How to Implement a PHP Financial Frauds Detection System Using Benford's Law - PHP Benford's Law package blog

In this article you will learn about:

How to Use the PHP Benford's Law package to Detect Financial Fraud in PHP

How to Download This Package Files or Install the Package Using PHP Composer

How the Benford's Law Algorithm Can be Used to Detect Financial Frauds

Benford's Law is a statistical principle that can detect the probability of data fraud or anomalies in datasets.

It is based on the observation that the leading (first) digits of numbers do not appear with equal frequency in many naturally occurring datasets.

Instead, smaller digits like 1, 2, and 3 occur more frequently as leading digits than larger digits like 8 or 9.

Benford's Law follows a logarithmic distribution, and the following probabilities for the leading digit can represent it:

1: 30.1% 

2: 17.6% 

3: 12.5% 

4: 9.7% 

5: 7.9% 

6: 6.7% 

7: 5.8% 

8: 5.1% 

9: 4.6%

When a dataset conforms to Benford's Law, it suggests that the data is likely natural, unmanipulated, and reliable.

However, if a dataset significantly deviates from Benford's Law, it can indicate the presence of anomalies or data fraud.

Here's how you can use Benford's Law to detect the probability of data fraud:

1. Collect your dataset: Gather the dataset you want to analyze for anomalies.

2. Extract the first digits: For each data point in your dataset, extract the first (leading) digit. You can ignore the sign (positive/negative) and decimal point.

3. Count the frequency of each digit: Create a histogram or table to record the frequency of each leading number in your dataset.

4. Compare to Benford's Law: Compare the observed frequencies to the expected frequencies based on Benford's Law. Calculate the chi-squared statistic or another appropriate statistical test to determine the level of deviation.

5. Interpret the results: If the observed frequencies closely match the expected frequencies, it suggests that the data is consistent with Benford's Law and there is a low probability of data fraud. However, significant deviations from Benford's Law could indicate data manipulation or fraud. Further investigation may be needed to identify the source of anomalies.

It's important to note that while Benford's Law is a valuable tool for anomaly detection, it is not foolproof, and deviations from the law can have legitimate explanations in some cases.

Other factors, such as the nature of the data and data collection methods, should be considered in the overall analysis of data integrity and the probability of data fraud.

How to Use the PHP Benford's Law package to Detect Financial Fraud in PHP

This PHP package comes with an example script that you can adapt to use in your PHP applications.

Let's comment the relevant parts of the code so you can understand how to adapt this example

1. Include the package class script

   You can also try using PHP Composer to install this package and then include the vendor/autoload.php script generated by PHP Composer.

   <?php

   require("PhpBenfordsLaw.inc.php");

2. Load the data to analyze into an array

   There are at least two ways you can do that.

   i. Pass sample Data as Array

   $financial_and_or_statistical_numbers = [ /* enter the sample data numbers here as a list of integer values */ ];
   

   ii. Pass a CSV file and load it as an array

   $financial_and_or_statistical_numbers = file_get_contents("trial_balance_1.csv");
   
   $financial_and_or_statistical_numbers = explode("\r\n",$financial_and_or_statistical_numbers);
   

3. Create the class object

   $phpBenfordsLaw = new PhpBenfordsLaw($financial_and_or_statistical_numbers);
   
   

4. Check the logic for small data

   $phpBenfordsLaw->debug();

5. Analyse the data using the algorithm

   $result = $phpBenfordsLaw->get_result("L");

6. Display the results on a Web page

   echo "<hr /> <pre> Benford's Law RESULT = "; print_r($result);
   ?>

How to Download This Package Files or Install the Package Using PHP Composer

You can download the package files by going to the package page and clicking the Download tab.

If you use PHP Composer, you can also install this package using PHP Composer following instructions that you can find also in the package page Download tab.