Fraud data analytics methodology : the fraud scenario approach to uncovering fraud in core business systems

390 Pages·2017·4.47 MB·English

by  Vona

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Fraud Data Analytics
Methodology
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Fraud Data Analytics
Methodology
The Fraud Scenario Approach to
Uncovering Fraud in Core
Business Systems
LEONARD W. VONA
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LibraryofCongressCataloging-in-PublicationData:
Names:Vona,LeonardW.,1955-author.
Title:Frauddataanalyticsmethodology:thefraudscenarioapproachto
uncoveringfraudincorebusinesssystems/LeonardW.Vona.
Description:Hoboken,NewJersey:JohnWiley&Sons,[2017]|Includesindex.
Identifiers:LCCN2016036161|ISBN9781119186793(cloth)|
ISBN9781119270348(ePDF)|ISBN9781119270355(epub)
Subjects:LCSH:Auditing.|Forensicaccounting.|Fraud—Prevention.|
Auditing,Internal.
Classification:LCCHF5667.V6592017|DDC658.4/73—dc23
LCrecordavailableathttps://lccn.loc.gov/2016036161
Coverdesign:Wiley
Coverimage:©kentoh/Shutterstock
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Thisbookisdedicatedtomyfamily,Patricia,Amy,David,andJeffrey,
forsupportingmeinmyquesttoexplainfraudauditing.Inthe
memoryofmydad,whotoldmetogotocollege,andthememory
ofthewomenwhoshapedmylife.
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Contents
Preface ix
Acknowledgments xi
Chapter1:IntroductiontoFraudDataAnalytics 1
Chapter2:FraudScenarioIdentification 17
Chapter3:DataAnalyticsStrategiesforFraudDetection 41
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Chapter4:HowtoBuildaFraudDataAnalyticsPlan 81
Chapter5:DataAnalyticsintheFraudAudit 109
Chapter6:FraudDataAnalyticsforShellCompanies 127
Chapter7:FraudDataAnalyticsforFraudulent
Disbursements 149
Chapter8:FraudDataAnalyticsforPayrollFraud 183
Chapter9:FraudDataAnalyticsforCompany
CreditCards 205
Chapter10:FraudDataAnalyticsforTheftofRevenue
andCashReceipts 227
Chapter11:FraudDataAnalyticsforCorruption
OccurringintheProcurementProcess 247
vii
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◾
viii Contents
Chapter12:CorruptionCommittedbytheCompany 269
Chapter13:FraudDataAnalyticsforFinancialStatements 285
Chapter14:FraudDataAnalyticsforRevenueand
AccountsReceivableMisstatement 311
Chapter15:FraudDataAnalyticsforJournalEntries 333
AppendixA:DataMiningAuditProgramforShell
Companies 349
AbouttheAuthor 363
Index 365
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Preface
E
ven the world’s best auditor using the world’s best audit program
cannot detect fraud unless their sample includes a fraudulent trans-
action.Thatiswhyfrauddataanalyticsissoessentialtotheauditing
profession.
Fraudauditingisamethodologytoolusedtorespondtotheriskoffraud
incorebusinesssystems.Themethodologymuststartwiththefraudriskiden-
tification.Frauddataanalyticsisaboutsearchingforafraudscenarioversus
adataanomaly.Ihaveoftenreferredtofrauddataanalyticsascodebreaking.
Thefraudauditorisstudyingmillionsoftransactionsintheattempttofindthe
needle in the haystack, called the fraud scenario. It is my hope that my years
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professiontobecomethenumber-onereasonforfrauddetection.
This book is about the science of fraud data analytics. It is a systematic
studyoffraudscenariosandtheirrelationshiptodata.Likeallscientificprin-
ciples,thecontinualstudyofthescienceandthepracticalapplicationofthe
sciencearebothnecessaryforsuccessinthediscoveryoffraudscenariosthat
arehidinginallcorebusinesssystems.
Themethodologydescribedinthebookisintendedtoprovideastep-by-step
processforbuildingthefrauddataanalyticsplanforyourcompany.Thefirst
fivechaptersexplaineachphaseoftheprocess.Laterchaptersillustratehow
toimplementthemethodologyinassetmisappropriationschemes,corruption
schemes,andfinancialreportingschemes.
Thepractitionerwilllearnthatfrauddataanalyticsisbothascienceand
an art. In baseball, there is a science to hitting a baseball. The mechanics
of swinging a bat is taught to players of all ages. However, you can read all
the books in the world about swinging a bat, but unless you actually stand
in the batting box and swing the bat, you will never truly learn the art of
hittingabaseball.Likewise,thefraudauditorneedstolearntoanalyzedata
and to employ the tools to do so in order to be able to find fraud scenarios
hidinginyourdatasystems.
ix
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Acknowledgments
T
omyfriendsatAudimationServices:CarolynNewman,JillDavies,and
CarolUrsell.ItisbecauseofworkingwithyouthatIdevelopedtheart
offrauddataanalytics.
ToSheckCho(ExecutiveEditor),whoencouragedmetowritemybooks,
andtotheeditorsatWiley,withoutyouIcouldnothavewrittenthisbook.
ToNickiHindes,whokeepsmyofficegoingwhileItraveltheworld.
Toallthosepeoplewhohaveinspiredme.Thankyou!
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1
CHAPTER ONE
Introduction to Fraud Data
Analytics
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T
he world’s best auditor using the world’s best audit program cannot
detect fraud unless their sample includes a fraudulent transaction.
This is why fraud data analytics (FDA) is so critical to the auditing
profession.
Howweusefrauddataanalyticslargelydependsonthepurposeoftheaudit
project.Ifthefrauddataanalyticsisusedinawhistleblowerallegation,then
the fraud data analytics plan is designed to refute or corroborate the allega-
tion.Ifthefrauddataanalyticsplanisusedinacontrolaudit,thenthefraud
dataanalyticswouldsearchforinternalcontrolcomplianceorinternalcontrol
avoidance.Ifthefrauddataanalyticsisusedforfraudtesting,thenthefraud
dataanalyticsisusedtosearchforaspecificfraudscenariothatishiddeninyour
database.Thisbookiswrittenforfraudauditorswhowanttointegratefraud
testingintotheirauditprogram.Theconceptsarethesameforfraudinvestiga-
tionandinternalcontrolavoidance—whatchangesisthescopeandcontextof
theauditproject.
Interestingly,twoofthemostcommonquestionsheardintheprofession
are, “Which fraud data analytic routines should I use in my audit?” and,
“What are the three fraud data analytics tests I should use in payroll or
disbursements?”Inonesense,therereallyisnowaytoanswerthesequestions
1
Fraud Data Analytics Methodology: The Fraud Scenario Approach to Uncovering Fraud in Core
Business Systems, Leonard W. Vona
© 2017 John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons Inc.
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