Catch T&E and P-Card Fraudsters Using Data Analytics

5/7/2014
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Copyright © FraudResourceNet LLC
Catch T&E and P‐Card Fraudsters
With Data Analytic Power Tools
Special Guest Presenter: Rich Lanza, CPA, CFE
President and Founder of White Collar Crime 101
 Publisher of White-Collar Crime Fighter
 Developer of FraudAware® Anti-Fraud Training
 Monthly Columnist, The Fraud Examiner, ACFE
Newsletter
Member of Editorial Advisory Board, ACFE
Author of “Fraud in the Markets”
• Explains how fraud fueled the financial crisis.
About Peter Goldmann, MSc., CFE

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About Jim Kaplan, MSc, CIA, CFE
• President and Founder of
AuditNet®, the global resource for
auditors (now available on Apple
and Android devices)
• Auditor, Web Site Guru,
• Internet for Auditors Pioneer
• Recipient of the IIA’s 2007
Bradford Cadmus Memorial
Award.
• Author of “The Auditor’s Guide to
Internet Resources” 2nd Edition
Richard B. Lanza, CPA, CFE, CGMA
• Over two decades of ACL and Excel software usage
• Wrote the first practical ACL publication on how to
use the product in 101 ways (101 ACL
Applications)
• Has written and spoken on the use of audit data
analytics for over 15 years.
• Received the Outstanding Achievement in Business
Award by the Association of Certified Fraud
Examiners for developing the publication
Proactively Detecting Fraud Using Computer Audit
Reports as a research project for the IIA
• Recently was a contributing author of:
• Global Technology Audit Guide (GTAG #13) Fraud
in an Automated World - IIA
• Data Analytics – A Practical Approach - research
whitepaper for the Information System
Accountability Control Association.
• “Cost Recovery – Turning Your Accounts Payable
Department into a Profit Center” – Wiley & Sons.
Please see full bio at www.richlanza.com

5/7/2014
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Disclaimers

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Today’s Agenda
 How to effectively screen for red flags of travel fraud
 How to gather the data you need to audit for card fraud using
data analytics
 How to use data analytics to identify falsification of meal, hotel
and cab receipts
 Best ways to screen for suspicious corporate and P‐card
transactions
 Effective controls for minimizing your organization exposure to
all forms of T&E and P‐card fraud
 Essentials of proactive anti‐fraud management targeting
expense reimbursement and card fraud
Key Considerations Before
Entering Pcard and T&E Reviews
Is 3% to 5% savings in T&E worth the controls?
 It probably won’t be enough of an issue for SarbOx
 It DOES make for an embarrassing paper headline
98% of people are honest…Do you want to hound them
for the 2%?
Is T&E a company benefit?
Will you be able to take on the executives?

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Asset Misappropriation
Tops The Charts
Top Fraud Schemes By
Department

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Making $20K Extra This Year
(assume 20 trips a year)
Meals ($30 a day * 4 days * 20 trips) = $2,400
Gas/Mileage ($20 per trip * 20 trips) = $400
Airline ($100 per trip * 20 trips) = $2,000
Hotel ($10 per day * 4 days * 20 trips) = $800
Entertainment ($50 per trip * 20 trips) = $1,000
Other ($50 per trip * 20 trips) = $1,000
Airline/Other miles for free tickets = $7,000
Total of $14,600 after tax or $20,000 before tax
Types of T&E Fraud (in order of
occurrence per ACFE Study Report to the Nations ‐ 2006)
 Miscategorized – personal expenses that are
submitted as business.
 Overstated – inappropriate overstatement of
submitted expenses.
 Fictitious Receipt – phony receipt used as
support.
 Over‐purchase – purchase more than needed and
keep the rest.
 Collusion – manager and employee scheme
against the company

