Connecting to LinkedIn...



Accountants Increasingly Use Data Analysis to Catch Fraud

8/12/2014 by Sharon Shahzad


When a team of forensic accountants began sifting through refunds issued by a national call center, something didn’t add up: There were too many fours in the data. And it was up to the accountants to figure out why.

Until recently, such a subtle anomaly might have slipped by unnoticed. But with employee fraud costing the country an estimated $300 billion a year, forensic accountants are increasingly wielding mathematical weapons to catch cheats.

“The future of forensic accounting lies in data analytics,” said Timothy Hedley, a fraud expert at KPMG, the firm that did the call-center audit.

In the curious case of the call centers, several hundred operators across the country were authorized to issue refunds up to $50; anything larger required the permission of a supervisor. Each operator had processed more than 10,000 refunds over several years. With so much money going out the door, there was opportunity for theft, and KPMG decided to check the validity of the payments with a test called Benford’s Law.

According to Benford’s Law—named for a Depression-era physicist who calculated the expected frequency of digits in lists of numbers—more numbers start with one than any other digit, followed by those that begin with two, then three and so on.

“The low digits are expected to occur far more frequently than the high digits,” said Mark J. Nigrini, author of Benford’s Law: Applications for Forensic Accounting, Auditing, and Fraud Detection and an accounting professor at West Virginia University. “It’s counterintuitive.”

Most people expect digits to occur at about the same frequency. But according to Benford’s Law, ones should account for 30% of leading digits, and each successive number should represent a progressively smaller proportion, with nines coming last, at under 5%.

In their call-center probe, Mr. Hedley and his colleagues stripped off the first digits of the refunds issued by each operator, calculated the frequencies and compared them with the expected distribution.

“For certain people answering the phones, the refunds did not follow Benford’s Law,” Mr. Hedley said. “In the ‘four’ category, there was a huge spike. It led us to think they were giving out lots of refunds just below the $50 threshold.”

The accountants identified a handful of operators—fewer than a dozen—who had issued fraudulent refunds to themselves, friends and family totaling several hundred thousand dollars.

That’s a lot of $40 refunds. But before running the Benford analysis, neither the company nor its auditors had evidence of a problem.

Getting the accounting profession to adopt Benford’s Law and similar tests has been a slow process, but Mr. Nigrini has spent two decades inculcating Benford’s Lawin the accounting and auditing community, promoting it through articles, books and lectures.

“It has the potential to add some big-time value,” said Kurt Schulzke, an accounting professor at Kennesaw State University in Georgia. “There has not been much innovation in the auditing profession in a long time, partly because they have ignored mathematics.”

Now, the Association to Advance Collegiate Schools of Business emphasizes the importance of analytical capabilities. Off-the-shelf forensic-accounting software such as IDEA and ACL include Benford’s Law tests. Even the Securities and Exchange Commission is reviewing how it can use such measures in its renewed efforts to police fraud.

This article has been extracted from, please click on this link to read the article in full

Montash is a multi-award winning, global technology recruitment business. Specialising in permanent and contract positions across mid-senior appointments across a wide range of industry sectors and IT functions, including:

ERP, BI & Data, Information Security, IT Architecture & Strategy, Energy & Technologies, Demand IT and Business Engagement, Digital and E-commerce, Leadership Talent, Infrastructure and Service Delivery, Project and Programme Delivery.

Montash is headquartered in Old Street, London, in the heart of the technology hub. Montash has completed assignments in over 30 countries and has appointed technical professionals from board level to senior and mid management in permanent and contract roles.

comments powered by Disqus

Social Stream

Latest News


Humans remain largest security flaw in cloud ...

2016-10-21 14:00:00 +0100

With a vast number of companies moving some, if not all, of their operations to the cloud, security continues to be of major concern. Whilst there are numerous patches and firewalls to safeguard defences, it has been highlighted that the most difficult area to protect against is human interaction. This is the view of Jamie Woodruff, a penetration tester and ethical hacker. Woodruff’s views come after he was contracted to conduct a penetration test in or...


Offshore exploration providing boost for oil ...

2016-10-19 09:00:00 +0100

The oil and gas industry has had a notoriously challenging time of late, with the prices of oil plummeting and causing many firms to tighten their belts. However, offshore exploration is providing a much-needed bright spot for the sector, with an increasing number of governments becoming more accommodating. In the past week, it has been revealed that there are big changes afoot for Brazil’s petroleum laws. Shell has already begun to move on this opportu...