01/26/2012 Meeting - Fraud Detection and Prevention Through Data Analysis
Upcoming SlideShare
Loading in...5
×
 

01/26/2012 Meeting - Fraud Detection and Prevention Through Data Analysis

on

  • 273 views

 

Statistics

Views

Total Views
273
Views on SlideShare
273
Embed Views
0

Actions

Likes
0
Downloads
7
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

01/26/2012 Meeting - Fraud Detection and Prevention Through Data Analysis 01/26/2012 Meeting - Fraud Detection and Prevention Through Data Analysis Presentation Transcript

  • Fraud Detection and Prevention through Data Analysis Presented by: Greg Taylor, CFE Senior Vice President/CTO Corporate Audit Partners
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Agenda  Introduction  Defalcation Statistics  Case Studies  Fictitious Invoices  Duplicate Payments  Budget Manipulation  Prevention and Detection  Dry Run Test  Consecutive Invoice Numbering  Non-Sequential Invoice Numbers  Vendor Histogram  PO Box Only Addresses  Address Analysis  Bank Code Analysis  Benford's Law  Number Duplication
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Introduction Greg Taylor  24 years of accounting and auditing  Industries  Banking  Aerospace  Advertising  Owned Forensic Accounting Business  14th year in the recovery auditing industry  Published author – Please review Corporate Audit Partners website www.corporateaudits.com to review two articles. “Why Employees Steal” and “Fraud Basics, The Perils of a Small Business”. White paper – University of Arizona, Eller College of Management, “How to Lose $1.8 Billion in One Week - Seven Ways to Protect Your Information from Security Loss” http://iasec.eller.arizona.edu/white_papers/index.asp
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Occupational Fraud Statistics  Association of Certified Fraud Examiners 2010 Report  1,843 cases totaling approximately $1 billion in losses  Est. typical U.S. organizations loses 5% of revenue to fraud  Confidential Reporting mechanisms reduce fraud losses by 50% (tip line)  Fraud losses are disproportionably large in small business  80% of Frauds were committed in one of six departments; accounting, operations, sales, executive management, customer service, purchasing
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 The What  Defalcation last typically 16 months  Fraudulent disbursements make up 64% of cases reviewed  60% of Occupational Fraud loss at least $100,000  Companies with less than 100 employees make up 30.8% the cases  Companies with 1,000 – 9,999 employees make up 25.9% of cases
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 The Why  The Four “D’s”  Debt and Gambling  Drug and Alcohol Abuse  Divorce and Marital Problems  Disgruntled Employee
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 The Who  Typical Embezzler  Management or supervisor position  7 years plus with company  Annual Income $100,000 - $149,000  Male 66.7%  Female 33.3%  Age 19.3% are 36 – 40, 19.3%, 41-50  Bachelors Degree 52%  First Time Offender
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Detection Association of Certified Fraud Examiners 2004 Report to the Nation on Occupational Fraud and Abuse
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Cash Misappropriation  Fraudulent Disbursements – Perpetrator causes company to disburse funds by device or trick – Example: False invoices, forged company check  Skimming - Cash is stolen before been booked  Cash Larceny – Cash is stolen after been booked  2/3rd of all cash frauds were Fraudulent disbursements
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Case Study 1  Fictitious Invoice  Employee in Department works with Vendor  Vendor creates invoice  Employee approves invoice and submits to AP  AP pays invoice for products or services not received
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Case Study 2  Duplicate Payment  AP Employee creates fictitious invoice using original invoice documentation  Check is cut to Vendor  AP Employee calls vendor and informs them of the duplicate payment  AP Employee suggests that a refund check be cut per his or her attention or made out to another name  AP Employee receives refund check and pockets the cash
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Case Study 3  Budget Manipulation  Department Head contacts Vendor and suggests a pre-payment to vendor  Vendor sends invoice to Company  Transaction number is noted as a quote number rather than an invoice number  Pre-payment check is cut to vendor  Department expenses are misstated  Department uses open vendor credit to adhere to budget  Department receives bonuses on adherence to budget
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Dry Run Test  This test identifies vendors or suppliers with large average invoice dollar values that have a very low minimum invoice value  The purpose of this test is to isolate invoices that are for a very low dollar amount compared to the average. This can help to identify if vendor/supplier is being used to test internal controls in the accounting system  Suggested review of even dollar invoices such as ($1.00, $5.00, $10.00, $20.00….)
