Using Key Performance Indicators and Risk Measures in Continuous Monitoring

The paper describes a continuous monitoring methodology in an environment with multiple cues indicative of fraud and errors. A case study describes an application by a restaurant franchisor on the monthly sales numbers reported by franchisees. The system scores each restaurant based on variables judged to be possible indicators of fraud or errors in the monthly sales reports. The variables are weighted according to their perceived importance to obtain a final risk score for each restaurant. The output is a small set of audit targets believed to have a high risk of reporting errors. The variables can be categorized as being (1) key performance indicators, (2) statistical irregularities, (3) motivation or pressure related variables, and (4) variables related to compliance with the franchising agreement.