4 ms·

What if we paid auditors by the fraud discovered. That auditors finding fraud and other misdeeds get the highest seniority on any assets left. I mean, there h

What if we paid auditors by the fraud discovered. That auditors finding fraud and other misdeeds get the highest seniority on any assets left. I mean, there has to be some answer to the problem of an auditor that says "I don't like the way you treat this income stream" and the CEO says "we will never work with you again and I will make sure everyone I golf with never will again."

ipython 4y ago
That’s kind of how the SEC handles whistleblower compensation. See https://www.sec.gov/news/press-release/2022-125 https://www.sec.gov/news/press-release/2022-125
deleted 4y ago
[deleted]
joe_the_user 4y ago
I get a bit suspicious when I hear a scheme that boils down "given a society rotten with marketization schemes enriching a corrupt few, we'll use one more layer of marketization to stop the problem, what could possibly go wrong?" And thinking in more detail, substantial problems seem evident: * You want auditors who check everyone, not just the most likely or most "profitable" targets. * If the activity of a regulator depends on the fraud level, you will have people slacking off in times of little fraud, which will then give rise to times of much fraud. * This would make regulation more adversarial - companies would have an incentive to withhold information from a regulator to the extent a regulator would have an incentive to "spin" things in a profitable direction for them. Despite a strong pro-business ideology prevailing in the US, US regulation is already often more adversarial than in Europe. A US regulator is more oriented to catching wrong doers than to guiding companies into behaving correctly. This is visibly failing in all sort of large and small ways. The proposal would make this worse.
- boxed 4y ago
  > You want auditors who check everyone, not just the most likely or most "profitable" targets. Do you? Don't you in fact want the auditors to find the most fraud per hour worked? The problem the US has now is that for example IRS audits go after the poor because the rich have too annoying lawyers. This is the absolute worst.
  - joe_the_user 4y ago
    Do you? Don't you in fact want the auditors to find the most fraud per hour worked? For the last fifty years, the prevailing ideology in the US has been a straightforward system of bureaucracy is horrible compared to some chaotic, production optimizing startup. But if you compare now and fifty years ago, today's "running the government like a business" has produce a sea of corrupt inefficiency. For that reason, I think it's perfectly not to fixate on dubious metrics like "most fraud (found) per hour worked". Regulators should be neither low paid nor super high paid. They should be honest, even idealistic, people working to keep society honest rather than "entrepreneurs" looking for some kind of "score". The problem the US has now is that for example IRS audits go after the poor because the rich have too annoying lawyers. This is the absolute worst. Of course, this is a product of the bizarrely complex tax code and the legality of a whole variety of shady maneuvers. I'm not optimistic about this going away but if it goes away, it would require the state simplifying the tax code and outlawing the whole fabric of hidden financial maneuvers. Until something like that happens, you're not going to win the arms race. And in this situation, "incentivizing" the agents just means they'll figure out a way to go after a certain middle type - rich enough to have some money but too poor to defend it. Like I said, we've wound ourselves into a government of competitive proxy reaching pseudo-economies, we "Goodharted ourselves to death"[1]. But naturally people want to add one more spring to this clockwork nightmare. [1] https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law
    - boxed 4y ago
      > I think it's perfectly not to fixate on dubious metrics like "most fraud (found) per hour worked" 100% agreed. Financial incentives destroy honest work. Sweden has proved this multiple times by having financial incentives through the entire health care system.
