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LEARNING RESOURCES

Fraud Prevention, Detection, and Response
essentially a false positive, but a rare false positive).
This course describes the techniques typically Substantive analytical procedures are an efficient
employed to prevent, detect, and investigate fraud means of providing audit evidence because of the
within the organization. Topics include the impact
of fraud on business and society, common profiles relative ease of obtaining the data and performing
of fraud perpetrators, types of fraud schemes, fraud the calculations and comparisons. Running the
triangle, risk issues, corporate governance, and fraud Benford’s Law-based tests on journal entry amounts
risk assessment and process controls. is reasonably straightforward and can be done in, for
example, Excel, R, or IDEA. Internal auditors could
CPE SELF-STUDY
run these tests as a part of a continuous monitoring
general ledger analytics application.
These tests will almost always bring to light
Guide to Audit Data Analytics
patterns and insights that would otherwise have
In your next financial statement audit, apply the remained concealed. Note, however, that Benford’s
benefits of audit data analytics. We worked with the Law-based testing only provides an indicator of
profession’s leading experts to show you how.
fraud or misstatements. When presented with a
PUBLICATION graph with ridges or spikes, auditors should find
out whether there are valid business reasons (such
For more information or to make a purchase, go to aicpa.org/cpe-learning as travel per diem amounts) that caused these
or call the Institute at 888-777-7077. deviations. If none are forthcoming from the client,
then auditors should perform substantive tests of
transactions or tests of details of balances to see
whether dollar misstatements have occurred. Staff
of the client’s internal controls and the audit risk. training should cover the documentation needed to
Benford’s Law-based journal entry or general led- explain a ridge or a spike and should ensure that the
ger analytics testing is not suggested for datasets with tests are run, and the follow-up work is consistent,
fewer than 5,000 records. Unpublished statistical across all offices. ■
research of mine has shown that 5,000 is essentially
the lowest number of records for which a first-two
digits test on journal entries is effective. Datasets About the author
with fewer than 5,000 journal entry amounts have an
elevated chance of producing 1, 2, 3, or more spikes Mark J. Nigrini, Ph.D., is an associate professor
due simply to random fluctuations unrelated to any at West Virginia University in Morgantown,
irregularities (essentially false positives). Datasets W.Va. His article “Lessons From an $8 Million
with more than 5,000 journal entry amounts have Fraud,” JofA, Aug. 2014, co-written with
only a small chance of producing a single spike Nathan J. Mueller, won the Lawler Award for
that tops the threshold line by a small margin (also best JofA article of 2014.