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Fraud Detection With Active Data
Fraud Detection With Active Data
eBook
By: Michelle Shein and Richard Lanza
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Copyright
InformationActive Inc., Michelle Shein and Richard B. Lanza
No part of this publication may be reproduced in any form without permission in writing from Michelle Shein and Richard B.
Lanza.
ActiveData for Excel is the trademark of InformationActive, Inc.; ACL, Audit Command Language, and Access Command
Language are trademarks of ACL Services Ltd.; IDEA is the trademark of Caseware IDEA Ltd.; Excel and Access are the
trademarks of Microsoft. All other trademarks are the property of their respective owners.
General Ledger Data.xls Listing of detailed journal entries posted to a general ledger
system.
PayablesData.xls Listing of invoice-level detail of paid invoices, as well as, a list of
purchase orders, a vendor masterfile, and an employee masterfile.
RevenueData.xls Listing of sales invoices, listing of payments associated to the
invoices, as well as, an old and new customer masterfile.
As well you will need a copy of ActiveData for Excel to do the exercises in this book. If you
dont have a copy you can download one by selecting the Download button on the web page for
this eBook.
For any other information please contact InformationActive Inc.
info@informationactive.com
1+ 613-569-4675 x184
Armed with this document, users can no longer say that audit software is difficult to use. For
now, even a tool as simple as a spreadsheet can and should be used as an audit software. With
the curtain exposed users can now focus their time on the more critical activities of creatively
dreaming up new tests and improving their business intelligence.
Fraud Detection and Cash Recovery Using ActiveData for Excel is a CPE accredited (8 Hours
of NASBA approved CPE) self paced, self study course that walks you through how to use
ActiveData for Excel as a fraud detection and cash recovery tool. The course also provides
sample data to test your skills prior to using "live" company data.
This course will:
Note: This course is also available for sale via the ACFE bookstore.
If you would like to provide feedback on the document, we welcome and encourage it as we plan
to complete later versions. Please provide your feedback via Email at
info@informationactive.com or questions@richlanza.com or PR1OR1TY@optonline.net.
Another product Ms. Shein and Mr. Lanza have co-authored is the ACFE Access Training
Auditing Payables for Fraud CD series.
Michelle Shein can be reached through the following means:
Phone:
+1-973-331-1414
E-mail:
www.PR1OR1TY@Optonline.net
Website: www.PR1OR1TY.com
www.MichelleShein.com
Rich Lanza (CPA, CFE, PMP) enables organizations in the use of technology to (1) generate
cash recoveries, (2) stop profit leaks , (3) move away from control issues, and (4) work towards
process improvements. With automated report systems and personalized coaching, Rich helps
companies get quality results in minutes. This is done by maximizing the technology companies
already have and showing professionals how to become info magicians. He is the author of
numerous publications and training courses in ACL, IDEA, Access, ActiveData, and Excel.
While he has over 15 years of experience and is a recognized leader in the use of technology,
Rich also founded of AuditSoftware.Net, a free website devoted to using technology for
generating bottom line results. This website recently started providing a free diagnostic service
to help companies better implement their fraud detection software technology. To contact Rich,
receive his free e-newsletter, get a free diagnostic, or to order his products, e-mail him at
rich@richlanza.com.
Excel Limitation
How Key Data Analysis Tasks Are Met With Active Data for Excel
The table below compares two popular fraud detection-focused data analysis products for their
out of the box functionality of with ActiveData for Excel. These features will be practically
applied to a host of fraud detection settings later in this publication.
Data Analysis
Features
Description
Active Data
for Excel
Append /
Merge
Audit Log
Calculated
Field/
Functions
Cross Tabulate
Digital
Analysis
Duplicates
Export
Extract/Filter
Gaps
Data Analysis
Features
Description
For example, identify any gaps in check
sequence.
Active Data
for Excel
Index / Sort
Join / Relate
Sample
Statistics
Summarize
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5. Allow yourself time to understand the results of each test. Begin to imagine how your
data will be represented in the reports. Ask yourself:
Is the test providing me with enough information to prevent or mitigate the risk?
Do I need to add more tests?
Does the presentation of the report convey its message effectively?
