Benford's Law: Applications for Forensic Accounting, Auditing, and Fraud Detection

A powerful new tool for all forensic accountants, or anyone whoanalyzes data that may have been altered

Benford's Law gives the expected patterns of the digits in thenumbers in tabulated data such as town and city populations orMadoff's fictitious portfolio returns. Those digits, in unaltereddata, will not occur in equal proportions; there is a large biastowards the lower digits, so much so that nearly one-half of allnumbers are expected to start with the digits 1 or 2. Thesepatterns were originally discovered by physicist Frank Benford inthe early 1930s, and have since been found to apply to alltabulated data. Mark J. Nigrini has been a pioneer in applyingBenford's Law to auditing and forensic accounting, even before hisgroundbreaking 1999 Journal of Accountancy article introducing thisuseful tool to the accounting world. In Benford's Law, Nigrinishows the widespread applicability of Benford's Law and itspractical uses to detect fraud, errors, and other anomalies.

• Explores primary, associated, and advanced tests, all describedwith data sets that include corporate payments data and electiondata
• Includes ten fraud detection studies, including vendor fraud,payroll fraud, due diligence when purchasing a business, and taxevasion
• Covers financial statement fraud, with data from Enron, AIG,and companies that were the target of hedge fund short sales
• Looks at how to detect Ponzi schemes, including data on Madoff,Waxenberg, and more
• Examines many other applications, from the Clinton tax returnsand the charitable gifts of Lehman Brothers to tax evasion andnumber invention

Benford's Law has 250 figures and uses 50 interestingauthentic and fraudulent real-world data sets to explain boththeory and practice, and concludes with an agenda and directionsfor future research. The companion website adds additionalinformation and resources.