Title: Evaluation of fraud examinations: a principal-agent study of private internal investigations

Authors: Petter Gottschalk

Addresses: BI Norwegian Business School, Nydalsveien 37, 0484 Oslo, Norway

Abstract: Agency theory suggests that problems in terms of conflicting preferences, knowledge asymmetry and different attitudes towards risks can have a negative impact on work outcome from the agent to the principal. In private internal investigations, the client is the principal, while the fraud examiner is the agent. Based on a sample of 49 reports of investigation from Norway, this article presents empirical results testing agency theory. Results indicate that agency issues do have a significant influence on the contribution from internal investigations, but the influence is not necessarily negative. While different attitudes towards risk have a negative impact, knowledge asymmetry has a positive impact on the contribution from an investigation. A possible explanation for this surprising result is that examiners are experts in other areas than the client, which is the reason why examiners are hired by clients.

Keywords: agency theory; fraud examination; internal investigations; conflicting preferences.

DOI: 10.1504/IJBCRM.2018.090592

International Journal of Business Continuity and Risk Management, 2018 Vol.8 No.1, pp.36 - 48

Received: 29 Mar 2017
Accepted: 11 Nov 2017
Published online: 22 Mar 2018 *

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