An application for using Benford's Law to reveal accounting frauds

Today, the risks have already existed by businesses including frauds made by business employees or other people. The tricks made by these people cause a large amount of material and moral damages in the businesses, although they have negatively affect the value, the future and the profitability of the businesses, but may sometimes lead the businesses to bankruptcy as well. Fraudulent transactions made by malicious people cannot be revealed due to inadequate fraud prevention procedures or insufficient internal control. Many audit methods are currently used to reveal these tricks that occur in businesses. One of these controlling methods used is the Benford Law. Benford's Law shows that the frequencies of numbers occurring at certain digits of numbers are not equal. Benford Law is an audit technique that guides the auditor at the planning stage of the audit, saves time and effort, and helps to reveal fraudulent transactions and items deliberately stored in the database of electronic information. It is also used to detect whether there is any corrections misleading information and artificially generated numbers on various accounting items or not. This study includes determining whether there may be an error or a fraud in the records of the purchase invoices of a company running in the marble sector. Besides, the first, the second and the first two digits and duplicate amounts tests were applied to the data of the company in order to reveal the errors and cheats that may occur in the data set and to determine the predicted level of cheating. In order to compare the differences between the rates observed as a result of the numerical analysis tests and the rates of the Benford Law, chi-square compatibility test was performed. As a result of the numerical analysis and chi-square suitability tests, it has been concluded that there has been no errors or frauds in the data of the enterprise and the amounts that cause deviation are caused by the natural structure of the company itself.