Fraud data interrogation tools: COMPARING BEST SOFTWARE FOR FRAUD EXAMINATIONS

Transcription

1 Fraud data interrogation tools: COMPARING BEST SOFTWARE FOR FRAUD EXAMINATIONS By Rich Lanza, CFE, CPA, PMP Fraud examiners now have a wide choice of data interrogation tools they can use themselves without bothering the IT department. Here s a comparison of the features of the five most popular products. Jack the fraud examiner had a problem. He had to analyze thousands of figures in an accounts receivable case but his small firm s IT department was snowed under. So he knew he needed to start the analysis himself but what software should he use? Which ones had the features he needed? And was he going to be able to perform the functions with his limited high-tech ability? In my travels, I am constantly talking to fraud examiners, audit professionals, and other finance professionals who want to use more data analysis to detect fraud. However, they complain that the software is too difficult to learn. But fraud investigation software has become easy to use. Here we ll compare five leading products. We ll explore: core data analysis functions; other product considerations; and ways to select a package. Core data analysis functions The matrix below summarizes the most common data analysis functions by software vendor. A check mark is placed next to each function if it s a standard feature of the tool or could easily be completed using the software s native functions. For example, it may be possible to join or compare an employee address file to a vendor address file using the VLOOKUP() function in Excel, but this can be a complex function to use and isn t flexible in approach. Therefore, for the Join/Relate function below, Excel wasn t deemed to have this functionality. On the other hand, IDEA software has a Cross Tabulate command that s specifically listed as part of its standard menus and so I note in the matrix that it has this function. HERE ARE THE FIVE PRODUCTS WITH CONTACT INFORMATION Product Phone Web site ACL ActiveData for Excel IDEA Micosoft Excel and Acess See web site for local office listing FRAUDMAGAZINE 1

2 Data Analysis Features Description ACL Active Data For Excel Excel IDEA Access Aging Append/Merge Calculated Field/ Functions Cross Tabulate Digital Analysis/ Benford s Law Produces aged summaries of data based on established cutoff dates. Combines two files with identical fields into a single file. An example would be to merge two years worth of accounts payable history into one file. Creates a calculated field (which can use a Field/ function such as ABS for the absolute value of Functions the field) using data within the file. For example, the net payroll pay to an employee could be recalculated using the gross pay field and deducting any withholding/taxes. Allows you to analyze character fields by setting them in rows and columns. By cross-tabulating character fields, you can produce various summaries, explore areas of interest, and accumulate numeric fields. Audit technology designed to find abnormal duplications of specific digits, digit combinations, specific numbers, and round numbers in corporate data. Since the objective is to find abnormal duplications, auditors need a benchmark that indicates a normal level of duplication. Benford s Law gives auditors the expected frequencies of the digits in tabulated data. The premise is that we would expect authentic and unmanipulated data to exhibit these patterns. If a data set doesn t follow these patterns, this may be a cause for auditor concern and review. FRAUDMAGAZINE 2

3 Data Analysis Features Description ACL Active Data For Excel Excel IDEA Access Duplicates Export Extract/Filter Gaps Index/Sort Join/Relate Regression Identifies duplicate items within a specified field in a file. For example, this report could be used to identify duplicate billings of invoices within the sales file. Creates a file in another software format (for example, Excel, Word) for testing. An example would be to export customer address information to Word for Mail Merge ing to customer confirmation letters. Extracts specified items from one file and copies them to another file, normally using an if or where statement. Examples include extracting all balances over a predefined limit. Identifies gaps within a specified field in a file. For example, identify any gaps in check sequence. Sorts a file in ascending or descending order. An example would be sorting a file by social security number to see if any blank or numbers exist. Combines specified fields from two different files into a single file using key fields. This function is used to create relational databases on key fields. It can also be done in an unmatched fashion to identify differences between data files. Regression analysis using statistical means to calculate a dependent variable balance (such as net sales) based on various independent variables (for example, product purchases, inventory levels, number of customers, etc.).

