I love sci-fi and action movies. One of my favourite Sci-fi movie is the ‘Back to the Future’ trilogy. The best part of sci-fi movies is that what is a fiction today, can become a reality tomorrow. I still wish to own the DeLorean from Back to the Futures, but I don’t think that will become a reality during my lifetime, but who knows.
Largest Subset & Growth Tests
The first analysis of any data set need not use sophisticated mathematics or statistics. The goal of these test is to find subsets that are highly inflated due to the error or fraud.
Largest Subset Test
The largest subsets test uses two fields, one with transaction or balance numbers (such as amount, inventory counts, vote counts, population counts) and another field to indicate the subset (e.g., vendor number, credit card number, or branch number). Subset is a group of records that have something in common.
The data can often be divided into several subset groupings. For example, accounts payable data could be grouped by vendor or by the type of purchase (purchase order, no. purchase order) or by time. There are often a few different ways that data can be divided into subsets. For inventory data the grouping could be by location. For airline ticket refunds or retail customer refunds the groupings could be the credit card that received the refund.
Multilevel Marketing: You make More Money by Staying Away
Recently an old friend tried to sell me a unique business opportunity, like once in a lifetime opportunity by making me a member of Amway. For those of who don’t know Amway, it’s a multilevel marketing (MLM) company, dealing in dietary supplements.
What is Multilevel Marketing?
Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s “downline.” All distributors also make money through direct sales of products to customers. (Investopedia)
Fuzzy Logic: Analyzing Text Datasets
A challenging problem in analyzing text-based datasets is that a same record may be represented in multiple ways throughout the dataset. Variations can result from inconsistent naming conventions, spelling mistakes, etc. which makes it difficult to compare text data using ‘VLOOKUP’ & ‘MATCH’ functions. To match text datasets we can use something called Fuzzy Logic.
Luhn Algorithm: A Little Known Tool for Auditors
Luhn Algorithm also known as ‘modulus 10’ or ‘mod 10’ algorithm, was created by Hans Peter Luhn in 1954.
It is widely used in Credit/Debit card numbers, IMEI numbers, and Canadian Social Insurance numbers.
What is Luhn Algorithm?
To understand what Luhn algorithm is, we first need to understand what is ‘modulo’. Modulo or Modulus is the remainder after dividing the number with another number. Consider the example 7 divided by 3 has; quotient 2 and remainder 1.
Therefore, modulo 10 equal 0 means after dividing the number with 10, the remainder should be 0. In simple terms the number (dividend) should be a multiple of 10 (divisor).
Relative Size Factor: Finding Outliers
In my previous article Auditing: Accounts Payable / Vendor Payments I spoke about Relative Size Factor (RSF) and how it can used to identify isolated outliers in vendor invoices. In this article I’ll try to show how RSF can be calculated in Excel.
The RSF test is an important tool for detecting errors. RSF test compares the top two amounts for each subset and calculates the RSF for each. The test identifies subsets where the largest amount is out of line with other amounts for that subset.
Auditing vs Fraud Examination vs Forensic Accounting
In general terms, fraud is an intentional deception, whether by omission or commission, to realize a gain. Under common law, fraud includes four essential elements:
- A material false statement
- Knowledge that the statement was false when it was spoken
- Reliance on the false statement by the victim
- Damages resulting from the victim’s reliance on the false statement
In the broadest sense, fraud can encompass any act for gain that uses deception as its principle technique. This deception is implemented through fraud schemes, specific methodologies used to commit and conceal the fraudulent act. The legal definition of fraud is the same, whether the incidence is criminal or civil. The difference is that criminal cases must meet a higher burden of proof.
Spreadsheets: Best Practices (Part 3)
Spreadsheets are known to be error prone. As per one study by Raymond Panko, 86% of spreadsheets contains errors. Errors in spreadsheets can’t be eliminated completely, but steps can be taken to reduce them.
In 2003, “a cut-and-paste error in a spreadsheet cost TransAlta, a Canadian power generation company, $24 million in overpayments for hedging contracts.”
Spreadsheets: Auditing & Validating (Part 2)
In the previous post Spreadsheets: Risk, I mentioned few of the risks associated with spreadsheets. In this post I’ll try to show some excel tools which can help in detecting errors and frauds in Excel spreadsheets.
In the late 1990’s “Poor control over spreadsheets at Jamaican indigenous banks contributed to management information and external reporting problems (i.e., P&L distortions) that contributed to the banks’ management and external regulators losing sight of the banks’ true positions and exposures. Which led to collapse of entire Jamaican Banking System.
Spreadsheets: Risks (Part 1)
Spreadsheets have stood the test of time because they continue to meet the analytical needs of organizations, especially for analyzing and reporting financial results and providing support for decision-making.
“…spreadsheets will always fill the void between what a business needs today and the formal installed systems…” Mel Glass et al
Audit Monk 