Catch Me If You Can: In Search of Accuracy, Scope, and Ease of Fraud Prediction

53 Pages Posted: 9 Apr 2019 Last revised: 1 Mar 2022

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Pamela C. Moulton

Cornell University - SC Johnson College of Business

Leonid Pugachev

Saunders College of Business

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business

Date Written: February 25, 2022

Abstract

We offer two new fraud prediction metrics: the AB-score, which is based on Benford’s Law, and the ABF-score, which combines the AB-score with the well-known F-score model in the seminal work by Dechow, Ge, Larson, and Sloan (2011). Multiple performance evaluation metrics show that the ABF-score provides the highest accuracy while the AB-score substantially expands the scope over which misreporting can be predicted. Additionally, both of these models are easier to estimate than machine learning and textual analysis models while delivering similar accuracy. Our models perform well in- and out-of-sample and across alternative misstatement proxies. Finally, in a case study approach using a sample of notorious financial frauds, we find that our models offer sharper identification of fraud with an expanded scope that correctly identifies far more fraudulent firm-years.

Keywords: fraud prediction; Benford’s Law; F-score

JEL Classification: G20, G23, M41

Suggested Citation

Chakrabarty, Bidisha and Moulton, Pamela C. and Pugachev, Leonid and Wang, Xu (Frank), Catch Me If You Can: In Search of Accuracy, Scope, and Ease of Fraud Prediction (February 25, 2022). Available at SSRN: https://ssrn.com/abstract=3352667 or http://dx.doi.org/10.2139/ssrn.3352667

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Pamela C. Moulton (Contact Author)

Cornell University - SC Johnson College of Business ( email )

Ithaca, NY 14853
United States

Leonid Pugachev

Saunders College of Business ( email )

College of Business
105 Lomb Memorial Drive
Rochester, NY 14623-5608
United States

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

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