DVD or CD
E-mail file attachements
USB Memory Stick
Data Tape
FTP or network transfers
Web storage (i.e., www.xdrive.com)
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The first three methods are more likely to be used for small PC systems. The last four methods
are more likely to be used on larger systems (LANs, minicomputers, or mainframes). However,
since we will be using Microsoft Excel in our processing will likely be more moderately sized
(up to 1 million rows for Excel 2007) and therefore one of the first three methods will likely
suffice.
The first two methods are more likely to be used for small PC systems. The last five methods are
more likely to be used on larger systems (LANs, minicomputers, or mainframes). However,
since we will be using Microsoft Excel in our processing, the files should stay relatively small
making Email a preferable option for sending data.
The results of this discussion should be formalized into a request letter as shown below:
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Mr. X
IS Manager
ABC Company
Dear Mr. X:
As part of our investigation, we will be performing certain tests in the X fraud detection area using data
extraction software.
As we discussed today, we require the X file be available for us on X/X/XXXX. We believe the following
fields are required from the file for the period X/X/XXXX to XX/XX/XXXX:
List Fields Here
If you believe, after looking at the reports we expect to process (Appendix A), that we will need more
data fields besides those listed above, please provide these fields in the file extraction. Also, if it would
be easier, we can receive the entire files from which we can extract and define our desired fields.
We will need this file in an ASCII file format for importing into Microsoft Excel. Therefore, any text file
format will be acceptable (tab delimited, comma delimited, fixed-length, and Microsoft Excel). To assist
in downloading the file to our PC, we prefer that the file be provided on a CD-ROM or Emailed to us.
We would like to receive the first 100 records of the data file printed out, as well as, a record count for the
file. We will be using this information to confirm the proper transfer of the data to our system.
Please contact us if you are unclear as to the source or significance of any of the items requested.
Thank you for your assistance.
Sincerely,
Mr. Y
Expected
Completion
Date
List desired
report
completion
date
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Calculate vendor invoice averages, to locate all invoice amounts exceeding more
than twice the vendors average.
How To Run The Report
Vendor Number
Invoice Amount
To make your audit
complete you will want
to fields in a detail record
for further analysis such
as the invoice date,
purchase order number,
check number, and check
date.
Finished.
Key Note:
Anyone of Excels copy and paste
functions can be used in this
exercise when a formula needs to
be copied.
Step Four: (This step could be combined with step three.) We need
to have a column display twice this average amount. In either this
forth column or in an additional column have Excel calculate two
times the average. e.g. =2* (B2/C2)
Copy the expression to all records. Name this column Twice
Average.
Step Five: We will merge these vendor figures with the Invoices
Step Six: In the Select a Sheet to Merge dialog box select the
Key Note
In order to Merge Sheets, the
field that is being used (Vendor
Number in the example at right)
needs to be the same name in
both sheets. So, for example,
you cannot have Vendor as a
column title in one sheet and
Vendor Number in the other
as they both need to be Vendor
Number.
ActiveData for Excel has created an additional worksheet that has all
the field information from the Invoices Paid sheet and an added
column at the right with the amount that is twice the invoice average
for each individual vendor.
Step Seven: We will now perform the final step to query for records
where the Invoice Paid amount exceeds twice the average. From
the ActiveData menu select: Sheets-Query Sheet-Query By
Formula
Step Eight: In the first dialog box click Formula and then in the
Compare the street address for vendors and employees to see if there are any
matches. We will first look for an exact match and then we will look for a
partial match.
How To Run The Report
Vendor Number
Address
The following field is
needed from the
Employee sheet:
Address
To follow up with your
investigation you will
want to look further at
other employee and
vendor fields to
evaluate the matches
found.
Step Two: In the Match Sheet dialog box select the Vendor
Your Notes:
Step Three: We will merge into one sheet the address data from the
Employee sheet with the address data from the Vendor sheet. Note
that for this example we are only comparing street information since it
is the only detail we have for address data. We have named the
column heading in both tables Address.
Open the Employee worksheet. From the ActiveData menu select:
Sheets-Merge Sheets
Step Four: Select the Vendor sheet in the Select a Sheet to Merge
dialog box. In the Merge Sheets dialog box Group by the Address
field and select all fields in both sheets to merge into one sheet.
For this example we are not going to include exact address matches.
Check the two Merge Options that look for examples that dont
match Sheet1 to Sheet2 and Sheet2 to Sheet1. When you click
Finished ActiveData for Excel builds a new worksheet with the
Address information and Vendor Numbers. Note: If you didnt
perform the exact address match test first, you might want to include
all Merge Options in the Merge Sheets dialog box.
