Detection theory

Detection theory is the concept that the probability of a transgression decreases as the probability of detection goes up. In other words, when a person is contemplating committing an ethical breach, he first takes into account the probability of being caught. If there is a low risk of being found out, then the person is more likely to proceed with his plans.

Clearly, detection theory points us in the direction of creating circumstances in which there is a high probability of detection. For example, we can document all transactions so that there is a clear record of activity, have people work in teams so that someone else can see a transgression, and routinely audit transactions. An excessive number of these controls can make it appear that management does not trust employees, so be prudent in selecting controls.

Related Courses

Accounting Controls Guidebook
New Manager Guidebook