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Dry Run Test - Results Item No. Vendor Number Vendor Name Average Invoice Amount First Invoice Amount Dry Run Test Percentage 1 723143234 OBAYASHI CORPORATION $563,712.13 $1,039.47 0.18% 2 306142033 DELL COMPUTER CORP $39,268.33 $93.00 0.24% 3 326114242 SODEXHO MARRIOTT CORPORATION $5,168.15 $17.76 0.34% 4 101091156 RF MACDONALD COMPANY $8,733.35 $52.24 0.60% 5 420101954 CELESTICA CORP. $22,369.95 $190.00 0.85% 6 327071713 SOCIETY FOR INFO. DISPLAY $7,597.50 $75.00 0.99% 7 101041067 P G & E $10,337.60 $105.80 1.02% 8 B04132909 ROPERS, MAJESKI, KOHN&BENTLEY $7,460.67 $90.00 1.21% 9 C01141001 HEWLETT PACKARD COMPANY $9,213.66 $112.58 1.22% 10 611145017 SHINKO AMERICA INCORPORATED $15,595.70 $233.73 1.50% 11 902094321 DURR ENVIRONMENTAL INCORPORATED $6,093.45 $105.34 1.73% 12 101091451 PRAXAIR INCORPORATED $17,107.90 $321.75 1.88% 13 330102517 EBARA TECHNOLOGIES INCORPORATED $18,607.67 $372.72 2.00% 14 331110258 COLLIERS HOUSTON & CO.PROPERT $5,170.14 $107.27 2.07% 15 A05094025 ORACLE CORPORATION $36,485.84 $880.00 2.41% 74 101041424 TOPPAN ELECTRONICS INC $31,016.11 $4,170.00 13.44% 75 125085409 TECHNICAL INSTRUMENT SAN FRANCISCO $6,229.18 $845.57 13.57% 76 911145522 SMI ELECTRONIC DEVICES AMERICA INC $25,950.20 $3,803.09 14.66% 77 0000000144 Dense Pac $9,772.92 $1,461.65 14.96% 78 101091169 RAY L HELLWIG PLUMBING & HEATING COMPANY $8,591.34 $1,310.00 15.25% 79 815103903 JEOL USA INCORPORATED $9,656.70 $1,491.70 15.45% 80 0000000299 ALLIED SECURITY $8,574.86 $1,388.80 16.20% Client: xyz Company - Report XI Dry Run Test
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Consecutive Invoice Numbering  This test identifies vendor/suppliers with consecutive invoice numbering  The purpose of this test is two fold 1. Test can be used to identify misappropriations of funds by employee using consecutive invoice numbers 2. Test can also be used as a risk management tool to identify vendors or suppliers where your company is their only source of income. You can create appropriate alternatives if the vendor or supplier goes out of business
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Consecutive Invoice Numbering - Results ID Invoice Number Invoice Date Invoice Amount PO ID Vendor Number Vendor Name Address 1 Address 2 City State Postal Code Check Number Check Date 31104 126012607 12/06/03 $11,615.49 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31105 126012608 12/07/03 $154.69 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31106 126012609 12/07/03 $24,012.94 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31107 126012610 12/07/03 $153.93 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31108 126012611 12/05/03 $45,563.01 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31109 126012612 12/05/03 $153.93 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31139 126015480 01/16/04 $5,233.59 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31140 126015481 01/16/04 $769.65 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31141 126015482 01/16/04 $3,540.37 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31142 126015483 01/16/04 $1,693.22 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31143 126015484 01/16/04 $3,386.44 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31144 126015485 01/16/04 $593.82 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31145 126015486 01/16/04 $928.17 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31146 126015487 01/16/04 $618.78 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31147 126015488 01/16/04 $8,662.90 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 75541 507600 06/29/03 $2,861.43 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75542 507601 06/29/03 $504.60 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75543 507602 06/29/03 $963.09 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75544 507603 06/29/03 $456.75 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75545 507604 06/29/03 $124.41 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75546 507605 06/29/03 $287.10 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75547 507606 06/29/03 $12.92 