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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Expert Systems with Applications, Volume 38, Issue 10, 15 September 2011, Pages 13351–13359
Corporate fraud these days represents a huge cost to our economy. In the paper we address one specific type of corporate fraud, internal transaction fraud. Given the omnipresence of stored history logs, the field of process mining rises as an adequate answer to mitigating internal transaction fraud. Process mining diagnoses processes by mining event logs. This way we can expose opportunities to commit fraud in the followed process. In this paper we report on an application of process mining at a case company. The procurement process was selected as example for internal transaction fraud mitigation. The results confirm the contribution process mining can provide to business practice.
In recent years, the problem of internal fraud has received more and more attention. Not unfounded, there the Association of Certified Fraud Examiners (ACFE), an American worldwide organization that studies internal fraud, estimates a US company’s losses on internal fraud to be seven percent of its annual revenues (ACFE, 2008). In a previous report of the ACFE, in 2006, this estimation was only 5%, confirming the increasing threat internal fraud poses to companies. Internal fraud has received a great deal of attention from interested parties like governments or non-profit institutions. The emergence of fraud into our economic world did not go unnoticed. A US fraud standard (Statement on Auditing Standard No. 99) and an international counterpart (International Standard on Auditing No. 240) were created to point auditors to their responsibility relating to fraud in an audit of financial statements. Section 404 of the Sarbanes–Oxley act of 2002 and the Public Company Accounting Oversight Board’s (PCAOB) Auditing Standard No. 2 also address this issue. Meanwhile, the CEO’s of the International Audit Networks released a special report in November 2006. This report, issued by the six largest global audit networks, is released in the wake of corporate scandals. The authors of this report express their believe in fighting fraud, as they name it “one of the six vital elements, necessary for capital market stability, efficiency and growth”.1 All these standards and reports address the issue of internal fraud (as opposed to external fraud – fraud committed by someone externally related to the company). In general, two categories within internal fraud can be distinguished: financial statement fraud and transaction fraud. Bologna and Lindquist (1995) define financial statement fraud as ‘the intentional misstatement of certain financial values to enhance the appearance of profitability and deceive shareholders or creditors’. Statement fraud concerns the abuse of a managers position (hence ‘management fraud’) to alter financial statements in such a way that they do not give ‘a true and fair view’ of the company anymore. Transaction fraud however can be committed by both management and non-management. The intention with transaction fraud is to steal or embezzle organizational assets. Violations can range from asset misappropriation, corruption over pilferage and petty theft, false overtime, using company property for personal benefit to payroll and sick time abuses (Wells, 2005). Davia, Coggins, Wideman, and Kastantin (2000) state that the main difference between statement and transaction fraud is that there is no theft of assets involved in financial statement fraud (FSF). Turning to academic studies on this subject, some research is found concerning internal fraud. Green and Choi, 1997, Lin et al., 2003 and Fanning and Cogger, 1998 assess the risk on FSF by means of neural networks. Deshmukh and Talluru (1998) use a rule-based fuzzy reasoning system for the same goal and Kirkos, Spathis, and Manolopoulos (2007) use several data mining techniques in order to identify financial factors to assess the risk on FSF. Hoogs, Kiehl, Lacomb, and Senturk (2007) use a genetic algorithm approach to detect patterns in publicly available financial data that are characteristic for FSF. This approach uses a sliding-window approach for evaluating patterns of financial data over quarters in terms of potentially fraudulent or not. As can be seen, all articles on internal fraud that are using expert systems, discuss financial statement fraud, which is only one type of internal fraud. Aside from this, a lot of expert systems are investigated in the context of external fraud. (External fraud is fraud committed by someone external to the company, for example a supplier sending false invoices.) It is no coincidence that only this one type of internal fraud, transaction fraud, is not yet addressed in academic literature. Looking at the articles on internal statement fraud and external fraud, all studies, but a few, use supervised data sets. Supervised data sets are provided with a labeled output attribute, in this case ‘fraudulent’ versus ‘legitimate’. The availability of these data sets in the case of statement fraud is to explain by the public nature of financial statements. A company needs to file its financial statements with the government. As a result, fraud committed on these statements is gathered at one central point, normally classified meticulously in order to prosecute these companies. Files on external fraud are also classified very precise for the same reason. Also, there are no reputation related incentives to keep these fraud numbers away from the public, as there is with discovered internal