01/26/2012 meeting - fraud detection and prevention through data analysis

Fraud Detection and Prevention through Data Analysis

Presented by: Greg Taylor, CFE

Senior Vice President/CTO Corporate Audit Partners

Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675

Agenda

Introduction

Defalcation Statistics

Case Studies

Fictitious Invoices

Duplicate Payments

Budget Manipulation

Prevention and Detection

Dry Run Test Consecutive Invoice Numbering Non-Sequential Invoice Numbers Vendor Histogram PO Box Only Addresses Address Analysis Bank Code Analysis Benford's Law Number Duplication


Introduction Greg Taylor

24 years of accounting and auditing

Industries

Banking

Aerospace

Advertising

Owned Forensic Accounting Business

14th year in the recovery auditing industry

Published author – Please review Corporate Audit Partners website www.corporateaudits.com to

review two articles. “Why Employees Steal” and “Fraud Basics, The Perils of a Small Business”.

White paper – University of Arizona, Eller College of Management, “How to Lose $1.8 Billion in One

Week - Seven Ways to Protect Your Information from Security Loss”

http://iasec.eller.arizona.edu/white_papers/index.asp

http://www.corporateaudits.com/�

http://iasec.eller.arizona.edu/white_papers/index.asp�


Occupational Fraud Statistics

Association of Certified Fraud Examiners 2010 Report

1,843 cases totaling approximately $1 billion in losses

Est. typical U.S. organizations loses 5% of revenue to fraud

Confidential Reporting mechanisms reduce fraud losses by 50% (tip line)

Fraud losses are disproportionably large in small business

80% of Frauds were committed in one of six departments; accounting,

operations, sales, executive management, customer service, purchasing


The What

Defalcation last typically 16 months

Fraudulent disbursements make up 64% of cases reviewed

60% of Occupational Fraud loss at least $100,000

Companies with less than 100 employees make up 30.8% the cases

Companies with 1,000 – 9,999 employees make up 25.9% of cases


The Why

The Four “D’s” Debt and Gambling

Drug and Alcohol Abuse

Divorce and Marital Problems

Disgruntled Employee


The Who

Typical Embezzler Management or supervisor position

7 years plus with company

Annual Income $100,000 - $149,000

Male 66.7%

Female 33.3%

Age 19.3% are 36 – 40, 19.3%, 41-50

Bachelors Degree 52%

First Time Offender


Detection Association of Certified Fraud Examiners

2004 Report to the Nation on Occupational Fraud and Abuse


Cash Misappropriation

Fraudulent Disbursements – Perpetrator causes company to disburse funds by device or trick – Example: False invoices, forged company check

Skimming - Cash is stolen before been booked

Cash Larceny – Cash is stolen after been booked

2/3rd of all cash frauds were Fraudulent disbursements


Case Study 1

Fictitious Invoice Employee in Department works with Vendor

Vendor creates invoice

Employee approves invoice and submits to AP

AP pays invoice for products or services not received


Case Study 2

Duplicate Payment AP Employee creates fictitious invoice using original invoice

documentation

Check is cut to Vendor

AP Employee calls vendor and informs them of the duplicate payment

AP Employee suggests that a refund check be cut per his or her attention or made out to another name

AP Employee receives refund check and pockets the cash


Case Study 3

Budget Manipulation Department Head contacts Vendor and suggests a pre-payment to

vendor

Vendor sends invoice to Company

Transaction number is noted as a quote number rather than an invoice number

Pre-payment check is cut to vendor

Department expenses are misstated

Department uses open vendor credit to adhere to budget

Department receives bonuses on adherence to budget


Dry Run Test

This test identifies vendors or suppliers with large average invoice dollar values that have a very low minimum invoice value

The purpose of this test is to isolate invoices that are for a very low dollar amount compared to the average. This can help to identify if vendor/supplier is being used to test internal controls in the accounting system

Suggested review of even dollar invoices such as ($1.00, $5.00, $10.00, $20.00….)


