CFE Exam Quiz 34

Stratification splits the data into specific intervals or strata based on a particular field and counts the effects of each class.
Regression analysis is a sophisticated statistical methodology that establishes a model relationship between a dependent variable and one or more independent variables using a set of documents.
Sorting or indexing arranges the data in ascending or descending order based on the specified field(s).
Gap testing is used to find missing items, such as missing checks or invoice numbers, in a sequence or series.

Non-natural numbers (e.g. employee identification numbers and telephone numbers) are deliberately programmed to communicate information that restricts the natural meaning of the number. Every number calculated arbitrarily, such as the inventory price held for sale, is considered to be a non-natural number.

Nigrini defines the following criteria for the validity of Benford’s Law that a data set should have:
1. The data set will define the sizes of similar phenomena.
2. No minimum or maximum values should be included in the set of data.
3. The data set should not be allocated numbers, e.g. transaction numbers.
4. The set of data must contain more smaller items than large ones.

Benford’s Law’s most popular approach to fraud detection includes evaluating the dollar amounts of a business transaction data set. The law of Benford is invariant in scale with multiplication. Benford’s Law can help uncover Shell companies, fictional cash refunds on cash register, Bid-splitting, etc.

Asset misappropriation is the largest percentage of work-related fraud committed. During these investigations, data analysis can be helpful, particularly in organizations with many employees, customers or transactions. Any of these variables can lead to a large amount of data that needs to be processed, and can inefficient manual searches.

The ghost employee scheme is one specific asset misappropriation scheme. A ghost employee is someone who is on the payroll register but who is not working for the company in fact. It often fits with an internal fraud scheme to find ghost employees.
Upon collecting data, if he suspected a ghost employee scheme, a fraud investigator would first have to decide what kind of tests to conduct.

Analysis of data may also assist in exams involving alleged corruption schemes.
Corruption schemes include using the employee’s power in a business transaction in a manner that breaches his obligation to his employer in order to obtain a profit for himself or someone else. In corruption schemes, bribes, kickbacks, extortion, and other similar devices are popular.

The following are some key issues to address as one conducts a data analysis: 1. Ensure data validity and data integrity. 2. Consider the format and structure of the data. This is important when the fraud examiner wants to import or export data with his computer.
3. Cost and benefits should be compared. The fraud investigator must conduct a preliminary analysis to ensure that prior to conducting a fraud investigation, the key strategic issue he is about to create is worth the effort.
4. Consider the spectrum of distinct levels of aggregation at which fraud monitoring is required
5. Begin with the end in mind

If the fraud examiner believes that somebody has intentionally misrepresented or omitted financial statements or documents to mislead financial statements consumers, the techniques of data analysis will assist the review.
Traditional horizontal, vertical and ratio analysis often carried out by auditors on the financial statements, can help identify anomalies in
financial reporting activities.

Smashfuse aggregates publicly accessible information from many of the major social media platforms, including Facebook, Twitter, Google+, and many others that are unique to geographic regions around the world. This can, therefore, be useful for inquiries involving people living in other countries and having strong social connections with societies.

There are various methods that fraud examiners can use to capture information on social media sites and memorize the collection process, including the following:
-Take screen captures of relevant information.
-Print your content.
-Using screen recording software to create a monitor output digital recording.
-Convert web pages to a different format (for example, PDF).
-Use a website capture tool to navigate to each link on a web page and capture all of the content contained in those links, including embedded files and source code.

Background checks generally involve two specific areas: due diligence in discovering what public records show about individuals and businesses with whom the investigative party would wish to do business and discover details about prospective employees. In general, the best sources of background information are online public records databases.

Criminal background checks include reviewing criminal court records to see if a person has a criminal misconduct history. Courts records and law enforcement agencies are the primary sources of criminal records. Notice that countries differently control access to each of these outlets.

Different software programs enable users to verify date differences such as invoice dates. Through checking appropriate check disbursements, fraud examiners will ensure that an employee has not made irregular transactions. Research programs will also allow data to be aged. Aging approaches include a date-based analysis of data.

Last name searches can be used if the previous address of the subject is unknown. The search results best if the name of the subject is not common; however, if the name of the subject is common, the search should include differentiating data.

Fraud examiners may construct expressions or equations based on their knowledge and perceptions of what the information will contain.
Fraud examiners may create filters or queries based on specific user-defined requirements resulting in showing only those records that meet the criteria. These filters can help identify transactions outside the planned data norm.

