Question

You have recently joined the international audit team at a large company responsible for janitorial work at many different local businesses. Because of the significant number of consumables used in janitorial work, your company has a large purchasing department. You have been asked to analyze the purchases data set for potential frauds.

Steps/Questions

6. Analyze the Product Price column from each company using Benford’s Law. Analyze only the first digit of the column. On average, do nay of the vendors stand out? In other words, are the transactions from any vendor not matching Benford’s Law? Your original response should be approximately 400 words and uses specific examples from the case and readings. .

Answer 1

6.

This part of the problem can be done easily in Picalo, but it is very difficult in ACL and IDEA. It is included in the problem-even though ACL and IDEA don't support it without scripting-because this type of z-score analysis is an important fraud detection method. You may want to have your students skip this sixth part of the problem and instead have one or two students show the class how it is done in Picalo.

If instructors find a nice way of doing it in ACL or IDEA, please share with the authors, and we'll update it in the next version of the book.

The solution would be easy in any of the programs if only one product was purchased. But the inclusion of many products, companies, and purchasers in the table makes analysis impossible without stratification and subsequent automated analysis of the subtables.

The solution in Picalo to stratify the data set by product creates a number of subtables (one for each product). Stratification is required so the means and standard deviations used in the z-score calculation are specific to each product. Then calculate the z-score for each record and sort by this new z-score column (it is important that the stratification occurs first so the averages and standard deviations are done correctly).

While the familiar "Master Cleaning Inc." record comes up, a more subtle trend shows in "Master Cleaning Supply" with Jose. Students may see the potential kickback scheme going on as prices are increasing substantially between Master Cleaning Supply and Jose's purchases.