Dry Run Test - Results

Item No. Vendor Number Vendor Name Average Invoice Amount First Invoice Amount Dry Run Test Percentage1 723143234 OBAYASHI CORPORATION $563,712.13 $1,039.47 0.18%2 306142033 DELL COMPUTER CORP $39,268.33 $93.00 0.24%3 326114242 SODEXHO MARRIOTT CORPORATION $5,168.15 $17.76 0.34%4 101091156 RF MACDONALD COMPANY $8,733.35 $52.24 0.60%5 420101954 CELESTICA CORP. $22,369.95 $190.00 0.85%6 327071713 SOCIETY FOR INFO. DISPLAY $7,597.50 $75.00 0.99%7 101041067 P G & E $10,337.60 $105.80 1.02%8 B04132909 ROPERS, MAJESKI, KOHN&BENTLEY $7,460.67 $90.00 1.21%9 C01141001 HEWLETT PACKARD COMPANY $9,213.66 $112.58 1.22%10 611145017 SHINKO AMERICA INCORPORATED $15,595.70 $233.73 1.50%11 902094321 DURR ENVIRONMENTAL INCORPORATED $6,093.45 $105.34 1.73%12 101091451 PRAXAIR INCORPORATED $17,107.90 $321.75 1.88%13 330102517 EBARA TECHNOLOGIES INCORPORATED $18,607.67 $372.72 2.00%14 331110258 COLLIERS HOUSTON & CO.PROPERT $5,170.14 $107.27 2.07%15 A05094025 ORACLE CORPORATION $36,485.84 $880.00 2.41%

74 101041424 TOPPAN ELECTRONICS INC $31,016.11 $4,170.00 13.44%75 125085409 TECHNICAL INSTRUMENT SAN FRANCISCO $6,229.18 $845.57 13.57%76 911145522 SMI ELECTRONIC DEVICES AMERICA INC $25,950.20 $3,803.09 14.66%77 0000000144 Dense Pac $9,772.92 $1,461.65 14.96%78 101091169 RAY L HELLWIG PLUMBING & HEATING COMPANY $8,591.34 $1,310.00 15.25%79 815103903 JEOL USA INCORPORATED $9,656.70 $1,491.70 15.45%80 0000000299 ALLIED SECURITY $8,574.86 $1,388.80 16.20%

Client: xyz Company - Report XIDry Run Test


Consecutive Invoice Numbering

This test identifies vendor/suppliers with consecutive invoice numbering

The purpose of this test is two fold 1. Test can be used to identify misappropriations of funds by employee using

consecutive invoice numbers

2. Test can also be used as a risk management tool to identify vendors or suppliers where your company is their only source of income. You can create appropriate alternatives if the vendor or supplier goes out of business


Consecutive Invoice Numbering - Results

IDInvoice Number

Invoice Date Invoice Amount PO ID

Vendor Number Vendor Name Address 1 Address 2 City State

Postal Code

Check Number

Check Date

31104 126012607 12/06/03 $11,615.49 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/0431105 126012608 12/07/03 $154.69 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/0431106 126012609 12/07/03 $24,012.94 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/0431107 126012610 12/07/03 $153.93 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/0431108 126012611 12/05/03 $45,563.01 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/0431109 126012612 12/05/03 $153.93 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/0431139 126015480 01/16/04 $5,233.59 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431140 126015481 01/16/04 $769.65 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431141 126015482 01/16/04 $3,540.37 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431142 126015483 01/16/04 $1,693.22 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431143 126015484 01/16/04 $3,386.44 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431144 126015485 01/16/04 $593.82 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431145 126015486 01/16/04 $928.17 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431146 126015487 01/16/04 $618.78 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0431147 126015488 01/16/04 $8,662.90 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/0475541 507600 06/29/03 $2,861.43 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375542 507601 06/29/03 $504.60 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375543 507602 06/29/03 $963.09 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375544 507603 06/29/03 $456.75 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375545 507604 06/29/03 $124.41 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375546 507605 06/29/03 $287.10 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375547 507606 06/29/03 $12.92 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0375548 507607 06/29/03 $30.45 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/0382364 602104/0100 01/01/03 $3,384.17 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/0382365 602104/0200 02/01/03 $3,178.06 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/0382366 602104/0300 03/01/03 $2,670.82 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/0382367 602104/0400 04/01/03 $3,404.77 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/0382368 602104/0500 05/01/03 $3,184.09 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/0382369 602104/0600 06/01/03 $3,053.95 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/0382370 602104/0700 07/01/03 $2,996.78 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/0382371 602104/0800 08/01/03 $3,498.83 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305842 09/03/0382372 602104/0900 09/01/03 $3,350.58 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305842 09/03/0382373 602104/1000 10/01/03 $1,986.51 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305856 12/03/03

