Which of the following is a limitation of Benford's Law?

Benford's Law is a principle used in various fields, including forensic accounting and fraud detection, that predicts the frequency distribution of the first digits in many naturally occurring datasets. The law states that lower digits (like 1) occur more frequently as the leading digits than higher digits (like 9).

The limitation highlighted in the correct choice points out that Benford's Law is not applicable to datasets that are based on non-natural numbers, such as sequences or identifiers that do not arise from naturally occurring phenomena—check or invoice numbers fall into this category. These types of numbers are generated through human design and are systematically assigned, lacking the inherent randomness that Benford's Law relies on.

Identifying this limitation is crucial for practitioners, as misuse of Benford's Law on non-natural number datasets could yield misleading results, thereby hindering fraud detection efforts or analysis accuracy. Understanding this aspect helps investigators determine the appropriate contexts in which to apply Benford's Law effectively.