The surprising nature of Benford's law makes it a useful tool to detect fraud. When people make up numbers, they tend to make the first digits approximately uniformly distributed; in other words, they have approximately equal numbers of Is, 2.s. and so on. Many tax agencies, including the Internal Revenue Service, use software to detect deviations from Benford's law in tax returns. Following are results from three hypothetical corporate tax returns. Each purports to be a list of expenditures, in dollars, that the corporation is claiming as deductions. Two of the three are genuine, and one is a fraud. Which one is the fraud?

  • CreatedSeptember 23, 2015
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