Client: xyz Company - Report XIIVendors / Consecutive Invoice Numbering

Prepared by: Corporate Audit Partners


Non-Sequential Invoice Numbering

This test identifies invoices out of character sequence.

Most vendors or suppliers use the same sequence of alpha numeric character

By isolating characters out of sequence the company may be able to identify defalcation, budget manipulation or wrong vendor payment


Non-Sequential Invoice Numbering - Results

Report IX

Vendor NumberVendor

Number Vendor Name Invoice Number Invoice Date Invoice Amount Invoice ID

52519 1223 A1CUST 1563 04/10/02 $200.00 53953452520 1223 A1CUST 1564 04/10/02 $360.00 53953658197 1223 A1CUST 1568 08/02/02 $1,000.00 55566656446 1223 A1CUST 1570 06/26/02 $654.75 55087259588 1223 A1CUST 1571 08/30/02 $600.00 559603

103605 1223 A1CUST 1572 08/06/03 $100.00 60538263084 1223 A1CUST 1580 10/30/02 $162.50 56822497639 1223 A1CUST 1585 04/09/03 $1,000.00 58929897640 1223 A1CUST 1586 04/09/03 $80.00 589300

129070 4974 A1FAST 21-OCT-03 10/21/03 $250.00 616470

8151 1213 LBHCHEM 0021365-in 07/11/01 $219.94 5030483396 1213 LBHCHEM 0029615-in 03/20/02 $405.66 536166

53248 1213 LBHCHEM 0030882-IN 04/24/02 $90.50 54155054229 1213 LBHCHEM 0031641-in 05/17/02 $408.84 544417

102468 1213 LBHCHEM 0044698-IN 07/16/03 $554.19 602189102868 1213 LBHCHEM 0044888-IN 07/23/03 $1,150.61 603148104705 1213 LBHCHEM 0045863-IN 08/27/03 $348.89 60829448039 1213 LBHCHEM 0039276 01/15/03 $539.59 57856748040 1213 LBHCHEM 0039277 01/15/03 $540.00 578579

74486 3499 WILLIAM4 CA37239 03/10/03 $92.23 58541074484 3499 WILLIAM4 CA37239 03/10/03 $92.23 58541074483 3499 WILLIAM4 CA37239 03/10/03 $92.23 58541074482 3499 WILLIAM4 CA37239 03/10/03 $92.23 58541074485 3499 WILLIAM4 CA37239 03/10/03 $92.23 58541032454 3499 WILLIAM4 HP648C PRINTER 08/27/01 $127.59 50984773398 3499 WILLIAM4 JANUARY 31, 2003 02/03/03 $94.75 58165278133 3499 WILLIAM4 PC52202 05/23/02 $80.77 546506

122306 3499 WILLIAM4 PLT 72 09/29/03 $511.43 61345086061 3499 WILLIAM4 TN 11/02 11/08/02 $453.58 57076172854 3499 WILLIAM4 WA/PA/MO 01/16/03 $495.76 579455

Client XYZNon-Sequential Invoice Numbers


Vendor Histogram

This test identifies Vendor payment trends during a given time period

Most vendors or suppliers have similar transaction cycles or transaction amounts

Unusual or significant increases in either the frequency or value of transactions can signify defalcation or collusion


Vendor Histogram


Vendors Scatter Graph

This test identifies all Vendor payment trends during a given time period and maps anomalies

Horizontal analysis of year over year or period over period

Most vendors or suppliers have similar transaction cycles or transaction amounts

Unusual or significant increases in either the frequency or value of transactions can signify defalcation, collusion, or growing inefficiencies.


