Since I discovered the bid-rigging case earlier, I had shared in part II on how I managed to detect it back in late 2022.
This article will examine the role of round numbers that accountants and auditors frequently encounter in the course of work. One of the things I discovered from working over 29 years in external audit, internal audit, charity governance, legal and compliance as well as cybersecurity is about patterns of information.
Human beings in general observe all the time. Perhaps today they observe more but remember less due to social media and the addiction to digital content but somehow, the brain somehow stores the little bits of information that we take in through our senses.
The most obvious are our sense of sight and sound from observing, reading and hearing about business transactions in the world around us.
It was this observation that come to my aid when I detected the bid-rigging case. The round number in this case was $68,888 and $69,000. You can read more about those cases here.
The thing about round numbers is that they are typically artificial, shaped by the hand of humans to be in a nice round integer. “Nature” in the context of the recording of numbers from business transactions around us are anything but rounded. Those of us who are accountants and auditors know that most “naturally occurring” numbers such as payment listings, fixed assets register, transaction amounts, quotation and tender prices tend to be a mix of both occasional rounded numbers but mostly are in decimal places as vendors calculate their bid prices with profit margins and cost recoveries in mind.
One of the tools used by auditors in data analytics is the application of Benford’s Law to numbers related to financial transactions such as payments and receipts. My understanding of why Benford’s Law works is that artificially made-up numbers generated by fraudsters to cover up misappropriation of cash, assets or the falsification of financial statements do not conform to the Benford’s frequency distribution.
I came across another potential case recently where I was in the role of an approver of transactions in the banking application for a non-profit. I noted that certain claims for certain duties were tied to the staff being at a specific location as a specific time. Such claims are typically supported by timesheets specifying what time the staff was at their duty station in order to receive the claim.
One thing that struck me as I was reviewing the supporting documents was that the time sheet had duplicate entries where on the same day, the staff had claimed for their duties that were happening at the same exact time on the same day at two locations that were at least 15 minutes apart by car.
But the reason why I took a closer look at the timesheet in the first place was because the timings written on it for the various dates and duty stations was the rounded timings. As this duty required the staff to spot check on certain outlets, I expected that the timings would be at unusual timings say 6.43 p.m. or 5.47 p.m. etc. But what I saw on the timesheet were all rounded timings to the hour or half hour e.g. 7.00 p.m. or 6.30 p.m.
Round numbers by themselves are not always a red flag or indication of potential fraud or risk. But if they occur in data sets of transactions where you do not expect the nature to be so, we as auditors, accountants and governance professionals may want to take a step back and ask ourselves whether the numbers make sense.
What is your take on round numbers that you encounter in the course of your work?
I would be happy to hear from your experiences as well.
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