Using Excel and Benford’s Law to detect fraud
Statistics & Probability
Learn the formulas, functions, and techniques that enable efficient Benford analysis of data sets.
Where this idea comes from
Start here — this is the source that inspired this exploration.
Introduction
"In 2015, Atlanta’s Six Flags White Water theme park opened a new 10-story slide called the Dive Bomber. The ride begins with a virtual free fall nearly straight down before it gradually levels out toward the bottom. Most people who look at the Dive Bomber see a thrill ride—one they may or may not want to experience. CPAs who gaze upon the Dive Bomber may see something else—an image they could possibly use to detect and prevent fraud."
Guiding Questions
- Benford's law says real-life numbers start with 1 more often than 9. Check it on a data set you choose.
- Why does the law hold for some data and not others? Test data sets of different kinds.
- Use a chi-squared comparison to judge how well your data follows the predicted distribution.
- Could you detect a fabricated data set? Make one, mix it in, and see if the test finds it.