Vendor Scatter Graph


P.O. Box Only Addresses

This test identifies vendors or supplies that only have PO Box address

The purpose of this test is to identify vendors that have no physical address

All vendors or suppliers should have a physical address listed in the

vendor master file

The lack of a physical address may be an indication that a vendor has been set up fictitiously in the vendor master file.


P.O. Box Only Address - Results Vendor Master Report IV

Vendor Number Vendor Name Address1 City State Country Zip

4064 ABF FREIGHT SYSTEM, INC. PO BOX 142088 AUSTIN TX US 78714-2088

6849 ACCENT FLOORING, INC. PO BOX 19015 AUSTIN TX US 78760

9905 ADVANCE PLASTIC FABRICATORS PO BOX 5117 ROUND ROCK TX US 78683-5117

7907 AIRGROUP EXPRESS P.O. Box 3627 Bellevue WA US 98009-3627

5184 BAYSHORE PRESS PO BOX 67303 SCOTTS VALLEY CA US 95067-7303

1653 BETZDEARBORN, INC. PO BOX 846046 DALLAS TX US 75284-6046

9928 BGS INCENTIVE ACTIVITIES PO BOX 6044 KAMUELA HI US 96743

10598 CABLE ONE PO BOX 10 CALDWELL ID US 83606

8029 CALIFORNIA TECHNICAL INDUSTRIES PO BOX 66868 SCOTTS VALLEY CA US 95067-6868

11466 DANAHER POWER SOLUTIONS PO BOX 98392 CHICAGO IL US 60693

9821 DAVID RODERICK PO BOX 640295 SAN JOSE CA US 95164-0295

4776 DELTEX, INC. PO BOX 3258 LITTLETON CO US 80161-3258

2528 EESCO/UNITED ELECTRIC CO. PO BOX 91626 CHICAGO IL US 60693

9976 FINZER IMAGING SYSTEMS PO BOX 39082 DENVER CO US 80239-0082

6376 GOMEZ ENERGY SERVICES PO BOX 5082 GEORGETOWN TX US 78627

8455 HARTSTON,INC PO BOX 21941 LEXINGTON KY US 40522-1941

5504 L&L ASSOCIATES P.O. BOX 541 BREA CA US 92822

7065 MEETING SOLUTIONS, INC. PO BOX 4062 AUSTIN TX US 78765-4062

8348 MICRO COMPUTER CONTROL CORP. PO BOX 275 HOPEWELL NJ US 08525

7520 O.C. MCDONALD COMPANY INC. PO BOX 26560 SAN JOSE CA US 95159

9111 PADGETT THOMPSON PO BOX 4725 BUFFALO NY US 14240-4725

8721 PENINSULA VISA & PASSPORT SERVICES PO BOX 28 SANTA CLARA CA US 95052

6847 PIONEER PRESS PO BOX 64890 ST PAUL MN US 55164

2435 PNEUMATICO, INC. PO BOX 410310 MELBOURNE FL US 32941-0310

1891 PURVIS BEARING SERVICES, INC. PO BOX 540757 DALLAS TX US 75354-0757

9135 R&M ELECTRIC INC PO BOX 63479 COLORADO SPRINGS CO US 80962-3479

10365 SEZ AMERICA, INC. PO BOX 29830 PHOENIX AZ US 85038-9830

Box Report - Vendors with PO Box Only Address


Address Analysis

This test compares vendor addresses to employee addresses

This test can be used to identify employees who have set up fictitious vendors in the vendor master file