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75548 507607 06/29/03 $30.45 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 82364 602104/0100 01/01/03 $3,384.17 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82365 602104/0200 02/01/03 $3,178.06 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82366 602104/0300 03/01/03 $2,670.82 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82367 602104/0400 04/01/03 $3,404.77 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82368 602104/0500 05/01/03 $3,184.09 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/03 82369 602104/0600 06/01/03 $3,053.95 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/03 82370 602104/0700 07/01/03 $2,996.78 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/03 82371 602104/0800 08/01/03 $3,498.83 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305842 09/03/03 82372 602104/0900 09/01/03 $3,350.58 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305842 09/03/03 82373 602104/1000 10/01/03 $1,986.51 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305856 12/03/03 Client: xyz Company - Report XII Vendors / Consecutive Invoice Numbering Prepared by: Corporate Audit Partners
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Non-Sequential Invoice Numbering  This test identifies invoices out of character sequence.  Most vendors or suppliers use the same sequence of alpha numeric character  By isolating characters out of sequence the company may be able to identify defalcation, budget manipulation or wrong vendor payment
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Non-Sequential Invoice Numbering - Results Report IX Vendor Number Vendor Number Vendor Name Invoice Number Invoice Date Invoice Amount Invoice ID 52519 1223 A1CUST 1563 04/10/02 $200.00 539534 52520 1223 A1CUST 1564 04/10/02 $360.00 539536 58197 1223 A1CUST 1568 08/02/02 $1,000.00 555666 56446 1223 A1CUST 1570 06/26/02 $654.75 550872 59588 1223 A1CUST 1571 08/30/02 $600.00 559603 103605 1223 A1CUST 1572 08/06/03 $100.00 605382 63084 1223 A1CUST 1580 10/30/02 $162.50 568224 97639 1223 A1CUST 1585 04/09/03 $1,000.00 589298 97640 1223 A1CUST 1586 04/09/03 $80.00 589300 129070 4974 A1FAST 21-OCT-03 10/21/03 $250.00 616470 8151 1213 LBHCHEM 0021365-in 07/11/01 $219.94 503048 3396 1213 LBHCHEM 0029615-in 03/20/02 $405.66 536166 53248 1213 LBHCHEM 0030882-IN 04/24/02 $90.50 541550 54229 1213 LBHCHEM 0031641-in 05/17/02 $408.84 544417 102468 1213 LBHCHEM 0044698-IN 07/16/03 $554.19 602189 102868 1213 LBHCHEM 0044888-IN 07/23/03 $1,150.61 603148 104705 1213 LBHCHEM 0045863-IN 08/27/03 $348.89 608294 48039 1213 LBHCHEM 0039276 01/15/03 $539.59 578567 48040 1213 LBHCHEM 0039277 01/15/03 $540.00 578579 74486 3499 WILLIAM4 CA37239 03/10/03 $92.23 585410 74484 3499 WILLIAM4 CA37239 03/10/03 $92.23 585410 74483 3499 WILLIAM4 CA37239 03/10/03 $92.23 585410 74482 3499 WILLIAM4 CA37239 03/10/03 $92.23 585410 74485 3499 WILLIAM4 CA37239 03/10/03 $92.23 585410 32454 3499 WILLIAM4 HP648C PRINTER 08/27/01 $127.59 509847 73398 3499 WILLIAM4 JANUARY 31, 2003 02/03/03 $94.75 581652 78133 3499 WILLIAM4 PC52202 05/23/02 $80.77 546506 122306 3499 WILLIAM4 PLT 72 09/29/03 $511.43 613450 86061 3499 WILLIAM4 TN 11/02 11/08/02 $453.58 570761 72854 3499 WILLIAM4 WA/PA/MO 01/16/03 $495.76 579455 Client XYZ Non-Sequential Invoice Numbers
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Vendor Histogram  This test identifies Vendor payment trends during a given time period  Most vendors or suppliers have similar transaction cycles or transaction amounts  Unusual or significant increases in either the frequency or value of transactions can signify defalcation or collusion
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Vendor Histogram
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Vendors Scatter Graph  This test identifies all Vendor payment trends during a given time period and maps anomalies  Horizontal analysis of year over year or period over period  Most vendors or suppliers have similar transaction cycles or transaction amounts  Unusual or significant increases in either the frequency or value of transactions can signify defalcation, collusion, or growing inefficiencies.
