Fraud Detection Tools (Course Id 2494)

Two tools for fraud detection are discussed in this course; Benford’s Law and the Beneish M Score.  Benford’s Law predicts the probability of the distribution of first digits in a set of accounting numbers.   For the first digit, one is the most likely occurrence, followed by two, etc.  In a large population of accounting transactions, by comparing the actual occurrence of first digits in accounting numbers to the Benford distribution, areas of concern are highlighted for further analysis and evaluation. 

The Beneish M Score quantifies the possibility of financial manipulation occurring in financial statements.  If the M Score is greater than (or less negative than) -2.22, it is likely that there is some manipulation of the financial results. 

Both of these are powerful tools in the detection of fraud.  Benford’s Law assists in the detection of transactional fraud while the Beneish M Score assists in the detection of fraud in financial reporting.

Please Note: These Fraud CPE credits satisfy the California Board of Accountancy (CBA) fraud requirement.

Course Learning Objectives

• Describe how to use Benford’s Law to detect potential fraud
• Define which Excel features can be incorporated when using Benford’s Law
• Define and Interpret the results of statistical test results and Benford’s Law
• Define situations where Benford’s Law is and is not applicable
• Describe the Beneish M Score and its components