1. 6/18/2014 1 CopyrightFraudResourceNet LLC QuickResponseFraudDetectionusingDataAnalytics: HittingtheGroundRunningusingTechnologyina SuspectedFraudCase June 18, 2014 Special Guest Presenter: Rich Lanza CopyrightFraudResourceNet LLC President and Founder of White Collar Crime 101 Publisher of White-Collar Crime Fighter Developer of FraudAware Anti-Fraud Training Monthly Columnist, The Fraud Examiner, ACFE Newsletter Member of Editorial Advisory Board, ACFE Author of Fraud in the Markets Explains how fraud fueled the financial crisis. About Peter Goldmann, MSc., CFE

2. 6/18/2014 2 CopyrightFraudResourceNet LLC AboutJimKaplan,MSc,CIA,CFE President and Founder of AuditNet, the global resource for auditors (now available on Apple and Android devices) Auditor, Web Site Guru, Internet for Auditors Pioneer Recipient of the IIAs 2007 Bradford Cadmus Memorial Award. Author of The Auditors Guide to Internet Resources 2nd Edition CopyrightFraudResourceNet LLC Richard B. Lanza, CPA, CFE, CGMA Over two decades of ACL and Excel software usage Wrote the first practical ACL publication on how to use the product in 101 ways (101 ACL Applications) Has written and spoken on the use of audit data analytics for over 15 years. Received the Outstanding Achievement in Business Award by the Association of Certified Fraud Examiners for developing the publication Proactively Detecting Fraud Using Computer Audit Reports as a research project for the IIA Recently was a contributing author of: Global Technology Audit Guide (GTAG #13) Fraud in an Automated World - IIA Data Analytics A Practical Approach - research whitepaper for the Information System Accountability Control Association. Cost Recovery Turning Your Accounts Payable Department into a Profit Center Wiley & Sons. Please see full bio at www.richlanza.com 3. 6/18/2014 3 CopyrightFraudResourceNet LLC The CPE certificates and link to the recording will be sent to the email address you registered with in GTW. We are not responsible for delivery problems due to spam filters, attachment restrictions or other controls in place for your email client. Submit questions via the chat box on your screen and we will answer them either during or at the conclusion. After the Webinar is over you will have an opportunity to provide feedback. Please complete the feedback questionnaire to help us continuously improve our Webinars If GTW stops working you may need to close and restart. You can always dial in and listen and follow along with the handout. This webinar and its material are the property of FraudResourceNet LLC. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We are recording the webinar and you will be provided with a link access to that recording as detailed below. Downloading or otherwise duplicating the webinar recording is expressly prohibited. Webinar recording link will be sent via email within 5-7 business days. NASBA rules require us to ask polling questions during the Webinar and CPE certificates will be sent via email to those who answer ALL the polling questions Webinar Housekeeping CopyrightFraudResourceNet LLC Theviewsexpressedbythepresentersdonotnecessarilyrepresenttheviews, positions,oropinionsofFraudResourceNetLLC(FRN)orthepresenters respectiveorganizations.Thesematerials,andtheoralpresentation accompanyingthem,areforeducationalpurposesonlyanddonotconstitute accountingorlegaladviceorcreateanaccountantclientrelationship. WhileFRNmakeseveryefforttoensureinformationisaccurateandcomplete, FRNmakesnorepresentations,guarantees,orwarrantiesastotheaccuracyor completenessoftheinformationprovidedviathispresentation.FRN specificallydisclaimsallliabilityforanyclaimsordamagesthatmayresultfrom theinformationcontainedinthispresentation,includinganywebsites maintainedbythirdpartiesandlinkedtotheFRNwebsite Anymentionofcommercialproductsisforinformationonly;itdoesnotimply recommendationorendorsementbyFraudResourceNetLLC 6 Disclaimers 4. 