EXAMPLE 5.19

Audits of financial records. The financial records of businesses are often audited by state tax authorities to test compliance with tax laws. Suppose that for one retail business, 800 of the 10,000 sales are incorrectly classified as subject to state sales tax. It would be too time-consuming for authorities to examine all these sales. Instead, an auditor examines an SRS of sales records. Is the count X of misclassified records in an SRS of 150 records a binomial random variable?