Software engineering researchers and audit experts join forces to combat fraud

Fraud and irregularities in business practices are of all times. Legislators, regulators and financial authorities try to create legal frameworks and procedures for early detection and prevention, but they have failed consistently during the last 10-15 years.

Fraud and irregularities in business practices are of all times. Legislators, regulators and financial authorities try to create legal frameworks and procedures for early detection and prevention, but they have failed consistently during the last 10-15 years. The  Centrum Wiskunde & Informatica (CWI) in Amsterdam has started researching auditing services that can perform real-time monitoring of companies in collaboration with PricewaterhouseCoopers (PwC), the Dutch Tax Authority and ComputationalAuditing.com . It is unique that auditing and software engineering experts join their efforts to find solutions for this problem.

Combatting fraud in organizations is a known and urgent problem, but it is difficult to solve. The current financial crisis is presenting auditors with new challenges. According to a recent quarterly review of the Bank of International Settlements the - non transparent - derivatives market amounts to 600.000 billion US$. In the EU, VAT fraud (Dutch) is estimated to cost to 200-250 billion euro per year. With the results of this research project obscure and illegal practices can be discovered at an early stage. The new auditing services enable auditors to guarantee the quality and stability of the financial system, make the reliability from services visible and also cut costs. This is essential for keeping public trust in the auditing profession.

Central to the research is the design of a meta-model. New domain-specific languages will describe different company models that automatically generate auditing services from them. These auditing services continuously monitor real-time business practices of organizations. For designing the
meta-model, Rascal will be used, a new meta-programming language that is developed at CWI. Software analysis techniques such as architecture reconstructions and analysis of version histories will be utilized to extract facts from financial reports and source code of IT systems. The new auditing services will fundamentally increase the reliability and transparency of financial systems and supporting IT systems.

The study is based on a unique concept from Dutch auditing theory: the super cycle (also known as value cycle) that represents the connection between business processes, and is the interface between the organization and the auditor. The super cycle is also the theoretical base for computerizing processes that enable early detection of irregularities.

In a society where services are increasingly offered in digital form (Software as a Service) for government, financial institutions and e-commerce, trust is becoming more and more important. The secure and reliable combination of loosely-coupled distributed applications is gaining importance from an economic and social point of view. Scientific research in this area is an important theme of CWI. The research project will seek collaboration with auditing parties such as
NIVRA and the Dutch Limperg institute .

The project will be funded by NWO's Jacquard programme , a grant program of NWO that strengthens the Dutch knowledge environment in the research fields of software engineering and Software as a Service (SaaS). Collaboration between universities and the industry is an important part of the success of the research program. By incorporating both universities and industries, the projects have an academic as well as an applied character.