it and it still is embedded there today.

Last Friday on September 1, I began a new installment of my year-long podcast series, where each month I focus on a different compliance topic. This month, I am focusing on innovation in compliance. The sponsor of the September installment is Oversight Systems, Inc. and recently I had the chance to visit with company Chief Executive Officer (CEO) and President Patrick Taylor on how Artificial Intelligence (AI) can make your compliance program more efficient. Taylor had one phrase that struck me almost as much as “Midnight Cruiser” got under my skin; it was “finding patterns in raked leaves”.

Taylor noted that AI allows the compliance practitioner to understand the “subtle clues in that pattern of activity that will clue me in to take a different look”. He likened to seeing a pattern in “raked leaves” which allows you to then step in and take a deeper and broader look at an issue, either through an audit or investigation. This is where the compliance practitioner can step back and literally keep an eye on the big picture and longer term as opposed to just the immediate numbers and information in front of them. It may also be the best hope for finding that kind of systemic fraudulent behavior.

This speaks to one of the difficult issues for the compliance practitioner, which is what does all the information mean? Consider the example of GlaxoSmithKline plc (GSK) in China. The Chinese business unit employees were working en masse to create fraudulent reimbursable invoices, inflating the cost of industry events to create a pool of money to pay bribes. They would stage an event around a drug product, or service in a hotel. They would inflate the hotel charge 20% above the actual costs and submit the entire amount to the corporate office for reimbursement. In some cases, GSK employees would submit invoices for events which never took place.

Now layer on top of these deceptions, in China, there is a rampant sale of fake receipts. For every hotel the Chinese business unit utilized, GSK personnel could buy an official receipt, which showed the price that was paid and was provided as backup documentation for the auditor to look at for the expense reports. Finally, there was the illegal sale of official Chinese government real tax stamps to tier on another level of complexity.

Taylor said that AI would provide you the opportunity to detect even this type of massive and systemic fraud because, statistically those charges would not make sense. Taylor said the reason this type of fraud can be so difficult to detect and prevent is the charges were on credit cards, so recorded and there was paper documentation to back up the charges. Standard modalities of detection will not assist the compliance practitioner. You just know that something does not make sense. AI allows a compliance professional to gather and compute statistics across a wide variety of customers and situations; such as geographic and time dimensions.

Using these two data points, you can analyze what is a reasonable amount to spend at a hotel or other venue. But also includes such variables as the time of year as some cities have tremendous seasonality in their hotel charges. Yet others do not and indeed there may even be zero variability in transportation cost across seasons. AI allows you to pull geographic, time, type of expense and even specific vendors statistics for a big-picture analysis.

These are but some of the data points which could be inputted and analyzed to determine if any compliance issues arose. But they would also provide the company with a wealth of information on its internal efficiencies around sales and their corresponding processes. Obviously, AI holds both promise and challenge for Chief Compliance Officers (CCOs). However, when a compliance function embraces the use of AI and embraces this human and technological approach for forecasting and risk assessments and then keeps improving their risk management techniques, it will create a sustainable strategic business, compliance and intelligence advantage over its competition.

I hope you will check out and enjoy this month’s podcast feature of One Month of Innovation in Compliance, sponsored by Oversight Systems, Inc. It posts daily at 10 AM on the FCPA Compliance Report, at noon on iTunes and Libsyn. It also posts on YouTube and JDSupra.

The Compliance Evangelist’s favorite Steely Dan discology:

To listen to a YouTube version of…

Midnight Cruiser, click here.

Reelin’ in the Years, click here.

Rikki Don’t Lose that Number, click here.

Kid Charlemagne, click here.

Black Friday, click here.

Deacon Blues, click here.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

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