Modern Benford’s Law by McCarville, Daniel J.;

Short description:

Benford’s Law offers a powerful, data-driven approach to anomaly detection. Discovered 150 years ago, it wasn’t until the 1990s that auditors began harnessing its potential for identifying irregularities in financial data. Today, the Benford’s Law community spans a wide range of professions and academic disciplines. 

Long description:

Benford’s Law offers a powerful, data-driven approach to anomaly detection. Discovered 150 years ago, it wasn’t until the 1990s that auditors began harnessing its potential for identifying irregularities in financial data. Today, the Benford’s Law community spans a wide range of professions and academic disciplines.

This book provides the latest research-based techniques packaged for ready usage by auditors and audit analytics professionals. Discover how to use Benford’s Law in continuous monitoring and pinpoint non-compliant vendors, accounts or other groups. Visual examples demonstrate how to identify and interpret the most common patterns Benford’s Law surfaces.

Auditors and assurance professionals will benefit from clear, practical explanations of advanced methods, making it easier to integrate these techniques into their workflows. Meanwhile, analytics and quantitative experts will find a rich toolkit of new techniques to enhance their capabilities. Whether you’re new to Benford’s Law or looking to deepen your expertise, this book equips you with the tools to transform how you detect anomalies in data.

Table of Contents:

Preface. Fundamentals: Non-Statistical Approaches to Benford's Law. 1.0 The Story of Benford's Law. 1.1 Setting Expectations. 1.2 What Does it Mean to "Pass" or "Fail" Benford's Law?. 2.0 The Basics of Benford's Law. 2.1 The First Significant Digit. 2.2 Benford's Law. 2.3 Testing Data. 2.4 Exceptions to Benford's Law. 3.0 Common Results - with Graphs. 3.1 The Classic Example: Avoiding a Limit. 3.2 Missing Data. 3.3 Spikes & Potential Duplicate Transactions. 3.4 Imprecise or Estimated Data. 3.5 Data with Limits. 3.6 Not Enough Data. 4.0 Intermediate Topics. 4.1 Two-Digit Test. 4.2 Example Application: Greenhouse Gas Emissions. 4.3 Second Order Test. 4.4 Example Application: Fleet Mileage. 4.5 Changing Scales. 4.6 Data Transformation. 4.7 Example Application: Accounts Payable Amounts. 4.8 Generating Random Benford's Law-compliant Data. Advanced Techniques: Statistical Approaches to Benford's Law. 5.0 Goodness-of-Fit Scores. 5.1 The D-(Distance) Score. 5.2 MAD (Mean Absolute Deviation). 5.3 Honorable Mentions: Chi-Squared and Other Scores from the Math Department. 5.4 Last Place: The Z-Score. 6.0 Benford-like Distribution. 6.1 The Generalized Benford's Law. 6.2 Example Application: Inventory Adjustments. 7.0 Finding High-Risk Groups. 7.1 Approach to Identifying High Risk Groups. 7.2 Example Application: FinCEN Files. 8.0 Time Series Applications. 8.1 Binned Data. 8.2 Example Application: Journal Entries. 8.3 Windowed Data. 8.4 Example Application: Law Enforcement Gun Usage. 9.0 Benford's Law and Machine Learning. 9.1 Data Quality Monitoring. 9.2 Benford's Law as a Feature. 9.3 Benford's Law as an Outcome Variable. 9.4 Benford's Law for Evaluating ML/AI Models. 10.0 Beyond Base 10. 10.1 The Benford's Law Formula in Other Bases. 10.2 The Concept of Base Invariance. 10.3 Example Application - Determining the Base of a Dataset. 10.1 Example of Base Invariance. Wrapping Up. 11.0 Professional Practice and Benford's Law. 11.1 Benford's Law Throughout the Audit Process. 11.2 Professional Standards. 11.3 Special Notes on Fraud. 12.0 Case Study: IT Incident Management. 12.1 Audit Background. 12.2 Data Preparation. 12.3 Implementing Benford's Law. 12.4 Analysis and Results. 12.5 Wrapping Up. 13.0 Advanced Case Study. 13.1 Audit Background. 13.2 Optimizing Benford's Law. 13.3 Benford's Law in Power BI. 13.4 Finding High Risk Groups. 13.5 Time Series & Continuous Monitoring. 13.6 Wrapping Up. Appendices: Deriving Benford's Law. A.1 Algebraic Approach. A.2 Visual Approach.