Which one is different data mining and forensic analytics

Which One is DifferentData Mining and Forensic AnalyticsBill Douglas

Cost Advisors’ Background

Founded in 1999

Mission: Improve our client’s business and the lives of our employees

Focus on Accounting Investigation and Forensics

Logo symbolizes partnership with our clients

Bill Douglas’ BackgroundPresident at Cost Advisors, Inc.

33 years experience

Management positions in Accounting, Sales, Marketing

CFO, IPO, 'Big 4' public accounting, business processes, recovery auditing, internal controls, fraud, internal auditing, Sarbanes-Oxley (SOX)

Financial project management at both large and small public companies

Volunteer Washington County Sheriff’s Dept. – Fraud Team

Frequent speaker and writer about Internal Controls, Fraud

Bill Douglas’ Background

Credentials and memberships:OR, CA, WA Certified Public Accountant (CPA)

Certified Internal Auditor (CIA)

Certified Fraud Examiner (CFE)

Certified in Financial Forensics (CFF)

Certified IT Professional (CITP)

OR Licensed Private Investigator (PI)

Northwest Fraud Investigators Association

MULTNOMAH BAR

ASSOCIATION (Affiliate Member)

Agenda

1. Data Mining Examples

2. Data mining you can do in Excel

1. Data Mining for Fraud

What is CAATs?

Example #1 Accounting Queries

Example #2 Scanning Bank Statements

Example #3 Benford’s Law

What is CAATs?

Computer Assisted Audit Tools (CAATs)

Examine 100% of transactions

Analysis available:Duplicates

Missing Records

Queries (meeting certain criteria)

Population summaries by field (pivot tables)

Population statistics

Data Sources

Import data from many sourcesExcel

Acrobat (.pdf)

Text Files (.txt, .doc)

Print files (.prn)

Hardcopy scans

.PRN File

Disbursements(Checks)

Vendor Master List

Employee Master List

Accounting System

Data Mining Tool

Vendor Master List

Example #1 Six Accounting Queries

Vendors with same address as employeeVendors using SS# as EIN

Payee not on Vendor List Non-payroll, non-expense report, payments to employees

Duplicate Payments

Employees with no address

Vendor Master List

Example #2One Set of Books?

Victim’sAccounting System = Victim’s

Bank Statement

Data Extraction - Review

Vendor Master List

Accounting System

Disbursements in Excel

Example #2- Scanning Bank Statements

=Electronic Comparison

Victim’sBank Statement

Disbursements(per Accounting

System)

Missing

Example #3 -Benford’s Law

Frank Benford (1938), Simon Newcomb (1881)

Some leading digits occur more/less frequently in most data

1 2 3 4 5 6 7 8 90.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Probability

Leading Digit

Example #3 -Benford’s Law

Compares expected amounts to actual amounts

There were 1,368 occurrences of amounts beginning with $250

Summary of CAATs

Data from any source

Every transaction can be tested (no sampling)

Many tests possible. Comparison examples:Within accounting files

Accounting records to bank statements

Actual records to expected values (Benford)

Agenda

1. Data Mining Examples

2. Data mining you can do in Excel

Goals and Assumptions

Do basic investigation yourself

1 hour spent here will save dozens (hundreds?) of hours at work

Assumptions:

Data is in Excel 2007 or 2010

Basic knowledge of Excel (info for advanced Excel too)

Data Mining in ExcelData Filters

Empty data fields

Conditional formattingDuplicates

Comparing two Excel filesPayee not on vendor list

Pivot TablesHigh-dollar vendors

Missing checks

PowerPivot

Reporting

Data Filters - Setting

Data Filters - Blanks

Data Filters - Others

Data Filters - Suggestions

Blank invoice numbers

Employees or vendors with no address

Vendors using a social security instead of EIN

Odd characters at the end of the invoice number or check number (“.” “–” “a”)

Invoice numbers 100, 101, 1000 or 1001

Data Filters - Clearing

Empty data fields

Missing checks

PowerPivot

Reporting

Conditional Formatting -

Conditional Formatting with Data Filter

Conditional Format & Filter - Result

Conditional Format - Suggestions

Look for duplicates of:

Invoice date

Invoice number

Invoice amount

Vendor name

Empty data fields

Missing checks

PowerPivot

Reporting

Comparing Excel Files – First Sheet

Comparing Excel Files – Second Sheet

Comparing Excel Files – Result

These vendors are missing from the vendor master list

Empty data fields

Missing checks

PowerPivot

Reporting

Pivot Table – Largest Vendors (step 1)

Pivot Table – Largest Vendors - Suggestions

Look for unusual vendor names and names of employees (‘cash’, ‘petty cash’, <blanks>, ‘bank’, ‘credit card’, etc.)

Discuss vendor disbursement levels with management

Pivot Tables – Missing Check #s

Empty data fields

Missing checks

PowerPivot

Reporting

What is PowerPivot

From Microsoft for Office (Excel) 2010

It’s Free

FeaturesTurns Excel into a relational database

Compresses data

Speeds recalculation

(DAX Reporting tool)

How to Get PowerPivot

64 bit Excel vs. 32 bit Excel

Normal Tabs

PowerPivot Tabs

Normal Tabs

PowerPivot Tabs

Pivot Fields from Multiple Tabs (Tables)

PowerPivot Compression, SpeedAccess Excel (native) PowerPivot

Compression 327MB 82MB 12MB

Recalculation ~ 30min < 30 seconds

Worksheet size ~ 2GB 1,048,576 rows Millions of rows~2GB

Empty data fields

Missing checks

PowerPivot

Reporting

Reporting – Set Print Area

Reporting – Setup (Header)

Reporting – Setup (Footer)

Reporting – Setup (Result)

Reporting - Duplicating Tabs

Reporting – Removing Meta Data

Reporting – encrypting for sending

Be sure to save the workbook with a new name - append

“(encrypted)” to the filename

For More Information

Cost Advisors, Inc.

503-704-3719

www.costadvisors.com

Download: ‘Embezzlement Response Guide’

Which one is different data mining and forensic analytics

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