6/18/2014 4 CopyrightFraudResourceNet LLC Todays Agenda Which data files should be requested in the area of concern or what should the data request look like when there is no specific area of concern. Using a fast-track process to validating data and understanding statistical norms for benchmarking purposes. Statistical techniques to be utilized include: standard deviation, a unique method of combining Benfords Law and other digital analysis techniques, time/size stratifications, and value/volume difference scattergraphs. How the general ledger can provide a digital road map for analytics for fraud (and errors) within the organization. How to quickly gather report ideas and techniques for analysis, as well as, obtain a list of some of the top fraud tests by process area. (continued) CopyrightFraudResourceNet LLC Todays Agenda (continued) How to combine your reports for maximum impact and understanding this concept within a specific review of accounts payable. Additional report techniques that can be applied to expected data files include user transaction analysis, data file change reviews, and external data mapping. Understand a provided Excel macro tool (free as part of the course) that will quickly map an entire hard drive in minutes. Various applications of this tool will be presented. Your Questions Conclusion 5. 6/18/2014 5 CopyrightFraudResourceNet LLC MostPopularProducts MicrosoftExcel ActiveDataforExcel TopCaats MicrosoftAccess ACL IDEA WizRule,WizWhy,&WizSame (WizSoftproducts) CopyrightFraudResourceNet LLC ToolSelection Considerations Coreprocessingfeatures Advancedfeatures Advanceddataimport Scripting Easeofuse Training/CustomerSupport/UserGroups Yearsinbusiness/Companysustainability Workpapersystemintegration 6. 6/18/2014 6 CopyrightFraudResourceNet LLC ProposalDecisionAnalysis Page11 http://www.caseware.com/products/idea#_research_reports CopyrightFraudResourceNet LLC DetectionMethods ByCompanySize 7. 6/18/2014 7 CopyrightFraudResourceNet LLC AssetMisappropriation TopsTheCharts CopyrightFraudResourceNet LLC VendorBillingFraud/Corruption Is#1or#2NoMatterWhereYouGo 8. 6/18/2014 8 CopyrightFraudResourceNet LLC FraudIsItReallyHard ToFind AskaCPAfirmtoFINDFRAUDATYOUR COMPANY AFraudAudittoFindthe6%of RevenuesLosttoFraud Willthatbecheapor REALLY expensive? Howmanypeoplefindorresearchacommitted fraudprovidedtoyoudaily,weekly,monthly, quarterly,annually? Whatiftechnologycouldfinditforyouquarterly andweorsomeoneelsecouldtellyouexactlyhow tofindit?.butitsthere(onaverage)at companies.. Ifthisweretrue,whyarewenotallrunningbackto ourdesksnow!? Caveat Probablywilltakeafewhundredhoursat minimumtoresearchthedataandpresentfindings unlesstheyarerightontop CopyrightFraudResourceNet LLC HavetoStartSomewhere ReportMapping 9. 6/18/2014 9 CopyrightFraudResourceNet LLC MappingDatatoScripts MapYourReportstoYour DataNeeds CopyrightFraudResourceNet LLC Clear Data Request AccountsPayableDataRequest.doc 10. 6/18/2014 10 CopyrightFraudResourceNet LLC Sample Data Validation Accounts Payable Other Questions CopyrightFraudResourceNet LLC Polling Question 1 What comes first in the analytic process? A. Getdata B. Runreports C. Identifyreportstorun D. Deliverreportstoclient 11. 6/18/2014 11 CopyrightFraudResourceNet LLC The Overall Fraud Analytic Process Get the Most Useful Data for Analysis General Ledger / Accounts Payable Other? / Use external data sources Develop Fraud Query Viewpoints The 5 Dimensions Brainstorm report ideas Analytically Trend Benfords Law Statistical averages and simple trending by day, month, day of week Post dated changes Transactional Score Based On the Above CopyrightFraudResourceNet LLC IsYourOrganizationWorking WithBannedCompanies? EPLS is the excluded party list service of the U.S. Government as maintained by the GSA WWW.SAM.GOV 12. 