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From Risk Assessment to
Analyzing Data – Key
Fraud Tools to Use
Southern AZ IIA/AGA Joint Meeting
February 8, 2017
Karin M...
Refresher – The Fraud Triangle
2
Fraud Risk Assessments
Fraud Risk Assessment
Employee
Physical
Controls
Skimming
Check
Tampering
Purchasing
and Billing
Payroll Expenses
Conflict...
Employee Assessment
Formal Written Job Descriptions
Organization Chart – Lines of Responsibility
Written Accounting Polici...
Physical Controls Assessment
Restrict
Access
Video
Recording
Random
Audits
Background
Checks
Investigate
Accusations
Skimming Schemes Assessment
Inventory of
receiving
records
Segregation
of Duties
Uncollectable
accounts
Review of
Sales
Re...
Check Tampering Assessment
Unused Checks
Positive Pay
Check Signers
Bank
Reconciliations
Voided and
Missing Checks
Purchasing and Billing Assessment
Organizational
Structure
Vendor
Information
Procurement
Receiving
Reports
Payroll Assessment
Segregation of Duties
Terminated Employees
Payroll
Register = GL
Payroll Lists
Deductions
Check Stock
Expenses Assessment
Expense Accounts
Employee Reimbursements
Receipts
Review
Conflict of Interest Assessment
Vendor vs
Employee
Prior
Employees
Disclosure
Vendor
Agreement
Vendor
Audits
Analyzing Data
Why Perform Data Analysis?
Convert the 7% By Accident to Not By Accident
Find It On Your Terms Not Someone Else's
All orga...
Why Perform Data Analysis?
 Do you sign the year-end representation letter to the external auditors?
 Key representation...
Why Perform Data Analysis?
Prevent
Fraud
Prevent
Misuse
Detect
Errors
Surprise Audits
Effective, yet under utilized!
Conducted by less than 30% of victim organizations
Lowers the fraud risk an...
Purchasing & Payables
Payroll
General Ledger
18
Attention Areas
Purchasing & Payable Analysis
Duplicate Payments
Rounded Amounts
Volume
Cancelled
Checks
Thresholds
Above Average
Amounts
...
Rounded Amounts
Use the Rounddown function to separate
the cents.
=F2 – ROUNDDOWN(F2,0)
Purchasing & Payables
Duplicate Payments
Use the IF function to look for
duplicates.
=IF(F2=F1,”DUP”,””)
Purchasing & Payables
Amounts below thresholds
Sort by the amount and look for costs just
under thresholds. ($1000, $5000,
$10000)
Purchasing & ...
Abnormal volume
Use these options to roll up amounts
Look for a high volume of invoices and
dollar amounts
Purchasing & Pa...
Purchasing & Payables
Employees
as Vendors
Payment
without a PO
Separation
of Duties
User Roles
24
Payroll Analysis
High Overtime
Off Cycle Payments
Duplicate Addresses
Pay Date After Term Date
Direct Deposit Duplication
...
High Overtime
Look for excessive overtime costs.
Payroll Analysis
Off-Cycle Payments
Payroll Analysis
Off-Cycle Payments
Payroll Analysis
Duplicate Employee Addresses
Payroll Analysis
Pay Date after Term Date
Payroll Analysis
Direct Deposits
Flag duplicates
=IF(A1=A2,”DUP”,””)
Payroll Analysis
General Ledger Analysis
JE by Type
JE by User
JE by Month
32
JOURNAL USER Lines DEBIT_SUM CREDIT_SUM
Accounts Payable BWayne 10803 5,093,232.97 (5,086,485.10)
Adjusting BWayne 14 4,07...
JOURNAL USER Lines DEBIT_SUM CREDIT_SUM
Accounts Payable BWayne 10803 5,093,232.97 (5,086,485.10)
Adjusting BWayne 14 4,07...
JOURNAL USER Lines DEBIT_SUM CREDIT_SUM
Accounts Payable BWayne 10803 5,093,232.97 (5,086,485.10)
Adjusting BWayne 14 4,07...
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
Jul-12 Aug-...