fraud. The faith of stakeholders in the company plummets when stories about internal fraud leak. While a company cannot control this ‘leakage’ for statement fraud uncovered by the government, they can control the information aspect on statement fraud. This incentive, together with the dispersed methods of committing transactional fraud and the lack of enough fraud files documented meticulously in a company or business process, leads to a general absence of supervised data sets concerning transactional fraud. We believe this is the reason for the literature gap on expert systems for internal transaction fraud. This gap contrasts strikingly with the accompanying costs of this type of fraud. In two other papers (Jans et al., 2009 and Jans et al., 2010), we suggest to use and apply descriptive data mining techniques for internal fraud risk reduction, which also includes mitigating transaction fraud. In this paper, we wish to extend the suggested framework with the field of process mining. Yang and Hwang (2006) already use a process mining approach to detect health care fraud, a type of external fraud that is intensively investigated. We believe the added value of process mining is particularly high in the mitigation of internal transaction fraud. By mitigation, we aim at both fraud detection and fraud prevention. By applying process mining at business processes, a company gains insights in the way procedures are followed or circumvented. This study reports on the application of process mining in a case company. An organization has business processes mapped out in procedures, guidelines, user guides etcetera. With process mining, we visualize the actual process that occurs in a certain business unit instead of the designed process. This way one can detect flows or sub flows that for example were not meant to exist. This can give insights in potential ways of misusing or abusing the system. Process mining also provides the possibility to specifically monitor internal controls, like for example the four-eyes principle or the segregation of duty. As opposed to currently wide used internal control tests, the process mining approach for monitoring internal control is data oriented, and not system oriented. In other words: we are able to test whether the true transactional data (the output of the internal control system) are effectively submitted to the presumed internal controls. Instead of testing whether the internal control settings function by means of performing a set of random tests, we mine the actual submitted data and are able to test whether all conditions are met. Another advantage is the objectivity with which the process mining techniques work, without making any presuppositions. We see the exploratory diagnostics step as a starting point to evaluate with an open mind what opportunities possible deviations can mean for a perpetrator. This is opposed to interpreting results with a specific fraud in mind, resulting in possible blindness for other opportunities. On the other hand, when mining the organizational and the case perspective (see below), it can be beneficial to have some specific fraud(s) in mind. This is certainly the case when monitoring internal controls. At this stage specific internal controls, motivated by specific frauds in mind, are monitored and checked. We start the paper with an introduction in process mining in Section 2. In Section 3 we give information on the technique used in this application. In Section 4, the application of this technique in a case company is presented. 4.1, 4.2, 4.3, 4.4 and 4.5 describe the process diagnostic steps. Process diagnostics are necessary in order to first confirm the event log captures the general process and next to reveal weaknesses and problems in the business process. In Section 5 we advance to a verification step where we check whether certain assertions of the process hold or not. We end with a conclusion in Section 6.
نتیجه گیری انگلیسی
For the case of the data mining domain field, it took some decades before the application of this research domain was projected from the academic world into the business environment (and more precisely as a fraud detection mean and as a market segmentation aid). As for the case of process mining, we wish to accelerate this step and recognize already in this quite early stage which opportunities process mining offers to business practice. Process mining offers the ability to objectively extract a model out of transactional logs, so this model is not biased towards any expectations the researcher may have. In the light of finding flaws in the process under investigation, this open mind setting is a very important characteristic. Also the ability of monitoring internal controls is very promising. In this paper we presented a case study in which we applied process mining in the context of transaction fraud. Given the procurement process of an organization using SAP as ERP system, we applied the process diagnostics approach to discover the real process and to analyze flaws, i.e., to discover cases that are not compliant. This enables the explicit possibility of checking internal controls and business rules in more general. This way, process mining enables auditing by not only providing theory and algorithms to check compliance, but also by providing tooling that help the auditor to detect fraud or other flaws in a much earlier stage. However, the case study also shows that, although tools are available, they are still quite premature. Therefore, we need to enhance tools like ProM to better automate the audit process and to visualize results for management.