Forensic Technology & Discovery Services: The Intelligent Connection - EY India

1. Forensic Data Analytics

2. Key to unlocking invisible information using forensic “lookback” Forensic Data Analytics as a topic and its adoption within the industry had long been overdue. With the advent of technology and increasing incidents of fraud, there has been a significant rise in adoption of Forensic Data Analytics. Due to this, company appointed auditors and independent directors are now seeking to implement proactive fraud-prevention solutions and are avoiding post- incident remediation processes. Forensic Data Analytics is a science used to proactively seek opportunities to prevent and detect fraud, waste and abuse by leveraging information in corporate data assets. It enables identification of meaningful patterns and correlations in existing historic data to predict future events and assess the reasons for various fraudulent activities. Such insightful predictive information is generally “invisible,” but provides a platform on which organizations can take business decisions related to fraud, disputes and misconduct. “ “ The greatest value of forensic analytics is when it forces us to notice what we did not expect to see.

3. Evolution of forensic data analytics Without big data analytics, companies are blind and deaf, meandering aimlessly like a deer on freeway day, and that number is doubling every 40 months Big data is a reality: The volume, variety and velocity of data coming into the organization have reached unprecedented levels. About 2.5 exabytes of data are created each 1. Big data Torture the data, and it will confess to anything data warehousing techniques may not be able to identify anomalies in the existing data set thus preventing proactive fraud management Issues in managing big data: Big data requires high performance analytics to process billions of rows of data with hundreds of millions of data combinations. The traditional 2. Manage data Absence of forensic evidence is not evidence of forensic absence Recent scams in the limelight: In the recent times, India has been hit with multi billion value scams associated with the following: Bribery and Corruption • 3. Key Risk Events Procurement fraud and collusion in bidding process • Accounting misstatement • Anti Money Laundering • Forensic analytics is the oil of the 21st century which protects organizations combustion engine from going bust 4. possible if existing data assets were analyzed from forensic perspective to avoid wrongful or criminal deception intended to result in financial or personal gain. Adoption of forensic data analytics: The associated risks could have been mitigated if key stakeholders would have paid attention to anomalies at an earlier stage. This could have been Forensic Data Analytics How does forensic data analytics help organizations? Proactive fraud prevention management Controlling the magnitude of fraud in a reactive set up Effective and focused internal controls Improving regulatory and compliance environment • • • • 3 Forensic Data Analytics

4. Capability landscape Forensic Data Analytics can be used as a standalone service or in conjunction with existing practices such as investigations, audits, process review and due diligence. In the current context, data exists in structured (multiple form of databases) and unstructured forms (emails, office documents, presentations, Excel sheets, PDF files, archive files, text and image files) in organizations. Using EY’s proprietary tools, raw data can be transformed into formats that can be analyzed, and with the help of advanced analytical capabilities, anomalies can be identified that may indicate potential fraud. Some of our key offerings include, but not limited to, identification of fraud in vendor, customer and employee registration, procurement to pay, order to cash, sales and distribution, travel and entertainment, payroll disbursment. Our forensic analytic models are developed to identify variances in data sets, which may impact an organization’s profit and loss statement. This model also touches on various aspects, from simple narration captured in a transaction to complicated sentiments and tone analysis. It also includes data within applications and data recorded on social and professional networks for further analysis. This analysis helps a company to move beyond identification of low value pilferage to implementing controls on existing and potential weak areas. Any dataset in historic, near real time and real time form can be assimilated through big data solutions to help a company improve its bottom line by checking fraudulent activities Unstructured data Forensic data analytics Sample Dashboard Debit/Credit Credit Journal Entries and Amount Per User Amount per Account Name User_ID EY_Account_Name NL trading account NX Debit 60,565,488 79,779 200M EY_Class Assets Cost of Revenue Expense Expenses Functional Transfer Ac.. Liabilities & Stockholde.. Local Legal Accounts (.. Other income and ded.. EY_Account_Name Product/Program Rela.. Purchases not capitali.. (G)/L on Sales of Equip.. 13th Month Salaries #1 A&P - Customer Events A&P - Trade shows A&P Collaterals - Prod.. A/P - Credit out of Debi.. EY_TIME_TAG After office hours entries Within Office hours ent.. Trade Rec'bles - Receivables 58,874,500 Agency Billing Settlement Ac.. Distinct count of Journal_ID FSMA Revenue - Other Disc.. 50K 50,276 Rental Rev. - Short Term Re.. 100M Amount -60M -40M -20M 0M 20M 40M 60M Amount 9,131 Amount per Sub Category Structured output 2,541 1,864 716 333 291 4,869 0M 0K 2,3933,705 91 34 EY_Sub_Category 4 2 Accounts Receivable: Trade 58,874,500 Other Current Assets: Miscel.. Due to (from) Trade and Oth.. -67,944,770 67,944,770 RVBEUSEKOM CLABRAVEGA SKAYA BJANKI CKLEIN GGOOSEN ANVSCHAIK AKLERK PWENNEKES TKOPPENS TSMITS BATCHUSER NWINTER JHAMAKER SAMEIER Rental Revenue: Rental Agr.. Deferred Rental Revenue Deferred Revenue Managed.. -60M -40M -20M 0M 20M 40M 60M Amount Account name per month (Calculated Based on Document Number) Effective_Date 2011 2012 EY_Entry_week_day Sunday Monday Tuesday Wednesday Thursday Friday Saturday Account Name July August September October November December January February Agency Billing Settlement Ac.. -393,707 -192,406 -254,811 Agency Billing Settlement Ac.. Billing Settlement A (165799.. -943,525 -615,525 -274,752 -83,159 Deferred Rev. - FM (213009.. -620,377 -454,933 Deferred Rev. - FSMA (2130.. Deferred Revenue - Rental (.. FM Rev. - Additional Sales (.. -801,576 EY_Entry_month_end No Yes FM Rev. - FSMA Rev. Varia.. -10M 0M 10M -10M 0M 10M -10M 0M 10M -10M 0M 10M -10M 0M 10M -10M 0M 10M -10M 0M 10M -10M 0M 10M Amount Amount Amount Amount Amount Amount Amount Amount Figure 1: Structured output from unstructured data 4 Forensic Data Analytics