WalterBright 4y ago
> What if we paid auditors by the fraud discovered. They'd then invent fraud in order to discover it. Accounting has a lot of grey areas to it.
- shigawire 4y ago
  Then the person discovering their fraud get their money. It is fraud detection all the way down.
photochemsyn 4y ago
The most flagrant frauds have been legalized by the bought-off politicians. For example, I'd call the Fed giving money borrowed against Treasury bonds to banks so that they can inflate the values of their holdings by buying shares, thus inflating the price quite artificially, nothing but fraudulent manipulation of the market. However, this kind of behavior seems to be quite legal...
Kalium 4y ago
This is how a lot of short selling works - they find fraud, mismanagement, etc and position themselves to profit from revealing it. That's why this journalist talked to one.
- tcoff91 4y ago
  Is that a form of illegal insider trading?
  - jjtheblunt 4y ago
    I think you are asking if people with insider knowledge might place short sales orders, and the answer is yes. but selling short isn't only done by people privy to insider knowledge; a person who has built extreme expertise in ${whatever} might have reason to believe a price will drop, and in that belief choose to sell shares not currently in possession. this is possible because there is a few days lag between sale and delivery, so the person profits if able to buy shares to deliver at a price lower than the price at which the shares were sold days earlier. (like, promise something, sell it now, and deliver it days later, purchased in the meanwhile for less) i often wonder if the practice arose because of physical lag in delivering paper-based shares of corporations many decades before everything was electronic.
shagie 4y ago
> What if we paid auditors by the fraud discovered. IRS : https://www.irs.gov/compliance/whistleblower-office https://www.irs.gov/compliance/whistleblower-office > The IRS Whistleblower Office pays monetary awards to eligible individuals whose information is used by the IRS. The award percentage depends on several factors, but generally falls between 15 and 30 percent of the proceeds collected and attributable to the whistleblower's information. From the annual report: https://www.irs.gov/pub/irs-pdf/p5241.pdf https://www.irs.gov/pub/irs-pdf/p5241.pdf > Since 2007, the Whistleblower Office has paid out more than 2,500 awards to whistleblowers totaling over $1.05 billion and has led to the successful collection of $6.39 billion from non-compliant taxpayers. --- SEC : https://www.sec.gov/whistleblower https://www.sec.gov/whistleblower > The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected. --- CFTP (Commodity Futures Trading) : https://www.whistleblower.gov/overview/applyforanaward https://www.whistleblower.gov/overview/applyforanaward False Claims Act Settlements : https://www.justice.gov/opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year https://www.justice.gov/opa/pr/justice-department-s-false-cl... NHTSA : https://www.nhtsa.gov/laws-regulations/whistleblower-program https://www.nhtsa.gov/laws-regulations/whistleblower-program ... and more.
NoPicklez 4y ago
First and foremost external financial auditors audit a companies' financial statements for material misstatements, that is primarily what they do. Not to specifically identify fraud, unless they're brought in purely for a fraud related matter. As part of the audit process the auditors assess the risks of fraud including management override of controls and build this into their audit plan. But external auditors are not required to find fraud, but may find it through their audit procedures. Audit firms operate on trust and there are many many steps that are required to ensure a level of independence of the staff and the partners involved. The penalties associated with poor auditing are usually significant and when quality issues are identified partners are often penalised financially. You can't pay auditors by the fraud discovered as that's in fact not what they're actually there for in the first place. However, they may identify instances of fraud as part of audit procedures as part of identifying material misstatements.

