This paper examines the differences in an internal auditor’s (a firm’s ) equilibrium testing strategy when employees have different abilities to steal from line items. I constrast two models. In the strategic employee model there are two employees who can each steal from one item. In both models the firm cam use costly, imperfect testing to reduce its expected losses. Two effects drive the results. The supervisor has greater strategic flexibility than the employees since he can choose a portfolio of thefts. The firm’s detection technology improves in the supervisor model because one test may detect multiple thefts. Since both playe’s strategy spaces have expanded in the supervisor model, both the firm and supervisor can be better or worse off than in the employee model employee. However, the improvement in the detection technology may lead to greater testing in the supervisor model. Two extensions examine the increased testing result. The first shows that if the supervisor has more skill at covering up his thefts than employees, then the supervisor model can have more or less testing than the employee model. In the second extension employees can observe each other’s thefts and can inform on others when caught stealing. In this extension the maximum amount of testing is identical in both models.
-
Faculty
- Academic Areas
- Awards & Honors
- Seminars
-
Conferences
- Accounting Summer Camp
- California Econometrics Conference
- California Quantitative Marketing PhD Conference
- California School Conference
- China India Insights Conference
- Homo economicus, Evolving
-
Initiative on Business and Environmental Sustainability
- Political Economics (2023–24)
- Scaling Geologic Storage of CO2 (2023–24)
- A Resilient Pacific: Building Connections, Envisioning Solutions
- Adaptation and Innovation
- Changing Climate
- Civil Society
- Climate Impact Summit
- Climate Science
- Corporate Carbon Disclosures
- Earth’s Seafloor
- Environmental Justice
- Finance
- Marketing
- Operations and Information Technology
- Organizations
- Sustainability Reporting and Control
- Taking the Pulse of the Planet
- Urban Infrastructure
- Watershed Restoration
- Junior Faculty Workshop on Financial Regulation and Banking
- Ken Singleton Celebration
- Marketing Camp
- Quantitative Marketing PhD Alumni Conference
- Rising Scholars Conference
- Theory and Inference in Accounting Research
- Voices
- Publications
- Books
- Working Papers
- Case Studies
-
Research Labs & Initiatives
- Cities, Housing & Society Lab
- Corporate Governance Research Initiative
- Corporations and Society Initiative
- Golub Capital Social Impact Lab
- Policy and Innovation Initiative
- Rapid Decarbonization Initiative
- Stanford Latino Entrepreneurship Initiative
- Value Chain Innovation Initiative
- Venture Capital Initiative
- Behavioral Lab
- Data, Analytics & Research Computing