Adaptive Fraud Detection

Bigyan Sapkota * Nepal College of Information and Technology Balkumari, Kathmandu, Nepal * bigyan103@hotmail.com
Abstract- Fraud is the intentional deception made for the personal gain or to damage another individual. It is as old as civilization itself. Fraud impacts organizations in several areas including financial, operational, telecommunication, banking and psychological. To detect the fraud we use different fraud detection technique. One of them is the credit card fault detection technique. The use of the credit card in modern society increases day by day. At the same time credit card fraud cases is constantly increase. Therefore the problem of fraud detection is very important in the present context. Similarly Fraud causes losses to telecommunication carriers. Detection systems which automatically detect to alleviate the problem are very important. Previously by looking the call pattern of individual users, fraud is detected. In this paper various literature review and the fraud detection models are introduced. Keywords- Adaptive Fraud detection, credit card, intrusion, telecommunication, masquerade to concern with fraud detection. The internet introduced new types of fraud, including click fraud, email spam, phishing spam and denial of service attacks. Fraud detection is the identification of actual or potential fraud within an organization. It relies upon the implementation of appropriate systems and processes to spot the early warning signs of fraud. Fraud detection usually includes a combination of the following techniques: Proactive (eg. risk assessments) and reactive (eg. responding to reports of fraud). Manual (eg. spot audits) and automated (eg. specialist data-mining software). Even the most comprehensive fraud prevention controls can be broken by a determined and skilled fraudster. Fraud detection techniques can help to uncover new fraud in action as well as historical frauds. Effective fraud detection saves money, protects businesses and their employees, shareholders and customers. In the modern society most of the people are using electronic gadget which is either the credit card or the telecommunication. Fraud is costly to a network in terms of lost income and wasted capacity. About 2-5 % of the telecommunication industry lost its revenue due to fraud [2]. A fraudulent attack causes lots of inconveniences to the victimized subscriber which might motivate the subscriber to switch to a competing carrier. Furthermore, potential new customers would be very reluctant to switch to a new network which is troubled with fraud. In mobile communication network Fraud is usually initiated by a mobile phone theft, by cloning the mobile phone card or by acquiring a subscription with false identification. After intrusion the subscription can be used for gaining free services either for the intruder himself or for his illegal customers in form of call-selling. The fraudster sells call to customer for reduced rate. For example in the VOIP call the fraud will bypass the international gateway call to its server so that the telecom operator will lose in huge. In order to detect this type of fraud, various methods were used. The earliest method of

I.INTRODUCTION The word fraud comes from the Latin word fraudem, meaning deceit or injury[1]. Today it represents a wide array of injustice, including forged artwork, confidence schemes, email advance free-fraud (such as Nigerian email scam. Nigerian sms for lottery).The most of the fraud is for monetary gain, but it may be committing for political causes, personal prestige or self preservation. In the twenty first century, fraud matured in the area of transactional business, telecommunication, and credit card industries. Due to large volume of transactional in these areas, fraud could go unnoticed fairly easily. Apart from this, with the rise of internet and intranetbased business in the 1990s and 2000s new types of fraud began to emerge. More transactions and purchases were taking place online and new companies such as ebay.com and Amazon.com have

detecting this fraud was to register overlapping calls originating from on subscriber to another. This procedure efficiently detects the cloning but misses a large share of other fraud cases [3]. Similarly the more advanced system is a velocity trap which detects the card cloning [4]. This will detect and find out card cloning at the distance places. This method cannot detect the other fraud detection. Therefore there is great interest in detection systems which detect fraud based on an analysis of behavioral patterns (Barson et al., 1996, Burge et al., 1997, Fawcett and Provost, 1997, Taniguchi et al., 1998).[4] Therefore this paper presents a real time fraud detection system which is based on stochastic generative model. II. NATURE OF FRAUD The most challenging aspect of fighting fraud is identifying the fraud. So we need some detection tools to look for both fraud and usage management problems. The fraud often will masquerade a problem. Therefore a fraud detection system must be flexible to respond quickly and effectively to variety of fraud. III. RELATED WOK Fraud Detection System This system was developed by V. Filippov et al[5]. In this system it consists two modules (FDS ONLINEP and FDS OFFLINEP) for fraud detection. The FDS ONLINEP module is used for on-line fraud detection i.e. fraud detection process during authorization of transactions in a bank processing system and FDS OFFLINEP is used for offline fraud detection. During the transaction of event, if the transaction detects the event as fraudulent then it is send to the processing system and the transaction will declined.

