Data Mining

How often do you search for something on the internet (such as a pair of running shoes) and minutes later on every website you go to, you see ads for running shoes?  Whether you know it or not, that ad appeared thanks to data mining.  Every time you buy something at the grocery store, use your credit card, visit a website or subscribe to a magazine, your information is being tracked and saved.  This information is collected and analyzed (via data mining) by companies to look for trends and correlations using various algorithms.  Companies use this analyzed information to help them make strategic business decisions.

Now if companies can use these tools, why can’t auditors? In today’s world, nearly all data is collected electronically (millions and millions of transactions are collected by companies every day). Therefore, auditors with the help of data-mining tools can analyze this information to help them perform a number of auditing procedures that before would have been thought to be too costly or time-consuming. 

Data can be analyzed in a number of ways, such as:

• Error Detection – Identifying unusual data records that may be errors
• Variation Analysis – Searching for relationships between variables
• Grouping/Clustering – Discovering groups and structures in the data that are in some way or another similar
• Classification – Identifying information by a set of categories
• Regression – Finding a function that models the data with the least error
• Summarization – Summarizing the data based on various points within the original document

From the results obtained, this data can then be analyzed to help determine if there were any possible errors within the data, raise awareness to items that were previously unknown, and even possibly help to detect that fraud might be occurring. With the use of data mining tools today, analyzing large volumes of data is as easy as counting to three. 

If you have any questions regarding data mining or if you would like to have your companies data analyzed with the use of our data-mining tools, please contact Kevin Hoover at khoover@schniederdowns.com or Jim Yard at jyard@schneiderdowns.com.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.