BYU Professors Develop New System to Detect Fraud

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No business wants to become a victim of fraud. A team of BYU Professors say they’ve developed a system where businesses can use their own financial statements to prevent things that could lead to bankruptcy. Information Systems Professor Anthony Vance was one of four professors to work on this system and he says that publicly available information plays a major role in detecting fraud.

“It’s really difficult to get information from inside the company. It’s really hard to get access. To be able to predict fraud with any amount of certainty with publicly available information is what people have been trying to do for a long time,” said Vance.

After they’ve collected the information they need, their program treats detection like it’s a kids’ game. Imagine that fraudulent and non-fraudulent firms were represented by marbles where red marbles represent fraudulent firms and blue marbles represent non-fraudulent firms. If you were to pick one out of a bag randomly, then you would have a 50% chance of picking a fraudulent firm. Not only can this predict fraud within a company, but auditors and investors can use this system to determine the financial stability of a company.

“Auditors like regulators like the SEC (Security Exchange Commission) could use a tool like this to give them a heads up about what types of companies they should look at,” Vance shares. Vance says they can ask themselves, “Which ones should they audit?” He also says “Investors or groups of investors could use this to determine whether a company is a risky bet or not.”

The Professors say fraud is not 100% detectable yet, but the MetaFraud system gets it right nearly 80% of the time.

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