Fraud Detection Analytics: A Comprehensive Guide(2021)

Ajay Ohri

In this article of Fraud Detection Analytics, let us look at:

  1. Definition
  2. Importance
  3. Analytics for Fraud Monitoring
  4. What is Fraud Detection Analytics?
  5. Why Fraud Analytics?
  6. Benefits of Fraud Analytics
  7. Methods of Fraud Analytics
  8. Fraud Analytics in insurance companies
  9. Implementing Data Analytics for Fraud Detection

1. Definition

Fraud detection implies the identification of expected or actual fraud in an organization. It needs a proper process and system to detect frauds earlier on and before such occurrences using either reactive and proactive methods or automated/ manual fraud prevention and detection analytics in its anti-fraud strategy.

2. Importance

Fraud detection and prevention analytics have a huge importance in subverting and controlling frauds, especially when the internal control systems handling data analytics may be prone to control weaknesses calling for every transaction to be tested and controlled in fraud detection analytics. Besides, it provides for continuous improvement, standardization and process control over transactions.

3. Analytics for fraud monitoring

Business data access to both external and internal from internal and external sources have become easy targets for fraud detection analytics hackers, making monitoring and early-detection fraud detection programs imperative to data-driven organizations. Besides the huge volumes of data handled calls for automation, leaving the system vulnerable to frauds. Insurance companies, banks etc., use fraud monitoring and early detection systems. Some of the factors to be considered when implementing such fraud detection systems are

  • Always perform a SWOT analysis to identify what is fraud detection and the needs of the organization.
  • Plan for a dedicated fraud management team.
  • Use the most suitable buy or build option for the system.
  • Clean all data before using it.
  • Make relevant business rules for the layout of the system.
  • Set threshold values of transactions to avoid fraudulent transactions getting through.
  • Use the Predictive Modelling features for planning.
  • Try the use of the SNA when implementing solutions bought.
  • Leverage social media to build integrated case management systems.
  • Build forward-looking analytics solutions.

4. What is fraud detection analytics?

Fraud detection analytics is the ultimate fusion of a combination of fraud detection techniques and analytics techniques in superior analytic technology, which along with human intervention, makes it possible to detect bribery, frauds and improper transactions as soon as possible.

5. Why fraud analytics?

Rules-based methods and legacy anomaly detection techniques were used to prevent and detect fraud by several organizations like insurance firms, banks and other organizations. The addition of fraud detection analytics and security algorithms and improved technology allows fraud analytics to use improved fraud detection techniques to prevent frauds, flag down fraudulent transactions and provide organizations with secure systems.

6. Benefits of fraud analytics

Some of the fraud analytics benefits are that it reduces costs and exposure to frauds, uses organizational controls to secure the system, helps find fraud-vulnerable employees, gains external and internal customer trust and confidence and improves organizational security and performance. Some of what fraud detection analytics can do is identify patterns of fraudulent transactions, enhance existing security measures, integrate all organisation databases, harness raw data and use unstructured data to improve organizational processes and efficiency. 

7. Methods of fraud analytics

The 5 fraud detection analytics methods used frequently are given below.

  • A sampling of processes may be mandatory for fraud detection. Its localized data can help prevent frauds by early detection in that particular area. However, such limited approaches can fail and need all transactions to be tested for fraud-detection.
  • The ad-hoc analysis uses a testing hypothesis to find and explore frauds.  
  • Competitive or Repetitive Analysis has scripts that use Big Data to identify fraud over a specified time period. Running such analysis daily helps the organizational safety and efficiency scores of fraud detection.
  • Analytic techniques help identify abnormal frauds using statistical parameters above the standard deviation average values, check both low and high-value transactions and are useful in geographical area data classifications.
  • Benford’s law can be used on fraudulent data to indicate a non-uniform distribution of smaller digits and aid testing numbers and points that are suspect as they appear more frequently. 

Some data-mining tools and methods used for fraud detection analytics are

  • Sounds-like method for identifying valid names of company employees.
  • Data Matching with another data set.
  • Duplicates weed out errors and identify duplication of transactions.
  • Gaps in sequential data being missing. 

8. Fraud analytics in insurance companies

The 3 methods of fraud detection frequently used by insurance companies are

  • SNA-Social Network Analysis: The hybrid method includes statistical methods, network linkage analysis, organizational business rules, fraud-pattern analysis etc., in identifying fraud clusters, making it possible to see correlations between clusters etc., to aid fraud detection management.
  • Fraud Big Data Predictive Analytics Detection: This method is proactive and can handle Big Data sets and make predictive analysis reports.
  • CRM- Customer Relationship Management: This method interlinks to social media placing customers in control of their information and enabling customer transparency.

9. Implementing data analytics for fraud detection

The fraud detection analytics program critical steps of implementation are

  • Profile creation of all kinds, types and areas where fraud has happened and is expected to occur.
  • Measure and prioritize the organization’s risks of fraud exposure.
  • Use Ad-hoc methods of testing to find the fraud indicators of organizational processes.
  • Make risk-assessment programs frequently to prioritize areas of fraud prevention.
  • Communicate and monitor fraud and risk management at all levels of the organization.
  • Post a fraud, troubleshoot the causes and fix broken loopholes and controls.
  • Assign duties and repeatedly implement the programs.


As business-value volumes increase, the fraudulent transaction also increases. Technology and fraud detection analytics have come to the forefront in early detection and proactive fraud prevention programs rather than reacting after a fraud.

If you are interested in making it big in the world of data and evolve as a Future Leader, you may consider our Business Analytics Course Online, a 10-month online program, in collaboration with IIM Indore!



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