4 Data Analysis Features Description ACL Active Data For Excel Excel IDEA Access Sample Creates random or monetary unit samples from a specified population. Statistics Stratify Summarize Calculates various statistics on a selected numeric field. These may be total positive items, negative items, average balance, etc. Counts the number and dollar value of records of a population falling within specified intervals. Stratifications also provide a useful view into the largest, smallest, and average dollar transactions. Accumulates numerical values based on a specified key field. An example would be summarizing travel and entertainment expense amounts by employee to identify unusually high payment amounts. As you can see from the matrix, the tools have similar features. However, products like ACL, ActiveData for Excel, and IDEA give more functions to fraud examiners because they were built specifically for that audience. Microsoft Excel and Access, as ubiquitous and powerful as they are, separately may not have all of the features you want. But when combined, the Microsoft Excel/Access platform works well especially when ActiveData for Excel is loaded as an add-in to Excel. While price shouldn t be the prime selection criteria, the entire Microsoft/ ActiveData for Excel combination costs less than half of one user license of ACL or IDEA (based on single-user pricing). ACL, IDEA, and Microsoft Access should be able to handle as much data as you can feed into these tools. Because of increase memory both in PCs and these software products it s unusual to hear that any file is too large for analysis. ACL and IDEA are faster at analyzing large data file; Access will take longer to process report requests. Excel (and the corresponding add-in Active Data for Excel) is currently limited to 65,536 rows of information for analysis. ACL and IDEA are read-only products so the original data can t ever be corrupted. Microsoft Access can be set to read-only (with options in the program) and Excel has a protection feature to ensure data is not overwritten. Rarely do examiners corrupt original data by entering information onto that data. Rather, poor data integrity is usually due to inadequate usage of the tools at hand or insufficient training. Other product considerations Aside from the data analysis functionality, the fraud examiner needs to consider other key factors when making a product selection: data import; training; script development/procedure log; and remote access/server processing FRAUDMAGAZINE 4

5 Data import One of the most daunting tasks is obtaining and importing client data into the software for analysis. Some software tools are better than others for importing data. All products provide a wizard that will assist in analyzing the following file types: Excel, Access, Dbase, Delimited, and Fixed-Width. The wizard will do most of the work in ensuring data of these types is imported correctly and, for the most part, this function is all that s needed for most examinations provided that most client systems will be able to export data in an ASCII format and in one of these common file types. Some older computer systems may only be able to provide data in a mainframe format (such as IBM s EBCIDIC format) and for these special instances, ACL and IDEA are the only tools in our software lineup you can use to natively read these files. Here are additional data import products: Open Database Connectivity (ODBC) Utilities - This is the standard database access method developed by Microsoft and adopted by most accounting packages to transfer data between systems. All products offer this functionality allowing the user to import data files without any assistance from an MIS Department (given appropriate security). Another added benefit is that the data files are instantly defined in the software package for analysis. Other import utilities - IDEA provides free add-in utilities to assist in the importing of many major accounting package data such as Simply Accounting, MYOB, and Peachtree. ACL has a similar import utility for SAP systems with an added software fee. Print report files - A report file is a text version of a printed report (on the PC). The main hurdle in defining these files is stripping out report headers and in appending information from one line (such as customer name) to other detail lines (such as invoice billing information). Both ACL and IDEA have functionality to easily define report files. You may be able to define these files in Excel by sorting the file but it s less common and usually leads to a resulting file with poor data integrity. So tools like ACL and IDEA provide a virtual Swiss Army Knife for importing data because they support all formats and have the associated wizards to ensure data is imported accurately. Excel, Access, and ActiveData for Excel should be able to meet most of your needs but many examiners will select ACL or IDEA simply due to their strong ability to import any data. Training All the products listed have training not only in their functionality but also in how they can be used in a fraud detection scenario. The software vendors or independent firms using the software have produced a variety of selfstudy, group-study, and private instruction courses. For more information, please see the ACFE s bookstore at CFEnet.com or the software vendor Web sites for numerous training options. All vendors have mailing list communities to help connect users of their products to discuss practical application scenarios. Learn more about a software company s help desk track record (which may be best determined based on discussions with other current users) because these resources can be pivotal to rectify any technical issues encountered in the field. Make sure the trainers and help desk are educated not only in the software but in the audit/fraud examination process itself. CaseWare IDEA Inc. effectively operates through business partners and distributors to ensure a local flavor to the all-important technical support and training needs of users, says Bob Cuthbertson, president of CaseWare IDEA Inc. Distributors are staffed by qualified professionals who are both IT- and audit-proficient and can demonstrate knowledge in the best uses for IDEA as well as the best ways to get the most out of the product, Cuthbertson says. Also, inspect user groups that the software maintains. For example, IDEA software has 11 user groups in the United States that meet regularly. Script development/audit log Scripts, otherwise known as batches or macros, will automate a set of data analysis procedures so a fraud examiner can create a set of reports, save the steps, and simply push a button called Run Reports to get the same results every time. Scripting also opens the door for continuous monitoring - reports can be set to run on a periodic basis with no human intervention, which provides a virtual fraud detection team always working to root out malfeasance. FRAUDMAGAZINE 5