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Vendor Scatter Graph
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 P.O. Box Only Addresses  This test identifies vendors or supplies that only have PO Box address  The purpose of this test is to identify vendors that have no physical address  All vendors or suppliers should have a physical address listed in the vendor master file  The lack of a physical address may be an indication that a vendor has been set up fictitiously in the vendor master file.
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 P.O. Box Only Address - Results Vendor Master Report IV Vendor Number Vendor Name Address1 City State Country Zip 4064 ABF FREIGHT SYSTEM, INC. PO BOX 142088 AUSTIN TX US 78714-2088 6849 ACCENT FLOORING, INC. PO BOX 19015 AUSTIN TX US 78760 9905 ADVANCE PLASTIC FABRICATORS PO BOX 5117 ROUND ROCK TX US 78683-5117 7907 AIRGROUP EXPRESS P.O. Box 3627 Bellevue WA US 98009-3627 5184 BAYSHORE PRESS PO BOX 67303 SCOTTS VALLEY CA US 95067-7303 1653 BETZDEARBORN, INC. PO BOX 846046 DALLAS TX US 75284-6046 9928 BGS INCENTIVE ACTIVITIES PO BOX 6044 KAMUELA HI US 96743 10598 CABLE ONE PO BOX 10 CALDWELL ID US 83606 8029 CALIFORNIA TECHNICAL INDUSTRIES PO BOX 66868 SCOTTS VALLEY CA US 95067-6868 11466 DANAHER POWER SOLUTIONS PO BOX 98392 CHICAGO IL US 60693 9821 DAVID RODERICK PO BOX 640295 SAN JOSE CA US 95164-0295 4776 DELTEX, INC. PO BOX 3258 LITTLETON CO US 80161-3258 2528 EESCO/UNITED ELECTRIC CO. PO BOX 91626 CHICAGO IL US 60693 9976 FINZER IMAGING SYSTEMS PO BOX 39082 DENVER CO US 80239-0082 6376 GOMEZ ENERGY SERVICES PO BOX 5082 GEORGETOWN TX US 78627 8455 HARTSTON,INC PO BOX 21941 LEXINGTON KY US 40522-1941 5504 L&L ASSOCIATES P.O. BOX 541 BREA CA US 92822 7065 MEETING SOLUTIONS, INC. PO BOX 4062 AUSTIN TX US 78765-4062 8348 MICRO COMPUTER CONTROL CORP. PO BOX 275 HOPEWELL NJ US 08525 7520 O.C. MCDONALD COMPANY INC. PO BOX 26560 SAN JOSE CA US 95159 9111 PADGETT THOMPSON PO BOX 4725 BUFFALO NY US 14240-4725 8721 PENINSULA VISA & PASSPORT SERVICES PO BOX 28 SANTA CLARA CA US 95052 6847 PIONEER PRESS PO BOX 64890 ST PAUL MN US 55164 2435 PNEUMATICO, INC. PO BOX 410310 MELBOURNE FL US 32941-0310 1891 PURVIS BEARING SERVICES, INC. PO BOX 540757 DALLAS TX US 75354-0757 9135 R&M ELECTRIC INC PO BOX 63479 COLORADO SPRINGS CO US 80962-3479 10365 SEZ AMERICA, INC. PO BOX 29830 PHOENIX AZ US 85038-9830 Box Report - Vendors with PO Box Only Address
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Address Analysis  This test compares vendor addresses to employee addresses  This test can be used to identify employees who have set up fictitious vendors in the vendor master file  There may well be occasions where an employee is also set up as a supplier or vendors but you should be aware of them
