The statement is correct. Statistical sampling is a core technique in auditing and fraud examination used to make inferences about an entire population of data (e.g., all invoices, all expense reports) by examining a representative subset. By analyzing the sample, an examiner can quantitatively estimate the frequency or rate of occurrence of certain attributes, such as errors, control deviations, or other red flags. This projected error rate for the population provides a statistical basis for assessing the effectiveness of internal controls. A high error rate suggests that controls are weak, which inherently increases the opportunity and potential for fraud to occur and go undetected.

This statement is not false. It accurately describes the fundamental purpose of inferential statistics as applied in a fraud examination context. The method does not claim to prove fraud directly but to assess the potential for it by quantifying anomalies and control weaknesses, which is a valid and standard practice.

1. Association of Certified Fraud Examiners (ACFE). (2023). Fraud Examiners Manual, International Edition. Section 3, "Investigation," subsection "Data Analytics," discusses the use of sampling techniques to test large data sets for fraud. It explains that sampling allows an examiner to review a subset of transactions and project the results to the entire population to identify the extent of potential fraud or control weaknesses. Specifically, Section 3.1103 states, "Sampling is the application of a procedure to less than 100 percent of the items within a population to evaluate some characteristic of that population... it allows the fraud examiner to make inferences about the population."

2. American Institute of Certified Public Accountants (AICPA). (2021). AU-C Section 530, Audit Sampling. This official auditing standard provides guidance on using statistical and nonstatistical sampling in financial audits. Paragraph .04 states, "Audit sampling is the application of an audit procedure to less than 100 percent of the items within a population... such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population." Paragraph .02 further clarifies that this allows the auditor to evaluate characteristics of the population, such as the rate of deviation from a prescribed control.

3. Singleton, T. W., & Singleton, A. J. (2010). Fraud Auditing and Forensic Accounting (4th ed.). John Wiley & Sons. Chapter 9, "Forensic Audit and Investigation," details how sampling is used to gather evidence. The text explains that when a population is too large to examine in its entirety, a statistical sample can be used to estimate the incidence of fraudulent items or control errors within that population, thereby assessing risk and the potential scale of a fraud scheme. (DOI for related concepts: https://doi.org/10.1002/9781118269159)