Written by Delena D Spann, Board of Regent (Emeritus) for the Association of CertifiedFraud Examiners (ACFE), who currently serves as Advisory Board Member of the Association ofCertified Fraud Examiners, Board Member of the Education Task Force of the Association ofCertified Anti-Money Laundering Specialists ASIS International (Economic Crime Council) andAdvisory Board Member of the Robert Morris University (School of Business), FraudAnalytics equips you with authoritative fraud analysis techniques you can put to use right away. DELENA D. SPANN, MSc, CFE, is employed with the United States Secret Service, Chicago Field Office, where she is assigned to the Electronic and Financial Crimes Task Force. Spann routinely serves on high-profile financial crimes investigations that include detecting red flags, trends, and anomalies in complex financial transactions. She is frequently called upon as a guest speaker on her expertise in fraud analytics and financial crimes. She is dedicated to the study of white-collar crime. Spann holds a bachelor's degree in liberal studies from Barry University and a master of science degree in criminal justice administration from Florida International University. She is Board of Regent (Emeritus), an Advisory Board Member, and Higher Education Committee Member of the Association of Certified Fraud Examiners; a Board of Director of ASIS International Economic Crime Council; Education Task Force Member of the Association of Certified Anti-Money Laundering Specialists; Advisory Board Member at Robert Morris University; Executive Director of the Association of Certified Fraud Examiners, Greater Chicago Chapter; a Threat Finance Task Force Member of the Association of Certified Financial Crimes Specialists; and Board of Director (Emeritus), Step Women's Network of Chicago. Spann also serves as an adjunct professor at the university/college level.
The Schematics of Fraud and Fraud Analytics
Fraud analytics has become the emerging tool of the twenty-first century for detecting anomalies, red flags, and patterns within voluminous amounts of data that is sometimes quite challenging to analyze. The use of fraud analytic tools does not have to be complex to be effective. The techniques of criminals and fraudsters and their shenanigans are savvier due to technology and the means they use to hide fraudulent activities. While technology has played a role in increasing the opportunities to commit fraud, the good news is that it can also play a key role in developing new methods to detect and prevent fraud. In the past, a spreadsheet was the master of fraud analytics. However, a new revolution has taken us by force - new strategies, data mining techniques, and powerful new software are constantly evolving.
The term "fraud" is commonly used for many forms of misconduct even though the legal definition of fraud is very specific. In the broadest sense, fraud can encompass any crime for gain that uses deception as a principal modus operandi. More specifically, "fraud" is defined by Black's Law Dictionary as "a knowing representation of truth or concealment of a material fact to induce another to act to his or her detriment." 1 Consequently, fraud includes any intentional or deliberate act to deprive another of property or money by guile, deception, or other unfair means.
According to the American Association of Fraud Examiners (ACFE):
Health care fraud, identity theft, padded expense reports, mortgage fraud, theft of inventory by employees, manipulated financial statements, insider trading, Ponzi schemes - the range of possible fraud schemes is large, but at the core, all of these acts involve a violation of trust. It is this violation, perhaps even more than the resulting financial loss, that makes such crimes so harmful. 2
Because fraud inherently involves efforts at concealment, many frauds go undetected and the criminals get away with them. For these cases, it is impossible to know the impact of the fraud.
How do we Define Fraud Analytics?
Fraud analytics is when analysis relies on "critical thinking" skills to integrate the output of diverse methodologies into a cohesive actionable analysis product. Analysis is used for various approaches, depending upon the type of data/information that is available and the type of analysis that is being performed. The analysis process requires the development and correlation of knowledge, skills, and abilities.
As we embark on the efforts to incorporate more fraud analytics within our organizations it is my hope that many develop a clear understanding of how imperative it is to start using the various tools that are available. There should be no excuse. A few years ago we were baffled after hearing that Bear Stearns had a liquidity problem and that perhaps it was one of the greatest financial scandals in history. The troubles deepened with Fannie Mae, Freddie Mac, AIG, Lehman Brothers, Bernie Madoff, WAMU and countless others. In my white-collar crime mind I often wonder if any fraud analytic tools were used and if so what might they have been? Up until now, the greatest financial debacle in history was perpetrated - believe it or not - in the 1700s. "The South Sea Bubble" scandal in 1720 caused the loss of over $500 billion translated to today's dollars. It took over 300 years to beat that record but is quite obvious that the 21st century has made its mark with fraud and the collapse of major companies that have for decades graced the pages of business magazines. Again, I'm curious to know what kind of fraud analytic tool those uncovered "The South Sea Bubble" scandal used. One would hope that it was a precursor to one of the tools menti