What is an anomaly? What is an outlier?

An anomaly is something that departs, or deviates, from the norm or the expectation. An outlier is an observation that lies outside its expected distribution. To find anomalies and outliers, it is important establish the norm, or the expectation.

Diagnostic analytic techniques for identifying anomalies and outliers

Segregation of duties

Segregation (or separation) of duties is a common internal control that requires more than one person to complete each accounting task. We can use diagnostic analytics to evaluate segregation of duties. In general, it is important to separate: Custody of assets, authorization of the use of the assets, and record keeping.

Internal control testing

Sometimes unusual transactions occur on holidays, weekends, or at the end of the accounting period when it is hard to find approval and authorization for certain transactions.

Testing for duplicate transactions

Occasionally, transactions are recorded twice on the same date, for the same amount, and with the same party. We call these duplicate transactions.

Fuzzy matching

Fuzzy matching is a technique used to find potential matches in data when there less than an exact match.

1901 West Olney Avenue, Philadelphia, PA, 19141

VS.

1901 W Olney Ave., Philadelphia

Are the two addresses above a match? Cleary they are, they are just formatted differently. When we work with data, we often have to match data records to one another and fuzzy matching allows us to match two records with slightly different formatting - like the addresses for La Salle above - together.

Sequence check: Identifying missing checks/payments

A sequence check is a test to see if the key number field in a record (e.g., check number) is in correct ascending or descending sequence.

Bank reconciliation

Another type of diagnostic technique is reconciling the cash account in the general ledger to the bank statement. The bank reconciliation helps identify transactions on the bank statement that do not correspond with the company's general ledger and vice versa. Potential reconciling items include outstanding checks and deposits, in transit wires, and bank service fees.

Variance analysis

Variance analysis is the process of identifying the difference between a budget amount and actual performance and is commonly used in managerial and cost accounting.