	Audit Approaches
EZ-R Stats	Benford's Law Downloads Site Map

Suggested Audit Approaches

How to leverage Benford's Law in Audits.

First, the auditor will need to identify the population to be tested, including which transactions and numeric data will be analyzed and which will be excluded. (One approach for the analysis is PROC DOMAIN to list the characteristics of the file variables). Some types of data will not be distributed in accordance with Benford‚s Law, for reasons that are explained in greater detail in the section Limitations and Cautions

Next, the auditor will need to obtain or extract the data of interest into a file format which can be readily analyzed. There are a variety of methods to do so, depending upon what format the data initially exists. For example, if the data is stored in a "flat" file such as magnetic tape or equivalent, it will be necessary to read and extract the key fields of interest. If the data is stored in a database such as MS-Access, then it will need to be "exported" to an industry standard format ("tab" separated). Alternatively the data may reside in an ODBC compliant database such as Oracle, DB2, SQL Server, etc. There are various techniques to extract data from ODBC compliant databases such as MS-Excel Query, native database query etc.

Next, the auditor will need to perform certain preliminary analyzes to identify how the population is distributed. For example, minimum and maximum values, averages and standard deviations, histograms of values, etc. (This can be done by producing a histogram). Together, these analyzes can provide an overview of the target population and serve as a basis for refining subsequent analysis.

Next, the auditor will need to perform an initial analysis using some or all of the following six tests in order to identify which audit areas may be of further interest:

First Digit
First Two Digits
First Three Digits
Second Digit
Last Digit
Last Two Digits

Note: each of these six tests can be performed using a Windows based dialog routine, available at no charge, which can perform all of the above tests, and assess the results by displaying the "D-statistic" value which compares the actual and the expected amounts. From this "D-Statistic" value, a percentage probability is computed which quantifies the probability that any difference is due to chance alone, using the Kolmogoro v-Smirnov technique.
There is also a Benford's Law help file available to explain how to use the program, which has a setup file to facilitate the installation and de-installation. A screen shot is shown below.

Back