Protecting the good guys from the bad (sponsored)

Dec 04, 2018
Confirmation founder and President, Brian Fox, discusses the company’s journey to becoming the global leader in the digital confirmation process.

Confirmation’s platform is used by more than 16,000 audit firms, 4,000 banks and departments and 5,000 law firms to process more than $1 trillion in confirmations in more than 160 countries annually. The company and its service are hugely successful by any standard, yet President and founder Brian Fox remembers times when he would have closed the business if he could.

He founded the business in 2000 and had been on the verge of securing $1 million in funding from a major investor when the terrorist attacks of 11 September 2001 occurred. With the economic challenges brought on by global uneasiness and security changes, the funding fell through. “It was an incredibly difficult time for the US and the world, and the resulting business challenges were really tough as well,” he recalls. “If it had been my own money, I would have just shut the doors. We couldn’t predict the dot-com collapse or that terrorists were going to fly planes into the World Trade Centre. But the company had taken in money from my mom, brother, and family friends, along with roommates and their friends. It was everyone else’s money that was at risk, so I just couldn’t give up. My objective became to stay in business until it succeeds or dies. It had to be 100%, there was no half-way.”

The beginning

The story has its origins a few years earlier when Fox began his career as an accountant with Ernst & Young. “In audit we were still spending a lot of time on inefficient manual processes. We were doing it the same way as it had been for a hundred years. We were mailing confirmation letters to get third-party information.”

Matters worsened in his second year when the junior and intern on his team were assigned to other projects and left Fox to handle everything. “It was even more painful. I was spending my time licking stamps, folding paper and stuffing envelopes. It wasn’t a fun job. I certainly didn’t need a college degree to do it. I had an idea in the back of my mind about how it could be done electronically.”

In a deliberate attempt to escape from audit, he then moved to PwC’s mergers and acquisitions division. However, Fox found himself once again involved in auditing due to an intensive due diligence process. “My staff couldn’t believe what they were being asked to do,” he notes.

Something else struck him at the time. “I saw that the existing process wouldn’t prevent fraud. It was too easy to interrupt or manipulate the manual confirmation process. I went back to business school in 1999 and did a business plan as part of my entrepreneurship class. I said that we could take a new thing called the internet and create a clearinghouse with software in the middle where auditors could put confirmation requests and third parties could respond.”

He was encouraged to run with the idea by his professor, who had been an accountant and understood the problem he was trying to solve. The company was established almost by chance in quite tragic circumstances. “I had worked for two extremely large companies, and I was interested in going to work for a smaller company. I didn’t have any inclination or money to start my own business. But then my father was killed in an accident. His life insurance policy became the seed capital for Confirmation. My mom and brother put in their share.”

He worked on the business during most of his second year in business school with classmates helping out with marketing plans and so on. When he graduated in 2001, the markets had been rocked by the dot-com bust, but feedback from accountancy firms was good and he pressed on. Then came the events of 9/11. 

“It was a crazy period,” he says. “I moved the business into my grandmother’s garage for a few years. There were just four of us at the time. Everyone got paid in stock. I made sure to always pay health insurance. Everyone paid their own expenses. I financed it by maxing out my credit card and borrowing money wherever I could. It was one of the worst times since the Great Depression to raise capital. There was just no money to be found.

“Those times forged our identity. The same four people who were there then are still here today – me, our CEO Chris Schellhorn; Dave Malone, who looks after our international business; and Janette Houser who oversees global operations and customer experience.”

Parmalat fraud

The business survived and began to thrive. “We started to get word-of-mouth calls with people saying that a friend had told them that if they wanted to get audit confirmation tomorrow, they had to talk to us. It was a really exciting time.”

2008 was a breakthrough year for the company. The multi-billion dollar Parmalat fraud hit the headlines, and the entirely innocent Bank of America got dragged into it. Parmalat had claimed to its auditors that Bank of America was one of its banks and supplied a fax number for confirmations. That fax machine was controlled by Parmalat and the fraud continued for years.

“Bank of America had to prove the signature on the faxes didn’t belong to one of their employees.” 

In the aftermath of the affair, Bank of America mandated the use of Confirmation’s service, and many other global banks followed suit.

This aspect of the Confirmation solution is of paramount importance to Fox. “We do two things: we provide auditors with a real-time service instead of a six-week ordeal by turning a manual process into an electronic solution and we protect the good guys from the bad guys. As accountants, we work to a higher calling. Helping identify and catch fraud is our real purpose. We help the good guys catch the bad guys. My mom was a police officer. My brother and I used to dress up as police officers at Halloween. My brother grew up to be a police officer, and this is my way of doing the same thing. If Confirmation can help people catch fraud, the benefits are huge for everyone.”

Into the future

He says it’s been pretty neat to see how the company has grown into the global business it is today but there is no sense of complacency. “We are continuing to grow our global footprint and have a great culture that pushes us to do more. We have rolled out a credit inquiry service for businesses that are extending credit to other companies and we have also introduced a legal confirmations service. We also provide a service which allows banks to verify the identities of auditors and accounting firms.

“We come up with innovative solutions all the time. What’s the problem and how can we solve it in a creative way? We try things and they don’t have to be successful. We just want to see people try new things.”

And the accountancy profession will have to continue to try new things, Fox concludes. “Auditors and accountants will no longer be able to distance themselves from fraud detection and prevention. The public will hold them to account for it and they will not be able to resist that pressure. This will require them to avail of technological solutions as the old systems, for confirmations and other parts of the process, simply won’t cut it when it comes to dealing with the bad guys who keep growing in sophistication.”