CMA Final · Cost and Management Audit · Forensic Audit
A forensic auditor applies Benford's Law to the invoice amounts of a vendor and finds that the digit 9 appears as the first digit far more often than expected, with a spike just below the approval limit of ₹50,000. What is the most appropriate inference?
The pattern is a red flag that justifies deeper investigation for invoice splitting or manipulation to stay under the approval limit. Benford's Law analysis only indicates anomalies and is not conclusive proof of fraud, so further evidence must be gathered before drawing conclusions.
- AThe data merits further investigation for possible invoice splitting or manipulation to avoid approval limitsCorrect
- BThe vendor is conclusively guilty of fraud
- CThe data is proven to be free of irregularities
- DBenford's Law is inapplicable to any invoice data, so the result is meaningless
Explanation
Benford's Law expects lower leading digits to occur more often. A cluster just under an approval threshold is a red flag for splitting or deliberate structuring. It is an indicator that calls for investigation, not proof of guilt, and it does not clear the data.
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