What is the resilience of an entity in preventing, deterring, and detecting fraud and corruption?
Tempe, March 29, 2017
Technical Staff
Increase the Likelihood of Detecting Corrupt Acts
A government entity would enhance its deterrence of corruption when it increases the likelihood of detecting corrupt or fraudulent acts. The perpetrator would usually weigh the benefits and costs of his fraudulent act. Under normal psychological and emotional conditions, he will rationally decide whether to commit fraud or corruption. The more the perpetrator believes that his fraudulent act would be uncovered, the less likely he will commit fraud or corruption. For example, when a cashier knows that the internal audit department personnel are competent and usually carry out surprise physical cash count of money in his custody, he will not take a high risk of being caught “borrowing” cash from his custody.
A government entity would enhance its deterrence of corruption when it increases the likelihood of detecting corrupt or fraudulent acts. The perpetrator would usually weigh the benefits and costs of his fraudulent act. Under normal psychological and emotional conditions, he will rationally decide whether to commit fraud or corruption. The more the perpetrator believes that his fraudulent act would be uncovered, the less likely he will commit fraud or corruption. For example, when a cashier knows that the internal audit department personnel are competent and usually carry out surprise physical cash count of money in his custody, he will not take a high risk of being caught “borrowing” cash from his custody.
Systems of internal control that are well designed and implemented effectively would support the organization’s deterrence of corruption. Although internal control systems have their inherent limitations, a whistle-blowing policy would create a significant deterrence impact on the perpetrator’s perception of the likelihood of being detected. Prevailing honesty and integrity within the government entity’s culture also support its deterrence of corruption.
However, the efficacy of deterrence of corruption depends on the following two fundamental deterrence principles:
(a) Severity of punishment, and
(b) Certainty of punishment
Severity of punishment
Punishment is severe when it deters a perpetrator from committing a fraudulent or corrupt act. However, one cannot conclude that whenever there is corruption, its associated punishment is not severe. A severity of punishment would be measured by the degree to which a perpetrator understands the risks (costs) of corruption and the extent to which it deters him from committing fraud.
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