An Accounting Framework for Identifying Internet Abuse

Abstract

Current accounting methods used by companies do not charge departments appropriately for Internet usage. The problem is compounded because information technology (IT) departments have lacked the ability and process to track Internet usage. Currently time and costs for Internet usage by departments are often allocated based on head count or perceived usage. This crude allocation method could result in disproportionate allocation and charges, some departments being attributed more than their share while other departments get “free rides.” This paper recommends the use of an activity-based costing system for budgeting the costs associated with Internet usage. The costs thus budgeted can then be compared to actual costs to arrive at a variance. If such variance is unfavorable, and it is significant, then managers should be penalized as this could reflect abuse with respect to Web usage. Penalization could take the form of reducing departmental incomes by the variance. If managers are evaluated on departmental earnings, then there will be an incentive to investigate the problem and take remedial action.