Abiding by the Law? Using Benfords Law to Examine the Accuracy of Nonprofit Financial Reports Academic Article uri icon

abstract

  • Benfords Law asserts that the leading digit 1 appears more frequently than 9 in natural data. It has been widely used in forensic accounting and auditing to detect potential fraud, but its application to nonprofit data is limited. As the first academic study that applies Benfords Law to U.S. nonprofit data (Form 990), we assess its usefulness in prioritizing suspicious filings for further investigation. We find close conformity with Benfords Law for the whole sample, but at the individual organizational level, 34% of the organizations do not conform. Deviations from Benfords law are smaller for organizations that are more professional, that report positive fundraising and administration expenses, and that face stronger funder oversight. We suggest improved statistical methods and experiment with a new measure of the extent of deviation from Benfords Law that has promise as a more discriminating screening metric.

published proceedings

  • Nonprofit and Voluntary Sector Quarterly

altmetric score

  • 3.7

author list (cited authors)

  • Qu, H., Steinberg, R., & Burger, R

citation count

  • 2

complete list of authors

  • Qu, Heng||Steinberg, Richard||Burger, Ronelle

publication date

  • June 2020