There may well be occasions where an employee is also set up as a supplier or vendors but you should be aware of them


Address Analysis - Results

Address Match

Employee ID

Vendor Number Vendor Name Address 1 Address 2 City State Postal Code

614153317 DOUBLETREE HOTEL SAN JOSE 1050 GATEWAY PLACE SAN JOSE CA 951100000000845 Plotter Pros 1086 The Alameda Suite 100 San Jose CA 95116C11145617 RECOMMENDED RESOURCES 11 AMHERST ROAD AMHERST MA 1001C11145617 RECOMMENDED RESOURCES (INACTIVE) 11 AMHERST ROAD AMHERST MA 1001

MATCH 009985 1336 Hill San Marcos TX 78022MATCH 917150807 S M DESIGNES 1336 HILL St SAN MARCOS TX 78022

711131708 RT CONSTRUCTION 13455 NOEL RD SUITE 430 DALLAS TX 75140615094134 RYDER TRANSPORTATION SERVICES 1481 O'TOOLE AVENUE SAN JOSE CA 95131617143713 MONARCH INSTRUMENT 15 COLUMBIA DRIVE AMHERST NH 03031-1334616094959 MASON WEST INCORPORATED 1840 GRETTO LANE ANAHEIM CA 91806517160003 ADVANCED SYSTEM SOLUTIONS 3115 PERIVALE CT SAN JOSE CA 95148831 Ev ent Connections 3657 El Grande Driv e San Jose CA 95131110 MURAD SALES INCORPORATED 4600 GREENVILLE AVE SU DALLAS TX 75106

MATCH 731143218 G Consulting 5506 CHIMNEY RCK DR IRVING TX 76017MATCH 009511 5506 Chimney Rock Driv e IRVING TX 76017

111 JUNIOR NATIONAL WHEELCHAIR CHAMPIONSHIPS 5730 CHAMBERLIN DRIVE SAN JOSE CA 951180000000510 HANSON PUBLICATIONS 64 CLIFTON AVENUE PO B AN SONIA CT 06401-0514

MATCH 008701 6610 Manzanita Dr. San Marcos TX 78027MATCH A28135104 JS GRAPHICS 6610 MANZANITA DRIVE SAN MARCOS TX 78027

0000000701 INTERNET ASSOCIATION GROUP, INC. 6610 SOUTHPOINT DRIVE SUITE 600 JACKSONVILLE FL 31116MATCH 007901 6701 row Way Laconia CA 05842MATCH 624135327 DYGNETS 6701 ROW WAY LACONIA NH 05842

811 BLACKSTONE - NEY 9 N. MAIN ST JAMESTOWN NY 14701817111810 CAE ULTRACSONICS 9 NORTH MAIN STREET JAMESTOWN NY 14701-0110101090844 LAB SAFETY SUPPLY INCORPORATED DEPT #0000185191 PO BOX 5004 JANESVILLE WI 53547-5004909111811 SPECIALIZED PRODUCTS COMPANY PO BOX 890006 DALLAS TX 75389-0006101090036 LAIRD PLASTICS PO BOX 951111 DALLAS TX 75395516165940 RW/STEARNS RIVER PARK TOWER 333 W. SAN CARLOS S SAN JOSE CA 95110-1711515091707 IEEE VLSI TEST SYMPOSIUM VLSI Test Sy mposium 1001 Attn: Maddie Harw ood Amissv ille VA 10106

Client: xyz Company - Report VIEmployee Address / Vendors Address Comparison


Bank Code Analysis

This test identifies instances where a vendor/supplier and an employee have the same bank code number

The test can also identify if multiple employees have the same bank code number

The purpose of this test is to find fictitious vendors or employees

set up in the payroll or vendor master files


Benford's Law

P(kx) = f(k)P(x) If fP(x)dx = 1, then fP(kx)dx = 1/k, and

normalization implies f(k) – 1/k. Differentiating with respect to k and settings k = 1 gives

xPⁿ(x) = -P(x)

If you can understand this you are in the wrong workshop!


