Nooraslinda Abdul Aris^a, Rohana Othman^b, Muhamad Anas Mohd Bukhori^a, Siti Maznah Mohd Arif^a and Mohamad Affendi Abdul Malek^a
aFaculty of Accountancy, Universiti Teknologi MARA
^bAccounting Research Institute

Fraud is an illegal activity that affects the organizations and the global economy at large. Surveys and reports by leading audit firms such as ACFE, Deloitte, KPMG and NFA have confirmed that the public sector is more vulnerable to fraud compared to the private sector. Comments in the Auditor General’s (AG) Report 2012 concluded the same findings. Thus, with respect to fraud, detection, investigation, and preventive measures are extremely important. While anomalies or red flags act as indicators for the auditor, management and other responsible parties to investigate whether there is real fraud, auditing and statistics remain as the two primary strategies for detecting fraud. Taking this perspective, Benford’s Law is an advanced digital analysis useful in uncovering anomalies. This paper evaluates 500 accounting data from public sector agencies in Malaysia using the First- Digit, Second-Digit, First-TwoDigit, First-ThreeDigit and Last-TwoDigit tests. Results show that Benford’s analysis is a credible analytical tool in identifying and detecting suspicious accounts for further scrutiny of fraud incidences in the public sector. This study represents an initial effort to derive a tool to monitor and detect potential fraud incidences or trends, thereby enabling organizations to curb tendencies toward fraud and thus pilot an initiative towards an effective management of fraud risk exposure.

Keywords: Accounting Anomalies, Benford’s Law, Fraud Risk, Public Sector, Statistical Analysis