1. Cognitive Analytics Management 2018
Combating Fraud & Corruption through Analytics
November 2018

2. Contents 1 2 3 4 5 6 7 8 About Us How Data Analytics Works?
Definition of Corruption & Fraud 4
How Corruption and Fraud are Perpetrated? 5
Key Statistics on Corruption & Fraud 6
How Data Analytics Helps Combat Corruption & Fraud? 7
Fraud Risk Assessment 8
Challenges in Data Analytics Implementation

3. About Us | Governance Dynamics
Governance Dynamics is a professional services firm focused on providing end to end Smart Governance Solutions including:
Certification
Consulting
Training
Technology
Forensics, Advisory & Assurance
Governance Dynamics is also authorized to provide Governance, Risk and Compliance Professional (GRC Professional) authorized training & certification by OCEG throughout the Middle East region.
GRC Professional Certification ensures that individuals can apply GRC processes & capabilities within their organizations, and possess the skills to integrate activities relating governance, performance management, risk management, internal control, and compliance.
A US non-profit think tank, independent of specific professions, with over 85,000 members globally

4. HOW DATA ANALYTICS WORKS?

5. How Data Analytics Works?
Analytics – defined as “the extensive use of data, statistical, and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions” (Davenport & Harris, 2007).

6. Features of Data Analytics
/EFFICIENT

7. DEFINITION OF CORRUPTION & FRAUD

8. Corruption
Transparency International defines corruption as “the abuse of entrusted power for private gain”. Corruption can be classified as:
Grand Corruption – Acts committed at a high level of government that distort policies or functioning of the state, enabling leaders to benefit at the expense of the public good.
Petty Corruption – Everyday abuse of entrusted power by low and mid-level public officials in their interactions with ordinary citizens, trying to access basic needs (hospitals, schools, government departments, and others).
Political Corruption – Manipulation of policies, institutions in the allocation of resources/financing by state decision makers who abuse their position to sustain their power, status and wealth.

9. Fraud
The Association of Fraud Examiners (ACFE) defines fraud as “a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment and any intentional or deliberate act to deprive another of property or money by guile, deception, or other unfair means”.
Internal Fraud – the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets.
External Fraud – covers a broad range of schemes (e.g. dishonest vendors might engage in bid-rigging schemes, bill the company for goods or services not provided, or demand bribes from employees).
Fraud Against Individuals – including Identity theft, Ponzi schemes, phishing schemes, and advanced-fee frauds, amongst others.

10. HOW CORRUPTION AND FRAUD ARE PERPETRATED?

11. How Corruption is Perpetrated?

12. Corruption Common Red Flags7
An official with influence over the selection process has a conflict of interest. 1
Government allows a seemingly unqualified company to compete for, or win an award. 8
Competition is deliberately constrained in the award process.
A company or individual with a history of controversy or criminal behavior competes for, or wins, an award. 2
A company uses a third-party intermediary to gain an advantage in the award.
A competing or winning company has a shareholder or other business relationship with a politically exposed person (PEP), or a company in which a PEP has an interest. 9 3 10
A payment made by the winning company is diverted away from the appropriate government account. 4
A competing or winning company shows signs of having a PEP as a hidden beneficial owner. 11
The agreed terms of the award deviate significantly from industry or market norms. 5
An official intervenes in the award process, resulting in benefit to a particular company. 12
The winning company or its owners sell out for a large profit without having done substantial work. 6
A company provides payments, gifts or favors to a PEP with influence over the selection process.

13. How Fraud is perpetrated?
Check Tampering – Forging, altering, or stealing a check from a company bank account is known as check tampering.
Skimming – Skimming occurs when money is taken from a business before it’s recorded.
Billing Fraud – An employee with bad intentions sets up a shell company, then bills his employer for fictitious goods or services.
Reimbursement of Expenses – Employees who submit fake receipts or try to get funds to cover personal purchases and take advantage of the system.
Cash Larceny – Cash larceny typically involves theft of cash from the company after it has been recorded in the books, but before the funds can be deposited.
Payroll Fraud – Employee causes the employer to issue a payment for false compensation claims, such as phony overtime or paychecks for people not on the company payroll.
Non-Cash Fraud – While cash is king, many criminals are happy to steal merchandise or inventory. Known as non-cash fraud, it can be equally costly to a business.

