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Title:Effect of separation of duties on firm costs and employee incentives for fraud, theft, and embezzlement
Author(s):Jones, Roberta Ann
Doctoral Committee Chair(s):Chandler, John S.
Department / Program:Accountancy
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Business Administration, Accounting
Business Administration, General
Sociology, Criminology and Penology
Abstract:Using a principal-agent model this research examines the efficacy of a fundamental internal control-separation of duties (SOD). The firm is the principal and non-managerial employees are agents. Three cases are studied. The first case is a bench-mark single-agent model. The second case is a SOD model that employs two agents. Finally, an n-agent SOD model is examined.
The firm seeks to minimize the costs of unintentional errors and fraud by utilizing SOD. However, SOD is not cost-free so that a trade-off exists between the costs of SOD and the costs of errors and fraud.
The agents consider benefits from asset misappropriation, costs of committing fraud, and costs of collusion. The utility an employee derives from fraud is different for each employee, but I assume every employee has a threshold amount that acts as a fraud incentive.
One employee is the fraud instigator who decides if to approach other agents to collude. This employee bears all the costs of collusion. The other employees decide if to accept the instigator's offer. These employees consider their utility from asset misappropriation relative to penalties if caught. Should these employees decide not to collude they decide if to report the collusion attempt. This brings with it a risk of censure which is part of their decision to collude.
I find as that cost of collusion increases the fraud incentive amount and the probability of collusion also increase. This does not ensure the cost of collusion is a disincentive for fraud. SOD may merely caused the amount stolen to increase.
Further, if additional employees are hired to implement SOD then, more likely than not, SOD will not be cost effective for the firm. Finally, if employees increase the amount stolen when their effort increases the probability that SOD is cost effective is strictly less than one.
Issue Date:1996
Rights Information:Copyright 1996 Jones, Roberta Ann
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9712325
OCLC Identifier:(UMI)AAI9712325

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