Seeking reference/specs on commercial detection systems
owner-ids@uow.edu.au
Thu, 13 Jul 1995 00:54:08 +1000
He's Got Their Number: Scholar Uses Math to Foil Financial
Fraud
By Lee Berton
Some crime busters depend on fingerprints. The O.J. Simpson
prosecutors put their faith in DNA. Now one scholar in Nova
Scotia has taken cooperation between law enforcement and
science a step further. He is using an arcane mathematical
law to help governments and companies catch financial
frauds.
Mark Negrini, an assistant professor of accounting at St.
Mary's University in Halifax, is trapping tax cheats, check
forgers and embezzlers with an obscure theory known as
Benford's Law. Formulated by physicist Frank Benford in
1938, the law lays out the statistical frequency with which
the numbers 1 through 9 appear in any set of random
numbers.
Mr. Negrini applies the law to the numbers on suspicious
checks or tax returns. A series of legitimate check amounts
or tax write-offs will be genuinely random, while those
dreamed up by a human will not. If the numbers on the
checks or tax returns do not obey Benford's Law, they can't
be random, and "someone is taking the company to the
cleaners," Mr. Negrini says.
Benford's Law "gives Professor Negrini a tool worthy of
Sherlock Holmes," says Robert Burton, chief financial
investigator for the district attorney's office in
Brooklyn, N.Y. Mr. Burton spotted check fraud at seven
companies, which he declined to identify, using a Benford's
Law computer program Dr. Negrini sent him last year.
He used the program to analyze 784 checks issued by the
seven companies and found that check amounts on 103 checks
didn't conform to expected patterns. "Bingo, that means
fraud," says Mr. Burton. The district attorney has since
caught the culprits, some bookkeepers and payroll clerks,
and is charging them with theft.
Mr. Negrini has also lent his expertise to federal and
state tax authorities, officials in Denmark and the
Netherlands and to several companies. He has even put
President Clinton's tax returns to the Benford's Law test.
When he analyzed the president's returns for the past 13
years he found that "the returns by Clinton follow
Benford's Law quite closely," a good sign the president is
paying his taxes. The program also showed Mr. Clinton
rounds off the amounts on his tax returns, according to Mr.
Negrini. "It's quite apparent there's a fair amount of
estimation," he says.
[End]
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