Which of the following is the MOST efficient way to identify fraudulent activity on a set of transactions?

Question

Options

• AControl self-assessments (CSAs)
• BInterviews with control owners
• CRegression analysis
• DBenford's law analysis

• A
  4% (1)
• B
  4% (1)
• C
  7% (2)
• D
  85% (23)

Explanation

Benford's Law (D) states that in naturally occurring numerical datasets, leading digits follow a predictable logarithmic distribution (digit 1 appears most frequently, digit 9 least). When people fabricate numbers - such as in fraudulent transactions - they tend to distribute digits more uniformly or favor certain numbers, deviating from this expected pattern. Applying Benford's Law analysis to a transaction dataset quickly and efficiently flags statistically anomalous entries for further review without examining every record manually. Control self-assessments (A) rely on the honesty of control owners - unreliable for detecting fraud. Interviews (B) are subjective and time-consuming. Regression analysis (C) models relationships between variables but is not specifically designed to detect fabricated or anomalous numerical entries.

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