Forensic Analytics, 2nd Edition

CHAPTER 12Scoring Forensic Units for Fraud Risk

THIS CHAPTER DESCRIBES THE risk-scoring method and applications of the method in a forensic accounting setting. The predictors used are indicators of some fraudulent behavior of interest, such as underreported sales by a franchisee or underreported income by a taxpayer. The risk-scoring predictors are like cues or red flags. A forensic unit is the person, or the subunit, that commits the fraud. Examples include a cashier, an operating division, a bank account holder, a frequent flyer, a fast food restaurant owner, a travel agent, or an employee with a purchasing card. The risk-scoring method is well-suited to a continuous monitoring environment with hundreds or thousands of forensic units. The result is a score for each forensic unit that is associated with the forensic unit having either a low risk of fraud or a high risk of fraud.

Monitoring means “to watch, and keep track of, or to check for some special purpose.” Our water supply is continuously monitored, and many different conditions are monitored in commercial airplane flights. In hospitals, the monitoring of a patient's vital signs is taken for granted. In prisons, monitoring the activities and whereabouts of inmates is vital, and any inmate escape is usually attributed to a lapse in these monitoring activities. A Google search for “continuous monitoring” will return results from applications such as cybersecurity, weather, pollution, volcanoes, glucose levels for diabetics, ...