Using Data to Uncover Fraud Within and Beyond Company Walls

Data Analysis Case Study

In an ideal world, businesses would operate without the looming risk of fraud. However, the reality is different, with organizations, regardless of size, vulnerable to deceit both internally and externally. This underscores the critical importance of robust internal controls and the strategic analysis and monitoring of data to quickly detect and mitigate fraudulent activities.

Let’s review a case study. The details of this case have been altered to protect the confidentiality of the client, but the lessons learned, issues identified, and solutions implemented maintain the same core principals.

In an effort to grow their client numbers and compete with neighboring beauty service providers, our client introduced a patient referral bonus program across their 9 locations. Under this program, existing clients who referred new clients for specific beauty services would receive a voucher. Within a few months, thousands of dollars in vouchers were sent and the program was considered a success. However, upon a quarterly review of client numbers and the overall financials, there was a disconnect. Vouchers were being distributed, but the growth rate of clients had not changed significantly from before the program began. My team worked to dive deeper into the reasons behind this disconnect by conducting a deep dive analysis on the data. We discovered that a few specific locations were sending out more vouchers than the others, far exceeding the average growth rate. Further investigation revealed that these locations were sending an unusually high number of vouchers to a limited set of addresses. Cross-referencing these addresses with those of the employees revealed that a small group of staff members were adding all new clients to the referral program and collecting the voucher themselves, even if they had found the service provider through other means.

Here are a few take aways for business owners to consider:

  • Initial Oversight and Controls: The launch of the referral program lacked adequate oversight mechanisms to monitor its growth and utilization trends. The issues encountered could have been quickly identified and addressed had there been analytical dashboards and controls in place from the outset. Make sure you evaluate fraud risk with any new initiative!

  • Proactive Fraud Detection Measures: Never underestimate the potential for fraud within your organization. It's crucial to implement comprehensive controls and monitoring systems across all standard operations, ensuring you are well-prepared to detect and tackle fraudulent activities should they arise.

  • Clarity and Education for Employees: It's essential to clearly communicate policies and the implications of misconduct to all employees. Some involved in the malpractice did not fully grasp the gravity of their actions, highlighting a gap in understanding and awareness.

I encourage business owners across industries, and of all sizes, to consider whether you have effective controls and monitors in place to set your business and employees up for success.

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