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From Risk Assessment to Analyzing Data - Key Fraud Tools to Use

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Presentation by Karin M. Smith, MBA, SFO, CFE from Southern Arizona IIA/AGA Joint Meeting on February 8, 2017

Published in: Government & Nonprofit
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From Risk Assessment to Analyzing Data - Key Fraud Tools to Use

  1. 1. From Risk Assessment to Analyzing Data – Key Fraud Tools to Use Southern AZ IIA/AGA Joint Meeting February 8, 2017 Karin M. Smith, MBA, SFO, CFE
  2. 2. Refresher – The Fraud Triangle 2
  3. 3. Fraud Risk Assessments
  4. 4. Fraud Risk Assessment Employee Physical Controls Skimming Check Tampering Purchasing and Billing Payroll Expenses Conflict of Interest
  5. 5. Employee Assessment Formal Written Job Descriptions Organization Chart – Lines of Responsibility Written Accounting Policies and Procedures Ethics Statement Fraud Policies and Procedures
  6. 6. Physical Controls Assessment Restrict Access Video Recording Random Audits Background Checks Investigate Accusations
  7. 7. Skimming Schemes Assessment Inventory of receiving records Segregation of Duties Uncollectable accounts Review of Sales Review of Write-offs Safeguarding of Cash
  8. 8. Check Tampering Assessment Unused Checks Positive Pay Check Signers Bank Reconciliations Voided and Missing Checks
  9. 9. Purchasing and Billing Assessment Organizational Structure Vendor Information Procurement Receiving Reports
  10. 10. Payroll Assessment Segregation of Duties Terminated Employees Payroll Register = GL Payroll Lists Deductions Check Stock
  11. 11. Expenses Assessment Expense Accounts Employee Reimbursements Receipts Review
  12. 12. Conflict of Interest Assessment Vendor vs Employee Prior Employees Disclosure Vendor Agreement Vendor Audits
  13. 13. Analyzing Data
  14. 14. Why Perform Data Analysis? Convert the 7% By Accident to Not By Accident Find It On Your Terms Not Someone Else's All organizations should perform comprehensive Data Analysis!
  15. 15. Why Perform Data Analysis?  Do you sign the year-end representation letter to the external auditors?  Key representations: • Responsible for internal control environment • No known significant deficiencies in the design of or operation of internal controls • Acknowledge responsibility for the design and implementation of programs and controls to prevent and detect fraud • No known material instances of fraud  Fiduciary responsibility as a member of the executive management team
  16. 16. Why Perform Data Analysis? Prevent Fraud Prevent Misuse Detect Errors
  17. 17. Surprise Audits Effective, yet under utilized! Conducted by less than 30% of victim organizations Lowers the fraud risk and increases detection Perception of detection! 17
  18. 18. Purchasing & Payables Payroll General Ledger 18 Attention Areas
  19. 19. Purchasing & Payable Analysis Duplicate Payments Rounded Amounts Volume Cancelled Checks Thresholds Above Average Amounts 19
  20. 20. Rounded Amounts Use the Rounddown function to separate the cents. =F2 – ROUNDDOWN(F2,0) Purchasing & Payables
  21. 21. Duplicate Payments Use the IF function to look for duplicates. =IF(F2=F1,”DUP”,””) Purchasing & Payables
  22. 22. Amounts below thresholds Sort by the amount and look for costs just under thresholds. ($1000, $5000, $10000) Purchasing & Payables
  23. 23. Abnormal volume Use these options to roll up amounts Look for a high volume of invoices and dollar amounts Purchasing & Payables
  24. 24. Purchasing & Payables Employees as Vendors Payment without a PO Separation of Duties User Roles 24
