Benford's Law: Applications for Forensic Accounting, Auditing, and Fraud Detection

"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.