Companies are missing opportunities to mine big data to reduce fraud risk and improve anti-bribery compliance 2014
EY’s 2014 global forensic data analytics survey, Big risks require big data thinking, highlights that 63% of senior executives surveyed at leading companies around the world, agree that they need to do more to improve their anti-fraud and anti-bribery procedures, including the use of forensic data analytics (FDA). The survey polled more than 450 executives in 11 countries, including finance professionals, heads of internal audit, compliance and legal, about their use of FDA in anti-fraud and anti-bribery compliance programs.
- 72% of respondents say emerging big data technologies can play a key role in fraud prevention and detection
- 90% say forensic data analytics will enhance the risk assessment process, with 82% contending that its use will lead to the earlier detection of misconduct
- Yet only 2% are leveraging big data technologies and only 11% are using statistical analysis and data-mining tools
The survey also finds that 87% of respondents indicate that regulatory requirements, including anti-corruption laws and recent enforcement trends, are a driving force behind the design and use of FDA, with almost half indicating that these regulatory developments are a top five factor. Bribery and corruption is reported as the top perceived risk at 65%, which aligns well with the finding that 74% report using FDA to combat bribery and corruption. Other perceived significant fraud risk areas, such as asset misappropriation and financial misstatement, are also priority areas for FDA attention.
David Stulb, EY’s Global Leader of Fraud Investigation & Dispute Services (FIDS), says: “With regulators and law enforcement agencies intensifying their cross-border cooperation, resulting in significant corporate fines and jail sentences for executives, boards should encourage management to leverage forensic data analytics in their ongoing compliance efforts.”
FDA enhances the risk assessment process and improves fraud detection
A key benefit of FDA, according to 89% of respondents, is the ability to “detect potential misconduct that we couldn’t detect before.” The sentiment is shared by many respondents, regardless of their function in the organization.
David Remnitz, FIDS Global Forensic Technology & Discovery Services Leader, remarks: “Our survey findings suggest that while companies may be doing some forms of FDA, many could be missing important opportunities to improve their anti-fraud and anti-bribery efforts. By combining multiple data sources and leveraging advanced FDA tools, companies are now able to gain new and important insights from their business data.”
Missed opportunities to turn data into information
Despite the overall positive sentiment regarding the effectiveness of FDA, the research suggests that the vast majority of companies are not working with sufficient data volumes given the size of their corporate revenues.
Only 18% of internal audit professionals polled are working with data volumes in excess of one million records. Among financial services respondents, only 21% report working with data volumes nearing and over one million records, which is still low for such a data-intensive industry. Overall, 71% of companies with over US$1b in revenues are working with data sets under one million records. The use of smaller than expected data volumes, relative to corporate revenues, raises the question that many companies may be missing important fraud prevention and detection opportunities by not mining larger datasets.
Advanced FDA tools like statistical analysis and data-mining technologies are used by only 11% of respondents. It is not surprising that the biggest challenge with respect to FDA is “getting the right tools or expertise.” Building support within the company for more intensive FDA efforts appears to be a key priority for our respondents, with 62% of those polled indicating the need to improve management’s awareness of the benefits of FDA. Interestingly, cost does not appear to be a major obstacle, with just 10% of interviewees indicating that FDA is prohibitively expensive.
Bigger data, better insights
Traditional spreadsheet and database applications can struggle with the increasing volumes, velocities and varieties of data generated by global companies. Advanced FDA technologies including statistical tools that incorporate predictive modeling, anomaly detection and risk-scoring algorithms, can mine such big data to detect potentially fraudulent transactions in real, or near-real, time. The effective use of natural language processing, or text-mining, combined with data visualization, can handle a wide variety of sources, including both structured and unstructured data, to improve overall detection, reduce risk and increase return on the investment in FDA.
Respondents who are using FDA technologies beyond spreadsheet and database tools have generally observed earlier detection of misconduct (15% more than others) and improved results and recoveries (11% more than others), among other positive differences.
David Remnitz concludes: “Given that their companies are likely generating substantial data volumes, it would be prudent for board members and other stakeholders to encourage management to accelerate their efforts to glean as much insight as possible from their big data. Better risk assessments and more effective compliance, among other benefits, are likely to follow.”
EY March 19, 2014