Measuring and managing market, credit and Op risk [67]

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Bullet points include: Each individual in a hierarchy determines whether, conditional on the internal control environment, the personal benefit of committing fraud outweighs cost of being detected If individual chooses not to commit fraud then chooses monitoring effort Thus model includes full ‘loop’ of fraud intensity leading to internal control efforts, in turn leading to curbing incentives to commit fraud Hierarchy assumed to be infinite chain ..., x-1, x, x+1, ... Any individual (x) has an immediate superior x-1 and subordinate x+1 An individual chooses either to exert effort monitoring subordinates or, if he does not monitor, whether or not to defraud the firm

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