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Polling Question 1
What is not one of the top occurring fraud types per the
ACFE study?
A. Asset Misappropriation
B. Corruption
C. Other Document Fraud
D. All of the Above
Key Steps to Committing
T&E Fraud (Tasks )
 Submit claims for personal expenses labeled as business expenses
 Bypass review by approving own claims
 Create fictitious vendor to vouch for purchases
 Avoid approval limits by splitting purchases
 Submit claims for non‐existent expenses on behalf of other
employees who also submit directly
 Submit altered claims for legitimate expenses that are larger than
actuals, pocket difference in cash
 Purchase legitimate item twice or more, secure refund(s)
 Submit invented claims using blank receipts or other forms from
vendor
 Organize legitimate expenses to secure a cash discount or other
benefit from vendor that should go to the employer
 Create additional expense cards / accounts that are outside the
normal reporting system

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Playing The T&E Game
Can Be Addictive
 The extra cash always helps
 It’s tax‐free!
 The “getting back” at the company
feeling
 Managers never check anyway
 What are they going to do…fire me
over $20?
 The slippery slope to go for more
The Basic Tests
 Review the business purpose of each
expense for reasonableness.
 Validate expenses with proper receipts
(when applicable).
 Recalculate the total reimbursable amount
to test accuracy.
 Review each report for proper approval
 Trace and agree the total reimbursable
amount on the T&E report to the
disbursement(s).

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Remember the Tips
(Not the Dinner Kind)
 Tip Line is Still the #1 Way to
Find Fraud
 Analytics play a role
 Most frauds are detected
based on a pattern of past
frauds within the entity
Airline Schemes and Tests
 Book a personal trip as a business
one:
Match dates of travel to airline dates
 Book an expensive refundable ticket
and a cheaper ticket, cancel the
refundable ticket, and then submit it
for payment
 Obtain payment receipt (i.e., Visa
bill for the month) and airline
support
See “How To Pad Your Expense Report…..and Get Away With It” by
Employee X

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Airline Schemes and Tests
Edit the E‐mail on an E‐Ticket
Obtain payment receipt (i.e., Visa bill
for the month) and airline support
Use one airline to get mileage points
(even if not the best)
Get a general sense of flight costs and
airlines for key company locations
Employee X
Hotel Schemes and Tests
 Scan invoice and increase amounts
 Get extra invoice paper from hotel and type phony
bill
 Complain to reverse charges and submit the original
invoice
 Ask for a discount (i.e., AAA) after the bill is printed
Obtain payment receipt (i.e., Visa bill for the month)
and hotel support
Employee X

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Meal Schemes and Tests
 Buy tear off receipts at office supply store and
submit phony receipts
 Eat cheap meals or have someone else pay for
them and then submit thrown away receipts
Check dates are within travel period
Obtain payment receipt (i.e., Visa bill for the
month) and hotel support
Employee X
Taxi / Mileage
 Put through phony taxi receipt and have
someone drive you to the airport
Obtain payment receipt (i.e., Visa bill for the
month)
 Add more mileage to the mileage allowance
Get a general sense of mileage between
company locations or use Mapquest
Employee X

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Little More Advanced Tests
 Submit altered claims for legitimate expenses that are larger
than actuals, pocket difference in cash
 Create fictitious vendor to vouch for purchases
 Use a “Square” to become a vendor yourself
 Change the vendor’s name between the P‐Card and T&E system
 Avoid approval limits by splitting purchases
 Organize legitimate expenses to secure a cash discount or
other benefit from vendor that should go to the employer
 Submit same expense to multiple authorities or multiple
general ledger accounts
Polling Question 2
What is the number one way to detect fraud per past
studies?
A. Strong Pcard policy
B. Management tip (hotline)
C. Employee training
D. Fraud policy

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Book It For Them
 Travel agency to process hotel,
car, and air
 Use a car service
 Ensure that payment is made by
company directly to the vendor
Benefits of Automation
 Enforce company financial policy
 Established system of approvals
 Increased visibility
 Sound internal controls
 Heightened accountability
 Reduced audit fees
 Peace of mind

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Copyright © 2013 FraudResourceNet™ LLC
Data Tables and Fields – P-Card
Cardholder:
Card Number
Cardholder Address
City
Post Code
Limit
MCC Description:
MCC
MCC Description
Transactions:
Name
Card Number
Merchant
Merchant City
Merchant State
Merchant Cntry
Merchant PostCode
MCC
Amount
Curr ency
Post Date
Trans Date
Data Tables and Fields
T&E Considerations
 Business Purpose
 Who Entertained
 Flight/Hotel Information (from
Travel Company)
Days before the flight booking made
Type of airline and ticket

