Number-pattern tests, like Benford’s, are still valuable

We’ve all been there in a fraud examination. You’re looking at financial statements, invoice amounts or expense reimbursements that appear normal, but you know in your gut that something is wrong. The numbers just don’t feel right, but it’s not obvious. Like Alice going down a rabbit hole, you’re becoming “curiouser and curiouser” about what you’re inspecting.

Mark Nigrini, Ph.D., a leading Benford’s Law expert, writes the excellent, detailed cover article on six typical number patterns (including Benford’s) that you can search for during your cases to possibly find fraud. Most of us use modern continuous audit techniques and data analytics tools, but it’s valuable to revisit some rock-solid detection methods.

Benford’s Law tells us the distribution of digits in multi-digit natural numbers isn’t random but follows a predictable pattern. Certain digits will show up more than others. For example, you’ll see more 1s than 2s, more 2s than 3s, and so on. Fraudsters either aren’t cognizant of this law and the other number patterns Nigrini covers, or they don’t know how to override them. They often manipulate numbers to try to fly under the radar, but their data alterations always tell a story.