Forensic Accounting Chapter 5

second digit analytical tests first digits test the

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Unformatted text preview: Second number is likewise determined by its placement within the number, thus the second digit of 7,380 is “3.” 7,380 Chapter 5 Forensic Accounting 70 Benford’s Law – “2” Digit Test Test First 2 Digits Analytical Test This test uses the first 2 leading digits This and always excludes zeros and For example, the first 2 digits of 7,380 are “73” For There are 90 possible first-two digit combinations: 10 to 99 inclusive. The First 2 Digit test finds anomalies in the data that are not readily apparent from either the Chapter 5 first or second Forensic Accounting digits seen on their own. 71 first Benford’s Law – “3” Digit Test Benford’s First 3 Digit Analytical Test This test focuses on the 900 possible This first 3 digit combinations first 100 to 999 inclusive. This highly focused test indicates abnormal This duplications duplications Benford’s Law Does Not Apply To Assigned Numbers i.e. Zip Codes, ID’s, Assigned Social Security Numbers ! Chapter 5 Forensic Accounting 72 Benford’s Law The specific probabilities The of the First and Second Digit being any number Digit Second Second Position Position 0 - 11.9% 1 30.1% 11.4% 2 17.6% 10.9% 3 12.5% 10.4% 4 9.7% 10.0% 5 7.9% 9.7% 6 6.7% 9.3% 7 5.8% 9.0% 8 Chapter 5 First Position 5.1% 8.8% 4.6% 8.5% 9 Forensic Accounting 73 Benford’s Law First Digit Normal Distribution Chapter 5 Forensic Accounting 74 Benford’s Law First Digit Abnormal Distribution Chapter 5 Forensic Accounting 75 Duplicate Payments Duplicate Estimated at 2% - Of Total Estimated Purchases Purchases Most occurrences are NOT Most fraudulent fraudulent Honest mistakes can be Honest Recovered Recovered Can be Prevented Can Chapter 5 However Many Vendors Forensic Accounting 76 Accounts Payable Fraud Employees have been known to set up a Employees Fictitious Vendor for the sole purpose of Fictitious submitting bogus invoices. submitting The Employee and the Fictitious Vendor The may share some if not all of the following variables: variables: • Street Address / Post Office Street Box, Box, • Tax ID Number, • Phone Number(s) • Corporate Registration Chapter 5 Forensic Accounting 77 Forensic Accounting Forensic Rule # 1 Never Never Underestimate The Value Of A Single Document Single Chapter 5 Forensic Accounting 78 Fictitious Fictitious Disbursements Note: Reference Textbook Section 5061 Chapter 5 Chapter Forensic Accounting 79 Fictitious Disbursements Disbursements Doctored Sales Figures Doctored Sales Figures Sham Payments Price Manipulations Such As: > Land Flipping > Penny Stock – Pump ‘n Dump > Cybersmearing Cybersmearing Money Laundering Bid Rigging Chapter 5 Forensic Accounting 80 Doctored Sales Figures Doctored Unrecorded Sales Understated Sales Creating Fictitious Sales Padding Prices To Increase Padding Commissions Commissions Phony Sales Can Be Detected By: Ratio Analysis Ratio Horizontal & Vertical Analysis of Sales Sales Chapter 5 Forensic Accounting 81 Sham Payments 6. Bogus insur...
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