Benford’s Law

123456789

$1,000,000 1 $23 2 $542 5 $100 1


Benford’s Law - Why does it work!

Functional Dependence

Budget data depends on

Corporation Size

Particular Industry

Quality of Management

State of the Market

Sales growth


Benford's Law - History 1881 Simon Newcomb American Astronomer “Notes on the

Frequency of the use of Digits in Natural Numbers”

1938 Dr. Frank Benford Electrical Engineer General Electric “The Law of Anomalous Numbers”

1992 Dr. Mark Nigrini “Detection of Income Tax Evasion Through and Analysis of Digital Frequencies”

1999 Dr. Mark Nigrini “I’ve Got Your Number”

2002 Dr. Mark Nigrini “Using Microsoft Access for Data Analysis and Interrogation” Mark J. Nigrini Ph.D. / Saint Michael's College / http://www.nigrini.com/ Dept of Business and Acctg - Campus box 104 One Winooski Park / Colchester Vermont 05439 Tel: (802) 654-2894 (Saint Michael's office)

http://www.nigrini.com/�


Benford's Law - First Digit Analysis

0.000000

0.050000

0.100000

0.150000

0.200000

0.250000

0.300000

MFG 1 MFG 2 MFG 3 Benford min max

MFG 1 0.301980 0.173300 0.122330 0.091430 0.082010 0.066050 0.057500 0.054620 0.050770

MFG 2 0.310863 0.173561 0.131462 0.086964 0.080502 0.064560 0.055869 0.049351 0.046868

MFG 3 0.303399 0.171330 0.125069 0.098053 0.085215 0.065212 0.055819 0.050058 0.045845

Benford 0.301030 0.176091 0.124939 0.096910 0.079181 0.066947 0.057992 0.051153 0.045758

min 0.300000 0.166000 0.113000 0.087000 0.069000 0.057000 0.048000 0.041000 0.036000

max 0.320000 0.186000 0.133000 0.107000 0.089000 0.077000 0.068000 0.061000 0.056000

1 2 3 4 5 6 7 8 9


Benford's Law - Second Digit Analysis

0.000000

0.020000

0.040000

0.060000

0.080000

0.100000

0.120000

0.140000

0.160000

MFG 1 MFG 2 MFG 3 Benford Min max

MFG 1 0.147670 0.110520 0.108630 0.097790 0.094860 0.101870 0.087940 0.086410 0.081550 0.082760

MFG 2 0.148335 0.100621 0.107054 0.094498 0.093538 0.108916 0.089983 0.089080 0.084424 0.083550

MFG 3 0.142515 0.101389 0.107227 0.096407 0.095376 0.111879 0.091042 0.087048 0.083536 0.083580

Benford 0.119680 0.113890 0.108820 0.104330 0.100310 0.096680 0.093370 0.090350 0.087570 0.085000

Min 0.109680 0.103890 0.098820 0.094330 0.090310 0.086680 0.083370 0.080350 0.077570 0.075000

max 0.129680 0.123890 0.118820 0.114330 0.110310 0.106680 0.103370 0.100350 0.097570 0.095000

0 1 2 3 4 5 6 7 8 9


Benford’s Law - Statistics

1st DigitBenford's

Law 2nd DigitBenford's

Law

Benford "CAP

Modified"First Two

DigitsBenford's

LawFirst Two

DigitsBenford's

LawFirst Two

DigitsBenford's

Law1 30.10% 0 12.0% 14.6% 10 4.14% 40 1.07% 70 0.63%2 17.61% 1 11.4% 10.4% 11 3.78% 41 1.05% 71 0.62%3 12.49% 2 10.9% 10.8% 12 3.48% 42 1.02% 72 0.62%4 9.69% 3 10.4% 9.6% 13 3.22% 43 1.00% 73 0.61%5 7.92% 4 10.0% 9.5% 14 3.00% 44 0.98% 74 0.60%6 6.69% 5 9.7% 10.8% 15 2.80% 45 0.95% 75 0.59%7 5.80% 6 9.3% 9.0% 16 2.63% 46 0.93% 76 0.58%8 5.12% 7 9.0% 8.8% 17 2.48% 47 0.91% 77 0.58%9 4.58% 8 8.8% 8.3% 18 2.35% 48 0.90% 78 0.57%

