Fraud Detection Analytics Flashcards

Which analytical approach traces financial transactions through multiple accounts or entities to detect complex money laundering schemes?

Answer: Network analysis

Network analysis maps relationships between entities and traces transaction flows across multiple accounts, making it effective for identifying layering schemes used in money laundering.

In procurement fraud, what does 'splitting' refer to?

Answer: Breaking up contracts into smaller amounts to avoid competitive bidding thresholds

Splitting involves intentionally dividing purchases into smaller amounts to circumvent competitive bidding requirements or authorization thresholds, bypassing required procurement controls.

Which machine learning technique is most commonly used in fraud detection to classify transactions as fraudulent or legitimate based on historical labeled data?

Answer: Supervised classification

Supervised classification algorithms are trained on labeled historical data (known fraud vs. legitimate transactions) to learn distinguishing patterns and classify new transactions accordingly.

Which red flag in procurement data most commonly indicates bid rigging among competing vendors?

Answer: A small group of vendors taking turns winning contracts in a rotating pattern

Bid rotation, where a small group of vendors takes turns winning contracts, is a key indicator of collusion, suggesting competitors are coordinating to divide business rather than competing legitimately.

What does a 'related party' analysis in fraud detection primarily examine?

Answer: Undisclosed business relationships between employees and vendors or customers

Related party analysis examines whether employees have undisclosed financial relationships with vendors or customers that could create conflicts of interest or enable fraudulent schemes.

What is 'lapping' in accounts receivable fraud?

Answer: Stealing customer payments and concealing the theft using subsequent payments from other customers

Lapping involves misappropriating a customer's payment, then concealing the theft by applying a later payment from another customer to the first account, creating a perpetually rolling shortfall.

Which data analytics test is most effective for detecting fictitious vendors in accounts payable?

Answer: Matching vendor addresses, phone numbers, or bank details against employee records

Matching vendor master file data against employee records can reveal fictitious vendors created by employees, who often accidentally use their own contact information or banking details for the fake vendor.