Intelligent Fraud Detection in Financial Statements Using Machine Learning and Data Mining: A Systematic Literature Review

Matin N Ashtiani,Bijan Raahemi

doi:10.1109/access.2021.3096799

Abstract

Fraudulent financial statements (FFS) are the results of manipulating financial elements by overvaluing incomes, assets, sales, and profits while underrating expenses, debts, or losses. To identify such fraudulent statements, traditional methods, including manual auditing and inspections, are costly, imprecise, and time-consuming. Intelligent methods can significantly help auditors in analyzing a large number of financial statements. In this study, we systematically review and synthesize the existing literature on intelligent fraud detection in corporate financial statements. In particular, the focus of this review is on exploring machine learning and data mining methods, as well as the various datasets that are studied for detecting financial fraud. We adopted the Kitchenham methodology as a well-defined protocol to extract, synthesize, and report the results. Accordingly, 47 articles were selected, synthesized, and analyzed. We present the key issues, gaps, and limitations in the area of fraud detection in financial statements and suggest areas for future research. Since supervised algorithms were employed more than unsupervised approaches like clustering, the future research should focus on unsupervised, semi-supervised, as well as bio-inspired and evolutionary heuristic methods for anomaly (fraud) detection. In terms of datasets, it is envisaged that future research making use of textual and audio data. While imposing new challenges, this unstructured data deserves further study as it can show interesting results for intelligent fraud detection.

Highlights

Financial fraud refers to the use of fraudulent and illegal methods or deceptive tactics to gain financial benefits
(RQ1) What fraud detection techniques and datasets related to financial statements were employed in the literature?
The performance of fraud detection models could be seriously affected by any small variations in the number of cases

Summary

Introduction

Financial fraud refers to the use of fraudulent and illegal methods or deceptive tactics to gain financial benefits. Fraud can be committed in different areas of finance, including banking, insurance, taxation, and corporates, and more. Fiscal fraud and evasion, including credit card fraud, tax evasion, financial statement fraud, money laundry, and other types of financial fraud, has become a growing problem. Despite efforts to eliminate financial fraud, its occurrence adversely affects business and society as hundreds of millions of dollars are lost to fraud each year. This significant financial loss has dramatically affected individuals, merchants, and banks. Fraud attempts have increased drastically, which makes fraud detection more important than ever

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