Mini-project
Banking & Fintech
Benford's law test on accounting entries
Test whether the digits in a ledger look natural, and list entries an auditor should look at first.
The brief
Made-up numbers have different first digits from real ones. Apply Benford's law to a ledger, find the digit patterns and vendors that depart from it, and tell an auditor where to sample first, while stating that a departure is a prompt for questions and not proof of fraud. Good looks like: correct tests with a significance measure, results by vendor and account, and a plain explanation of false alarms.
What you will build
- Load a ledger of payment amounts
- Count first and first-two digits
- Test against Benford with chi-square and MAD
- Break down by vendor and account
- Rank groups for audit attention
- Write a note on limits and false alarms
Free, open data to build it with
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