Assessing fraud risk
CASE STUDY |
The new chief financial officer (CFO) of a publicly traded manufacturer was concerned that its rapid growth and highly diversified business lines may have created opportunities for fraud.
The client sought a proactive review of the entire population of payments, invoices, vendors and employees over the last three years in order to identify weaknesses in internal controls and gauge the company’s fraud risk.
The company hired RSM to use mAnalytics, our proprietary forensic data analytics platform and process, to review more than 3,000 employee and 6,000 vendor records, more than 100,000 invoices and more than 40,000 payment transactions. Our analysis, which included more than 50 forensic tests, targeted:
- Duplicate payments and invoices
- Payments and invoices with unusual characteristics that can indicate fraud
- Ghost vendors and employees
- Invalid vendors and employees
- Duplicate vendors
- Potential conflicts between employees and vendors
- Benford’s Law analysis, which identifies unlikely frequencies of numbers within a data set that can indicate fraud
As a result of this engagement, the manufacturer validated and strengthened its ethics and anti- fraud approach and was able to move forward with its integration with confidence.
We provided a summary of all areas of concern, including a risk score and exceptions for each vendor and employee. Specific findings included:
- Invoices representing hundreds of thousands of dollars that gave strong indications of being duplicates
- A small subset of payments and invoices representing more than $1 million in payments whose questionable frequency of occurrence made them suspicious. Some of the vendors associated with these transactions had been identified as high priority through our risk scoring methodology
- Hundreds of invoices with sequential numbers from the same vendors, which bore further examination
- A vendor with two active vendor records in the system, one which had received millions of dollars in payments and a second that had received a highly questionable payment of $800,000
By combining the risk scores and payment amounts associated with each employee and vendor, we helped the client prioritize and focus its attention on investigating transactions with high value and significant risk characteristics. Using these findings, the client will be able to translate our findings into stronger policies and controls.