Using Benford Digital Analysis, an auditor can identify potential fraud when

Benford's Law and Fraud Detection:

Benford's Lawis a statistical principle that predicts the frequency of leading digits in naturally occurring datasets.

Deviations from the expected distribution (e.g., a higher-than-expected frequency of a specific leading digit) can indicate manipulation or fraud.

For example, if too many payments start with the number "3," it suggests potential tampering.

Explanation of Answer Choices:

A. A higher-than-expected number of payment amounts to one vendor start with the number three: Correct. This aligns with how Benford’s Law is used to detect anomalies in numerical data.

B. A large number of contracts are awarded to one vendor: While concerning, this is not related to Benford’s Law.

C. A large contract is awarded to the director's close relative: This indicates a conflict of interest but is unrelated to Benford’s Law.

D. An employee receives kickbacks from real estate developers: This is fraud but cannot be identified using Benford’s Law.