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."
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.
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.
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.
100% agreed. Financial incentives destroy honest work. Sweden has proved this multiple times by having financial incentives through the entire health care system.
IRS : 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
> 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.
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SEC : 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.
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CFTP (Commodity Futures Trading) : https://www.whistleblower.gov/overview/applyforanaward
False Claims Act Settlements : https://www.justice.gov/opa/pr/justice-department-s-false-cl...
NHTSA : https://www.nhtsa.gov/laws-regulations/whistleblower-program
... and more.
(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.
They'd then invent fraud in order to discover it.
Accounting has a lot of grey areas to it.
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.