• Oct 21th, 2020
• 1 min read

Financial Reporting: Using Bedford's Law to Detect Fraud

Fraud detection is a very important issue in all industries including the world of investments. There are various methods to detect fraud and applying Benford’s Law is one of them. Benford’s Law states that in real-life sets of numerical data that the first digit should be a one 30.1% of the time, a two 17.6% of the time and so on with a 9 occurring 4.6% of the time. When the returns of Madoff were analyzed, it was discovered that they started with a one 39.6% of the time when it was expected only 30.1% of the time, a large red flag for possible fraud. This analysis is fairly easy to apply and can be done in Excel. There is a link below on how to do that.

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