1. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-1 Today’s Topics n Data Analysis & Fraud Detection n Financial Statement Analysis and Detection n Shenanigan #1

2. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-2 Data Analysis & Fraud Detection n Data Analysis Process n Data Analysis Software n Data Access Challenges n Data Analysis Techniques

3. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-3 Data Analysis Process n Understand the business n Brainstorm frauds n Identify fraud symptoms n Use technology to collect symptom data n Analyze the data n Investigate selected symptoms

4. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-4 Data Analysis Software n ACL n CaseWare n Picalo n Microsoft + Active Data

5. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-5 Data Access Challenges and Tools n Open database connectivity (ODBC) n Text importing-extensible markup language (XML) n Data warehousing

6. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-6 Data Analysis Techniques n Benford’s Law n Time trends n Fuzzy matching n Matosas and real time analyses

7. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-7 Benford’s Law n Occurrence of digits in a random number sequence n Series starting with 1’s greater than 2’s; 2’s greater than 3’s etc. n Effective for locating falsified trends

8. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-8 Financial Statement Analysis n Methodology n Trends n Ratios n Horizontal analysis n Vertical analysis n What looks out of the ordinary

9. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-9 Shenanigan #1 n Technique #1: n Recording revenue when services remain n Technique #2: n Recording revenue before shipment or acceptance n Technique #3: n Recording revenue when payment is not required n Technique #4: n Selling to an affiliate n Technique #5 n Using quid pro quo (I.e. bartering) n Technique #6: n Grossing up revenue

10. FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 6-10 Revenue Red Flags n Aggressive Rev. Rec. Policies n Rise in unbilled receivables n Rising receivables n Rising allowance for doubtful accounts n Increased returns