First some mood music to set the theme:
I’ve Got Your Number ~ Journal of Accountancy
Frank Benford made a simple observation while working as a physicist at the GE Research Laboratories in Schenectady, New York, in the 1920s. He noticed that the first few pages of his logarithm tables books were more worn than the last few and from this he surmised that he was consulting the first pages—which gave the logs of numbers with low digits—more often. The first digit of a number is leftmost—for example, the first digit of 45,002 is 4. (Zero cannot be a first digit.) Benford extrapolated that he was looking up the logs of numbers with low first digits more frequently because there were more numbers with low first digits in the world.
OK, I know those of you that are not mathematically inclined are scratching their heads wondering what the heck I am talking about so here goes. This morning Dixygirl left a comment on the Mississippi Department of Marine Resources post quoted above which described “Fictitious Vendor Embezzlement” aka “Ghost Vendors”. Chubb, the world’s leading good faith insurer (as opposed to the bad faith variety) has put out a resource on this topic for their business insureds that is well worth quoting that described the scheme: Continue reading “Today’s auditing moment: Fictitious Vendor Embezzlement”