Detecting Fraud in Customs using Benford’s Law

Abstract:

Benford’s Law has been widely used as one of risk analysis tools in detecting the possibility of fraud. The purpose of this study is to examine whether Benford’s Law test method can be used as a complementary alternative method in identifying audit objects that are indicated to fraud. The companies examined by the study are within the scope of the General Audit conducted in a developing country i.e. Indonesia during the period of 2016 with the transaction time in the period of 2014-2015. They are General Importers and Manufacturer Importers having more than 1,000 transactions in one audit period. The data set are divided into Customs Value and Total Charges for each sample. Benford's Law test results show that companies that did not pass the Second Digit test on any of the Customs Value or Total Charges and did not pass the First Two-Digit test on either the Customs Value or the Total Charges have a tendency to get a lower audit finding value than the companies that passed Second Digit test in Customs Value or Total Charges but did not pass First-Two Digit test either at Customs Value or at Total Charges. This study aims to assist CE Auditor in summarizing the time required to determine the audit object indicated to conduct fraud in the field of customs. Examination in previous audit implementation using risk mitigation analysis and customs value determination by using six methods conducted in stages can be more effective by looking at Benford's Law test results that have been previously found at the time of determination of audit object.