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    Internal Auditors’ Fraud Judgments: The Benefits of B...
    research summary posted October 22, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 13.0 Governance, 13.07 Internal auditor role and involvement in controls and reporting 
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    Title:
    Internal Auditors’ Fraud Judgments: The Benefits of Brainstorming in Groups
    Practical Implications:

    Internal auditors frequently work alone, but the findings from this research indicate that brainstorming in groups produces higher quality fraud risk assessments.  Additionally, this research has practical implications because qualitative risk assessment scales have been shown to result in higher assessed fraud risks than quantitative risk assessment scales, but brainstorming in groups appears to alleviate this response mode bias.

    For more information on this study, please contact Tina Carpenter.
     

    Citation:

    Carpenter, T.D., J.L. Reimers, and P.Z. Fretwell. 2011 Internal Auditors’ Fraud Judgments: The Benefits of Brainstorming in Groups. Auditing: A Journal of Practice and Theory 30 (3): 211-224.

    Keywords:
    fraud risk assessments; brainstorming; response mode bias; group interaction; internal audit.
    Purpose of the Study:

    Although not required by internal auditing standards, the role of internal auditors in the fraud detection and prevention process has gained attention from many parties in the auditing process including external auditors and standard setters.  This study examines the following:

    • How type of brainstorming (group versus alone) affects internal auditors’ fraud risk assessments by examining whether the internal auditors produce a high number of assessed risks, or higher quality risk assessments.
    • How group interaction decreases response mode bias caused by making risk assessments quantitatively versus qualitatively.
       
    Design/Method/ Approach:

    To conduct the study, 162 internal auditors participated in an experiment that required the internal auditors to brainstorm potential fraud risks from a case which was adapted from an actual fraud that had been examined by the SEC.  Participants were randomly assigned to conditions where they were asked to make fraud risk assessments using on quantitative scale or a qualitative scale.  Subjects were then instructed to brainstorm either individually or in a group setting.  Quantity of assessed risks is determined by the number of risks identified and quality of risk assessment is determined by whether the identified fraud risk was actually present in the case.  Data for the experiment was collected prior to September 2008. 

    Findings:
    • Internal auditors who assessed fraud risk using a qualitative scale (for example, assessing fraud risk as low, moderate, high, very high) assessed fraud risk higher than internal auditors who assessed fraud risk on a quantitative scale (for example, assessing fraud risk on a scale from 1 to 5).
    • Internal auditors brainstorming individually (alone) identified a higher number of fraud risks than internal auditors brainstorming in groups.
    • Internal auditors brainstorming in groups identified higher quality fraud risks than internal auditors brainstorming alone.  However, they collectively identified fewer fraud risks than the aggregation of internal auditors brainstorming alone.
    • Brainstorming in groups reduces response mode bias.  That is, internal auditors who assessed risk using a qualitative scale assessed fraud risk as being higher than internal auditors who assessed fraud risk using a quantitative scale.  However, the brainstorming process removed this bias so that there was no significant difference in the internal auditors’ risk assessments after the group interaction.
       
    Category:
    Governance, Risk & Risk Management - Including Fraud Risk
    Sub-category:
    Fraud Risk Assessment, Internal auditor role and involvement in controls and reporting