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AGSM Professors Win Research Grant


American Institute of Certified Public Accountants (AICPA) Awards Grant to UCR

Research on internal control risk and fraud prevention will be conducted by two AGSM faculty.

(July 10, 2008)

RIVERSIDE, Calif. (www.ucr.edu) – The American Institute of Certified Public Accountants has awarded a research grant to UC Riverside faculty for 2008-2009. The new grant was awarded to Professor Barry Mishra and Professor Erik Rolland of UCR’s A. Gary Anderson Graduate School of Management.

Mishra and Rolland will study "A Strategic Framework for Internal Control Risk Identification and Analysis." They propose to develop a Strategic Risk Analysis Framework that would help prevent fraudulent activity by applying an array of tools to identify the dimensions of risk associated with internal controls. It is their hope that their framework will contribute to a better integration of people, processes and technology in the development of a company's total internal control risk profile.

“Internal control risk is of major interest to the AICPA and to the accounting industry especially in light of the case of a $7 billion loss at Societe Generale, France's second biggest bank generated by one trader,” Rolland said. “It was detected by an external organization. The question is, ‘How is this possible?’ How do you let a person do this? How does this go undetected?”

Rolland and Mishra explain that three areas make up operational risk. These are people and knowledge; processes (or workflows) and policies; and tools and technologies (software, hardware, technology). Although organizations may have monitoring in place for each of these, no one person or department is monitoring the three areas as a whole.

“Out of the major areas of risk, operational risk is the most widespread,” Mishra said. “It’s in every facet of our personal and business lives but it is the least understood of all. Financial risks such as credit and market risk are well defined.”

The Sarbanes-Oxley Act of 2002 (also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX) also placed more accountability requirements on management to identify, document and evaluate significant internal controls. It also requires auditors to evaluate and express opinions on any material weakness in those controls. This is another reason for the increased interest in internal control risk.

The researchers plan to develop metrics and analytics from risk management functions by using control group focus, business process management teams, insurance risk management, and service-oriented information systems. Then, they will apply key risk indicators, scores, event data, analytics and management information system (MIS) to develop the dimensions of risk associated with internal controls.

Rolland and Mishra are expected to complete their initial work by July 2009 and publish the results in a major academic journal.

The University of California, Riverside (www.ucr.edu) is a doctoral research university, a living laboratory for groundbreaking exploration of issues critical to Inland Southern California, the state and communities around the world. Reflecting California's diverse culture, UCR's enrollment has exceeded 21,000 students. The campus opened a medical school in 2013 and has reached the heart of the Coachella Valley by way of the UCR Palm Desert Center. The campus has an annual statewide economic impact of more than $1 billion.

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