I recall a story about a Congressional Oversight effort to audit for misused funds. They ended up finding something like $100k of sketchy expenditures, but the audit itself cost multiple millions of dollars.
Retail tries to keep 'shrinkage' to a number that is below the threshold of detection to a point they can just built it into their cost models and not worry too much about the rest.
Companies see Risk Desks, QA, etc. as 'cost centers', and try to keep these budgets down.
Risk adjusted, they are massive profit centers. In addition to the actual $$ they save in fines, and stock price losses, the damage to the brand is often in the billions. But it is hard to measure the impact of events that do not occur.
I'd be surprised if they audited 100% of state expenses. This seems to focus on invoices and not, for example, payroll. Even so, if it was $1b and only 117k of mistakes, that's just .0117%, which seems pretty good to me.
Fair enough, but why can only CPAs perform such audits? It is spending $20K-$40K per audit for essentially nothing of importance. This cost gets passed on to customers.
I listened to a documentary about the Crazy Eddie electronic chain, which was fraudulent to the core but passed audits. The ex-CFO made an interesting comment: when large accounting firms do an audit, they're checking what the business has recorded on its accounts adds up, they're not checking if the reality behind the accounts are correct. As long as your books balance, you look healthy.
Wouldn't an audit just increase costs even more? It usually goes like: let's audit the cost, then let's create a committee to explore why the audit we just did cost so much.
And yet hundreds of thousands of companies pass the same audits. The call for audits came from ridiculous amounts of misreporting and waste. Accounting systems that can't do accounting and deal with trillions of taxpayer dollars should not have the goalposts moved. A 0.001% error in a trillion dollar system is ten million dollars. That's taxpayer money that could fix derelict bridges or pay for thousands of children to receive lunch at school.
I worked for a major US Federal agency that audits the private sector. The amount of money we recovered for the government significantly exceeded our budget. However, most people have a naive model of the cost-benefit relationship that greatly overestimates the benefit of increasing the auditing budget.
First, even if the recovered money exceeds the budget, the amount of recoverable money tends to be fixed to a first approximation. Audits already tend to follow the 80/20 rule. The marginal increase in recovered money quickly becomes less than the marginal increase in budget. You might find a new seam of recoverable money but those tend to dry up quickly while agency budget increases are forever.
Second, the indirect compliance costs to the government can exceed the directly recovered money, even ignoring the economy at large. The government may find $75M in new money for an audit cost of $25M if they start auditing something they have historically ignored and therefore tends to have sloppy compliance. This will create a lot of compliance activity in the private sector. On the surface, this looks like a free $50M to the government. However, these compliance costs can increase government procurement costs in excess of the direct recovery. The US government is aware of this and is therefore circumspect about over-auditing for diminishing returns as that can show up as a net cost elsewhere in the budget.
Most money recovered in audits is from sloppy record-keeping, ignorance, ambiguity, etc and not fraudulent intent at scale. There is always some fraud but that isn't the meat-and-potatoes of it. Increases in auditing incentivizes more rigorous processes in the private sector, which comes at a cost to the economy, but also reduces future audit recoveries. Increasing audits isn't an infinite money glitch.
How expensive (to a corporation) are the low-level-employee expenses, fraudulent or not? I mean, nobody likes to waste money on fraud or strip clubs or extra steaks, but is the cost of AI Oversight more than you'd retrieve?
How about expenses for directors/VP/Executive VP/CxO? Does this AI look over their expense reports, too? I would guess that even legit expenses from that level look a bit odd, but having AI audit employee expenses but not management expenses could contribute to a morale problem.
Another place that this AI oversight could help society as a whole is having corporations/companies get audited for wage theft. Wage theft is supposedly the largest dollar amount of theft in the US, and it probably exists because audits are so seldom done. AI wage theft audits could have a large beneficial effect for employees.
That is ignoring the enormous externalized costs. I have known business to have spent hundreds of thousands of dollars in professional services when being investigated that have done absolutely nothing wrong.
Retail tries to keep 'shrinkage' to a number that is below the threshold of detection to a point they can just built it into their cost models and not worry too much about the rest.
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