Fraud and Fraud Detection. Gee Sunder

Sunder Gee

      Fraud and Fraud Detection

      The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible for issues affecting the profitability of their company, from accounting and finance to internal controls and performance management.

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      Fraud and Fraud Detection

       A Data Analytics Approach

      SUNDER GEE

      Cover image: ©iStock.com/Mr.Vi

      Cover design: Wiley

      Copyright © 2015 by Sunder Gee. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

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       Library of Congress Cataloging-in-Publication Data:

      Gee, Sunder.

      Fraud and fraud detection: a data analytics approach/Sunder Gee.

      pages cm. – (Wiley corporate F&A series)

      Includes index.

      ISBN 978-1-118-77965-1 (hardback) – ISBN 978-1-118-77967-5 (ePDF) – ISBN 978-1-118-77966-8 (ePub) – ISBN 978-1-118-93676-4 (oBook) 1. Fraud. 2. Managerial accounting. 3. Data mining. I. Title.

      HV6691.G44 2014

      658.4′73 – dc23

      2014021352

      Foreword

      I MET SUNDER MANY YEARS ago when he was researching advanced methods to improve his work through Benford’s Law analysis. He immediately displayed a passion and excitement for thinking outside of the box that inspired a professional relationship based on our common enthusiasm for IDEA. Being a long-time IDEA user with experience in various types of audits, I have always been keen on learning new and innovative ways to use the tool and push it to its limits, especially now working on the development side of the product.

      Today’s fast-paced society has enabled most actions, transactions, and activities to be captured and saved on various databases in a matter of minutes. Because of this, fraud has grown in sophistication and become increasingly difficult to identify. However, this influx of technology and data capturing has also provided fraud examiners with the ability to use fraud detection methods that rival perpetrators of fraud in both complexity and innovation. The increased amount of data collected by innumerable systems in turn increases the possibilities available to fraud examiners. It is through the use of data analytics that fraud examiners can combat fraud and detect anomalies in a timely and efficient manner.

      This book will lead you through the possibilities I have mentioned and will explain in full detail the different mathematic models and advanced analytics available for use in the identification of suspicious transactions. It is with great enthusiasm that I recommend this book to enhance your fraud detection process. I am certain that this book will inspire all who read it to approach fraud creatively regardless of experience level. While the subject matter within this book may appear to be complex, Sunder eloquently outlines his ideas and experience along with research into various theoretical concepts that result in an easily digested guide by even the most novice of auditors while still providing valuable insight to seasoned auditors as well.

      Sunder’s experience in electronic commerce audit is highly recognizable in this book as it reveals countless real-life examples of applying innovative fraud detection methods. Sunder’s longstanding expertise as an IDEA user since the days of DOS prevails in the pages of this book. His knowledge of computer-assisted audit technology and techniques combined with an ability to think creatively will lead readers on a journey that opens their eyes to the various possibilities available when a thirst for knowledge and an analytic mind-set are combined.

Alain Soublière, CPA, CGA, CIDADirector, Product Strategy, CaseWare IDEA Inc.

      Preface

      FRAUD AND FRAUD DETECTION takes a data analytics approach to detecting anomalies in data that are indicators of fraud. The book starts by introducing the reader to the basics of fraud and fraud detection followed by practical steps for obtaining and organizing data in usable formats for analysis. Written by an auditor for auditors, accountants, and investigators, Fraud and Fraud Detection enables the reader to understand and apply statistics and statistical-sampling techniques. The major types of occupational fraud are reviewed and specific data analytical detection tests for each type are discussed along with step-by-step examples. A case study shows how zapper or electronic suppression of sales fraud in point-of-sales systems can be detected and quantified.

      Any data analytic software may be used with the concepts of this book. However, this book uses CaseWare IDEA software to detail its step-by-step analytical procedures. The companion website provides access to a fully functional demonstration version of the latest IDEA software. The site also includes useful IDEAScripts that automate many of the data analytic tests.

      Fraud and Fraud Detection provides insights that enhance the reader’s data analytic skills. Readers will learn to:

      • Understand the different areas of fraud and their specific detection methods.

      • Evaluate point-of-sales system data files for zapper fraud.

      • Understand data requirements, file format types, and apply data verification procedures.

      • Understand and apply statistical sampling techniques.

      •