3 key aspects: Data Mining as a Fraud Prevention Tool … · · 2011-01-18Data Mining as a Fraud Prevention Tool Richard Kusnierz ... ¾Nick Leeson ¾Rogue trader ... Case Study
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Only one in four cases werediscovered by internal controls 31% of frauds were discoveredfollowing a whistle blowerWeaknesses in controls wereexploited by the fraudsters
UK Money Laundering Regulationsdate from 1993“it is also a separate offence under theML regulations not to have systems andprocedures in place to combat moneylaundering (regardless of whether or notmoney laundering is actually takingplace).”
Trusted employees know thesystemsTrusted employees commitfraud or steal informationEffective fraud detectionsystems need to be unexpectedand innovative
Implementing a balanced,considered mechanism to ensurethat an organisation minimisesemployee fraud contains manyelements, data mining can bepart of that
Walking a tightropePlan to use data miningRegister the purposeDP Adverse Impact AssessmentRun fraud workshops and gainemployee understandingInclude a new clause inemployment contractsUse staff handbooks
Publishing company$1.0 million advance paid intosuspense accountsubsequently transferred toLuxembourgemployee responsible for transfers“didn’t come back from holiday”
Printing companydifferent addresses and post codesdifferent telephone numberssame fax numberprinters had over charged andwithheld rebatesContract renegotiated, £1,000,000recovered
Single round value £70,000Company in MaltaNo record of organisation orperson in Google, research etc.Invoice was for consultancy inWest AfricaNo supporting documents
Past Examples (8)20 sequential invoicesaverage invoice value of about£3,500hand-written invoicesstarted mid year, no priortrading historyno one accepted responsibility
Multiple applications to a Charitysame charity different locationsdifferent charity same locationscollusion between charity andapplicantsuse of accommodation addresses
Case Study OnePerform daily verificationSatisfy bank in USA that controlsare in placeCreate blacklists and whitelistsSatisfy FSA that money launderingprocesses are in placePrevent problems