The prevention
and detection of fraud rests mainly on an adequate accounting system with an
appropriate internal control. A good practice of the auditor is to evaluate the
effectiveness of the internal control system through the application of
Benford’s law which is a procedure used in auditing to detect possible cases of
fraud in lists of numbers, data and mathematical sequences such as tax returns,
disbursements , sales records of expenses, budgets, prices of shares and
invoices, in other words all kinds of accounts that originate from transactions
in which numbers are combined, by calculating the distribution of the first
digits of the list, that is, the chances of a number being the first number is:
1-30%, 2-17.6%, 3-12.5%, 4-9.7%,5-7.9%, 6-6.7 %, 7-5.8%, 8-5.1% and 9-4.6%.
The first
number 1 has more possibility than other numbers, since we start counting from
1 to 9, when each number has the same possibility. However, from 10 to 19 we only
have 1 as the first number, and when we reach 99, all figures will have the
same probability.
The hypothesis
is that if someone is trying to adulterate data, he or she will necessarily
have to invent some numbers. When it is done, is tended to use numbers that
start with 5, 6, and 7. This is enough to violate what Benford’s Law predicts
and start an audit of those numbers.The Law is not
infallible, but it serves to detect suspects.
In conclusion,
if the objective of the auditor’s examination were to discover frauds, he would
have to extend his work to a point where the procedure would be quite
expensive, even so, one can not be sure that all types of fraud were detected,
or they did not exist. The auditor is not a guarantor, if his/her examination is
done with professional skill he has fulfilled all the obligations implicit in
his commitment. When applying Benford’s Law, any result that does not enter
these margins must be observed with discretion and investigate more than usual
because these data can keep inside a kind of fraud or similar irregularities.
Mauricio Guillermo Díaz Villate.
Ex-colaborador Auditool.-Visionario contable/2013 Webpage.