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Address Analysis - Results Address Match Employee ID Vendor Number Vendor Name Address 1 Address 2 City State Postal Code 614153317 DOUBLETREE HOTEL SAN JOSE 1050 GATEWAY PLACE SAN JOSE CA 95110 0000000845 Plotter Pros 1086 The Alameda Suite 100 San Jose CA 95116 C11145617 RECOMMENDED RESOURCES 11 AMHERST ROAD AMHERST MA 1001 C11145617 RECOMMENDED RESOURCES (INACTIVE) 11 AMHERST ROAD AMHERST MA 1001 MATCH 009985 1336 Hill San Marcos TX 78022 MATCH 917150807 S M DESIGNES 1336 HILL St SAN MARCOS TX 78022 711131708 RT CONSTRUCTION 13455 NOEL RD SUITE 430 DALLAS TX 75140 615094134 RYDER TRANSPORTATION SERVICES 1481 O'TOOLE AVENUE SAN JOSE CA 95131 617143713 MONARCH INSTRUMENT 15 COLUMBIA DRIVE AMHERST NH 03031-1334 616094959 MASON WEST INCORPORATED 1840 GRETTO LANE ANAHEIM CA 91806 517160003 ADVANCED SYSTEM SOLUTIONS 3115 PERIVALE CT SAN JOSE CA 95148 831 Ev ent Connections 3657 El Grande Driv e San Jose CA 95131 110 MURAD SALES INCORPORATED 4600 GREENVILLE AVE SU DALLAS TX 75106 MATCH 731143218 G Consulting 5506 CHIMNEY RCK DR IRVING TX 76017 MATCH 009511 5506 Chimney Rock Driv e IRVING TX 76017 111 JUNIOR NATIONAL WHEELCHAIR CHAMPIONSHIPS 5730 CHAMBERLIN DRIVE SAN JOSE CA 95118 0000000510 HANSON PUBLICATIONS 64 CLIFTON AVENUE PO B AN SONIA CT 06401-0514 MATCH 008701 6610 Manzanita Dr. San Marcos TX 78027 MATCH A28135104 JS GRAPHICS 6610 MANZANITA DRIVE SAN MARCOS TX 78027 0000000701 INTERNET ASSOCIATION GROUP, INC. 6610 SOUTHPOINT DRIVE SUITE 600 JACKSONVILLE FL 31116 MATCH 007901 6701 row Way Laconia CA 05842 MATCH 624135327 DYGNETS 6701 ROW WAY LACONIA NH 05842 811 BLACKSTONE - NEY 9 N. MAIN ST JAMESTOWN NY 14701 817111810 CAE ULTRACSONICS 9 NORTH MAIN STREET JAMESTOWN NY 14701-0110 101090844 LAB SAFETY SUPPLY INCORPORATED DEPT #0000185191 PO BOX 5004 JANESVILLE WI 53547-5004 909111811 SPECIALIZED PRODUCTS COMPANY PO BOX 890006 DALLAS TX 75389-0006 101090036 LAIRD PLASTICS PO BOX 951111 DALLAS TX 75395 516165940 RW/STEARNS RIVER PARK TOWER 333 W. SAN CARLOS SSAN JOSE CA 95110-1711 515091707 IEEE VLSI TEST SYMPOSIUM VLSI Test Sy mposium 1001 Attn: Maddie Harw ood Amissv ille VA 10106 Client: xyz Company - Report VI Employee Address / Vendors Address Comparison
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Bank Code Analysis  This test identifies instances where a vendor/supplier and an employee have the same bank code number  The test can also identify if multiple employees have the same bank code number  The purpose of this test is to find fictitious vendors or employees set up in the payroll or vendor master files
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford's Law P(kx) = f(k)P(x) If fP(x)dx = 1, then fP(kx)dx = 1/k, and normalization implies f(k) – 1/k. Differentiating with respect to k and settings k = 1 gives xPⁿ(x) = -P(x) If you can understand this you are in the wrong workshop!
