Data analytics plays a key role in both the detection and deterrence of fraud. According to the Association of certified fraud examiners Report to the Nations, it was the single most effective anti-fraud control, though one of the least adopted. And while it may be the most effective, analytics alone are not enough to deter and detect fraud.

For these reasons, and the growing volume of data generated by contractors daily, it’s important to know how analytics can help pinpoint fraud as well as aid in an investigation. 

Common Schemes

Before applying the analytics framework, it’s important to have an understanding of various schemes within the construction industry – corruption, billing, non-cash, disbursements – and the areas where fraud is likely to occur within your company. (See Exhibit 1)

The most susceptible areas of risk from these schemes are vendor management, disbursements, and digital activity. Let’s review what to look for in each of these areas.

Vendor Management

Many times, corruption and billing schemes occur through the vendor file. To help identify high-risk vendors, look for potential related parties or conflicts of interest by comparing the employee and vendor files based on key attributes (name, address, phone, TIN, etc.).

Other beneficial analyses include a comparison of the employee and student financial aid files, geospatial analysis of vendors to identify those located in residential areas, identification of vendors using a mailbox service, and identifying vendors without an address (or some variation of “hold for pickup”).

Disbursements

Disbursement can involve billing, expense reimbursement, and corruption schemes. Perhaps the most effective analysis technique related to disbursements is trend analysis, which focuses on the identification of accelerating patterns of activity. Other common analytics include identifying checks issued on weekends or holidays or in round thousand dollar increments.