Discussion:Accounting Errors & Fraud
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Discussion Forum Index --> Accounting Questions --> Accounting Errors & Fraud
| 22 April 2009 | |
| Have you ever used Benford's Analysis to discover accounting errors or fraud in Quickbooks... or another accounting application? | |
| 22 April 2009 | |
| No, but g/l's are never perfect (with regards to errors). I've used IDEA in the firms I've worked for but even that does not specifically ID fraudulent entries. What's wrong with just calculating a sample and testing those above the threshold?
Do you have the feeling that your client has made a fraudulent entry? | |
| 22 April 2009 | |
| Sorry, just read your profile.
I don't know how software can identify a fraudulent entry in Quickbooks (or other applications) because the solution would need to understand intent and other qualitative factors. It may be able to identify inconsistent entries (ie, crediting insurance refunds to interest expense), but even then the auditor needs to furhter question the transaction to understand why/how it got there. Would be interested to see what your end product might be if it ever comes to fruition. | |
| 22 April 2009 | |
| You are right, intent is difficult (impossible) to determine via software. However, software can be very useful in determining transactions that might be erroneous or fraudulant... and require more investigation.
I think Benford's Analysis is a simple algorithm that can be used for this purpose... other, more sophisticated business logic can also be created... e.g. flagging payments to a vendor that exceed an expected threshold based on timing or value. The analogy that exists in information security is using a scanner to identify exposure on your network... doesn't mean you've been hacked or will be hacked... just shows exposure that warrants review. | |
| 22 April 2009 | |
| I used it in college in a forensic accounting class, and I looked into using it briefly several years ago as an internal auditor, and found an Excel add-in that purported to use Benford Analysis. I don't remember the name of the company that sold it, and we didn't pull the trigger on buying that add-in, though, so I can't comment on its efficacy.
One point of caution, though, is that not all data sets can be analyzed using Benford. Unit prices are frequently formulated to get below a psychological threshold, like $1.99, so they aren't lognormally distributed like one would expect with unbounded tallies. Also, subsets defined by their amount won't conform (e.g. a subset defined as amounts betweeen $200-$500). Keep an eye out for others. Neat proposition, though. At the very least, an easy way to do Binford could help auditors document their analytical assessment of fraud a la SAS 99. | |
| 22 April 2009 | |
| Jerrykern... thanks alot! I hadn't thought of SAS 99, but see where it could be an interesting angle. Benford's analysis is only one approach. We're also writing business logic that can help to identify suspect transactions.
Thanks again for the comment! | |
| 22 April 2009 | |
| Jerrykern, still thinking about your comment... ;-)
Do you find alot of companies w/ Quickbooks as an accounting package getting audits? | |
| 22 April 2009 | |
| I guess I was thinking of financial statement audits which some private companies may get to satisfy lenders. Do smaller companies get other types of audits more commonly... maybe an internal controls review instead of AFS?
In terms of size, I was thinking less than 100 employees. | |
| April 23, 2009 | |
| I work with small businesses and nonprofit clients. In my experience, size being equal, more nonprofits get audits than small businesses. They may be required to do so for grant purposes and sometimes just to satisfy the board that nothing funny is going on. (I wasn't sure if you were thinking tax audits, so that's why I asked.) | |
| 23 April 2009 | |
| I asked the size question because I wanted to get a sense of what type of prospective client you are looking at. I work for a firm that audits companies with revenues between $50 - $500millon, and assets between $500million - $2billion. Most of my jobs are banks, manufacturers, some oil&gas.
Some of the clients I am assigned to have fewer than 100 employees, but use very large accounting solutions (SAP, Fiserv, Excalibur, etc.). I've come across Quickbooks just a handfull of times and almost every case has been for use at the holding company (fewer transactions.) Hopefully you find this gibberish somewhat informational for your survey. I wonder if it may be helpful to target companies based on revenue or asset size and number of annual transactions? | |
