An effective whistleblower reporting system proves valuable to detect fraud

Whistleblower reporting systems are considered better practice and have proven an effective method for detecting workplace fraud and abuse. A system that enables employees to report suspected misbehaviour or concerns allows the organisation to take corrective action immediately. Organisations that encourage a culture of open reporting benefit by being able to deter wrong doing, reduce malicious leaks, and maintain its reputation.

The following are a few areas to consider when implementing a whistleblower program:

• Utilise multiple collection vehicles (phone, mail, email) to avoid constrained communications;
• Ensure methods are in place to reduce the risk of encouraging retaliation claims;
• Utilise flexible and multifunctional scrips / forms to ensure collection of important information;
• Utilise skilled and trained personnel capable of quickly identifying true cases and acting with professional care;
• Communicate and generate awareness of the program to employees and the community.

Data mining and transactional analysis for improved fraud detection

Proactive data analytics, and the use of tools such as ACL, IDEA, ACCESS, is a proven and effective method in fighting fraud and monitoring the effectiveness of internal controls.  The Association of Certified Fraud Examiners, the Institute of Internal Auditors, and the Institute of Chartered Accountants all advocate the use of data analysis technologies. 

Some of the benefits through the increased use of data analysis include:

• Ability to test 100% of the population
• Identifying anomalies or “red flags”
• Tangible audit findings that can be reported in actual cash value
• Ability to transition from annual cyclic audit testing to more ongoing monitoring of both transactions and controls
• Identifying areas to data cleanse for consistency
• Repeatability
• Reduction in audit risk
• Cost-effective
• Close control loopholes before abuse escalates
• Acts as a deterrent

Common data mining and analysis areas include:

• Employee and payroll
• Vendors & accounts payable
• Travel and entertainment expense reimbursements
• Sales
• Inventory
• General ledger / Journal entries

Sample tests in key areas may include:

Payroll Mining:

• Employees with no deductions
• PR activity subsequent to termination
• Employee vs. department baselines ($ & hrs)
• Department vs. company baselines ($ & hrs)
• Benford’s analysis of gross/net payroll
• Time series analysis
• Employee leave analysis
• Pay rate analysis
• Duplicate direct deposit accounts
• Short duration of hire/termination

Accounts Payable Mining

• Duplicate invoices
• Duplicate payments
• Benford’s analysis
• Employee name and acronym search
• Compare multiple vendor master files
• Identify invoices in excess of n% of vendor average
• Acceleration and time spending analysis
• Spend analysis

Expense Reporting Mining

• Patterns in travel expenses
• Unusual amount of airfare
• Review of miscellaneous expense category
• Duplicate expenses
• Multiple expense reports with same expenses