Benford’s Law – Using Maths to Catch Fraudsters

A good tool in digital analysis.

IB Maths Resources from Intermathematics

Benford’s Law – Using Maths to Catch Fraudsters

Benford’s Law is a very powerful and counter-intuitive mathematical rule which determines the distribution of leading digits (ie the first digit in any number).  You would probably expect that distribution would be equal – that a number 9 occurs as often as a number 1.  But this, whilst intuitive, is false for a large number of datasets.   Accountants looking for fraudulant activity and investigators looking for falsified data use Benford’s Law to catch criminals.

The probability function for Benford’s Law is:

benford 5

benford

This clearly shows that a 1 is by far the most likely number to occur – and that you have nearly a 60% chance of the leading digit being 3,2 or 1.   Any criminal trying to make up data who didn’t know this law would be easily caught out.

Scenario for students 1:

You are a corrupt bank manager who is secretly writing…

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What do you think? What strategies do you, or your company, use to manage the risk of fraud and error in your organisation? Are you primarily proactive or reactive in your approach to risk management? Share your experience in the Comment box below.

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