Relative Size Factor Test (RSF) - Updated Oct 24, 2012

The purpose of the Relative Size Factor test (RSF) IDEAScript is to identify anomalies where the largest amount for subsets in a given key is outside the norm for those subsets. This test compares the top two amounts for each subset and calculates the RSF for each.  The RSF test is based on Chapter 11 of Mark J. Nigrini’s book, entitled, “Forensic Analytics: Methods and Techniques for Forensic Accounting Investigations”. [1]

Utilizing the largest and the second largest amount to calculate a ratio based on purchases which are grouped by vendors, in order to identify potential fraudulent activities in invoice payment data, has often been suggested in fraud examination literature. One such reference is the, “Principles of Fraud Examination” written by Joseph T. Wells.[2]

In chapter 11 of Dr. Mark Nigirini’s Forensic Analytics book, he introduces the RSF test which expands on this concept and states, “In this chapter we compare large amounts to a benchmark to see how large they are relative to some norm, hence the name the relative size factor test. The relative size factor test is a powerful test for detecting errors. The test identifies subsets where the largest amount is out of line with the other amounts for that subset. This difference could be because the largest record either (a) actually belongs to another subset, or (b) belongs to the subset in question, but the numeric amount is incorrectly recorded. The relative size factor (RSF) test is an important error-detecting test.”

 Largest Record in a Subset

 Relative Size Factor =         --------------------------------------------------

       Second Largest Record in a Subset

Subsets in a data file are identified as “Keys” in IDEA.  An example would be vendors in an Accounts Payable file. The test identifies records that are outliers to the rest of the amounts within the subset groups. Outliers may not be the largest amounts in the entire dataset but are large in respects to particular members of the subset. Large differences might be attributed to errors such as the record belongs to another subset or that the amount was posted incorrectly (e.g., shifted decimal point). Large differences may also be an indication of fraudulent activity, such as occupational accounts payable fraud, falsified invoices for HST input tax credits, offset money laundering revenue, or product sales to related companies (offshore transfer pricing). Dr. Mark Nigrini in his book discusses the forensic results regarding investigations of sales numbers, insurance claim payments, inventory numbers, and health care claims using the RSF test.

The IDEAScript allows the user to select either positive or negative amounts in a dataset to which the RSF test can be applied. The first step is to select the file to be tested. Files from within the current IDEA working folder are presented as options. The second step is to select the subset or key field. The third and final step is to identify the numeric amount field for purposes of the RSF ratio calculation.

If there is a field in the file that describes the key, the “Optional description field for the key field” may be selected to include this field in the output.

Once the script is executed, subset members that have only a single transaction are eliminated.  The test results are captured in a data file named, “RSF Test – Original Filename” which contains the fields Subset/Key, optional selected field, Largest_Amt, Second_Largest _Amt, Average_X_Largest, Count, and Relative_Size_Factor. The user can then extract records that exceed a determined RSF for further examination. The selection of the review threshold for the RSF ratio may be determined by the audit plan or by the professional judgement of the user. 

Note: The Average_X_Largest field is the average of all positive or negative (as selected by the user prior to running the script) amounts excluding the largest amount. This field provides an indication of the “typical” amount within the subset members. Currently, creating an action field linking to the records in the selected file is not supported within IDEAScript. You may manually create it by selecting Data, Define Action Field, Create Action Link to display extraction preview, and the original file.

If there are fifty or less subset members, then a chart is created for all the subset members. If there are more than fifty, then the fifty highest RSF ratios are charted. A file with the fifty extractions is also created.

To display all the transactions within the chart view, click on “Data” in the “Properties” window located on the right. To return to the chart view, click on “Relative Size Factor Test” (from within the “Properties” window, “Results” area)”.