Fraud detection software

Preliminary findings from research conducted by Patrick Fan and Greg Jenkins, associate professors of accounting and information systems in Virginia Tech's Pamplin College of Business, suggest that textual analysis software might help auditors identify fraud in companies.

The textual analysis technique - used extensively in the social sciences to scrutinise written and oral communication - can be used to identify language patterns in management communications that are inconsistent with either the company’s financial performance or with the communications of other companies in the same industry. Such inconsistencies may indicate fraud.

'The results of our initial analysis suggest that our model has substantial predictive power,' said Jenkins. 'When fraud is committed in companies, there appear to be patterns in corporate communications that imply wrongdoing.'

The professors hope to develop their methodology, based on knowledge from auditing and information systems, into a more precise new computerised tool to help auditors and regulators detect fraud. They have received a grant of about $196,000 from PricewaterhouseCoopers for their two-year project, expected to be completed in 2009.