5. Our key differentiator in forensic data analytics At EY, data analytic techniques applied to internal or external fraud follows a four pillar approach — WHO- WHAT-WHEN- WHY. This approach looks at any situation from all possible angles and highlights key issues. This does not only help in managing risks, but also in identification of potential growth areas. “ The key to identify fraud lies in the ability to comprehend what lies beneath. ” Increasing concerns about fraud and vulnerability can be alleviated by a range of forensic techniques, some of which are presented below. Link Analysis Employee group Link Analysis is a data-analysis technique used to evaluate relationships (connections) between nodes, including organizations, people and transactions. Key applications of this technique include analysis of EPBX data, mobile bills and user logical access records that help a company map its user footprint. Employee- vendor nexus In a recent incident in a manufacturing company, its phone records were analyzed across different zones to determine the nexus between its employees and selected vendors on procurement and disposal of scrap. Using Link Analysis, we were able to establish “hidden” relationships and information leakage from suspected employees to identified vendors for possible “kickbacks.” The size and width of connectors indicate frequency of the calls Third party Vendor group Figure 2: Link Analysis 5 Forensic Data Analytics

6. Social Network Analysis Social Network Analysis views relationships in terms of network theory, which consists of nodes and ties. Nodes represent individual “actors” within the network and Ties represent relationships between individuals, e.g., friendships, kinship, organizational position, etc. Social Network Analysis, along with Link Analysis, helps to identify related parties, conflict of interest, bid rigging, among other fraud. India lead managing business throughout India through relatives as key distributors In a large consumer products company, the India lead had appointed his relatives as distributors, and through known vendors, managed distribution of products in key states. Social Network Analysis, followed with a background check, helped to reveal the nexus. This led to a full-blown investigation and the company now undergoes vendor due diligence before it carries out any business. India sales head Vendor network in east Vendor network in west Relatives as key distributors Vendor network in south Vendor network in north Figure 3: Social Network Analysis Concept Clustering Concept Clustering involves grouping similar entities or behavior into tight semantic clusters for the purpose of identifying anomalies or red flag. It is used actively, along with an electronic data review. In this example, Concept Clustering was executed on more than a million documents to identify all the information with terms such as “gifts,” “incentive” and “facilitation.” We were able to bring these down to a sizable volume with the required criteria that was analyzed in a time- bound manner. Concept Clustering can be effectively used on structured and unstructured data. Miscellaneous Fraud Cash Gift Figure 4: Concept Clustering Sentiment Analysis Known as behavioral analysis, this refers to the application of text analytics to identify and extract subjective information including the attitudes of writers, their affective state and the intended emotional quotient. It determines whether expressed opinions in a document are positive, negative or neutral. The “fraud triangle” can be applied to categorize events into rationalization, opportunity and pressure to identify sentiments. Organizations use this data to conduct behavioral training, stem attrition, and identify disgruntled employees and potential fraud conversation. Angry Surprised Confused Cursing Derogatory Figure 5: Sentiment Analysis 6 Forensic Data Analytics

7. Data Visualization — identifying the “hidden” from “not so apparent” Data Visualization techniques have proved to be effective, since humans can better absorb large pieces of information in a visual format than that displayed in numbers or text. When the result of a fraud identification query is combined with Data Visualization, e.g., an account payable or journal entry data, a significant amount of useful and previously invisible information can be reviewed at one go. Tag Cloud One of the most widely used visual techniques is a Tag Cloud. This is a good example of expressing complex data that can be understood intuitively. A Tag Cloud is the visual representation of communication relating to transactional data entries. It is represented by a combination of words in varied fonts, sizes or colors. This format is useful for quickly determining the important terms to identify key fraud issues Figure 6: Tag Cloud Interactive CXO dashboards A useful feature of analytics is that an entire data set can be converted to a meaningful dashboard for a CXO analysis. Such dashboards help in understanding databases and spreadsheets of any size with their easy drag and drop interface. They not only display information visually in seconds, but also create interactive maps with the click of a mouse. They can effectively analyze time series from years to months to the actual time in a day. Their most helpful feature is their capability to combine different databases to a single view and publish interactive dashboards on the Web. Figure 7: Interactive CXO Dashboard Here, we have sliced the entire expense dump of an organization from four key lenses including WHERE (geography), WHAT (type of expense), HOW (expense description) and WHO (the employee who incurred the expense). Having multi-dimensional data on a common platform helps a company perform an insightful analysis to determine the tests that need to be performed on expense data. 7 Forensic Data Analytics

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