6/18/2014 12 CopyrightFraudResourceNet LLC IsYourOrganization WorkingWithTerrorists? CopyrightFraudResourceNet LLC AreYourVendorsReal? IRSTINMatchingProgram ValidatesU.S.Tax IdentificationNumbers Cansubmitupto100,000 TINsubmissionsatatime Makesureallpunctuationis removed See http://www.irs.gov/taxpro s/ andenterTINmatching programinthesearchbox 13. 6/18/2014 13 CopyrightFraudResourceNet LLC SSN DeathFile CopyrightFraudResourceNet LLC The Overall Fraud Analytic Process Get the Most Useful Data for Analysis General Ledger / Accounts Payable Other? / Use external data sources Develop Fraud Query Viewpoints The 5 Dimensions Brainstorm report ideas Analytically Trend Benfords Law Statistical averages and simple trending by day, month, day of week Post dated changes Transactional Score Based On the Above 14. 6/18/2014 14 CopyrightFraudResourceNet LLC QueryViewpoints CopyrightFraudResourceNet LLC SpecificTestsBased onthe5WsWho Summarizejournalentriesbythepersonsenteringtodetermineiftheyre authorized. What Summarizejournalentriesbyaccountandrepetitiveextracts(morethan50 instances)anduniqueaccountsequencesusedinthejournalentry(basedon thefirstfivedebitandcreditpostings). Extractnonstandardormanualjournalentries(versusacreatedsystemsuchas anaccountspayableledgerposting)forfurtheranalysis. Stratifysizeofjournalentriesbasedonamount(usingthedebitsideofthe transaction). Summarizegeneralledgeractivityontheamountfield(absolutevalueofdebit orcredit)toidentifythetopoccurringamounts.Thensummarizeactivityby accountandtheamountidentifiedforthetop25appearingamounts. Scattergraphgeneralledgeraccount(debitandcreditamountsseparately) andnumbersoftransactions. 15. 6/18/2014 15 CopyrightFraudResourceNet LLC When Extractjournalentriespostedonweekendsandholidays. Extractjournalentriesrelatingtotheprioryearthatweremadejust immediatelyfollowingafiscalyearend. Summarizejournalentrycreditsanddebitsprocessingbyday,month,and year. Where Extractjournalentriesmadetosuspenseaccountsandsummarizebythe personenteringandcorrespondingaccountnumbers. Extractjournalentriestogeneralledgeraccountsknowntobeproblemsor complexbasedonpastissues(errorsofaccountinginjournalsubsequently correctedbyaccountingstafforauditors)atthecompanyortheindustryin general. Extractdebitsinrevenueandsummarizebygeneralledgeraccount. Summarizejournalentriesbythepersonsenteringtodetermineiftheyreauthorized. SpecificTestsBased onthe5Ws(Continued) CopyrightFraudResourceNet LLC Why Extractgeneralledgertransactionamounts(debitorcredit)that exceedtheaverageamountsforthatgeneralledgeraccountbya specifiedpercentage.(Fivetimestheaverageisthedefault.) Extractjournalentriesthatequatetoroundmultiplesof10,000, 100,000,and1,000,000. Extractjournalentrieswithkeytextssuchasplugandnettozero anywhereintherecord. Extractjournalentriesthataremadebelowsetaccounting departmentapprovallimitsespeciallymultipleentriesofamounts belowsuchlimits. Extractjournalentriesthatdontnettozero(debitslesscredits). SpecificTestsBased onthe5Ws (Continued) 16. 6/18/2014 16 CopyrightFraudResourceNet LLC ReportBrainstormTool CopyrightFraudResourceNet LLC ProactivelyDetectingFraud UsingComputerAuditReports IIAResearchPaper/CPECourse See the IIAs website at www.theiia.org The purpose of this document is to assist auditors, fraud examiners, and management in implementing data analysis routines for improved fraud prevention and detection. A comprehensive checklist of data analysis reports that are associated with each occupational fraud category per the Association of Certified Fraud Examiners classification system. 