The Newcomb-Benford law as an audit tool: An analysis of budget expenditures in paranaense municipalities

Abstract

Integrating concepts from other areas of knowledge with Accounting Science makes it possible to promote the quality of information, transmission and outline new paths for decision-making. In this sense, this article sought to investigate the behavior of occupied expenses in the 399 municipalities of Paraná in relation to the standard of the Newcomb-Benford Law (LNB), a methodology derived from the exact sciences. For this, 3,963,119 records were analyzed, which correspond to R$ 32,589,872,343.44 in the 2019 financial year. In an additional analysis, it was investigated whether the score received in the Ranking of Quality of Accounting and Tax Information from the National Treasury Secretariat (STN) was related to the LNB Distortion Factor, in view of protecting the indicator for public auditoriums. As discovered, it was found that most municipalities do not adhere to the LNB, and this result is very expressive when the χ2 test (chi-squared) is applied, which causes the “red flag” to light on this information. In addition, it was found that the Ranking score was not statistically significant in relation to the Distortion Factor. Although these findings do not conclude on the existence of error or fraud, they are useful for risk assessment and audit sample selection through the LNB and Ranking, in addition to promoting the transparency of public data.