Another useful tool that can be used to detect financial irregularities is the Benford Law technique. Essentially, Benford's Law provides a data analysis method that can help alert forensic accountants to
possible errors, potential fraud, manipulative biases, costly processing
inefficiencies or other irregularities. Premised on its statistical-based principle of number frequency, it has been suggested
that the law could be used to detect possible fraud in lists of
socio-economic data. Based on
the plausible assumption that people who make up figures tend to distribute
their digits fairly uniformly, a simple comparison of first-digit frequency
distribution from the data with the expected distribution according to
Benford's law ought to show up any anomalous results. Following this idea,
Benford's law could be used in forensic accounting investigation and auditing as an indicator of accounting and expenses fraud. In practice, applications of Benford's law for
fraud detection routinely use more than the first digit. The Law posits that the use of the number "1" as a first digit is about 30%; number "2" about 16%; number "3" about 12%... and number "9" about 5%. Any abnormality constitutes possible financial shenenigans Friday, July 13, 2012
Benford Law to Detect Irregularities
Another useful tool that can be used to detect financial irregularities is the Benford Law technique. Essentially, Benford's Law provides a data analysis method that can help alert forensic accountants to
possible errors, potential fraud, manipulative biases, costly processing
inefficiencies or other irregularities. Premised on its statistical-based principle of number frequency, it has been suggested
that the law could be used to detect possible fraud in lists of
socio-economic data. Based on
the plausible assumption that people who make up figures tend to distribute
their digits fairly uniformly, a simple comparison of first-digit frequency
distribution from the data with the expected distribution according to
Benford's law ought to show up any anomalous results. Following this idea,
Benford's law could be used in forensic accounting investigation and auditing as an indicator of accounting and expenses fraud. In practice, applications of Benford's law for
fraud detection routinely use more than the first digit. The Law posits that the use of the number "1" as a first digit is about 30%; number "2" about 16%; number "3" about 12%... and number "9" about 5%. Any abnormality constitutes possible financial shenenigans 
