Moiseeva F.A., Savchenko O.O.

Donetsk National University of Economics and Trade

named after Tugan-Baranovsky

Methods of possible wheeler-dealer finance

The phrase «Everything secret sooner or later becomes clear» belongs to the ancient Greek philosopher Socrates, who lived 469 BC. Idea of ancient philosopher could be a guiding principle in developing the concept of fighting fraud in financial sector.

Due to financial fraud companies have signifi cant losses, causing great harm to both society and the state. Of course, one can hire auditors to search for possible wheeler-dealer finance. But that will require a great amount of financial, material and human resources as well as time. And time is money. To provide such information efficiently is the key to effective fraud monitoring and forecasting. In this case, more than ever, we need a comprehensive approach to search and select effective methods to identify possible fraud under consistency principle.

The basis should be a systematic approach representing trinity of tasks: mathematical, economic and psychological. It therefore reveals certain requirements for specialist’s qualifi cations, knowledge, skills, whose work is to find possible financial fraud.

Purpose. Considering generalization the methods and techniques of financial fraud to classify detection and prediction methods of possible wheeler-dealer finance, identify opportunities and scope of their usage, and to suggest a system of the possible wheeler-dealer finance indicative estimation.

Discussion. Given the complexity of issue and using the tasktrinity principle, all existing methods for detecting possible fraud should be divided into three groups:

1. Pure mathematical.

2. Analytical or economic-statistical.

3. Psychological.

Economically speaking Benford law can be described as following: small transactions by smaller amounts are more than large ones. In 1997 Nigriny and Mittermayer developed six math tests based on Benford’s Law. These tests were first put into practice by the international accounting firm «Ernst and Young» for the analysis and detection of irregularities in audit. [4] Thus, if the data set is result of the natural course of events, and are present naturally «by themselves», they respond to Benford’s law. This includes the following sequences: numbers of payment orders from various customers (all set); amounts of payments from customers; amounts in advance reports; inventories; house numbers in customers addresses.

There are several types of tests [4]:

1) analysis of the «first digit» and «second digit»;

2) analysis of the «first and second digits»;

3) analysis of «first through third digit»;

4) analysis of «rounding numbers»;

5) analysis of «duplicates»;

The idea for all tests is the same: if in result of study and construction of the empirical data sequence of digits, signifi cant differences with reference values are revealed, it is a signal for a special examination to detect the cause of such differences.

Tests for compliance with Benford’s law could be applied with: internal investigations; tax audits; external audit; controlling; assessment.

This will reveal: fraud; inadvertent errors that often occur; operational ineffi ciencies (eg, too many transactions with small amounts); systematic distortion of operational data, such as: amounts of accounting entries; amounts of insurance benefi ts; cost of warranty repairs; amount of bills; volumes of supplies;amounts in tax declarations.

However, we should note that the tests usage requires a considerable amount of information, so could be applied only to companies with intensive operational activities, resulting in the large amounts of data appearance.

The second group of methods are analytical methods. Considering the fact that wheeler-dealer finance is very common throughout the world, experts say that most financial fraud could be detected using only automated analytical methods of processing information.

Analytical methods can be divided into two groups: traditional and computerized methods. Traditional methods are based on conducting individual investigations with possible computer technology application, as well as training and support for customers.

Automated methods for detection and fraud prevention are based on computer technology application which substantially facilitates reporting on the so-called exceptional situations. Here all events that correspond one or another predetermined criteria receive a special mark. For example, data mining technology (means of obtaining data). They allow you to automate and use more efficiently the additional data from detailed reports to identify and predict fraud through the use of complex and statistically signifi cant analysis [5].

Traditional economic analysis methods are based on characteristics of the different economic indicators interconnection and interdependence that under normal economic activity are linked all together. Indicators interconnection is usually set and driven by the economic processes interaction. After committing economic crimes the indicators interrelationship and interdependence is broken. Economic analysis can reveal the causes of deviations from normal economic activity. There are some methods to find the economic indicators inconsistencies, which are used to identify economic crimes: the related comparisons method; the method of special calculation indicators; the stereotypes method; the adjusted parameters method.

All psycho-physiological methods are divided into two groups:

1) non-verbal methods;

2) verbal methods.

Nonverbal level includes analyzing facial expressions, gestures, micro movements and external manifestations of the internal organs’ functionning. Verbal level includes logical analysis of obtained information as well as ratio of spoken words with nonverballevel signals.

Conclusion. There is a whole range of methods and techniques that can detect financial fraud. Methods for detection of possible wheeler-dealer in financial sector can be divided into three groups: mathematical, analytical and physiological. However, only full usage of all under systematic approach ensures proper effect and makes it possible not only to detect but also to predict fraud in the financial sector.

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