The Fraud Examiner's Latest Threats, Tools and Opportunities

GUEST BLOGGER

Kelly Todd, CFE
Managing member and member in charge of forensic investigations at Forensic Strategic Solutions

A quick glance at the barrage of headline news related to cyberattacks, the perpetual explosion of electronically stored information and the ease with which data can be moved and shared makes one thing obvious: a new frontier has emerged for businesses. In this dynamic electronic age, the scope of risk for businesses is growing — in size and complexity — at such a rate that traditional risk management measures are simply not enough. While the “new frontier” has the potential to leave unsuspecting businesses exposed to a host of new risks, it is also creating a host of opportunities for those of us fighting fraud.  

Threat: The Trusted Employee
Frauds committed through the use of a computer and its network is one of the fastest growing threats for businesses. According to Ernst & Young’s 2016 Global Forensic Data Analytics Survey, nine out of nine industries rate the threat of a cyberbreach as a their top risk. While the latest news focuses on hackers and cybercriminals, there is an equally dangerous, but perhaps less obvious, threat to corporate assets. While trusted employees are moving, sharing and exposing corporate data just to do their jobs, the malicious employee or contractor with authorized access may be deliberately taking confidential information for personal gain or other nefarious reasons. Whether internal or external, the threat posed by these cybercriminals is real. Threats include the disruption of operations, the wrongful transfer of funds and the theft of intellectual property, confidential information or other critical assets.

Tools to Respond: Data Analytics
The dynamic nature of technology threats requires a proactive response. While external auditors and C-suite executives have long been reluctant to embrace advanced data analytics as a proactive tool — or even as a reactive tool — to ferret out fraud, the tide seems to be turning with the increased threat that cybercrime poses.

Advanced data analytics provide the ability to collect and analyze data, both structured (think transactional data) and unstructured (email, voicemail, internet logs, text messages, social media, blogs or free text fields in a database), to prevent, detect, monitor and investigate potentially improper transactions, events or patterns of behavior related to misconduct, fraud or noncompliance issues. 

As fraud examiners, we know a picture says a thousand words — and nothing tells a story better than data. The use of data visualization tools is on the rise for business intelligence, as well as detecting patterns and relationships indicative of fraud. With the explosion of electronic data, data visualization allows for communicating key aspects of complex and voluminous data in a more intuitive way. Effective visualization — which is both an art and a science — combined with advanced data analytics helps users identify patterns and relationships. 

Opportunities
With the increased acceptance of advanced data analytics — not to mention emerging technologies, such as blockchain (a topic that goes well beyond the scope of this blog) — dramatic opportunities abound for fraud examiners.

Valuable skills for the new frontier include:

• The technical skills to understand the information systems and how to collect relevant and reliable data.
• An expertise in data analytics to relate data from disparate systems, design queries, recognize patterns, interpret and report on results.
• Institutional knowledge or investigative skills to understand the relevant risks and controls, and to collaborate in the interpretation of results in the context of the associated risks.

As risks continue to grow in the industry, staying up-to-date with the latest tools and resources will be critical. As we look to spread knowledge during International Fraud Awareness Week, it’s also crucial that as fraud professionals we commit ourselves to continuing our education. The biggest fraud risks are the ones we are not yet aware of, but with the right tools and expertise we can be better prepared to respond.

Data Visualization – More Than Pretty Pictures

GUEST BLOGGER

Jeremy Clopton, CFE, CPA, ACDA
Managing Consultant, Forensics and Valuation Services, BKD, LLP

With “big data” comes the desire to see and better understand it. As investigators, that is one of our main objectives. While infographics and data posters are designed as art, there are other uses of data visualization as well. We need to understand the data in our cases so we can use it to detect fraud. I can think of many instances in my career where data visualization helped me, a colleague or a court better understand the data in an investigation.

Thinking back over my career, one case that demonstrates this concept stands out. While investigating a potential conflict of interest, we looked for vendors located near an employee's residence. Naturally, we decided the best approach would be to plot all of the vendor and employee addresses on a map. What we saw was quite interesting. None of the vendors were located near the employee on which we were focused. There was, however, another employee with a vendor very near. The employee and vendor were located more than 50 miles from the company address and the vendor was a casino. A new investigation quickly followed. Data visualization helped identify this previously unknown relationship and uncover a multi-year fraud scheme.  

While this is only one example of using data visualization to detect fraud, there are many other applications of the same concept. Simple distribution charts showing checks issued by day of week or time of day identify checks issued outside of normal business hours. Trend analyses of vendor payments indicate unusual patterns of activity, such as kickbacks. Network maps show relationships between various parties (remember the pictures on a bulletin board connected by yarn in the cop shows?). The use of data visualization in investigations is limited only by available data and your imagination.

Speaking of imagination, I am a Certified Public Accountant (CPA). As such, imaginative is not the first word many use to describe me. People generally shy away from describing accountants as creative. That simply means I tend to look at what others are doing in the world of data visualization to find new ideas. And I would encourage you to do the same. Read reports, especially the exhibits. Check out websites about data visualization (I like flowingdata.com). By exploring what others are doing you will be better equipped to incorporate data visualization into your next investigation. Who knows, maybe the visualization used to break open your next big case will also end up as a work of art in your office.

Find more insight from Jeremy at BKDForensics.com.