Empowering Board Audit Committees: Electronic Discovery to Facilitate Corporate Fraud Detection

28 Pages Posted: 18 Apr 2006

See all articles by Dennis Wright Michaud

Dennis Wright Michaud

Providence Consulting Group, LLC

Cliff Dutton

Dutton, LLC

Kate A. Magaram

Brown University

Date Written: April 2, 2006

Abstract

A number of recent accounting scandals in public companies have illuminated the need for enhanced oversight capabilities by board audit committees. The current reliance of boards on corporate financial statements reviewed by independent auditors is deficient; there is a delay in audit committees receiving these reports. Moreover, these reports transmit historic rather than real-time information to directors. In this paper we investigate if analytical techniques utilized by the U.S. Department of Homeland Security to provide advance warning of potential terrorist threats can be employed to strengthen corporate governance of public companies. The narrative reads that board audit committees can utilize electronic analysis of corporate email as an advanced corporate fraud detection system. Our application of these techniques to one actual case of corporate fraud indicates that an electronic monitoring system would have signaled an alarm of aberrant behavior to the board audit committee 60 days in advance of initial inquiries by regulatory authorities.

Keywords: Corporate Governance, Corporate Fraud, Boards, Audit Committees, Fraud Detection

JEL Classification: G34, M49, L20, M14, M21, K20

Suggested Citation

Michaud, Dennis Wright and Dutton, Cliff and Magaram, Kate A., Empowering Board Audit Committees: Electronic Discovery to Facilitate Corporate Fraud Detection (April 2, 2006). Available at SSRN: https://ssrn.com/abstract=896004 or http://dx.doi.org/10.2139/ssrn.896004

Dennis Wright Michaud (Contact Author)

Providence Consulting Group, LLC ( email )

275 CASTLE ROCKS ROAD
WARWICK, RI 02886
United States

Cliff Dutton

Dutton, LLC ( email )

121 Benevolent Street
Providence, RI 02906
United States
401-383-7172 (Phone)
401-351-4288 (Fax)

HOME PAGE: http://www.duttonllc.com

Kate A. Magaram

Brown University ( email )

Box 1860
Providence, RI 02912
United States

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