Magazine article American Banker

Zoot Offers Audit Product for Risk Plan Compliance

Magazine article American Banker

Zoot Offers Audit Product for Risk Plan Compliance

Article excerpt

Zoot Enterprises Inc., which sells automated instant credit decision software, has developed a tool to test whether a bank's written credit risk policy has been properly executed when it runs electronic credit checks.

The Bozeman, Mont., company said that the auditing product, Diakon, can help banks determine whether their risk criteria have been properly enforced.

"The thing that our clients were struggling with was being able to test these strategies. 'Am I missing something? Was something miscoded?' " Tom Johnson, Zoot's vice president of product development said in an interview this month. "They want to test absolutely that their policy is doing exactly what they want."

In the past, Mr. Johnson said, such testing was often labor-intensive, requiring a bank to go through thousands of credit files and to hope its system had caught any files that raised red flags.

"What this does differently is, it allows you to test every single possible permutation and have a proof-positive answer for every scenario, rather than just doing a volume test and hoping you got the right scenarios," said Eric Lindeen, Zoot's marketing director. "Instead of having to go through 1,000 or 10,000 files to find those cases that meet those conditions, I can build 100 that actually test all of those."

For example, one client wanted to spot any credit applicant with three or more payments that were 30 days past due.

Instead, the client's systems had been programmed to look for people with more than three such late payments; people with exactly three were excluded.

"Anybody who had three wasn't getting flagged, and that increased their loss rate a whole bunch because they weren't identifying those particular people in the way their code was executed," Mr. Johnson said.

Mr. Lindeen said the auditing tool can take a very labor-intensive process that's "prone to mistakes" and automate it to spot "all of those conditions that I wanted to find. …

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