- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
In this paper we analyse how whistle-blowing afects fraudulent behaviour of managers while the company instigates imperfect internal audit to detect the fraud. To do so, we employ in a frst step a non-cooperative inspection game to analyse fraudulent behaviour of a manager controlled by an internal auditor. In a second step we introduce exogenous whistle-blowing of a manager’s employee to aid the auditor to reveal the fraud. In a third step, the two-person inspection game is extended to a three-person approach with endogenous whistle-blowing. Our novel results are that the intensity of internal audit is always lower with whistle-blowing than without and that whistle-blowing renders the manager to act less fraudulently than compared to the basic inspection game if and only if she is unaware of the whistle-blower’s expected pay-of and the efcacy of internal audit is sufciently low.
5 Conclusion and discussion
This paper addresses the question of whether there is the chance that whistle-blowing can serve as a remedy for fraudulent behaviour. We show that the classical twoperson inspection game including a (fraudulent) manager and an (imperfect) internal auditor can be extended by whistle-blowing. Because of the latter, we fnd that the intensity of the internal audit is generally lower than in absence of whistle-blowing, as the latter serves as a substitute for thorough auditing. Moreover, we fnd that the chance of whistle-blowing reduces the manager’s willingness to act fraudulently as compared to the case without whistle-blowing only if two conditions hold.
First, she must be unable (or cannot) anticipate whether or not blowing the whistle has repercussions on the employee. That is, she takes into account that whistleblowing can potentially be costless for the employee, which signifcantly increases the chance of a revelation of her fraud as there might be no reason for the employee to stay quiet. Second, the efcacy of internal audit without whistle-blowing must be sufciently low, such that whistle-blowing represents a strong improvement relative to the status quo. Otherwise, if one or both conditions are not satisfed, whistleblowing actually worsens the situations, as, on the one hand, the audit level is lower than without, and, on the other hand, the manager’s willingness for fraud grows.