17. 6/18/2014 17 CopyrightFraudResourceNet LLC PayrollFraudReportIdeas CopyrightFraudResourceNet LLC TopReportsinPayroll Duplicateemployeepayments Paymentstothesamebankaccount andadifferentemployeenumber Overtimetrendingbydepartmentand person(%ofovertimetogrosspay, averageovertimebydepartment) Matchemployeedatafromthehuman resourcetothepayrollsystem Lookforinaccurateorincomplete employeedata 18. 6/18/2014 18 CopyrightFraudResourceNet LLC OtherT&EReports Unmatchedqueryofcardholderstoanactiveemployee masterfile Cardsusedinmultiplestates(morethan2)inthesameday Cardsprocessinginmultiplecurrencies(morethan2)inthe sameday Identifycardsthathavenothadactivityinthelastsixmonths Cardholdersthathavemorethanonecard Extractanycashbackcreditsprocessedthroughthecard Extractdeclinedcardtransactionsanddetermineiftheyare frequentforcertaincards Summaryofcardusagebymerchanttofindnewlyadded merchantsandmostactive CopyrightFraudResourceNet LLC T&E ItsTheTrendsRight? Trendcategories(meals,hotel, airfare,other) Trendbypersonandtitle Trenddepartments Trendvendors Trendinthetypeofreceipts Trendunderlimits(companypolicy) 36 19. 6/18/2014 19 CopyrightFraudResourceNet LLC OtherDataMiningIdeas PersonnelAnalysis Adjustmentsbyemployee Processingbyemployee ContextualSummarizations Transactiontypes TimeTrending Month,week,andday/Alsobydepartment Lastmonthtofirst11months Transactionsattheendofandstartofafiscalyear CopyrightFraudResourceNet LLC Polling Question 2 Whatisnot oneofthequeryviewpoints? A. Who B. What C. How D. When 20. 6/18/2014 20 CopyrightFraudResourceNet LLC AddingtheAnalysis Toolpak AddIn CopyrightFraudResourceNet LLC AboveAverage/Standard Deviation 21. 6/18/2014 21 CopyrightFraudResourceNet LLC StratifyDatainExcelorwith ActiveDataforExcelTM UseExcelVlookup=TRUE UseActiveDataforExcelTM CopyrightFraudResourceNet LLC HowFraudGrowsOverTime 42 22. 6/18/2014 22 CopyrightFraudResourceNet LLC ScatterGraph CopyrightFraudResourceNet LLC ScatterGraphExplanation 1 highdollarchangeandlowcount(outliers) 2 chargesthatmakesense 3 changesthatdontmakesense 4 inefficiencythatisdeveloping 23. 6/18/2014 23 CopyrightFraudResourceNet LLC Polling Question 3 WheredoyoufindtheDescriptiveStatisticsin Excel? A. ExcelOption B. DataMenu C. ExcelAddIns D. InsertMenu CopyrightFraudResourceNet LLC UniqueJournalEntryTest AccountSequencing TheSampsonIndex 24. 6/18/2014 24 CopyrightFraudResourceNet LLC Normalizeandtestgeneralledgerdataconsistentlyonalllocations Mostinternalauditshopsobtaingeneralledgerdataquarterlyfortheirexternal auditorsanyway noexcuse G/Ldataisthelifebloodoftheorganization Itisthefirstdatasetwithenoughdetailtoeffectivelycombthrough Planningwillimproveasfocuscanbeplacedonkeyaccounts,entries,timeframes, enterers,etc.andwillguidefuturedataextracts Mostsystemspostindetail(evendowntoinventorymovements)whichcanallow detailedreviewofsubledgers.usingG/Ldata Identifysavings,betterideas,andfraud Fraudhasbeenthefocusandweshouldstilltestforit Savingsincostrecoveriescannowbecomemoreofafocus Betterideasleveragedthroughtechnology Efficiency(tohelpafasterclose) Revenueandbusinessenhancement KeyMantrasofG/L AnalyticAuditing CopyrightFraudResourceNet LLC Polling Question 4 What ActiveData for Excel function allows for the development of the account sequence: A.Summarize B.Stratify C.Merge D.Top / Bottom Items 25. 6/18/2014 25 CopyrightFraudResourceNet LLC SimpleFraudVendorScoringAnalysis HowItStarted Vendorsonreport1vs.report2ofduplicatepayments. Duplicatetransactionspaidondifferentchecks. Duplicatetransactionswithdebitamountsinthevendor account. Vendorswithahighproportionofrounddollarpayments. Invoicesthatareexactly10x,100xor1000xlargerthan anotherinvoice. Paymentstoanyvendorthatexceedthetwelvemonth averagepaymentstothatvendorbyaspecifiedpercentage (i.e.,200%)or3xthestandarddeviationforthatvendor. Vendorspaidwithahighproportionofmanualchecks. 