Real life usage of Benford's Law?

Question

I recently discovered Benford's Law. I find it very fascinating. I'm wondering what are some of the real life uses of Benford's law. Specific examples would be great.

Answer 1

Benford's law has a number of interesting applications to accountancy and other areas of finance. Perhaps the most common usage is in fraud detection. Since Benford's law describes the expected frequency of the leading digits of numerical entries in a dataset, CPAs frequently use it to look for potential anomalies in financial records (e.g. commercial transactions, business expenses, etc.). In general, humans are very, very bad at generating random-like data, so if a record has been tampered with it will likely violate Benford's law and may warrant a further investigation.

This was used as an argument in the 1993 legal case State of Arizona v. Wayne James Nelson. Basically, Nelson was a manager in the Arizona Treasury office and tried to defraud the state of millions of dollars by recording bogus transactions to a non-existant vendor. Upon analysis of the records, auditors noticed irregularities in the data which significantly contradicted the frequencies predicted by Benford's Law.

Read this article for an excellent overview of Benford's law and it's uses: https://www.journalofaccountancy.com/issues/1999/may/nigrini.html