This week, our chosen articles consider the issues around fraud and whistleblowing.

Rethinking the fraud model 
For several decades, most discussion on financial fraud has centred on the fraud triangle, which has evolved over time through various extensions and re-interpretations. While this has served the profession well, the articulation of the human side of the act is indirect and diffused. To address this limitation, this research develops a model to explain the role of human desires, intentions, and actions in indulgence of, or resistance to, the act of financial fraud.

Evidence from religion, philosophy, sociology, neurology, behavioural economics, and social psychology is integrated to develop and support an alternative fraud model, called the disposition-based fraud model (DFM). To articulate the model, its two primary components, disposition and temptation, are further developed and extended. Although the DFM is generally applicable to any act of fraud, this paper focuses on executive fraud.

The similarities and differences between the DFM and extant fraud models are discussed. Importantly, in light of the DFM, a re-interpretation of the fraud triangle is made to improve our understanding of the human element in it. Additionally, potential implications of the model for corporate governance are discussed, suggestions for further research are offered, and the DFM’s strengths and limitations are noted.

Vasant Raval. 2018. A Disposition-Based Fraud Model: Theoretical Integration and Research Agenda. 
Journal of Business Ethics, 150(3), 741–763.

 

How experts detect insurance fraud 
A growing literature has focused on understanding how to detect and deter unethical consumer behaviour. In this work, the authors focus on a particularly important type of unethical consumer behaviour, consumer insurance fraud, and they analyse a unique dataset to understand how experts investigate suspicious claims.

Two separate but related literatures inform the process of investigating suspicious insurance claims. The first literature is grounded in field research and emphasises the importance of secondary sources. The second literature is grounded in laboratory studies that emphasise the importance of interpersonal interactions.

Here the authors draw upon both literatures to consider the importance of claimant interviews within the context of many investigative actions and the potential for claimants to avoid interviews. In an empirical study using qualitative and quantitative data from auto insurance claim investigations, the researchers analyse investigative chronologies conducted by skilled experts. In doing so, they find that even when investigators can access information from a variety of sources such as witnesses, databases, and physical evidence, claimant interviews are the most important step in determining whether or not claims are denied or paid.

Furthermore, the authors identify interpersonal avoidance as an important signal of unethical claimant behaviour. Our findings inform deception detection theory and practice.  The authors identify implications for deception detection in business, particularly for consumer unethical behaviour and insurance fraud investigations.

Danielle E. Warren and Maurice E. Schweitzer. 2018. When Lying Does Not Pay: How Experts Detect Insurance Fraud. 
Journal of Business Ethics, 150(3), 711–726.

 

The effects of compensation on managers’ decisions to blow the whistle 
Recent research indicates that compensation structure can be used by firms to discourage their employees from whistleblowing. The authors extend the ethics literature by examining how compensation structures and financial rewards work together to influence managers’ decisions to blow the whistle.

Results from an experiment indicate that compensation with restricted stock, relative to stock payments that lack restrictions, can enhance the likelihood that managers will blow the whistle when large rewards are available. However, restricted stock can also threaten the effectiveness of whistleblowing systems without the presence of large financial rewards for whistleblowing.

Thus, the large potential rewards for whistleblowing enacted by the Dodd–Frank Act appear timely as firms are moving toward compensation agreements that include greater proportions of restricted stock.

Jacob M. Rose, Alisa G. Brink and Carolyn Strand Norman. 2018. The Effects of Compensation Structures and Monetary Rewards on Managers’ Decisions to Blow the Whistle. 
Journal of Business Ethics, 150(3), 853–862.

 

Both sides of the coin: Motives for corruption among public officials and business employees 
The aim of this study is to better understand why public officials and business employees engage in corruption. Insight into individual-level explanations for corruption was obtained with the aid of a self-report survey.

The results suggest that the most indicative factors of whether or not individuals are corruption-prone are as follows:
the moral conviction they have to refrain from corruption;
perceptions of whether their colleagues approve of and engage in corruption;
and difficulties experienced in complying with the rules on corruption.

This result pattern was identical for public officials and business employees alike, and as a consequence, for both sides of corrupt acts. The latter indicates that the same motives may not only underlie corruption in both private and public sectors, but also the act of corruption in its active and passive forms.