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The Data Aggregators
 Online T&E system
 Travel company / Car Service
company
 Vendor System (i.e., Office
Supplies)
 Procurement card
 Access database / Excel
spreadsheet
Data Marts and
Server Benefits
 Centralized data and backups
 Audit knowledge is saved in one place
 Security and user management
 Better data than the business units
 Faster processing for large data sets
Page 30

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Polling Question 3
What is not one of the key tables for P‐Card analysis?
A. Cardholder
B. Travel Information
C. MCC Code Description
D. Transactions
The Overall Fraud
Analytic Process
 Get the Most Useful Data for Analysis
 Develop Fraud Query Viewpoints
The 5 Dimensions
Brainstorm report ideas
 Analytically Trend
Benford’s Law
Statistical averages and simple trending by day, month, day of week
Post dated changes
 Use Visualization Techniques

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Our Viewpoints or
Data Dimensions
It’s The Trends….Right?
• Trend categories (meals, hotel, airfare, other)
• Trend mileage
• Trend departments
• Trend in the type of receipts
• Trend under limits (company policy)
• Trend by person
• By location
• By vendor

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Another Way of Presenting
Data Mining Approaches
Personnel Analysis
 Adjustments by employee
 Processing by employee
Contextual Summarizations
 Transaction types
Time Trending
 Month, week, and day / Also by department
 Last month to first 11 months
 Transactions at the end of and start of a fiscal year
Top Reports
 Unmatched query of cardholders to an active employee masterfile
 Cards used in multiple states in the same day
 Cards processing in multiple currencies in the same day
 Identify cards that have not had activity in the last six months
 Cardholders that have more than one card (Duplicates on card holder)
 Extract any cash back credits processed through the card
 Extract declined card transactions and determine if they are frequent
for certain cards
 Summary of card usage by merchant to find newly added merchants
and most active

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Top Reports (continued)
 Duplicates on card number, amount, and transaction date
 Duplicates on merchant, amount, and transaction date
(regardless of card)
 Duplicates on merchant and amount
 Duplicates on cardholder and amount
 A multitude of transactions under the card purchase limit or
MCC amount limit to identify split purchases on the card to
purchase higher amount items using multiple charges.
 Postings to unusual MCC codes
 Align the P‐card to T&E system to ensure merchant and
amounts line up for each transactions
Violating Statistical Patterns to the Norm
• Supplier values that are deemed exceptional after applying regression and standard
deviation calculations
• Invoice amount values themselves that appear unusual based on the number's digits and
past patterns
• Suppliers who have a large percentage of rounded‐amount invoices or in sequence invoice
numbers.
Conflicting External Data
• Supplier addresses not listed in Google Maps
• Supplier matches to a world compliance “watch list”
• Google Maps shows supplier (business) address to be an apartment or other personal
residence
Timing Differences
• Suppliers who are consistently paid quickly, typically in less than 10 days
• Checks cut on a weekend or after‐hours based on time stamps
• Unusual increasing or decreasing trends across business quarters for a supplier
Sample Red Flag Vendor Reports
(Focus on the potential accomplice )

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Cost Recovery
Opportunity Tests
Vendors that are sole sourced to one employee
Employees that have too many vendors
Categories that map to the “recovery list” (TELCOM!!!)
Top 100 vendors
Trend analysis over time
Trend analysis by vendor (scatter graph)
Stratify Data ‐ Results

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Scatter Data
Scatter Graph

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Map of the Vendor
Population
43
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
0.3500
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
Frequency
Digits
Quarterly law
Benford
4th
3rd
2nd
1st
Benford’s Law
Continuous View

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Deeper into Benford’s
Invoices Near The
Approval Limit

