Framework
Third-Party Cheater Detection
TL;DR
Framework for addressing the unique dynamics when watchdogs (auditors, inspectors, regulators) themselves become cheaters, derived from the Arthur Andersen collapse.
Framework for addressing the unique dynamics when watchdogs (auditors, inspectors, regulators) themselves become cheaters, derived from the Arthur Andersen collapse.
When to Use Third-Party Cheater Detection
When designing oversight systems, evaluating auditor independence, or assessing systemic risk from third-party enforcement failures.
How to Apply
1
Recognize Increased Detection Difficulty
Third-party enforcers can cover tracks better than ordinary cheaters
Questions to Ask
- Can the enforcer hide evidence of cheating?
- Who monitors the monitors?
Outputs
- Assessment of external investigation requirements
2
Apply Disproportionate Punishment for Systemic Risk
Single enforcer fraud affects trust across all certified entities
Questions to Ask
- How many entities rely on this enforcer's certification?
- Is organizational death (not just fines) necessary for deterrence?
Outputs
- Systemic risk assessment and punishment severity recommendation
3
Require Structural Separation
Eliminate conflicts of interest that create cheating incentives
Questions to Ask
- Can the enforcer profit more from enabling cheating than preventing it?
- Are revenue streams separated (e.g., no consulting for audit clients)?
Outputs
- Conflict of interest analysis and separation recommendations
4
Implement Regulatory Oversight
Create ongoing supervision to catch cheating before dramatic punishment required
Questions to Ask
- Is there external oversight of enforcers?
- Balance: catch early (lower cost) vs. catch late (higher deterrence)?
Outputs
- Oversight mechanism design