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law 123456789 $1,000,000 1 $23 2 $542 5 $100 1
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Why does it work!  Functional Dependence  Budget data depends on  Corporation Size  Particular Industry  Quality of Management  State of the Market  Sales growth
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford's Law - History  1881 Simon Newcomb American Astronomer “Notes on the Frequency of the use of Digits in Natural Numbers”  1938 Dr. Frank Benford Electrical Engineer General Electric “The Law of Anomalous Numbers”  1992 Dr. Mark Nigrini “Detection of Income Tax Evasion Through and Analysis of Digital Frequencies”  1999 Dr. Mark Nigrini “I’ve Got Your Number”  2002 Dr. Mark Nigrini “Using Microsoft Access for Data Analysis and Interrogation” Mark J. Nigrini Ph.D. / Saint Michael's College / http://www.nigrini.com/ Dept of Business and Acctg - Campus box 104 One Winooski Park / Colchester Vermont 05439 Tel: (802) 654-2894 (Saint Michael's office)
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford's Law - First Digit Analysis 0.000000 0.050000 0.100000 0.150000 0.200000 0.250000 0.300000 MFG 1 MFG 2 MFG 3 Benford min max MFG 1 0.301980 0.173300 0.122330 0.091430 0.082010 0.066050 0.057500 0.054620 0.050770 MFG 2 0.310863 0.173561 0.131462 0.086964 0.080502 0.064560 0.055869 0.049351 0.046868 MFG 3 0.303399 0.171330 0.125069 0.098053 0.085215 0.065212 0.055819 0.050058 0.045845 Benford 0.301030 0.176091 0.124939 0.096910 0.079181 0.066947 0.057992 0.051153 0.045758 min 0.300000 0.166000 0.113000 0.087000 0.069000 0.057000 0.048000 0.041000 0.036000 max 0.320000 0.186000 0.133000 0.107000 0.089000 0.077000 0.068000 0.061000 0.056000 1 2 3 4 5 6 7 8 9
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford's Law - Second Digit Analysis 0.000000 0.020000 0.040000 0.060000 0.080000 0.100000 0.120000 0.140000 0.160000 MFG 1 MFG 2 MFG 3 Benford Min max MFG 1 0.147670 0.110520 0.108630 0.097790 0.094860 0.101870 0.087940 0.086410 0.081550 0.082760 MFG 2 0.148335 0.100621 0.107054 0.094498 0.093538 0.108916 0.089983 0.089080 0.084424 0.083550 MFG 3 0.142515 0.101389 0.107227 0.096407 0.095376 0.111879 0.091042 0.087048 0.083536 0.083580 Benford 0.119680 0.113890 0.108820 0.104330 0.100310 0.096680 0.093370 0.090350 0.087570 0.085000 Min 0.109680 0.103890 0.098820 0.094330 0.090310 0.086680 0.083370 0.080350 0.077570 0.075000 max 0.129680 0.123890 0.118820 0.114330 0.110310 0.106680 0.103370 0.100350 0.097570 0.095000 0 1 2 3 4 5 6 7 8 9
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Statistics 1st Digit Benford's Law 2nd Digit Benford's Law Benford "CAP Modified" First Two Digits Benford's Law First Two Digits Benford's Law First Two Digits Benford's Law 1 30.10% 0 12.0% 14.6% 10 4.14% 40 1.07% 70 0.63% 2 17.61% 1 11.4% 10.4% 11 3.78% 41 1.05% 71 0.62% 3 12.49% 2 10.9% 10.8% 12 3.48% 42 1.02% 72 0.62% 4 9.69% 3 10.4% 9.6% 13 3.22% 43 1.00% 73 0.61% 5 7.92% 4 10.0% 9.5% 14 3.00% 44 0.98% 74 0.60% 6 6.69% 5 9.7% 10.8% 15 2.80% 45 0.95% 75 0.59% 7 5.80% 6 9.3% 9.0% 16 2.63% 46 0.93% 76 0.58% 8 5.12% 7 9.0% 8.8% 17 2.48% 47 0.91% 77 0.58% 9 4.58% 8 8.8% 8.3% 18 2.35% 48 0.90% 78 0.57% 9 8.5% 8.3% 19 2.23% 49 0.88% 79 0.56% 20 2.12% 50 0.88% 80 0.55% 21 2.02% 51 0.88% 81 0.55% 22 1.93% 52 0.86% 82 0.54% 23 1.85% 53 0.84% 83 0.53% 24 1.77% 54 0.83% 84 0.53% 25 1.70% 55 0.81% 85 0.52% 26 1.64% 56 0.80% 86 0.51% 27 1.58% 57 0.78% 87 0.51% 28 1.52% 58 0.77% 88 0.50% 29 1.47% 59 0.76% 89 0.50% 30 1.42% 60 0.74% 90 0.49% 31 1.38% 61 0.73% 91 0.49% 32 1.34% 62 0.72% 92 0.49% 33 1.30% 63 0.71% 93 0.49% 34 1.26% 64 0.69% 94 0.48% 35 1.22% 65 0.68% 95 0.47% 36 1.19% 66 0.67% 96 0.47% 37 1.16% 67 0.66% 97 0.46% 38 1.13% 68 0.65% 98 0.46% 39 1.10% 69 0.64% 99 0.45%
