An ANN-based auditor decision support system using Benfordu27s Law

摘要

While there is a growing professional interest on the application of Benfordu27s law and u27digit analysisu27 in financial fraud detection, there has been relatively little academic research to demonstrate its efficacy as a decision support tool in the context of an analytical review procedure pertaining to a financial audit. We conduct a numerical study using a genetically optimized artificial neural network. Building on an earlier work by others of a similar nature, we assess the benefits of Benfordu27s law as a useful classifier in segregating naturally occurring (i.e. non-concocted) numbers from those that are made up. Alongside the frequency of the first and second significant digits and their mean and standard deviation, a posited set of `non-digitu27 input variables categorized as u27information theoreticu27 , u27distance-basedu27 and u27goodness-of-fitu27 measures, help to minimize the critical classification errors that can lead to an audit failure. We come up with the optimal network structure for every instance corresponding to a 3×3 Manipulation-Involvement matrix that is drawn to depict the different combinations of the level of sophistication in data manipulation by the perpetrators of a financial fraud and also the extent of collusive involvement.