Skip to content

CS Professional · Internal and Forensic Audit · Fraud Detecting Techniques

An auditor at Sundaram Pharma runs a Benford's Law test on 12,000 expense claims and finds an unusually high frequency of claims beginning with the digit 4 and 9 just under an approval limit of Rs 50,000. What is the most appropriate inference?

The deviation is a red flag that justifies targeted examination of the flagged claims. Benford's Law and similar digital analysis highlight unusual patterns, such as amounts clustering below an approval limit, but they do not prove fraud. The auditor must follow up with vouching and inquiry before drawing conclusions.

  1. AThe data is conclusively fraudulent and must be reported to police
  2. BThe deviation is a red flag warranting targeted examination of those claimsCorrect
  3. CBenford's Law is inapplicable to any financial data
  4. DThe approval limit should be raised to remove the anomaly

Explanation

Digital analysis identifies anomalies and clusters just below thresholds, which suggest possible splitting or avoidance of approval limits. It does not prove fraud; it directs further testing of the flagged items. Concluding fraud outright would be premature.

Did you get it right without looking?

One question tells you little. A timed set on Fraud Detecting Techniques shows your real accuracy, how long you take and where you lose marks.

Practise Fraud Detecting TechniquesFree diagnostic mock

More Fraud Detecting Techniques questions