Internal Audit Department

Benfords Law

Practical Example – Accounts Payable

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IntroductionIntroduction

The objective of the review was to undertake an independent systematic assessment of the accounts payable data.

The audit scope focused on reviewing several months worth of accounts payable data in order to:

• identify potential duplicate payments

• highlight unusual supplier activity

• highlight unusual payment activity

• identify potential ghost suppliers

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The CaveatThe Caveat

Whilst Benfords Law is a very useful tool the results have to be interpreted alongside the conclusions of a whole suite of tests.

As part of the AP audit IDEA was used to perform the following tests:

Identification of:

- debit balances

- historic invoices

Query run to establish invoices which were debit balances to ensure appropriately classed as a credit note.

Query run to establish extent of old invoices.

Potential Duplicate Payments

Several queries run to identify potential duplicate payments:

Duplicate Query

Supplier No

Invoice No

Invoice Date

Invoice Amount

1 Match Match Match Match

2 Match Match Match

3 Match Match Match

4 Match Match Match

5 Match Match Match

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The Caveat cont ….The Caveat cont ….

Duplicate Bank Account Search

Query run to identify where different suppliers have the same bank details.

Ghost Suppliers Search Matching performed between Supplier Database and Employee database to establish whether there were any links between :

● address

● postcode

● bank details

Date Analysis Identification of transactions posted at weekends.

Benfords Law Analysis Query run to identify any potential anomalies in the data for further investigation

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Benford’s Law – IDEA StepsBenford’s Law – IDEA Steps

1. Obtain data file which includes all the details of paid invoices within the defined time period

2. In this case had to remove negative amount (using the Extraction query) which had been classed as credit notes

3. Summarized the data by Supplier No and Invoice No (as each invoice number was repeated for each line item on that invoice)

4. Chose Benford’s Law from the Analysis menu

5. Result is given in a table format which you can then convert into a graphical format for easier interpretation.

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Benford’s Law – The ResultsBenford’s Law – The Results