ipython 4y ago

That’s kind of how the SEC handles whistleblower compensation. See https://www.sec.gov/news/press-release/2022-125 https://www.sec.gov/news/press-release/2022-125

deleted 4y ago

[deleted]

joe_the_user 4y ago

I get a bit suspicious when I hear a scheme that boils down "given a society rotten with marketization schemes enriching a corrupt few, we'll use one more layer of marketization to stop the problem, what could possibly go wrong?" And thinking in more detail, substantial problems seem evident: * You want auditors who check everyone, not just the most likely or most "profitable" targets. * If the activity of a regulator depends on the fraud level, you will have people slacking off in times of little fraud, which will then give rise to times of much fraud. * This would make regulation more adversarial - companies would have an incentive to withhold information from a regulator to the extent a regulator would have an incentive to "spin" things in a profitable direction for them. Despite a strong pro-business ideology prevailing in the US, US regulation is already often more adversarial than in Europe. A US regulator is more oriented to catching wrong doers than to guiding companies into behaving correctly. This is visibly failing in all sort of large and small ways. The proposal would make this worse.

boxed 4y ago
> You want auditors who check everyone, not just the most likely or most "profitable" targets. Do you? Don't you in fact want the auditors to find the most fraud per hour worked? The problem the US has now is that for example IRS audits go after the poor because the rich have too annoying lawyers. This is the absolute worst.
- joe_the_user 4y ago
  Do you? Don't you in fact want the auditors to find the most fraud per hour worked? For the last fifty years, the prevailing ideology in the US has been a straightforward system of bureaucracy is horrible compared to some chaotic, production optimizing startup. But if you compare now and fifty years ago, today's "running the government like a business" has produce a sea of corrupt inefficiency. For that reason, I think it's perfectly not to fixate on dubious metrics like "most fraud (found) per hour worked". Regulators should be neither low paid nor super high paid. They should be honest, even idealistic, people working to keep society honest rather than "entrepreneurs" looking for some kind of "score". The problem the US has now is that for example IRS audits go after the poor because the rich have too annoying lawyers. This is the absolute worst. Of course, this is a product of the bizarrely complex tax code and the legality of a whole variety of shady maneuvers. I'm not optimistic about this going away but if it goes away, it would require the state simplifying the tax code and outlawing the whole fabric of hidden financial maneuvers. Until something like that happens, you're not going to win the arms race. And in this situation, "incentivizing" the agents just means they'll figure out a way to go after a certain middle type - rich enough to have some money but too poor to defend it. Like I said, we've wound ourselves into a government of competitive proxy reaching pseudo-economies, we "Goodharted ourselves to death"[1]. But naturally people want to add one more spring to this clockwork nightmare. [1] https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law
  - boxed 4y ago
    > I think it's perfectly not to fixate on dubious metrics like "most fraud (found) per hour worked" 100% agreed. Financial incentives destroy honest work. Sweden has proved this multiple times by having financial incentives through the entire health care system.

WalterBright 4y ago

> What if we paid auditors by the fraud discovered. They'd then invent fraud in order to discover it. Accounting has a lot of grey areas to it.

shigawire 4y ago
Then the person discovering their fraud get their money. It is fraud detection all the way down.

photochemsyn 4y ago

The most flagrant frauds have been legalized by the bought-off politicians. For example, I'd call the Fed giving money borrowed against Treasury bonds to banks so that they can inflate the values of their holdings by buying shares, thus inflating the price quite artificially, nothing but fraudulent manipulation of the market. However, this kind of behavior seems to be quite legal...

Kalium 4y ago

This is how a lot of short selling works - they find fraud, mismanagement, etc and position themselves to profit from revealing it. That's why this journalist talked to one.

tcoff91 4y ago
Is that a form of illegal insider trading?
- jjtheblunt 4y ago
  I think you are asking if people with insider knowledge might place short sales orders, and the answer is yes. but selling short isn't only done by people privy to insider knowledge; a person who has built extreme expertise in ${whatever} might have reason to believe a price will drop, and in that belief choose to sell shares not currently in possession. this is possible because there is a few days lag between sale and delivery, so the person profits if able to buy shares to deliver at a price lower than the price at which the shares were sold days earlier. (like, promise something, sell it now, and deliver it days later, purchased in the meanwhile for less) i often wonder if the practice arose because of physical lag in delivering paper-based shares of corporations many decades before everything was electronic.

shagie 4y ago

> What if we paid auditors by the fraud discovered. IRS : https://www.irs.gov/compliance/whistleblower-office https://www.irs.gov/compliance/whistleblower-office > The IRS Whistleblower Office pays monetary awards to eligible individuals whose information is used by the IRS. The award percentage depends on several factors, but generally falls between 15 and 30 percent of the proceeds collected and attributable to the whistleblower's information. From the annual report: https://www.irs.gov/pub/irs-pdf/p5241.pdf https://www.irs.gov/pub/irs-pdf/p5241.pdf > Since 2007, the Whistleblower Office has paid out more than 2,500 awards to whistleblowers totaling over $1.05 billion and has led to the successful collection of $6.39 billion from non-compliant taxpayers. --- SEC : https://www.sec.gov/whistleblower https://www.sec.gov/whistleblower > The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected. --- CFTP (Commodity Futures Trading) : https://www.whistleblower.gov/overview/applyforanaward https://www.whistleblower.gov/overview/applyforanaward False Claims Act Settlements : https://www.justice.gov/opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year https://www.justice.gov/opa/pr/justice-department-s-false-cl... NHTSA : https://www.nhtsa.gov/laws-regulations/whistleblower-program https://www.nhtsa.gov/laws-regulations/whistleblower-program ... and more.

NoPicklez 4y ago

First and foremost external financial auditors audit a companies' financial statements for material misstatements, that is primarily what they do. Not to specifically identify fraud, unless they're brought in purely for a fraud related matter. As part of the audit process the auditors assess the risks of fraud including management override of controls and build this into their audit plan. But external auditors are not required to find fraud, but may find it through their audit procedures. Audit firms operate on trust and there are many many steps that are required to ensure a level of independence of the staff and the partners involved. The penalties associated with poor auditing are usually significant and when quality issues are identified partners are often penalised financially. You can't pay auditors by the fraud discovered as that's in fact not what they're actually there for in the first place. However, they may identify instances of fraud as part of audit procedures as part of identifying material misstatements.