Deterring fraud by looking away
Deniz Okat · The RAND Journal of Economics · 2016
Individuals being audited potentially learn how to exploit the weaknesses inherent in any audit methodology if they face the same method many times. Hence, an auditor better deters fraud by randomizing her choice of methodology over time, thereby frustrating a would‐be fraudster's ability to learn. In the extreme, an auditor benefits from refusing to audit, even though audits are costless to her.