Fraud Detection Tools - 2025 (Text Based)

Two tools for fraud detection are discussed in this course; Benford's Law and the Beneish M Score.  Benford's Law predicts the probability of the distribution of first digits in a set of accounting numbers.   For the first digit, one is the most likely occurrence, followed by two, etc.  In a large population of accounting transactions, by comparing the actual occurrence of first digits in accounting numbers to the Benford distribution, areas of concern are highlighted for further analysis and evaluation. 

The Beneish M Score quantifies the possibility of financial manipulation occurring in financial statements.  If the M Score is greater than (or less negative than) -2.22, it is likely that there is some manipulation of the financial results. 

Both of these are powerful tools in the detection of fraud.  Benford's Law assists in the detection of transactional fraud while the Beneish M Score assists in the detection of fraud in financial reporting.

Learning Objectives:

1. Describe how to use Benford's Law to detect potential fraud
2. Define which Excel features can be incorporated when using Benford's Law
3. Define and Interpret the results of statistical test results and Benford's Law
4. Define situations where Benford's Law is and is not applicable

5. Describe the Beneish M Score and its components

Instructional Method: Self-Study

Review Date: 1/29/2025

Required Components: Written Materials

CPE Final Exam Required Passage Grade: 70%

Please Note: This course must be completed within 1 year of the date of receipt of this course for CPE Credit

Prerequisites: None

Level: Beginner

NASBA Category: Auditing

Recommended CPE:  2

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