The results of the current study do not provide strong support for the assumption that economic considerations—expected costs and benefits—are crucial in predicting corruption. Based on the findings that norms and the perceived opportunity to comply are dominant factors in explaining corruption, this article focuses on the practical implications for the development of anti-corruption strategies within both public and private sectors.

Read this Open Access article online for free

Madelijne Gorsira, Adriaan Denkers and Wim Huisman. 2018. Both Sides of the Coin: Motives for Corruption Among Public Officials and Business Employees. 
Journal of Business Ethics, 151(1), 179–194.

 

The impact of financial incentives and perceptions of seriousness on whistleblowing intention
Many jurisdictions have put regulatory strategies in place to provide incentives and safeguards to whistleblowers to encourage whistleblowing on corporate wrongdoings. One such strategy is the provision of a financial incentive to the whistleblower if the complaint leads to a successful regulatory enforcement action against the offending organisation.

The researchers conducted an experiment using professional accountants as participants to examine whether such an incentive encourages potential whistleblowers to report an observed financial reporting fraud to a relevant external authority.  The authors also examine the effect of perceived seriousness of the wrongdoing on accountants’ intention to whistleblow.

The authors find that a financial incentive results in a higher intention to whistleblow to a relevant external authority. The researchers also find that perceptions of the seriousness of the wrongdoing are significantly and positively associated with accountants’ intention to whistleblow to a relevant external authority.  The authors find a significant interaction between the provision of a financial incentive and the perceived seriousness of the wrongdoing on the intention to report the wrongdoing externally.

The intention to report the financial reporting fraud externally is higher when the level of perceived seriousness is higher, regardless of the availability of a financial incentive. However, when the perceived level of seriousness is lower, the presence of financial incentive results in a higher intention to report the financial reporting fraud externally. These findings indicate that the impact of a financial incentive on the intention to whistleblow is moderated by perceptions of the seriousness of the wrongdoing.

Paul Andon, Clinton Free, Radzi Jidin, Gary S. Monroe and Michael J. Turner. 2018. The Impact of Financial Incentives and Perceptions of Seriousness on Whistleblowing Intention. 
Journal of Business Ethics, 151(1), 165–178.

 

Free-will beliefs predict attitudes toward unethical behaviour and criminal punishment 
Understanding the bases of moral judgment has been a longstanding goal of social science. Factors undergirding morality are argued to be both globally uniform and regionally variable.

The current study found evidence of both. For residents of countries with low levels of corruption and transparent systems of governance, free-will beliefs predicted greater support for harsh criminal punishment and an intolerance of unethical behaviour. For residents of countries beset with corruption and obfuscation, free-will beliefs predicted greater support for criminal punishment but were decoupled from judgments of unethical behaviour.

These findings confirm causal conclusions from experimental research about the influence of free will beliefs on moral judgments and demonstrate variation by socio-political context.

Read this Open Access article online for free

Nathan D. Martin, Davide Rigoni and Kathleen D. Vohs. 2017. Free will beliefs predict attitudes toward unethical behaviour and criminal punishment. 
Proceedings of the National Academy of Sciences, published ahead of print June 26, 2017.
https://doi.org/10.1073/pnas.1702119114

 

Studying corruption as social interaction
This paper argues that corruption research can benefit from studying corrupt transactions as a particular form of social interaction.  The authors showcase the usefulness of a theoretical focus on social interaction by investigating online user reports on the website Frontdesktip.com.

Through this focus, the authors can observe users sharing experiences and tips on the best ways of bribing hotel clerks in Las Vegas for attaining room upgrades and other complimentary extras.  The researchers employ a logistic regression analysis to examine what factors influence the “successful” performance of this bribery practice.

Our study makes a twofold contribution to existing research on corruption. First, on the theoretical level, the authors show that the typified and scripted character of social interactions can help explain the occurrence of corrupt transactions. Second, on a methodological level, this study showcases online self-reports as a useful data source to study corrupt transactions in an unobtrusive way.

Dennis Schoeneborn and Fabian Homberg. 2018. Goffman’s Return to Las Vegas: Studying Corruption as Social Interaction. 
Journal of Business Ethics., 151(1), 37–54.