Step Five: The next step is to see if there is a partial match of the
address data. We will add an additional column in this sheet that
displays the left eight characters of the Address field.
From the ActiveData menu select: Columns-Add Calculated
Columns
Step Six : In the Add Calculated Column dialog box type in Left
Your Notes:
Step Seven: By clicking Finished and then the Add button followed
by Finished, ActiveData for Excel adds a column to the open
worksheet that contains the first eight characters of the Address
field.
Step Eight: The last step is to have ActiveData for Excel find
Step Nine: In the Duplicate Item Analysis dialog box select the
LeftCharacters Column To Analyze and ask for Extract
Duplicates before clicking Finished.
ActiveData for Excel builds a new worksheet that has copied records
where there were duplicates of the first eight characters of the
Address field. Review these records to see if in fact these are the
same addresses. With the results of this test we might find two or
more employees with similar addresses, two or more vendors with
similar addresses or employee addresses that match similar vendor
addresses.
2004/2005 InformationActive Inc., Michelle Shein and Richard Lanza
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Customer
Number
TIN
T
The following
additional fields are
needed from the
Customer-old
worksheet for this test:
Customer
Number
Additional fields to
facilitate research in
either of the two above
files include Customer
Name and customer
Address.
Step Two: To find records where there is just one missing piece of
information we will have ActiveData for Excel tag records with
missing TIN data. From the ActiveData menu select: Rows-Tag
Rows-Tag Rows By Column Value
Key Note:
In this exercise we choose to use a
Tag Rows function. ActiveData
for Excels query function could
have been used as well to isolate
the found records.
Step Three: In the Tag Rows Where dialog box select the TIN field
Key Note:
ActiveData for Excels tagging
functions can highlight selected
records, highlight unselected
records and or extract them to a
separate sheet.
and leave the value box blank. Click the Finished button to have
ActiveData for Excel find records with blank TIN data.
Step Four: With this exercise we will look for Customer Numbers
from the Customer sheet unmatched to the Customer-old sheet.
From the ActiveData menu select: Sheets-Match Sheets
Your Notes:
Step Five: In the Match Sheet dialog box select the Customer
Number field as the field to match between the two sheets.
Step Six: Click on the Range button and highlight the Customer
Number column in the Customer-old sheet.
Step Seven: Click OK in the Select Column dialog box. Change the
option button to Extract rows where the selected column doesnt
match followed by Finished in the Match Sheet dialog box.
Run a stratification report on debit records and then on credit records. Query to
find the largest debit records.
How To Run The Report
Credits
Debits
To follow up with your
audit you will want to
look further at other
fields to analyze the
account and
user/preparer involved
with this record.
Step Two: Click Formula in the first Query By Formula dialog box.
In the second Query By Formula dialog box build the following
formula: Debits > 0 before clicking Finished twice.
Your Notes:
Step Three: ActiveData for Excel builds a new sheet with records
that have debit amounts. Rename this sheet Debits by double
clicking on the sheet name and typing in the new name.
records that have credit amounts. Follow the first three steps of this
test using the formula Credits > 0.
Step Six: In the Stratified Analysis dialog box select the Debits field
Key Note:
Stratification bands may be
modified until the desired Count
and/or % of Total is achieved.
Your Notes:
Step Nine: To create the Stratified Credits sheet, open the Credits
sheet repeat steps five through eight this time using the Credits field
as the Column To Stratify.
Step Ten: Reviewing the Stratified Debits sheet you can see that over
96% of the debit total comes from debits over $1,000,000. Create a
sheet that contains these records to further analyze the largest debit
records. Open the Debits sheet and from the ActiveData menu
select: Sheets-Query Sheet-Query By Formula
box. In the second Query By Formula dialog box build the following
formula: Debits > 1000000 before clicking Finished twice.
Locate all manual entry records entered after year end and then summarize debits
and credits by account.
How To Run The Report
User/Preparer
Post Date
Journal Entry
Credits
Debits
Account Number
Step Two: Click Formula in the first Query By Formula dialog box.
In the second Query By Formula dialog box build the following
formula: UserPreparer ="Manual Entry" AND PostDate >
DATE(2003,12,31). before clicking Finished twice.
Your Notes: