MIS5208-951 - Data Analytics for IT Auditors

DATA ANALYTICS FOR IT AUDITORS AND CYBERSECURITY

Data Analytics for IT Auditors

MIS 5208.001 ■ Fall 2019 ■ Caswell Anderson
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Social Media Fraud and the Real-World Effects

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Over the past several weeks, American news has been flooded with the revelation of a sophisticated disinformation campaign conducted by the Internet Research Agency, a company directed by a close ally of the Russian government. Of interest for fraud investigators is the use of social media to create social movements as a form of information warfare. Of particular note is the use of event pages. Investigators discovered the IRA used Facebook’s event creation and coordination capability to organize rallies for and against Donald Trump after his inauguration. The purpose of this was geopolitical in nature, but the technique could soon be seen amongst corporations, state governments and criminal organizations.

Consider a hacker group wishing to steal from Verizon. Causing physical disruption in the form of anti-telecom protests might be an effective way to disorient the management at a given location. This provides a potential avenue into theft of information or even physical assets. Perhaps in another example, a corporation is interested in starting operations in a given locality. By organizing anti-tax protests, they might gain leverage in negotiations. These possibilities show that using the power of groups – a time-honored political tool – can also be used for financial gain or simple disruption.

Security and fraud analysts should assess such risks when conducting an environmental assessment. Though this may seem less integral to the firm and thus less important, I would argue that the correct approach is one of vigilance, as the technique has been seen, and it has succeeded. Where the IRA perhaps started, many other governments and corporations will follow.

Defense One Article

 

Understanding fraud and its prevention

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Studies have shows that the slightest change in the fraud triangle is the one thing that makes a difference between honest to dishonest behavior. When there is a perceived opportunity to get an unearned benefit there can be Fraud. The Fraudster is then tries to rationalize the behavior as acceptable. Ethics and fraud awareness training is the most effective way to prevent the fraud from happening. This shows all employees that the company takes Fraud really seriously, and how they should handle a case of fraud.

Internal controls has an important role in detecting Fraud. The preconditions for detecting frauds apply not only to auditors but to fraud investigators as well. A general knowledge of controls is still required for fraud investigators even though they only intervene when there is a case of known fraud. It is important to determine who can take advantage of control weaknesses opportunity. Audit managers know that it is equally important to make sure that management keeps a strong Fraud policy as it is to have strong control systems.

PwC Found Liable for $2B Colonial Bank Fraud

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A judge rules the accounting firm failed to meet professional standards in its audits of Colonial’s mortgage warehouse lending division.

| CFO.com | US
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PwC gave the bank’s parent, Colonial BancGroup, a clean audit for years before it emerged that huge chunks of Colonial’s loans to TBW were secured against assets that did not exist. Colonial collapsed in August 2009.

In the malpractice case, U.S. District Judge Barbara Jacobs Rothstein agreed with the Federal Deposit Insurance Corporation that PwC failed to meet professional accounting standards in its audits of Colonial. The FDIC sued the firm after incurring $2.8 billion from Colonial’s collapse.

“PwC did not design its audits to detect fraud and PwC’s failure to do so constitutes a violation of the auditing standards,” Rothstein ruled. The fraud, which centered in Colonial’s mortgage warehouse lending division, was orchestrated by Lee Bentley Farkas, the chairman of TBW, with the aid of Catherine Kissick, the head of the Colonial’s MWLD, and other Colonial employees. PwC said it was duped by Farkas, who skimmed millions of dollars from Colonial to buy a private jet, vintage cars and a vacation home. But Rothstein faulted PwC for, among other things, failing to inspect or even request to inspect the underlying documents for some TBW mortgages.

“PWC argues that even if it had attempted to inspect the underlying loan documents, it would not have uncovered the fraud because the fraudsters would simply have created fake documents,” Rothstein noted. “This, of course, is something that we will never know. However, what we do know is that Ms. Kissick, one of the key fraudsters, testified that if PWC had asked to see even just ten loan files ‘[t]he jig would be up.’” The case now moves into a damages phase, where the FDIC is seeking, according to one pre-trial document, as much as $2.1 billion.

Source: Heller, M. (2018). PwC Found Liable for $2B Colonial Bank Fraud. CFO.