Fraud-fighting with data analysis tools: Detecting fraud risk with strong methodology

During a recent meeting, I was looking at a whiteboard on which an accounting malpractice attorney had mapped out a defense case for an auditor who had failed to detect a large billing scheme fraud. It was a classic combination of non-segregation of duties coupled with the misguided perception that a trusted employee would never steal from the organization. Unfortunately for the company and the auditor, the "trusted employee" had walked off with close to a million dollars from a credit card account; that loss was very material to the financial statements.

The attorney asked me how the auditor, if he had had the skills to complete the computerized test, would have been able to analyze data to detect the fraud. I explained that the auditor could have easily exported data to Excel. And then by running a quick vendor trend report, which would have compared this year's purchases to last, he would have seen that the credit card vendor account had ballooned to close to a million dollars in expenses in the current year.

The fraudster had simply written checks for her credit card bills. She had easily committed and hid the fraud because she had the authority to process invoices, write checks, and maintain the bank statement.