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Secrets, Conspiracies and Hidden Patterns: The World of Forensic Data Mining Shauna Woody-Coussens, Director, Forensic & Valuation Services AVA, CFE Agenda Forensic data mining defined When it is used Common areas of use Benefits associated with using forensic data mining BKD Forensics Institute Forensic Data Mining Use of sophisticated procedures and technologies to identify concealed patterns in financial, non-financial and textual data that would not otherwise be detectable due to the size and complexity of the data. BKD Forensics Institute Benefits of Data Mining Don’t necessarily need to know exactly what you are looking for, initially Allows analysis of 100% of data rather than sampling Search and analysis of massive, complex data sets Identifies patterns and anomalies BKD Forensics Institute Patterns Identified with Data Mining Numeric – fictitious invoice numbers, fictitiously-generated transaction amounts… Date – Transactions occurring too regularly, activity at unusual times or dates… Name – Similar and altered names and addresses… Geographic – Proximity relationships between apparently unrelated entities… Textual – Detection of “tone” rather than words… Time – Changes in behavior / activity over time… BKD Forensics Institute Common Areas of Use Shell companies and “phoenix operators” Embezzlement and financial statement fraud Procurement / Payables fraud Corporate espionage / Theft of intellectual property Loan fraud and other banking schemes Public corruption and conflicts of interest Due Diligence/Mergers and Acquisitions Foreign Corrupt Practices Act (FCPA) investigations BKD Forensics Institute Dissecting Data – Shell Company Example Automated web crawlers do not detect “presence” of name against outside data sources. Cross Reference Against: Postal contractors database Correctional facilities database High-risk ZIP codes Unexpected / unusual addresses The UPS Store 1221 East Kearney Springfield, MO BKD Forensics Institute Address Geocoding BKD Forensics Institute Straight From the Headlines… BKD Forensics Institute Address Geocoding “Vinny’s Salvage Yard” BKD Forensics Institute Address Geocoding BKD Forensics Institute Classic Loan Example (1) Name similarity (3) Customer phone matches CEO cell phone (2) Customer address matches CEO address (4) Customer TIN matches other customer TIN BKD Forensics Institute Time Series Patterns Vendor: JLM Plumbing Processor: Janice McPhearson 1600 1400 “Break Out” Getting Greedy 1200 1000 800 Acceleration as Confidence Builds 600 400 Testing the Waters 200 0 1/21/2006 2/21/2006 3/21/2006 4/21/2006 5/21/2006 6/21/2006 7/21/2006 8/21/2006 BKD Forensics Institute Classic Real Duplicates BKD Forensics Institute FCPA Applications Email, text and chat communications Unusual timing, coding and treatment of transactions Identification of shell entities Identification of conflict of interest relationships Blend of computer forensics and data mining for maximum benefit Prime candidate for “Exploratory Data Mining” BKD Forensics Institute Exploratory Data Mining Non-Obvious Relationship Association Linking items that are related but removed by several degrees of separation to mask their relationship. Latent Semantic Analysis Concept searching based on tone, recurring themes and communication nuances Neural Networks and Artificial Intelligence Machine can learn and help discover deeply hidden patterns BKD Forensics Institute Non-Obvious Relationship Association Items related by degrees of separation Credit: Coleen McCue Carrie Fischer was in Star Wars with Harrison Ford who was in The Fugitive with Tommy Lee Jones who was in Batman Forever with Val Kilmer who was in Heat with Robert Dinero who was in Sleepers with KEVIN BACON! BKD Forensics Institute Actual NORA Example BKD Forensics Institute Artificial Intelligence and Clustering BKD Forensics Institute Textual Data Mining Corporate email Board minutes Company document collections Employee reviews and performance appraisals Corporate telephone records, cell phones Public records information and personnel files BKD Forensics Institute Text Data Mining and Fraud Triangle Opportunity Pressure/Incentive O Score Key Words • Meet the deadline • Make sales quota • Under the gun Key Words • Override • Write-off • Recognize revenue Rationalization Key Words • I think it’s OK • Sounds reasonable • I deserve Fraud Score P Score R Score Source: “Detecting Fraud by Integrating E-mail Analytics with the Fraud Triangle,” Fraud Magazine, May/June 2009 BKD Forensics Institute Contact Information Shauna Woody-Coussens [email protected] 816.701.0250 www.bkd.com/service/forensics/institute BKD Forensics Institute