Fraud software is designed to identify specific transactions or patterns of transactions that are commonly used to commit fraud. They are also used to capture transactions that exploit a particular weakness in internal accounting controls or processes. There are three types of fraud software: transaction based, audit related, and forensic accounting. This type of software is typically found in financial institutions, taxation and customs government agencies and large corporations. Several large software companies specialize in fraud and audit software, with product offerings tailored for the different industries.
Transaction-based fraud software works to detect attempts to breach security at the exact moment when the attempt is being made. This type of software validates the security protocols, user information, and authorizations against the transaction being processed. The settings must be configured when the user accounts are created and a series of messages or warnings may appear to inform the user that their transaction is not authorized.
This software provides immediate feedback and is designed to limit or stop fraudulent activity. It is used for point of sale terminals to reject transactions against credit or debit cards that have been reported as stolen. Some programs confiscate the card when an attempt is made to use a stolen or flagged card.
A financial audit is a detailed review of financial activity over a specific period of time. Auditing software is designed to look for common fraudulent patterns of transactions. They also identify weaknesses in internal controls and procedures that might allow fraud to occur. If the internal controls are weak, extra attention is focused on those transactions in order to identify and investigate possible fraud.
Forensic accounting software is used in police and government investigations to uncover the depth of financial fraud. This type of software uses complex algorithms and personality analysis to identify patterns of fraudulent activity and relate the activity back to the perpetrators. Forensic audit software is very expensive, complex and requires specially trained accountants to interpret results and adjust the calculations as needed. It is typically used where proof of fraud already exists, and evidence for a criminal or civil trial.
The use of fraud software is increasing as accounting systems and business processes become so complex that it is not possible to clearly identify fraudulent activity. In order to commit fraud, there are certain types of activities that must be followed to extract the funds from the institution. This type of software is designed to identify these situations. It is important to remember that specially trained accountants are still required to interpret the information from these systems.