6 While all products have script functionality, ACL utilizes a more simple text-based language which first-time users seem to understand easily. IDEA, Excel, and Access use a variant of Visual Basic which tends to be more complex to learn but more powerful as it taps into the full extent of Microsoft s library of software components. All products provide standard sets of pre-developed scripts that can be used to examine key accounting processes for fraud. For more information on these pre-developed scripts, see the ACFE Bookstore at CFEnet.com or the associated software Web sites. In addition to scripts, procedure logs provide a record of data analysis procedures performed within the software for work-paper documentation. ACL, ActiveData for Excel, and IDEA all provide procedure logs while Microsoft Access and Excel don t. Remote access/server processing If you plan to process large amounts of information, need more horsepower for larger data files, and/or plan to have a great deal of remote processing away from the office, you may want to consider server processing. Server access can give you more confidence in the processed data because you ll link directly to the production machine data. You ll also use the power of a server to process the data versus, for instance, a laptop that may not have as much power. For example, Access can link to data tables but the data is never downloaded but just accessed on the production machine. The only problem is that Access relies on Open Database Connectivity (ODBC) to download files so if the database is not ODBC-compliant, it may not be able to easily connect via the network. In contrast, ACL provides direct links to data housed on numerous platforms including OrACLe, DB2, IMS, or ADABAS databases. Prior to ACL developing its serverbased solutions, the main technological barrier was the practical issue of implementing a system that was nonintrusive on operational processes and capable of being easily configured for specific risk tolerance requirements, says Peter Millar, director of product management at ACL Services Ltd. Now, with ACL Desktop/Network edition and ACL s versatile Server Editions and Application technologies, audit and controls monitoring can be implemented within virtually any business process cycle. The applications are customized for each organization s needs and accepted level of risk tolerance, Millar says. These server applications are generally installed on just one company s machine rather than being able to be applied to numerous companies and clients. On the remote access front, IDEA has one of the best solutions in its IDEA Server product that provides a Web interface to a data processing server on which the software is loaded. The fraud examiner can perform data analysis with any computer that has a browser so you don t have to carry the software and don t have to have the most recent version loaded. It s all handled on the server back at the office. All other products can be accessed via the Web but require remote access software. Regardless which approach is taken, a Virtual Private Network connection generally would be required to ensure the secure processing of data over the Internet. How to select a package Test drive When I m in the market for a car, I may like the appearance and look of a particular vehicle. And then I ll look to see how many cars of that model I see on the road. But I finally base my decision on how the car feels. Almost any car will get me from point A to B and will provide similar functions. Shopping for fraud interrogation software is similar. Some of the bells and whistles may be requirements for a minority of users, but the core functionality seems to be what most people want on a daily basis. My best suggestion is to take a test drive: obtain demo versions of the software packages, and run the same report through each product. You can determine which product feels best. Talk to the company representatives, the help desk, and other users to help form your opinion. If you need a set of data files and some sample tests to perform, read past Fear Not the Software columns in The White Paper and Fraud Magazine in which I provide step-by-step case studies using many of the software products discussed in this article. I also give links to sample data files to run the tests. Start small In the next year, start small and incrementally use some of these software tools rather than run data analysis on every examination. I think Michael Pluscauskas, the president of InformationActive, said it best. We realized that many groups invest tens of thousands of dollars purchasing and implementing fraud interrogation software only to shelve it for a couple of months and hit a brick wall when they went to use it again because they had forgotten most of what they had learned, Pluscauskas said. FRAUDMAGAZINE 6

7 Our goal was to develop a reasonably priced solution that was extremely well integrated with Excel (ActiveData for Excel), thus enabling people to use it every day. An interesting side benefit that some of our users have told us about is that because they are using data analysis concepts in our software on a regular basis it actually makes them much better users of their other more expensive data analysis products. Not that difficult I hope I ve dispelled the idea that this category of software is difficult and moved you closer to using proactive data detection techniques. Definitely consider some due diligence but try not to spend too much time selecting the perfect option. Just get started fighting fraud with these powerful tools. 30 Richard B. Lanza, CFE, CPA, PMP, is a director at CPA2Biz where he focuses on developing business solutions. He also provides audit technology and project management assistance. Lanza is the founder of the non-profit Web site, His address is: [email protected]. His Web site is: FRAUDMAGAZINE 7