An interactive data analysis method used in Excel is a pivot table. It is used for sorting, counting, totaling or giving in a spreadsheet the average of specified data. It is a useful way to see the “big picture” of the information with which you are operating without entering formulas. The filter and sort functions can also be performed within the pivot table.

The fraud examiner must search for bankruptcy for the entity or business filing as well as for documents concerning any related businesses, owners, staff, or relatives when checking bankruptcy records.

Duplicate testing is used in specified fields to classify transactions with duplicate values. This technique can quickly analyze the file and joined multiple files to illustrate key field duplicate values.
However, Fraud examiners may construct expressions or equations based on their knowledge and perceptions of what the information will contain.

Fraud examiners do not use any of the following information when developing an email account:
-Personal names
-Geographical area
-Favorite sports teams
-Hobbies

Craigslist is an online community network offering free classified ads with sections devoted to careers, homes, businesses, selling products, services, etc. The key to searching Craigslist is getting past the geographic restriction. The fraud investigator must identify another area to extend the search or use SearchTempest.com, a tool that allows users to search several Craigslist sites simultaneously.

Verification of compliance decides how employee transactions comply with company policies. If an organization limits the number of its reimbursements, analytical software may track compliance with this limit.
A fraud examiner may decide whether regular checks disbursed, such as mileage reimbursement, are consistent within the regular rate by verifying multiples of a number function.

Values far beyond the expected range (graphically, points far beyond the best-fit line) are known as outliers. There are reasonable reasons for outliers in some situations. Nevertheless, an outlier is sometimes a sign of fraud.

There must be a pair-wise relationship between the two data sets to perform a correlation analysis. If the data are not intrinsically related, then there must be a strong logical relationship between the data.
Analysis of correlation helps an examiner to determine the strength of the connection between two or more pieces of information on.

Multi-file processing allows the user to connect many files without using the Join command by establishing relationships between multiple files. Relating an outstanding invoice master file to an account receivable file based on the customer number would be a common data relationship. The relationship may be expanded to include a detailed invoice folder based on the number of the invoice. This relationship allows the client to see which customers have outstanding date-sorting invoices.

Most software packages use a combination of different functions.
-Sorting and arranging the data in a meaningful order to identify blank fields where information should be entered.
-Joining files to combine fields from two sorted input files into a third file.
-Record Selection to return situations where documents have existed, effectively reducing large amounts of information to brief lists.
-Correlation analysis to determine the relationships among different variables in raw data.

The software for data analysis allows the fraud investigator to centralize the investigation and rely less on others to collect data. Because it is possible to sort through the amount of information data software, the fraud examiner no longer has to rely on different information sources. In the past, the fraud examiner would have to ask for the help of several individuals in the accounting department to find the data while analyzing a company’s accounts for potential inconsistencies. Now, however, software programs will do all the work, ensuring an above-the board
investigation without many variables.

The spectrum of data analysis application contains:
-Ad-hoc testing involving a one-use, point-in-time analysis conducted for a specific project or exploration such as fraud investigation.
-Repetitive testing, which consists of repeatable, predefined, automated procedures performed on a scheduled basis on similar data, and is most beneficially used in business processes where there is high risk and possibility of fraud.
-Continuous testing involving continuous automated data monitoring activities, often specifically embedded in the production system, centered on those transactions or areas that pose particularly high risks or where preventive measures are not practicable or deemed ineffective.

Ad-hoc testing will help identify transactions to be investigated. If that testing reveals indicators of fraud, recurring testing or continuous analysis should be
considered.

The fraud investigator must consult with management to decide whether any of the tests performed should be repeated on a regular or continuous basis based on the results of the evaluation and the organization’s needs. Continuous monitoring can provide increased assurance for early detection of any fraud schemes in areas perceived to be at increased risk of fraud and can even serve as a deterrent for misconduct

Once the fraud examiner has obtained the information, it must be checked. The first step is to ensure that it is possible to open and read the data as given by the data analysis software that will be used. The fraud examiner should then verify that all requested fields and records are included in the obtained information. Once the success of the transfer process has been confirmed,
-Confirm control totals
-Confirm appropriate and as requested, the period covered by the data
-Sort the file in ascending or descending order to test for leading or lagging errors.
-Check for gaps in applicable fields, including system-assigned identifying record number, to identify missing records.
-Confirm the format of data in format-specific fields, such as date fields and numeric fields.
-Check for blank fields where information should be entered.
-Check for duplicate fields or records.