Date of this Version


Document Type

Journal Article

Publication Details

Accepted Version.

Bhattacharya, S., Xu, D., & Kumar, K. (2010). An ANN-based auditor decision support system using Benford's Law. Decision Support Systems, 50(3), 576-584.

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2010 HERDC submission. FoR Code: 150102

© Copyright Elsevier B.V., 2010. All rights reserved.


While there is a growing professional interest on the application of Benford's law and 'digit analysis' 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 Benford's 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-digit' input variables categorized as 'information theoretic' , 'distance-based' and 'goodness-of-fit' 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.

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This document has been peer reviewed.


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