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CS Professional · Internal and Forensic Audit · Emerging Issues and Challenges

While analysing vendor payments at Kaveri Pharma Ltd, the internal auditor applies Benford's Law to invoice amounts. The leading digit 9 appears far more often than expected, and many invoices sit just below the Rs 50,000 approval limit. What is the most appropriate inference?

The pattern signals possible invoice splitting to stay below the approval limit, so it requires further investigation. Benford's Law deviations and clustering under a threshold are red flags, not conclusive proof of fraud, so the auditor should examine underlying documents and approvals before concluding.

  1. AThe invoices are conclusively proven fraudulent
  2. BThe data set is too small to be examined at all
  3. CPossible invoice splitting to avoid approval, needing follow-up investigationCorrect
  4. DThe approval limit is irrelevant to the audit

Explanation

Benford's Law deviations and clustering just below an approval threshold are red flags suggesting splitting or manipulation. They are indicators, not proof, so the auditor must investigate supporting documents. Calling it conclusive fraud overstates the evidence, and the approval limit is directly relevant.

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