benford’s law - city of orlando · •benford's law states that if there is a set of...
TRANSCRIPT
BENFORD’S LAW ANALYSIS
WHAT IS BENFORD’S LAW?
• Frank Benford was a physicist at GE Research Laboratories in
the 1920s
• He found that numbers with low first digits occurred more
frequently in sets of numbers and calculated the expected
frequencies of the first digits in tabulated data
• In 1999, Mark Nigrini proposed using Benford’s Law as an
analysis method to alert users to possible errors, fraud, costly
processing inefficiencies or other irregularities
BENFORD’S LAW
WHAT IS IT?
• Benford's law states that if there is a set of non-manipulated,
“naturally occurring” numbers, the occurrence frequency of
digits one through nine as the first digit should be expected
• 30 percent of such numbers have one as a leading digit, and
nine occurs as a leading digit only one time in twenty
• Because most financial and accounting data are “naturally
occurring” numbers, by comparing the occurrence frequency
of these first digits to Benford's pattern, auditors should be
able to determine irregularities and possible manipulations
BENFORD’S LAW
WHAT IS IT?
ANALYZING CITY DATA WITH BENFORD’S LAW
• Data that has a wide variety in the number of figures - data
with plenty of values in the hundreds, thousands, tens of
thousands
• A data set that is fairly large
• Data that has no predefined maximum or minimum value
• Accounts payable data are a favorite target for digital analysis
• City has two main data “avenues” for accounts payable:
ProCard transactions and Workday vendor payments
ANALYZING CITY DATA
WHAT DATA IS SUITABLE?
• Auditing reviewed the expense data available through
Workday reports
• Found a useful Workday report: Finance - Supplier Payments
• Prepared reports for FY 2014-5 and FY 2015-6 transactions –
2015 had 39,889 transactions and 2016 had 42,649
transactions
• Accounting has a dedicated staff member for ProCard
oversight and she was consulted and provided two reports of
monthly ProCard transactions
• October 2016 had 2,998 transactions and November 2016 had
3,407 – combined data from both months since transactions in
each month are similar
ANALYZING CITY DATA
WHAT DATA IS SUITABLE?
FIRST DIGIT ANALYSIS
FIRST DIGIT ANALYSIS
Workday Transactions
* - Payments include the ACH, Check, ePayables, Manual and Separate Check Payment Types.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
1 2 3 4 5 6 7 8 9
Rate
First Digit
FY 2014-15 Supplier Payments*
Benford Rate
Sample Data Rate
FIRST DIGIT ANALYSIS
Workday Transactions
* - Payments include the ACH, Check, ePayables, Manual and Separate Check Payment Types.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
1 2 3 4 5 6 7 8 9
Rate
First Digit
FY 2015-16 Supplier Payments*
Benford Rate
Sample Data Rate
FIRST DIGIT ANALYSIS
Procard Transactions
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
1 2 3 4 5 6 7 8 9
Rate
First Digit
Oct/Nov 2016 Procard Transactions
Benford Rate
Sample Data Rate
SECOND DIGIT ANALYSIS
SECOND DIGIT ANALYSIS
Workday Transactions
* - Payments include the ACH, Check, ePayables, Manual and Separate Check Payment Types.
0
0.05
0.1
0.15
0.2
0.25
0 1 2 3 4 5 6 7 8 9
Rate
Second Digit
FY 2014-15 Supplier Payments*
Benford Rate
Sample Data Rate
SECOND DIGIT ANALYSIS
Workday Transactions
* - Payments include the ACH, Check, ePayables, Manual and Separate Check Payment Types.
0
0.05
0.1
0.15
0.2
0.25
0 1 2 3 4 5 6 7 8 9
Rate
Second Digit
FY 2015-16 Supplier Payments*
Benford Rate
Sample Data Rate
SECOND DIGIT ANALYSIS
Procard Transactions
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0 1 2 3 4 5 6 7 8 9
Rate
Second Digit
Oct/Nov 2016 Procard Transactions
Benford Rate
Sample Data Rate
FIRST AND SECOND DIGIT ANALYSIS
1st and 2nd DIGIT ANALYSIS
Workday Transactions
* - Payments include the ACH, Check, ePayables, Manual and Separate Check Payment Types.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98
Rate
Two-Digit Pair
FY 2014-15 Supplier Payments*
Benfords
Sample Rate
1st and 2nd DIGIT ANALYSIS
Workday Transactions
* - Payments include the ACH, Check, ePayables, Manual and Separate Check Payment Types.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98
Rate
Two-Digit Pair
FY 2015-16 Supplier Payments*
Benfords
Sample Rate
1st and 2nd DIGIT ANALYSIS
Procard Transactions
0
0.01
0.02
0.03
0.04
0.05
0.06
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98
Rate
Two-Digit Pair
Oct/Nov 2016 Procard Transactions
Benfords
Sample Rate
CONCLUSIONS
• No major deviations from Benford Law expectation for payments selected
• Procard transactions have noticeable “spike” at dollar values close to card spending limits – this “spike” is not indicative of fraud but should continue to be monitored
• Workday transactions for both fiscal years are very similar and analysis should be repeated each year to see if any changes occur
• Audit should continue to use Benford to analyze financial transactions and share results with Business Services