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Invoice Transaction Table
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Raw Invoice Transaction Data
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Query Object This is where the data analysis actually occurs
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Run Query to see results Query built to strip off left most digit from the invoice amount
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Invoice Amount Stripped Left Most Digit
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Summary Query to Summarize Benford’s Law First Digit results
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Group By Button
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Benford’s Law First Digit Results
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Using Access Database Send analysis to Microsoft Excel Worksheet
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Excel Download Results downloaded to Excel
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Excel Analysis
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Excel Analysis
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Two-Digit Analysis Benfords Law Two-Digit Expression
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Two-Digit Analysis Invoice Amount Stripped Left Most Digit
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Two-Digit Analysis Benford’s Law First Two Digit Results
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Two-Digit Analysis Findings Frequency
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Benford’s Law - Two-Digit Analysis Anomalies to review
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Number Duplication Subset Test  The Number Duplication test will tell what specific numbers were causing spikes (positive differences) on the first-two digit test  For each of the number categories we want a table of number frequencies showing: 1. The rank (1,2,3,4,5…..) 2. The frequency (or count), and 3. The number (usually dollars) that was duplicated  The table is usually sorted by frequency descending
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Number Duplication Subset Access Query
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Number Duplication - Test Results The invoice amount of $315.00 was entered 690 times
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Number Duplication Test - Design View
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Number Duplication - Test by Vendor Number Duplication Isolated by Vendor
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Conclusion  Data analysis can help to isolate anomalies for further review  The best prevention is constant testing  Please feel free to contact us at any time with questions or comments  Thank you for your participation Greg Taylor / Corporate Audit Partners Phone: 949.488.7648 Ext 829 Email: gtaylor@corporateaudits.com Website: www.corporateaudits.com
  • Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675 Reference Material Mark J. Nigrini Ph.D. / Saint Michael's College / http://www.nigrini.com/ Dept of Business and Acctg - Campus box 104 One Winooski Park / Colchester Vermont 05439 Tel: (802) 654-2894 (Saint Michael's office) Association of Certified Fraud Examiners Inc. / www.CFEnet.com The Gregor Building 716 West Avenue / Austin, TX 78701-2727 Tel: (800) 245-3321 Corporate Audit Partners VRM Partner™ Advanced Software Solutions Phone: 949.488.7648 Ext 829 Email: gtaylor@corporateaudits.com Web: www.corporateaudits.com