9 8.5% 8.3% 19 2.23% 49 0.88% 79 0.56%20 2.12% 50 0.88% 80 0.55%21 2.02% 51 0.88% 81 0.55%22 1.93% 52 0.86% 82 0.54%23 1.85% 53 0.84% 83 0.53%24 1.77% 54 0.83% 84 0.53%25 1.70% 55 0.81% 85 0.52%26 1.64% 56 0.80% 86 0.51%27 1.58% 57 0.78% 87 0.51%28 1.52% 58 0.77% 88 0.50%29 1.47% 59 0.76% 89 0.50%30 1.42% 60 0.74% 90 0.49%31 1.38% 61 0.73% 91 0.49%32 1.34% 62 0.72% 92 0.49%33 1.30% 63 0.71% 93 0.49%34 1.26% 64 0.69% 94 0.48%35 1.22% 65 0.68% 95 0.47%36 1.19% 66 0.67% 96 0.47%37 1.16% 67 0.66% 97 0.46%38 1.13% 68 0.65% 98 0.46%39 1.10% 69 0.64% 99 0.45%


Benford’s Law - Using Access Database

Invoice Transaction Table



Raw Invoice Transaction Data



Query Object

This is where the data analysis actually occurs



Run Query to see results

Query built to strip off left most digit from the invoice amount



Invoice Amount

Stripped Left Most Digit



Summary Query to Summarize Benford’s Law First Digit results



Group By Button



Benford’s Law First Digit Results



Send analysis to Microsoft Excel Worksheet


Benford’s Law - Excel Download

Results downloaded to Excel


Benford’s Law - Excel Analysis


Benford’s Law - Two-Digit Analysis

Benfords Law Two-Digit Expression



Invoice Amount

Stripped Left Most Digit



Benford’s Law First Two Digit

Results



Findings Frequency



Anomalies to review


Number Duplication Subset Test

The Number Duplication test will tell what specific numbers were causing spikes (positive differences) on the first-two digit test

For each of the number categories we want a table of number frequencies showing:

1. The rank (1,2,3,4,5…..) 2. The frequency (or count), and 3. The number (usually dollars) that was duplicated

The table is usually sorted by frequency descending


Number Duplication Subset Access Query


Number Duplication - Test Results

The invoice amount of $315.00 was entered 690 times


Number Duplication Test - Design View


Number Duplication - Test by Vendor

Number Duplication Isolated by Vendor


Conclusion

Data analysis can help to isolate anomalies for further review

The best prevention is constant testing

Please feel free to contact us at any time with questions or comments

Thank you for your participation Greg Taylor / Corporate Audit Partners Phone: 949.488.7648 Ext 829 Email: [email protected] Website: www.corporateaudits.com

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Reference Material

Mark J. Nigrini Ph.D. / Saint Michael's College / http://www.nigrini.com/ Dept of Business and Acctg - Campus box 104 One Winooski Park / Colchester Vermont 05439 Tel: (802) 654-2894 (Saint Michael's office) Association of Certified Fraud Examiners Inc. / www.CFEnet.com The Gregor Building 716 West Avenue / Austin, TX 78701-2727 Tel: (800) 245-3321

Corporate Audit Partners VRM Partner™ Advanced Software Solutions Phone: 949.488.7648 Ext 829

Email: [email protected] Web: www.corporateaudits.com

http://www.nigrini.com/�

http://www.cfenet.com/�

mailto:[email protected]�
