Benford's Law
Definition
An empirical regularity in naturally occurring numerical datasets: the leading digit follows a logarithmic distribution, with 1 appearing about 30% of the time and 9 about 5%. Invoice amounts invented by fraudsters tend to deviate from this distribution, making it a useful screening test.
Related terms
- ACL / Galvanize HighBond
- A purpose-built audit analytics platform (originally Audit Command Language) that imports financial data, executes statistical and rule-based tests, and produces exception reports...
- Chi-Square Test
- A goodness-of-fit test comparing the observed digit frequencies in a dataset to the expected Benford frequencies, producing a test statistic that is...
- Continuous Monitoring
- An automated control framework that applies fraud indicator tests to transactions as they are processed or on a frequent scheduled basis, generating...
- Duplicate-Payment Analysis
- A data analytics test that identifies invoice payments made more than once for the same obligation, by matching on vendor, invoice number,...
- Fuzzy Matching
- A string-comparison technique that identifies near-identical records by measuring edit distance or phonetic similarity rather than requiring character-exact matches. Used in duplicate...
- IDEA
- Interactive Data Extraction and Analysis: an audit data analytics tool that supports Benford analysis, duplicate detection, stratification, and custom query filters across...
- Mean Absolute Deviation (MAD)
- A practical Benford conformity measure that averages the absolute differences between observed and expected proportions across all leading digits, with Nigrini benchmarks...
- Network Link Analysis
- A technique that represents entities (vendors, employees, bank accounts, addresses) as nodes in a graph and shared attributes as edges, enabling investigators...
- Pass-Through Scheme
- A billing scheme in which a legitimate supplier is used as a conduit. The fraudster, who controls or colludes with the supplier,...
- Second-Digit Test
- Analysis of the second significant digit in isolation, where 0 is expected to appear about 11.97% of the time. A spike in...
- Shell Company
- A legal entity with no genuine business operations, created to receive fraudulent payments. In vendor fraud, the fraudster controls the shell and...
- Three-Way Match
- An accounts-payable control that requires a supplier invoice to match an authorised purchase order and a goods receipt note before payment is...
Explained in these topics
- Benford's Law and Digital AnalysisThe empirical observation that in naturally occurring numerical data spanning multiple orders of magnitude, the leading digit d appears with probability log10(...
- Billing and Vendor Fraud SchemesAn empirical regularity in naturally occurring numerical datasets: the leading digit follows a logarithmic distribution, with 1 appearing about 30% of the time...
- Data Analytics and Continuous Monitoring in Fraud DetectionAn empirical observation that in many naturally occurring numerical datasets, the leading digit follows a predictable logarithmic distribution: 1 appears about...