14. Source: Association of Certified Fraud Examiners (ACFE) Report 2018
Fraud Common Red Flags 1
Employee living beyond means
Employee having excessive financial difficulties 2
Unusually close association with Vendor or Customer 3 4
Employee has control issues at work and is un-willing to share duties and responsibilities 5
Employee has a “Wheeler-Dealer” attitude (i.e. charming and deceiving character)
Source: Association of Certified Fraud Examiners (ACFE) Report 2018

15. KEY STATISTICS ON CORRUPTION & FRAUD

16. Key Stats on Corruption
Source: Association of Certified Fraud Examiners (ACFE) Report 2018

17. Source: Association of Certified Fraud Examiners (ACFE) Report 2018
Key Stats on Fraud
Source: Association of Certified Fraud Examiners (ACFE) Report 2018

18. HOW DATA ANALYTICS HELPS COMBAT CORRUPTION & FRAUD?

19. How Data Analytics Helps Combat Corruption & Fraud?
Big Data and Open Data is changing the anti-corruption and anti-fraud landscape.
The availability of open and big data means it can be analyzed to uncover, prevent and deter corruption/fraud.
Data scientists are joining forces with anti-corruption and anti- fraud specialists to develop tech savvy applications and deploy powerful anti-corruption/anti-fraud analytics.

20. How Data Analytics Helps Combat Corruption & Fraud?

21. How Data Analytics Helps Combat Corruption & Fraud?
According to the IIA, Auditors must now consider fraud risks and red flags as part of planning audits:
“Data analysis technology enables auditors and other fraud examiners to analyze transactional data to obtain insights into the operating effectiveness of internal controls and to identify indicators of fraud risk or actual fraudulent activities.”
Extract from Fraud Prevention and Detection in an Automated World (GTAG 13), Institute of Internal Auditors (IIA)
In addition, ISACA highlighted the importance of an enterprise’s data and said:
“without a way to obtain, cleanse, organize and evaluate the data, the enterprise is left with a vast, chaotic pool of ones and zeroes. Data analytics coaxes order from the chaos. It helps explain patterns, which in turn help the enterprise identify problems before they spiral out of control. Data Analytics can be relatively simple, but it can also be extraordinarily complex. Its results can be used to identify areas of key risk, fraud, errors or misuse; improve business efficiencies; verify process effectiveness; and even influence business decisions.”
Extract from Data Analytics - A Practical Approach, ISACA

22. How Data Analytics Helps Combat Corruption & Fraud?
Most experts agree that in order to apply Data Analytics the first step is to have access to the data. This involves: 
Identifying objectives of the investigation;  
Arranging mechanism, methodology of transfer of required data;
Defining required data parameters (i.e. data fields/files, format of files); and 
Verifying and Quality Assuring the data received.
After the above is accomplished, the successful use of data analytics for nailing fraudsters simply requires importing the specific data needed for your fraud audit into the used audit software tool and mastering the steps required to test for red flags of virtually any type of fraud in a matter of moments.

23. FRAUD RISK ASSESSMENT

24. Fraud Risk Assessment Fraud Risk Assessment
Monitoring of Fraud Schemes
Identification of Fraud Schemes
Analysis of Fraud Schemes
Fraud Risk Assessment
Identify
Fraud Risk
Factors
Assess and
Prioritize
Fraud Schemes
Identified
Develop Anti-Fraud Controls
Action Plan & Monitoring
Evaluate Effectiveness
of Anti-Fraud Controls
Potential Fraud
Risks and
Schemes 1 2 3 4 5
The main objective is to proactively identify and address the organization’s vulnerabilities to internal and external fraud, by:
Identifying and evaluating fraud risks and fraud schemes/scenarios;
Evaluating current anti-fraud controls by assessing and rating the inherent and residual risks;
Developing risk registers for robust internal controls to prevent and detect potential fraud for early detection of potential fraudulent transactions; and
Developing a comprehensive fraud risk assessment report.
Data Analytics can support in 3 key stages of the fraud risk assessment:
Identification – Data analytics can be used to look for anomalies or red flags that indicate potential fraud risk schemes and identify high-risk areas.
Evaluation – Analytics can help evaluate the accuracy of risk assessment process findings, and indicate the need for additional procedures.
Monitoring – Tests and tools can be developed to continuously monitor high-risk schemes and behaviors, aid in assessing the effectiveness of the fraud action plan, and provide proactive alerts for possible exceptions and violations on an ongoing basis.

25. CHALLENGES IN DATA ANALYTICS IMPLEMENTATION

26. Challenges in ImplementationD
Availability of Human Capital
Data Sanity, Governance and Security B E
Implementation of Analytics (including selection and implementation of the adequate and relevant capabilities)
Securing funds from the board for data projects and achieving ROI from investing in data analytics C
Adequate usage of insights gained to transform operations and gain competitive advantage including prediction of future trends F
Achieving a mind-set shift across the business towards data analytics adoption

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Fadi Sidani
Managing Partner
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