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Polling Question 4
What is the best Excel chart for reviewing Pcard and T&E
data?
A. Scatter Graphs
B. Pivot Tables
C. Vlookup
D. Data Analysis Toolkit
T&E Scoring Analysis
(Using Macros)
1. Employees with low transaction, high dollar activity ‐ 20
2. Employees with a high proportion of round dollar
payments. ‐ 25
3. Payments to any employees that exceed the twelve month
average payments to that employee by a specified
percentage (i.e., 200%) or 3x the standard deviation for
that vendor. ‐ 20
4. Employees with a high proportion of charges near approval
limits ‐ 35

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Transactional Score Benefits
Instead of selecting samples from reports, transactions that
meet multiple report attributes are selected (kill more birds
with one stone). Therefore a 50 unit sample can efficiently
audit:
 38 duplicate payments
 22 round invoices
 18 in sequence invoices
….and they are the best given they are
mathematically the most “severe”.
Sampling can be based on quadrants
which takes into account different
severity, volume, and value dimensions
49
P‐Card Process Steps
 Create/Issue Cards
 Maintain Cards
 Cancel Cards
 Approve Merchants / Merchant Codes
 Block Merchants / Merchant Codes
 Set Approval Limits / Policies of Use
 Initiate Transactions
 Validate Transactions
 Approve Transactions

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The Controls Summary
 Whistleblower Hotline
 Code of Conduct
 Employee Training
 Review the Data
 Book It For Them
 Automated Workflow
 Deal With the Fraudsters
Set the Baseline
 Establish set of core values
 Communicate them
 Train people in them
 Give people examples
 So they understand in practical terms
when they break the code

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Other Fraud Policy Categories
 Definitions of misconduct and dishonesty
 Organizational policy and responsibilities regarding reporting
suspected misconduct.
 Deterrence and detection responsibilities of individuals with
supervisory or review responsibility.
 Policy specifying the responsibility and authority related to the
investigation of incidents of misconduct and dishonesty.
 General procedures for the follow up and investigation of
reported incidents.
 Note that questions or other clarifications of the fraud policy
should be addressed to the corporation’s Chief Counsel.
P‐Card Policy Considerations
 Who can have the card / Who cannot have the card (former
employees, non‐employees, agents/students/vendors)
 Reconciliation procedures
 What can and cannot be purchased with the card
 Restricting use to organizational business needs
 How to get the card
 How to handle exceptions and irregularities
 How a card can and should be deactivated
 How to get help
 Cardholder agreements
 Rights and responsibilities of the cardholder, department
manager responsible for managing card usage, department
manager, organization and card‐issuer

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Train the Frontline Troops
Explain the basics of fraud
 How it starts
 How it grows fast
 Red flag signs
Explain what to do if they
sense it
Make it fun
 Case studies using past or
fictional examples
Have a Response Team
Have an incident response program
 Set the investigation plan
 Set accountabilities
Do appropriate marketing
 Put everyone on notice that a team exists and is ready to
investigate as needed
 Communicate wrongdoing through company newsletters
even if it is done at a departmental level

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Ways To Deal With
Fraudsters
Terminate
 Make an example of those who get
caught
Put fraud on their W‐2
Remember it is better to
prevent and deter than try to
reclaim later
Polling Question 5
Which of the following are key to the P‐Card fraud control
framework?
A. Employee Training
B. Review the Data
C. Book It For Them
D. Automated Workflow
E. All of the above

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Questions?
Any Questions?
Don’t be Shy!
 May 14 Vendor Master File Fraud Detection
and Prevention Using Data Analytics
 June 11 Essentials of an Effective Fraud
Response Plan
 June 18 Quick Response Fraud Detection
Using Data Analytics
Coming Up Next

5/7/2014
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Website: http://www.fraudresourcenet.com
Jim Kaplan
FraudResourceNet™
800‐385‐1625
jkaplan@fraudresourcenet.com
Peter Goldmann
FraudResourceNet™
800‐440‐2261
pgoldmann@fraudresourcenet.com
Rich Lanza
Cash Recovery Partners, LLC
Phone: 973‐729‐3944
rich@richlanza.com

Catch T&E and P-Card Fraudsters Using Data Analytics

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Catch T&E and P-Card Fraudsters Using Data Analytics