Fighting Fraud With Software The WizSoft Approach for Auditors

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Fighting Fraud With SoftwareThe WizSoft
Approach for Auditors
IIA North Jersey Software Expo Presented May
17,2007 BOB DENKER, CIA,CISA,CFE Baruch College,
CUNY For WizSoft Inc.
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Problems with data analysis tools

• Becoming complacent
• Ignoring non-trivial fields in testing

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Fraud Testing Applications

• Insurance
• Due Diligence
• Money Laundering
• Human Resources

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What are the data mining applications that should
draw the attention of the auditor?

• Human resources
• employees earning salaries inconsistent with
  their title
• employees not availing themselves of benefit
  programs (perhaps to maintain as much anonymity
  as possible)
• employees whose household address matches an
  address from the vendor file
• employees appearing more than once on umbrella
  security file

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What are the data mining applications that should
draw the attention of the auditor?

• Financial applications
• (Money Laundering) - structured transactions
  (clients who make cash/travelers checks/money
  order contributions to annuities, single premium
  life insurance, IRAs, mutual funds, etc.) in
  aggregate amounts that exceed the US 10,000
  reporting threshold

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What are the data mining applications that should
draw the attention of the auditor?

• Financial applications
• 2. clients making contributions to investment
  vehicles that are disproportionate to their income

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What are the data mining applications that should
draw the attention of the auditor?

• Assistance in due diligence testing
• by revealing the business rules, data mining
  tools can be used to train new auditors for new
  areas or new systems that are being audited for
  the first time
• identical applications can be used for due
  diligence testing

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What are the data mining applications that should
draw the attention of the auditor?

• Construction and purchasing
• invoice for large purchases made at the end of
  the fiscal accounting period
• price of goods inconsistent with industry costs

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What are the data mining applications that should
draw the attention of the auditor?

• Medical/ dental applications
• patient substitutions
• over-utilization of specific diagnoses
  inconsistent with the patient population

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Dental Fraud?

• What is a Sunday Dentist?
• Where is your dentist?

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What are the data mining applications that should
draw the attention of the auditor?

• Provider open seven days a week for
  disproportionate number of non-emergency
  procedures (could indicate provider is filing
  false claims and is spreading out the submissions
  to divert suspicion)

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What are the data mining applications that should
draw the attention of the auditor?

• Excessive number of patients traveling great
  distances to a provider (could indicate provider
  utilizing a postal drop site)

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UNCONDITIONAL RULES1) STATE is CA Rule's
probability 1.000 The rule exists in 1015
records.2) PATIENT_ZIP is 92108 Rule's
probability 0.993 The rule exists in 1008
records.3) PROVIDER_ZIP is 90210 Rule's
probability 1.000 The rule exists in 1015
records.
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Data Auditing Tools
WizRule? - business rules detector for data
auditing, exposes suspected errors in the
data. WizWhy? - analyzer and predictor for
databases, reveals main patterns, interesting
phenomena, unexpected cases, and predicts for new
cases. WizSame? - reveals identical and similar
records suspected as duplicates, in one or two
data sets. WizCount? - performs account/bank
reconciliations and finds all the one-to-many and
many-to-many relevant combinations of matching
transactions.
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WizRule

• WizRule reveals the rules governing the data and
  points out cases deviating from the discovered
  rules. The deviating cases having the highest
  degree of unlikelihood are listed as suspected
  errors.

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WizRule?

• WizRule analyzes the data by revealing three
  types of rules
• Formula rules
• If-then rules
• Spelling rules
  

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WizRule?

• WizRule issues three reports
• Rule Report - lists the discovered rules
• Spelling Report - lists cases that are likely to
  be spelling errors of names or other values
  (cases to be audited)
• Deviation Report - lists the cases that deviate
  from the set of the discovered rules (cases to be
  audited)

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Deviation Report
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WizRule

• Corporate users
• Audit Directors
• Internal Auditors
• Risk Managers
• Security Officers
• Financial Analysts
• Consultants

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WizRule

• Business Applications
• Fraud detection
• Internal audit
• IS/IT/EDP audit
• Risk assessment
• Special investigation
• Data quality improvement
• Reverse engineering for business rules

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WizSame

• WizSame reveals similar and identical records
  suspected as being duplicate, based on the user's
  criteria.
• WizSame analyzes one data set or compares two
  data sets.

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WizSame

• Reveals cases where records contain synonymous
  value (e.g. NY and New-York)
• The matching criteria may be defined by several
  conditions, connected by AND or OR operators
• Reveals matching records in a new table set that
  is to be merged in an existing table

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Matching Set Report
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WizSame

• Revealing duplicate records is mandatory to the
  auditing process
• compare the Vendor List with the Employee List
• reveal duplicate invoices, payments
• reveal duplicate inventory entries

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In conclusion

• Auditors need to approach each audit with an
  open mind and expect the unexpected.
• Having additional software tools to augment your
  traditional data analysis tools is not a luxury
  but a necessity in todays complex audit world!
• Thank you for your attention.

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Who Are They?

• Fully owned subsidiary of WizSoft Ltd. (1983)
• Headquarters in Tel-Aviv, Israel
• US office in Syosset, NY
• 35,000 customers world wide
• 200 employees
• 18 sales and services offices

• 516-393-5841
• www.wizsoft.com

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• Contacts
• Irina Sered Scott Safara
• Executive V.P. Technical Sales/Support
• 6800 Jericho Tpke., Suite 120W 6800 Jericho
  Tpke., Ste 120W
• Syosset, New York 11791 Syosset, New York 11791
• Tel [phone] Tel [phone]
• Fax[phone] Fax [phone]
• isered_at_wizsoft.com ssafara_at_wizsoft.com
• www.wizsoft.com