Staying Ahead of Risk & Fraud – Key Areas to Test and the Role of Data Analytics


At the IDEA User Conference, I had the opportunity to listen to Mark Mayberry, Director with BDO USA, LLP, speak on the various areas where fraud can occur and how data analytics can play a role in detection and reporting.


First we started with the topic of financial statement fraud. According to the ACFE, financial statement fraud is an expensive issue that resulted in a median loss of an astonishing $975,000. When searching for financial statement fraud, Mayberry looks for scenarios like fictitious revenues, improper asset valuations, timing differences, concealed liabilities and expenses and improper disclosures. Red flags include:


  • Significant topside adjustment recorded in consolidation
  • Transactions recorded later (e.g., backdating)
  • Complex transactions and calculations
  • Unsupported or unauthorized transactions
  • Frequent correcting entries
  • Significant unexplained reconciling items in reconciliations
  • Unreasonable explanations for variations in reported results from expectations
  • Unusual subsequent events


When looking at asset misappropriation, Mayberry hunts out scenarios like theft, skimming, ghost employees, commission schemes, fictitious expenses and false sales and shipping.


The role of data analytics is to allow the auditor to analyze 100% of the data from multiple systems, locations and file formats, rather than just samples. Tools also provide stratification and statistical analysis that improve sample selection.


For Mayberry, data analytics allows him to:


  • Identify patterns of fraud, such as vendors consistently at of just below the signatory limit, payment of duplicate invoices, round-dollar transactions, and ghost employee analysis, including social security number comparison
  • Conduct trend analysis, like change in vendors and amount spent with vendors over time
  • Identify data anomalies, like manual journal entries made after 11 p.m. or on holidays
  • Understand results by running an iterative process or drilling down when additional information is needed


Data analytics also helps Mayberry create reports, such as:


  • Reconcile general ledger activity to trial balances
  • Compare the outstanding cheque list to bank statements
  • Analyze account receivable credits per customer
  • Analyze vendors and costs


Finally, Mayberry took the opportunity to review some of standard audit tests that are available through SmartAnalyzerand apps including those for General Ledger  (get the app!) and Accounts Receivable (get the app!). These IDEA apps offer complete solutions oriented around business processes and standard import routines for numerous ERP systems to prepare data in a single step and create meaningful reports.


Contact us for more information about how to use data analytics for detecting and reporting fraud.



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. 

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