Towards A Better Understanding Of The Leading Digits Phenomena

arXivmath/0612627MaRDI QIDQ6478484FDOQ6478484

Publication date: 20 December 2006

Abstract: That the logarithmic distribution manifests itself in the random as well as in the deterministic (multiplication processes) has long intrigued researchers in Benford's Law. In this article it is argued that it springs from one common intrinsic feature of their density curves. On the other hand, the profound dichotomy between the random and the deterministic in the context of Benford's Law is noted here, acknowledging the need to distinguish between them. From its very inception, the field has been suffering from a profound confusion and mixing of these two very different logarithmic flavors, causing mistaken conclusions. One example is Allaart's proof of equality of sums along digital lines, which can only be applied to deterministic processes. Random data lack this equality and consistently show significantly larger sums for lower digits, thus rendering any attempt at test of summation equality irrelevant and futile in the context of forensic analysis regarding accounting and financial fraud detection. Another digital regularity is suggested here, one that is found in logarithmic as well as non-logarithmic random data sets. In addition, chains of distributions that are linked via parameter selection are found to be logarithmic, either in the limit where the number of the sequences in the chain approaches infinity, or where the distributions generating the parameters are themselves logarithmic. A new forensic data analysis method in the context of fraud detection is suggested here even for data types that do not obey Benford's Law, and in particularly regarding tax evasion applications. This can also serve as a robust forensic tool to investigate fraudulent fake data provided by the sophisticated cheater already aware of Benford's Law, a challenge that would become increasing problematic to tax authorities in the future as Benford's Law becomes almost common knowledge.

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