  25. 25. Payroll Analysis High Overtime Off Cycle Payments Duplicate Addresses Pay Date After Term Date Direct Deposit Duplication 25
  26. 26. High Overtime Look for excessive overtime costs. Payroll Analysis
  27. 27. Off-Cycle Payments Payroll Analysis
  28. 28. Off-Cycle Payments Payroll Analysis
  29. 29. Duplicate Employee Addresses Payroll Analysis
  30. 30. Pay Date after Term Date Payroll Analysis
  31. 31. Direct Deposits Flag duplicates =IF(A1=A2,”DUP”,””) Payroll Analysis
  32. 32. General Ledger Analysis JE by Type JE by User JE by Month 32
  33. 33. JOURNAL USER Lines DEBIT_SUM CREDIT_SUM Accounts Payable BWayne 10803 5,093,232.97 (5,086,485.10) Adjusting BWayne 14 4,079,311.89 (4,079,311.89) Deposits BWayne 1160 12,130,618.21 (12,130,618.21) Payroll BWayne 656 473,066.21 (473,066.21) Adjusting PParker 473 61,801.20 (61,801.20) Payroll PParker 3529 1,467,280.28 (1,467,280.28) Adjusting BBanner 40 11,851.86 (11,851.86) Adjusting SRogers 7674 3,633,438.51 (3,633,438.51) Warehouse DLance 54 9,755.64 (9,755.64) Adjusting MMurdock 218 488,395.54 (488,395.54) Warehouse JHowlett 43 6,253.20 (6,253.20) Adjusting DPrince 2370 16,652,036.65 (16,652,036.65) Adjusting JStorm 81 9,531.77 (9,531.77) Payroll JStorm 34760 17,550,658.85 (17,550,658.85) Accounts Payable CKent 3630 2,396,549.96 (2,396,549.96) Adjusting BGrimm 24 3,321.76 (3,321.76) Adjusting TStark 6 2,092,940.91 (2,092,940.91) Is it strange that TStark made so few adjusting entries totaling so much? Journal Summary by Type & User
  34. 34. JOURNAL USER Lines DEBIT_SUM CREDIT_SUM Accounts Payable BWayne 10803 5,093,232.97 (5,086,485.10) Adjusting BWayne 14 4,079,311.89 (4,079,311.89) Deposits BWayne 1160 12,130,618.21 (12,130,618.21) Payroll BWayne 656 473,066.21 (473,066.21) Adjusting PParker 473 61,801.20 (61,801.20) Payroll PParker 3529 1,467,280.28 (1,467,280.28) Adjusting BBanner 40 11,851.86 (11,851.86) Adjusting SRogers 7674 3,633,438.51 (3,633,438.51) Warehouse DLance 54 9,755.64 (9,755.64) Adjusting MMurdock 218 488,395.54 (488,395.54) Warehouse JHowlett 43 6,253.20 (6,253.20) Adjusting DPrince 2370 16,652,036.65 (16,652,036.65) Adjusting JStorm 81 9,531.77 (9,531.77) Payroll JStorm 34760 17,550,658.85 (17,550,658.85) Accounts Payable CKent 3630 2,396,549.96 (2,396,549.96) Adjusting BGrimm 24 3,321.76 (3,321.76) Adjusting TStark 6 2,092,940.91 (2,092,940.91) Why is JHowlett making Warehouse adjustments when he doesn’t work in that department? Journal Summary by Type & User
  35. 35. JOURNAL USER Lines DEBIT_SUM CREDIT_SUM Accounts Payable BWayne 10803 5,093,232.97 (5,086,485.10) Adjusting BWayne 14 4,079,311.89 (4,079,311.89) Deposits BWayne 1160 12,130,618.21 (12,130,618.21) Payroll BWayne 656 473,066.21 (473,066.21) Adjusting PParker 473 61,801.20 (61,801.20) Payroll PParker 3529 1,467,280.28 (1,467,280.28) Adjusting BBanner 40 11,851.86 (11,851.86) Adjusting SRogers 7674 3,633,438.51 (3,633,438.51) Warehouse DLance 54 9,755.64 (9,755.64) Adjusting MMurdock 218 488,395.54 (488,395.54) Warehouse JHowlett 43 6,253.20 (6,253.20) Adjusting DPrince 2370 16,652,036.65 (16,652,036.65) Adjusting JStorm 81 9,531.77 (9,531.77) Payroll JStorm 34760 17,550,658.85 (17,550,658.85) Accounts Payable CKent 3630 2,396,549.96 (2,396,549.96) Adjusting BGrimm 24 3,321.76 (3,321.76) Adjusting TStark 6 2,092,940.91 (2,092,940.91) Why is the BBanner username still appearing if that employee left in the previous year? Journal Summary by Type & User
  36. 36. $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 $5,000,000 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 Accounts Payable Deposits Payroll Journal Summary by Month

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