Scribd
Upload
63 views2 pages

Understanding Benford's Law and Its Applications

The document summarizes Benford's law, which states that in naturally occurring collections of numbers, the leading digit is likely to be small. It provides examples of how Benford's law can detect accounting fraud. Specifically, it discusses how one fraudster wrote checks just below $100,000, causing abnormal percentages of digits 7-9 that violated Benford's analysis. The document also outlines explanations and analyses for Benford's law, including that it is scale invariant and examines the fraction of numbers with a leading digit of one under repeated multiplication.

Uploaded by

Anonymous lIcnP1rr
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
63 views2 pages

Understanding Benford's Law and Its Applications

The document summarizes Benford's law, which states that in naturally occurring collections of numbers, the leading digit is likely to be small. It provides examples of how Benford's law can detect accounting fraud. Specifically, it discusses how one fraudster wrote checks just below $100,000, causing abnormal percentages of digits 7-9 that violated Benford's analysis. The document also outlines explanations and analyses for Benford's law, including that it is scale invariant and examines the fraction of numbers with a leading digit of one under repeated multiplication.

Uploaded by

Anonymous lIcnP1rr
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Seminar-1

 Frank Benford was a research physicist at General electric in the 1930s


 He noticed something unusual in the book of logarithmic tables
 He noticed numbers beginning with the digit 1 were being looked more often than
numbers beginning with 2 through 9
 He found that this pattern was wide spread in nature
 Benford’s law states that in many naturally occurring collection of numbers, the
leading significant digit is likely to be small
 Leading digit of a number: Start from the left of each number and ignore the sign,the
decimal point and any zeros,the first digit between 1 and 9 is the leading digit
 For example 3 is the leading digit of 37.3447 and 6 is the leading digit of -0.06345
 For example, in sets which obey the law, the number 1 appears as the most
significant digit about 30% of the time, while 9 appears as the most significant digit
less than 5% of the time
 If the digits were distributed uniformly, they would each occur about 11.1% of the
time
 Benford’s law could be used as an indicator of accounting and expenses fraud
 A recent example is Mark Nigrini’s research
 One fraudster wrote numerous checks to himself just below US $100,000, causing
digits 7,8 and 9 to have aberrant percentages of actual occurrence in Benford’s law
analysis
 Benford’s law could be used as an indicator of accounting and expenses fraud
 A recent example is Mark Nigrini’s research
 One fraudster wrote numerous checks to himself just below US $100,000, causing
digits 7,8 and 9 to have aberrant percentages of actual occurrence in Benford’s law
analysis
 We say a data set satisfies Benford’s Law for the Leading Digit if the probability of

observing a first digit of d is approximately .

 Explanations
1. Scale invariant : A system remain unchanged when multiplied by a constant is
called Scale invariant
2. Base invariance : Groups of numbers that follow Benford’s law in one base
also follow Benford’s law if converted into another base
 Analysis of Benford's law
1. Ones Scaling test : One scaling test determines the fraction of numbers
having a leading digit of one , as the set of numbers is repeatedly multiplied
by a constant slightly greater than unity such as 1.01. If the set of numbers
follow Benford’s law, the fraction will remain close to 0.301

Seminar - 2
2. Benford's law as a convolution :

where ost(g) is the ones scaling of g and sf(g) is sampling function of g


Position along the logarithmic axis will be denoted by the variable, g.
3. Solving in the frequency domain :

Fourier transforms of pdf(g), sf(g), and ost(g), as PDF(f), SF(f), and OST(f)

You might also like