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Forensic Analytics: Methods and Techniques for Forensic Accounting Investigations by Mark J. Nigrini, PH.D

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Chapter 8

Benford's Law

The Number Duplication and Last-Two Digits Tests

The data profile, periodic graph, histogram, first-order test, second-order test, and the summation test gave us valuable insights into the internal diagnostics of our data. The data profile and the histogram gave us insights into the distribution of the numbers. The periodic graph showed us the distribution of the amounts across time. The first-order test on the InvoicesPaid table showed that there were abnormal duplications of five first-two digit combinations. Although there was the general tendency toward more numbers with low first-two digits, the visual pattern of the graph and mean absolute deviation showed that the data did not conform to Benford's Law. The second-order test confirmed that much of the data was tightly packed into a small range, a fact that was also evident from the histogram. The summation test showed that there were abnormal duplications of some high-value amounts. The remaining tests in this chapter complete the Nigrini Cycle. This cycle of eight tests should be the minimum set of forensic analytic tests run on data tables. The first of the final two tests drill down into the data table to identify the exact transactions that were causing the spikes on our first-order and summation graphs. The second test identifies abnormal duplications on the right side of the numbers in the data table. These duplications could indicate errors, invented numbers, or excessive rounding.

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