Look ahead: Greater focus for auditors on fraud detection

George W. Bush promised to eliminate it. Barack Obama vowed to reduce it by $50 billion. Donald Trump said he’d reduce it by half over the next 10 years. What is it that they were all referring to? The “improper” payments by the U.S. government every year.

The Government Accountability Office (GAO) has estimated that in 2016 these types of payments cost the government $144 billion or four cents on every federal dollar spent. While not every improper payment is undeserving, an estimate by Deloitte suggests that about a third—or $47 billion—is fraudulent.


Looking at the numbers more closely, it was found that 10% or $9.6 billion of Medicare and Medicaid was spent on undelivered, unnecessary or erroneous services. On top of that, the IRS estimates that a quarter or $17 billion of all the earned-income tax credit (EITC) payments were improperly issued.


There are a number of reasons for the waste and improper detection of fraudulent claims. Large volumes of transactions, lack of time to review transactions for accuracy and a system that values quick (and cheap) dispensation of funds are just some of the explanations cited for the waste. But what remains certain is that there is a need to reduce waste before it happens as well as for audit to take a greater role in fraud detection.


This sentiment is being echoed in the private sector. According to Ralph Summerford, president of Forensic Strategic Solutions, a financial investigation firm that specializes in fraud examinations, if an auditor does not discover fraud, there is a 99% chance that they will be sued. According to Summerford, auditors needs to be aware of the difference between legal and professional standards and understand their responsibilities.


The increasing pressure to detect fraud is pushing organizations to implement continuous controls monitoring (CCM) solutions so that the audit team can focus on other high-risk areas of the business. CCM solutions are used for areas such as accounts payable, accounts receivables, purchase cards, travel & entertainment expenses and more. 


For the audit team, it is imperative that they expand their audits and employ tools that allow them to review 100% of the data in order to catch fraudulent transactions. In a recent survey, we found that only 50% were using data analytics software intended for auditors. The rest are using tools like spreadsheets that can’t provide the same level of sophistication in the analysis process or are prone to data integrity issues. 


For those who have adopted data analytics, the advances in the technology are enabling them to do even more. According to the CPA Journal, visual and text analytics are the next step in forensic auditing and accounting, and will enable auditors and accountants to look at both structured and unstructured data sets for better fraud detection.


To learn how one CPA firm used CaseWare IDEA Data Analysis software to uncover a case of employee fraud, view the presentation below.




About Anu Sood:

Anu Sood is the Director of Product and Corporate Marketing at CaseWare Analytics and is responsible for the company’s global marketing strategy. Prior to CaseWare Analytics, Anu worked in various roles in the high-tech industry and her accomplishments range from writing software for telephone switches to launching a new global satellite communication service. Anu has extensive experience in strategic marketing, corporate communications, demand generation, content marketing, product management, product marketing and technology development. 

Connect:   Anu Sood