The purpose of this article is to make you aware of one powerful way that technology can be used to help your case and achieve cost efficiency for your clients. It’s based on a theory called Benford’s Law.
It has been theorized that a person hidding money attempts to make the transaction appear to be random (to blend in with the rest of the data). Interestingly, the attempt to make entries appear random actually creates an identifiable pattern. This allows an investigator to determine the best transactions to focus on.
Benford’s law refers to the frequency distributions of digits in many sources of data. In this distribution, the number 1 occurs as the leading digit about 30% of the time while other numbers occur in that position less frequently. Accordingly, the theory is that numbers in accounting records that deviate from the statistical patterns are identifiable and may indicate a higher probability of a fraudulent transaction.
Bottom line – technology and statistical models can be use to analyze thousands of transactions, identify the ones with the highest probability if being fraudulent, and narrow a search to the point of being able to uncover the hidden money.