According to a Wall Street Journal
article, forensic accountants recently uncovered
a several hundred thousand dollar fraud committed by employees at a national
call center simply by “wielding mathematical weapons.” Using data analysis,
they were able to identify a number of fraudulent refunds that call center
employees were issuing. The find was critical to the company as it helped them discover where they were losing a lot of money.
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| Benford's Law |
The forensic accountants who detected the fraud at the
call center used a mathematical test known as Benford’s Law. Contrary to
popular belief that there should be an even distribution in the starting digits
of numbers, Benford’s Law says that “more numbers start with one than any other
digit, followed by those that begin with two, then three, and so on,” and that “ones
should account for 30% of leading digits, and each successive number should
represent a progressively smaller proportion, with nines coming last, at under
5%.” In the case of the call center, the forensic team noticed an exceptionally
large percentage of refund amounts where the starting digit was a four. It also
happened to be that employees could issue refunds to customers up to $50
without needing additional supervision. By using Benford’s Law and investigating
the transactions where the leading digit was a four, forensic accountants
discovered a small number of operators at the call center “who had issued
fraudulent refunds to themselves, friends and family totaling several hundred
thousand dollars.”
