Benford's Law: Applications for Forensic Accounting, Auditing, and Fraud Detection (Wiley Corporate F&A Book 617) 1st Edition, Kindle Edition

There are hidden patterns in the chaos that we know as data. In the 1930s, the physicist Frank Benford found that there were predictable patterns to the digits in the numbers in tabulated data. For many years, this little secret was known to only a few people, made up mainly of mathematicians and the Benford family. In the 1990s, the accountant Mark Nigrini first advocated the use of Benford's Law as a test for fraud and of data integrity. With 250 tables and figures dealing with 50 data sets revealed over 13 chapters, Nigrini takes us on a pioneering journey in Benford's Law: Applications for Forensic Accounting, Auditing, and Fraud Detection. Our adventure starts with the original 1938 paper on the topic and then moves through the leading-edge mathematical discoveries in the early days, finishing with recent examples from the GM, Chrysler, and Lehman bankruptcy filings, as well as an analysis of the numbers invented by students in an experiment designed to trick the researcher.

The applications include:

• U.S. census population numbers

• The Fibonacci numbers

• Corporate payments

• Enron and AIG's financial statement numbers

• General Motors and Chrysler payments data

• Madoff's monthly returns

• Streamflow and lake data

• Taxpayer interest and dividend income

• The tax returns of Bill and Hillary Clinton

• Lehman's charitable gifts

Benford's Law is written to be understood and enjoyed by auditors, forensic accountants, fraud investigators, financial analysts, and others concerned with data integrity and data authenticity. The book is both informative and entertaining, and is aimed at professionals with a basic knowledge of statistics and a love for numbers and figures. Nigrini's passion for the topic is clear, from the first page, where we are reminded that numbers play an integral part in our daily lives, to the final chapter, which includes an evaluation of where we are at the moment with respect to Benford's Law and where we need to go in the future. The inclusion of Excel, Access, and IDEA screenshots means that you can start working on your own data right away.

A companion website has links to many of the data sets used in the book, together with PowerPoint slides for college instructors and conference presentations. The website includes the Nigrini Cycle Excel template and several Access databases with their Benford's Law queries. The tests in the book will focus your attention on the abnormal duplications, biases, and anomalies in your data.

"Mark Nigrini . . . took Benford's original data and developed it into solid analytical methods to detect a variety of white-collar misdeeds: vendor, payroll, and sales tax frauds; fraudulent medical and insurance claims; check fraud and tax evasion among others. In other words, Dr. Nigrini has put Benford's Law on the map. With the passage of time, he and others will find additional useful applications for this powerful tool."
—From the Foreword by Dr. Joseph T. Wells, CFE, CPA

Apply Benford's Law to detect fraud and to test the integrity of your data

Numbers play an important part in our lives from weather forecasts to the stock market, and from street addresses and phone numbers to baseball statistics and casino games. It would be impossible to take numbers out of our daily lives. The secret is out that there are patterns to the numbers that we come across every day, and more importantly, that deviations from these patterns are red flags for fraud, errors, and biases.

Author Mark Nigrini, a pioneer in forensic accounting, describes the mathematical foundations of Benford's Law in a way that is easily understood by accounting and other business-related professionals. He then shows many examples of authentic and accurate data that conformed to Benford's Law—and the fraudulent and invented numbers that did not.

Nigrini goes way beyond the first digits test and outlines a series of digit- and number-based tests called the Nigrini Cycle. With a companion website with data sets and Excel templates, these tests are based on the state-of-the-art tools, thinking, and research related to Benford's Law.

The applications include:

• The Madoff numbers

• GM and Chrysler bankruptcy data

• Numbers reported by Enron and AIG

• Bill and Hillary Clinton's tax returns

• U.S. census population numbers

• Corporate payments data

• The Fibonacci numbers

• Taxpayer interest and dividend income

Benford's Law "gives Professor Nigrini a tool worthy of Sherlock Holmes," said Robert Burton, chief financial investigator for the district attorney's office in Brooklyn, New York. In Benford's Law, Nigrini shares his insights and passion for the topic in a way that is sure to cause fraudsters to have many sleepless nights in the years ahead.