Roundtable Discussion: Using Data Analytics for Fraud Detection and Prevention
It’s an early morning at the IDEA User Conference but more than 30 participants have joined Scott Langlinais, Owner of Langlinais Advisory Services and Al Phillips, Director of Audits and Forensic Investigations at Templar Protective Associates, to discuss how data analytics can be used to detect and prevent fraud. With years of experience in detection, investigations and ultimately convictions, the panelists had a lot to offer the room.
Surprisingly, only about a quarter of attendees used IDEA Data Analysis software for fraud detection, but according to panelists, this may be due in part to people not using their data analytics tools to their fullest potential. Langlinais likened it to using spreadsheets simply for addition.
According to the panelists, travel expenses and purchase cards (P-Cards) are top areas where there is a lot of fraud but not a lot of investigations. An example was cited where one person abused the company’s P-Card program to the tune of $2 million. Other scenarios mentioned included employees purchasing and expensing for full-fare airline tickets, cancelling and having the ticket refunded, and then buying discounted fares so they could pocket the difference. Aside from looking at transaction amounts, dates and approvals, the panelists suggested searching for: 1) false vendors; 2) vendors with escalating spend, quarter after quarter; and 3) large refunds to specific employees.
Fraud for company was another topic of discussion that—while it doesn’t necessarily benefit an individual employee—still constitutes fraud. This type of fraud includes backdating contracts to bolster revenue reporting and processing merchandise returns after the Christmas season in order to show a stronger holiday season. Data analytics make it much easier to look for these types of scenarios.
Cash receipts and disbursements are other areas where fraud can be especially tempting and then run rampant. Bank account reconciliation is an effective control mechanism so long as you receive bank statements directly from the bank rather than from an employee or executive.
Lack of segregation of duties in not-for-profit organizations provides another opportunity for fraud. According to the panelists, not-for-profits tend to assume their employees are great, trustworthy people since they are willing to accept a smaller salary to support the cause. However, while most are wonderful people, there are some who will take advantage of the lack of controls and segregation of duties for personal gain.
While Phillips is in the process of helping a “grandma” be convicted for rampant fraud, they emphasized that the role of the fraud investigator is not to prosecute but to investigate and provide the facts that indicate where and how fraud is occurring. It is up to the organization to deal with the perpetrators.
It is also up to the organization to instill a culture of compliance. While it may seem financially unsound to spend $100,000 to investigate and prosecute for a $10,000 fraud case, it demonstrates to employees that the organization doesn’t tolerate fraud and will scrutinize and follow-up on all known cases. This perception can help squash the temptation to defraud the organization.
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