The Fraud Examiner
Can You Teach Intuition?
Last week I taught a course on leveraging data analytics to
detect fraud. I love teaching fraud courses and have had a decade-and-a-half
love affair with data analytics — specifically what a mature analytics program
can do for an organization. When teaching, my favorite moment is seeing the
lightbulb go on for class participants when something truly hits home. But I
struggle to explain how I knew when I found a fraud. Sometimes it was the unusual
correlation between changes in related accounts, sometimes it was the new Audi
R8 in the parking lot that sent me down a fraud sleuthing trail and sometimes
it was just having the courage to keep asking questions. But how do I teach
that? I can explain what I saw, what it made me suspect and how I went about
verifying, but how do I translate that into something they can use when my
students will probably never see something that exactly resembles my
experiences? Can you teach intuition? Maybe, maybe not — but you can teach
practices that help hone intuition.
Some people think I am a fraud magnet — that I don’t
necessarily find fraud as much as it saddles up next to me and I trip over it. However,
what really made me good at finding fraud was when I didn’t find it, but should
have. That first big missed fraud, the one that slipped by me, made me forever
stop taking things for granted and accepting things at face value. That large
fraud occurred in an area I recently audited, and while I was a relatively
young auditor, I was hard working and proud of my skills. If you had asked me,
I would have confidently told you I could detect fraud in any area of the
business I audited. After all, I had already caught several fraudsters. In my
mind, I was clearly a skilled fraud hunter, right? Wrong.
So, when a large-scale fraud got past me, my pride was
wounded and I was embarrassed. I spent countless hours analyzing everything I missed
and I discovered that in my prior fraud cases, the fraud had been hard for me
to miss due to feeble concealment efforts. I had merely noticed the obvious red
flags directly under my nose and I understood what they potentially represented.
In hindsight, not so impressive. But in this case, the fraud I missed was ultimately
discovered via a tip (yes, a tip) and the concealment was good — really good —
and the fraud pretty sophisticated. So, what went wrong for the mighty fraud hunter?
I didn’t listen to my instincts. I had doubts although the
red flags were present. There was typical fraudster behavior and transactions
that didn’t make sense. There were account behaviors that were very unusual, but
the fraud scheme didn’t jump up and introduce itself to me and I missed it. But
did I really miss it? Not really. There were issues that that bothered me and my
instincts were screaming at me that there was a problem, but I was afraid to
push too hard, appear ignorant, or heaven forbid, offend anyone.
The fraud involved an individual in a position of trust and
power, who was extremely knowledgeable and charming. He was a subject matter
expert who many in the organization deferred to regarding his area of the
business. He was an expert in the area where the fraud occurred and I was not. Explanations,
process descriptions and documentation all left my team and I with questions.
But most of it “sort of” made sense. Enough sense to make me believe I just
didn’t have enough knowledge in that area of the business to fully comprehend
what I was being told. Looking back, I didn’t just doubt my knowledge, I
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