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Statistical detection of fraud in the reporting of Croatian public companies

Author

Listed:
  • Sinisa Slijepcevic

    (University of Zagreb, Department of Mathematics, Zagreb, Croatia)

  • Branimir Blaskovic

    (University of Zagreb, Department of Mathematics, Zagreb, Croatia)

Abstract
Statistical methods based on Benford’s distribution, Z- and I‡2-statistics are being successfully applied to detect likely accounting and reporting fraud, for example in the daily usage of the Internal Revenue Service in the USA, and in historical analysis of Greek macroeconomic reporting. We adapt and apply the methodology to the analysis of the reporting of some leading Croatian public companies. We find indications of reporting fraud in several of the companies analyzed. In particular we find correlation between the likelihood of reporting fraud, measured as a deviation from Benford’s law, and reported net income losses, for companies large enough (with a revenue of at least 1 billion kuna). Finally, we suggest application of the methodology to improve the internal processes, efficiency and effectiveness of the State Auditing Office.Data availability: The data used in the study are corporate data in the public domain. For legal reasons, however, the identities of the companies are disguised. Contact the first author for the sanitized data sets that can be used to verify and replicate the analysis.

Suggested Citation

  • Sinisa Slijepcevic & Branimir Blaskovic, 2014. "Statistical detection of fraud in the reporting of Croatian public companies," Financial Theory and Practice, Institute of Public Finance, vol. 38(1), pages 81-96.
    • Handle: RePEc:ipf:finteo:v:38:y:2014:i:1:p:81-96
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    Citations

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    Cited by:

    1. Kishore Singh & Peter Best, 2020. "Implementing Benford’s Law in Continuous Monitoring Applications," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 19(2), pages 379-404, June.

    More about this item

    Keywords

    Benford's law; public companies; reporting; fraud detection; auditing;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

    Statistics

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