The Application of Benford's Law in Forensic Accounting: An Analysis of Credit Bureau Data

Abstract

The purpose of this research is to analyze the credit bureau data of a commercial bank to detect any possible data errors, irregularities, or fraud. The field of Forensic Accounting is gaining prominence in today’s complex business world. The use of Forensic accounting techniques, in conjunction with the understanding of various investigative methods, will improve forensic accountants, auditors and investigation officers’ ability to examine and to take legal action against those involved in fraud, embezzlement other corrupt criminal acts. Forensic Accountants, Investigative Accountants and Auditors have applied Benford’s Law as a tool and technique in determining misappropriations and frauds.

This research contains a sample of 35,379 records of borrowers with a filtered sample of 10,034 from the credit bureau of a leading commercial bank. First, Second, Third and Fourth digits tests of the Benford’s Law are carried out. Chi square is applied to determine the significance of the model. As chi square statistics is significant for 1st, 3rd and 4th digits of sample, it is concluded that there are some irregularities in the bureau data.

Keywords: Benford’s Law, Forensic Accounting, Credit Bureau, Chi Square