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5th International Conference on Economics and Social Sciences

ICESS 2022: Fostering Recovery Through Metaverse Business Modelling pp 51–66Cite as

Applying Benford’s Law to Detect Fraud in the Insurance Industry—A Case Study from the Romanian Market

Part of the Springer Proceedings in Business and Economics book series (SPBE)

Abstract

Recently, one of the major Romanian insurers was declared insolvent by the market regulator as it was discovered to have fraudulently reported its financial statements. The impact on the insurance prices on the Romanian market was impressive. Significant funds were made available by the Romanian Government to stabilize the market and prevent linked bankruptcies. Over the years, the company was audited by reputable auditors, and yet nothing transpired about the massive fraud, although visible signs of trouble were not difficult to spot for the insurance company. As distressed businesses have stronger inducements to disguise their financial difficulties, they are more likely to manipulate their financials. After years of doubts, it was finally clear that the company manipulated its provisions and the available reserves. Benford’s Law is an easy tool that signalizes possible manipulation of data, and it was used frequently to detect manipulation in financial reports. As such, we used Benford’s Law to determine if the financial statements reported by the insurance company appeared to have been artificially manipulated. The results obtained from this investigation can be largely extrapolated to research related to other types of fraud in different industries.

Keywords

  • Benford’s Law
  • Insurance
  • Financial statements fraud
  • Manipulation of accounting data
  • Romania

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Authors and Affiliations

  1. Bucharest University of Economic Studies, Bucharest, Romania

    Mirela Păunescu, Elena-Mirela Nichita, Paula Lazăr & Alexandra Frățilă (Adam)

Authors
  1. Mirela Păunescu
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  2. Elena-Mirela Nichita
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  3. Paula Lazăr
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  4. Alexandra Frățilă (Adam)
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Corresponding author

Correspondence to Mirela Păunescu .

Editor information

Editors and Affiliations

  1. Faculty of Business Administration in Foreign Languages, The Bucharest University of Economic Studies, Bucharest, Romania

    Alina Mihaela Dima

  2. Belval Campus, University of Luxembourg, Esch-sur-Alzette, Luxembourg

    Elena Rodica Danescu

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Păunescu, M., Nichita, EM., Lazăr, P., Frățilă (Adam), A. (2023). Applying Benford’s Law to Detect Fraud in the Insurance Industry—A Case Study from the Romanian Market. In: Dima, A.M., Danescu, E.R. (eds) Fostering Recovery Through Metaverse Business Modelling. ICESS 2022. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-28255-3_4

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