For the storage of incoming transactions, statistical data for corresponding models, FDS Data Warehouse is used. It consists of Module FDS ALERT for alerting credit card holders in case of fraud recognition by the FDS ONLINEP module using SMS or email messages. For building statistical data the FDS BUILDSTATP module is used. Early Threshold-Based Alerting This method was developed by Richard A. BECKER et all at[1]. Statistics Research Department AT&T Labs-Research. In this method fraud detection algorithm used thresholds. The system delivers the alerts when the number of messages and the number of minutes of calling within a specific time period exceeded a preset threshold. A drawback to this method is that if the time period is, say, an hour, then the fraud continues on average for 30 minutes without an alert. Another important drawback is that this method treats customers identically; if a threshold is set so that it finds fraud for a small business line, then a large business is likely to trip the threshold routinely. Other Related works Ghosh and Reilly [6] proposed a neural network for credit card fraud detection. Stolfo et al. [7] [8] developed a credit card fraud detection system (FDS) using meta learning techniques to study models of fraudulent credit card transactions. Performance metrics like True PositiveFalse Positive (TP-FP) spread and accuracy have been defined by them. The BOAT adaptive method was proposed by sherly et al [9]. Each individual transaction amount depends on the purchase of the corresponding type of item. Standard performance metrics, True Positive (TP) and False Positive (FP) are used to characterize the effectiveness of the system. Then the fraudulent transactions are identified. The difficulty with most of the above specified approaches is that they need labeled data for both real as well as fraudulent transactions to train the classifiers. M.Sasirekha et al[10], present a Hidden Markov Model (HMM)-based credit card FDS, which does not need fraud signatures and yet it is able to identify frauds by considering the spending habit of the credit card holder

Fig.1. Structure of the Fraud Detection System [5]

IV. PROPOSED SYSTEM

and normal behavior for each account, and then they are combined into rule selection step. 2. Rule Selection

Call Data

Rule Learning and Selection Rules Monitor Construction M1 M2 M3 Monitor Template

It is used to derive a set of rules that will serve as fraud indicators. 3. Profile monitoring In order to detect the fraud the rules are converted into profile monitors. Each monitor has a profiling steps and use step. Profiling steps are applied to a segment of a account typically non-fraud. Use step profile monitor process of single account of the day. 4. Monitor Construction The detector construction learns how to combine evidence from the monitors generated by the previous stage. Training is done on account data and monitor evaluate one entire day account at a time. 5. Classifier training

Classifier Training

Profile Monitor

Fraud Detector

Fraud

No : goto monitor template Yes

In training, the monitors output are presented along with the desired output (account day, fraud or non fraud) The evidence combination weight the monitor output and learns a threshold on the sum. If the threshold is greater than the sum then the alarm will generated else goes to the monitor template. V. CONCLUSION In this paper, a general description of the adaptive fraud detection system has been presented. The fraud detection system can be used to detect the fraud subscriber by initiating the alarm if the threshold value reaches the maximum value. Similarly different literature review related to the fraud detection has been presented. For the future work neural fraud detection system can be used to detect the intelligent fraud.

Fraud Alarm
Fig 2: Adaptive Fraud Detection System Adaptive fraud detection process consists of following steps. 1. Rule learning The first stage of the detectors is used to construct rule learning. It involves searching all the call data for the fraud indicator by using the conjunctive standard learning program. This rule learning process will detect fraud such as cloned sim call. The rule learning is performed in two steps. Rules are first generated locally based on difference fraudulent

REFERENCES
[1] Richard A. BECKER, Chris VOLINSKY, and Allan R. WILKS. Fraud Detection in Telecommunications: History and Lessons Learned. Statistics Research Department AT&T Labs-Research Florham Park, NJ 07932 [2] Barson P., Field, S., Davey, N., McAskie, G., and Frank, R. (1996). The Detection of Fraud in Mobile Phone Networks. Neural Network World, Vol. 6, No. 4. [3][4] V. Filippov, L. Mukhanov, B. Shchukin. Credit Card Fraud Detection System, [5] R. Brause, T. Langsdorf, and M. Hepp, Neural data mining for credit card fraud detection, in Proc. of the 11th IEEE International Conference on Tools with Artificial Intelligence, Evanston, 1999, pp. 103106. [6] S. Ghosh and D.L. Reilly, Credit Card Fraud Detection with a Neural-Network, Proc. 27th Hawaii Intl Conf. System Sciences: Information Systems: Decision Support and Knowledge-Based Systems, Vol. 3, pp. 621-630, 1994. [7][8] S.J. Stolfo, D.W. Fan, W. Lee, A.L. Prodromidis, and P.K. Chan, Credit Card Fraud Detection Using MetaLearning: Issues and Initial Results, Proc. AAAI Workshop AI Methods in Fraud and Risk Management, pp. 83-90, 1997 [9] Sherly, K.K, Nedunchezhian R, "BOAT adaptive credit card fraud detection system," Computational Intelligence and Computing Research (ICCIC), 2010 IEEE International Conference on , vol., no., pp.1-7, 28-29 Dec. 2010. [10] M.Sasirekha, Sumaiya Thaseen, and Saira Banu.J. A Defense Mechanism for credit card fraud Detection, journal,ijcis, 2008