49 CopyrightFraudResourceNet LLC TheSamplingProblem BottomLineNumbers Moderntests(roundnumbers,duplicates,missingfields) identifythousandsofsuspicioustransactions,usuallyabout1in 5ofalltransactionsgetaredflag Historicallyatleast0.02 0.03%ofalltransactionshavereal problems,suchasarecoverableoverpayment Soroughly0.00025/0.2=0.00125or1in800redflagsleadtoa realproblem. Imaginethrowingarandomdartat800balloonshopingtohit therightone!!! 26. 6/18/2014 26 CopyrightFraudResourceNet LLC TransactionalScore Benefits Thebestsampleitems(tomeetyourattributes)are selectedbasedontheseveritygiventoeachattribute. Inotherwords,errors,asyoudefinethem,canbe mathematicallycalculated. Insteadofselectingsamplesfromreports,transactions thatmeetmultiplereportattributesareselected(kill morebirdswithonestone).Thereforea50unitsample canefficientlyaudit: 38duplicatepayments 22roundinvoices 18insequenceinvoices .andtheyarethebestgiventheyare mathematicallythemostsevere. 51 CopyrightFraudResourceNet LLC PickItemsRarein SeveralWays DontchoosejustANYweekendinvoice ChooseanUNUSUALweekendinvoice Largeweekendinvoicesaretherarestkind(i.e., only2percentoflargeinvoices) Theoddsoffindingarecoverableerrorgoup ANDsincetheinvoiceislarge,thevalue recoveredgoesuptoo! 27. 6/18/2014 27 CopyrightFraudResourceNet LLC Summarieson VariousPerspectives 53 Summarizeby dimensions(andsub dimension)topinpoint withinthecubethe crossoverbetweenthetop scoredlocation,time,and placeoffraudbasedon thecombinedjudgmental andstatisticalscore ALLTIESBACKTOTHE ORIGINALANALYTIC APPROACH CopyrightFraudResourceNet LLC KeyControlReports &Scoring 28. 6/18/2014 28 CopyrightFraudResourceNet LLC CombiningtheScores ACLCode CopyrightFraudResourceNet LLC UsingVlookupto CombineScores Createarecordnumber RelatesheetsbasedonVLookup 29. 6/18/2014 29 CopyrightFraudResourceNet LLC ChartingtheScore CopyrightFraudResourceNet LLC TransactionalScore BenefitPatternsExample 58 30. 6/18/2014 30 CopyrightFraudResourceNet LLC GeoMapping MapPoint CopyrightFraudResourceNet LLC Polling Question 5 Whatgraphisusedtomapvaluetoscoreforeasier selectionsofdatasubsets? A. Pie B. Line C. Bar D. Scatter 31. 6/18/2014 31 CopyrightFraudResourceNet LLC FreeExcelDirectoryTool Collectsallfileinformationbyfolder Providesadditionalinformationonthe files Becareful Cantake30minutestorun anentireharddrive Usefultoidentifyfilesaccessedrecently GreatforbackupsandcleanupsofHDs CopyrightFraudResourceNet LLC Questions? Any Questions? Dont be Shy! 32. 6/18/2014 32 CopyrightFraudResourceNet LLC ComingUpNextMonth 1. ThinkLikeaFraudstertoCatcha FraudsterJuly9,2014,1:00PM 2.SecretsofFindingFraudulent Documentation,July16,11:00AM 3.HowtoBuildFraudFocusedData AnalyticsIntoYourAudit&Risk Assessment,July23,11:00AM CopyrightFraudResourceNet LLC Thebestinformationnewsletter onfraudandwhitecollarcrimeis nowavailableforfree! SignUpNow Pleasesharewithyournetwork! WCCFighterNews Free 33. 6/18/2014 33 CopyrightFraudResourceNet LLC AuditSoftwareVideos.com Now Free! Videos accessible for FREE subscriptions Repeat video and text instruction as much as you need Samplefiles,scripts,andmacrosinACL,Excel,etc. availableforpurchase Bite-size video format (3 to 10 minutes) >>Professionallyproducedvideosby instructorswithover20years experienceinACL,Excel,and more CopyrightFraudResourceNet LLC Thank You! Website:http://www.fraudresourcenet.com JimKaplan FraudResourceNet 8003851625 jkaplan@fraudresourcenet.com PeterGoldmann FraudResourceNet 8004402261 pgoldmann@fraudresourcenet.com RichLanza CashRecoveryPartners,LLC Phone: 9737293944 rich@richlanza.com