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From insurance scams, to financial statement manipulation, to fudged expense reimbursement reports, fraud victimizes businesses of every size and in every industry. Even when owners suspect fraud, they may not know how to gather the evidence to confirm it.
Forensic accounting experts can help with such data mining. By analyzing a company’s own records, experts may be able to spot fraud before it causes significant financial losses.
To mine data, specialists extract and analyze electronic information from databases to detect trends, patterns or inconsistencies. Data that might be mined includes general ledger transactions; customer, vendor and employee records; access, telephone and computer network logs; and email files.
In a fraud investigation, an expert generally looks for activity divergent from behaviors typically associated with nonfraudulent transactions. Data mining, for example, could catch:
Although innocent explanations are always possible, any of these occurrences merit further investigation.
Forensic experts develop a set of business rules for identifying nonsuspicious data and validation procedures, such as verifying a vendor’s listed address actually exists. If data violates the rules or can’t be validated, fraud may be to blame – particularly when multiple deviations are uncovered.
Experts then determine which data to mine, narrowing it according to the relevant time period and appropriate computer system. They must establish how the data will be gathered, prepared, interpreted and monitored going forward.
Several preliminary considerations will affect the scope and effectiveness of data mining. The availability of the necessary data – for example, the amount of lead time required to obtain access to it – will be a factor.
Experts also must decide whether the data requires extensive, potentially time-consuming preparation to convert it into a usable format.
Other considerations include the integrity of the data source and the data, the software and hardware needed for analysis, and any limitations within the data affecting its usefulness.
Data collection can prove difficult with complex or older data stored in a single database. A company’s database might, for instance, hold some tables compiling customer data and other tables with order information. An expert must link those tables together using common fields in each and then narrow the data to the fields with information of interest.
Working with multiple systems and data can also present challenges. Data field formats might not translate properly when imported; numbers, dates or ranges might import as text; or data may be split among multiple fields.
The necessary data may not even be readily available in database form. When a specialist is dealing with expense reimbursement or other hard-copy forms, for example, it may be necessary to build a new database from the submitted forms.
Forensic accountants with experience identifying specific fraud schemes can use data mining to spot telltale patterns. These experts also are invaluable in analyzing data to determine whether suspicions are founded and worth pursuing.
Doeren Mayhew’s forensic accountants and Certified Fraud Examiners not only have the skills to data mine, but they also understand the implications of potential litigation and recognize the need to protect the company while conducting their investigations. They’ll structure their notes appropriately to maintain the integrity of data and preserve the chain of custody. Contact one of them today in our Michigan, Houston or Ft. Lauderdale offices.
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