Tech to rescue: Now, forensic auditors go 'social' to nab fraudsters

As financial and corporate fraudsters become more sophisticated, using technology to avoid detection, forensic auditors are scrambling to keep up by using tools such as social media analytics to catch them.

It can be a photograph posted by a relative boasting about the new house they have bought overseas, a post about their next holiday destination, or it can be special tools that spot duplicate addresses and telephone numbers. 

The ingenious use of a whole battery of tools allows forensic auditors to close in on their prey. 

As both things become more complex — the financial criminal’s methods and the nature of business operations which can often flummox even experts — forensic auditors 

are raising their game by becoming innovative.

“Forensic auditors will need to adapt not only by using modern tools but coupling them with imaginative application in these difficult situations,” said Chetan Dalal, founder & chief executive officer, Chetan Dalal Management and Investigation Services, who has been handling forensic accounting for almost two decades.

Take this case. An entrepreneur who had large non-performing assets with a leading public sector bank flew out of India. Later, the bank discovered the fraud he had committed. To find him, it appointed an investigating agency which used social media analytics to unearth publicly available data.After examining the data, the agency had a good idea, thanks to the public posts put up by his unsuspecting family about the defaulter’s footprint.

An investigator with a foreign firm, who wanted to remain anonymous, said that while defaulters themselves might be careful about sharing posts and photos, their families often happily went ahead and put information out on social media with no idea that it would provide vital clues to agencies trying to find the defaulters. 
 

Dalal added that verification of KYCs was critical for every bank, non-banking financial company, and insurance company if they wished to tackle fraud, moneylaundering, and other kinds of abuse.

“We use new tools which can spot not only documentary fraud, but even image and picture replication, and also duplicate addresses and telephone numbers given by unrelated persons in KYCs,” he said.

FOLLOWING THE DIGITAL TRAIL

• Companies now use cyber experts to watch out for any ‘buzz’ generated on social media about themselves — people tweeting or posting recommendations about when to buy their shares

• Experts say confidential information about a company’s plans for investments, mergers or acquisitions, can often be leaked by insiders before any official announcement is made

• In such cases, pre-emptive action by using all the applications, software, and algorithms available is vital to protect damage to a company’s reputation

Such tools also have a wide application in other areas of an audit. In inventory verification, an image comparison tool can be used on stock photographs at various locations across the country.

“In the current environment, technology is an important friend for high-quality investigation. From analysing corporate records and reviewing financial statements to deciphering computers and phones and tracing assets, technology plays an integral role in the process,” said Tarun Bhatia, managing director, Business Intelligence & Investigations, and Head of Kroll South Asia.

It is not that new tools always have to be developed and customised for a particular job. Often, existing and easily available generic tools on the internet suffice. The trick, say experts, is using them imaginatively for solving fraud cases. Dalal’s firm, for example, solved a credit card fraud by a small alteration to the Luhn’s algorithm, which validates a variety of identification numbers such as credit card numbers, and is available on the net.

After incorporating an electronic validator into the functions of the algorithm and using a spreadsheet, the auditors were able to prove that the credit card number was false. A case of fraud was solved with mathematical accuracy.

In another case, a group of individuals defrauded banks by acting as borrowers and guarantors in different loan applications for one another. Multiple loan applications were filed for the same purpose by members of the group. The premises which were pledged as collateral for the loans were shown by attaching photographs showing the same building but from different angles. The forensic auditor, using a special tool he had devised, realised that the photos were of the same premises.

Mahesh Bhatki, forensic auditor and chartered accountant, said that the recently introduced ‘Fuzzy Lookup’ function on Microsoft’s MS Excel can be used to easily capture records and find people who are related but who are using similar KYC information, with just a slight difference, to avoid detection.

This function provides a similarity score percentage which can be analysed to locate the inexact cases. ”This is the kind of thing that can be done now, provided one keeps researching and adapting these tools innovatively,” said Bhatki.

Companies now use cyber experts to watch out for any ‘buzz’ generated on social media about themselves – people tweeting or posting recommendations about when to buy their shares. Experts say confidential information about a company’s plans for investments, mergers or acquisitions, can often be leaked by insiders before any official announcement is made. In such cases, pre-emptive action by using all the apps, software, and algorithms available is vital to protect damage to a company’s reputation.

In another case of fraud, a private hospital receiving a government grant for treating serious diseases, used to take one year to spend it. Then the grant started being exhausted in a few months. The question was: why was the number of serious patients rising so much that the grant was depleted before time?

A forensic auditor (and the insurance company) looked into the patient case histories and, using a customised photo identification tool, found that only one doctor, out of several eligible for certifying the grant, was claiming it for treating various patients. Moreover, his patients had died of other ailments rather than of the disease for which the grant was intended.