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    The Effect of Social Confrontation on Individuals'...
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.06 Reporting Ethics Breaches – Self & Others, 06.0 Risk and Risk Management, Including Fraud Risk, 07.0 Internal Control 
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    Title:
    The Effect of Social Confrontation on Individuals' Intentions to Internally Report Fraud.
    Practical Implications:

    The study contributes by contending and showing that for fraudulent financial reporting, reporting intentions to different internal report recipients are influenced by a particular situational antecedent: unsuccessful social confrontation. The authors believe that the research and related findings will be useful for audit committees and other senior executives concerned with the timely reporting of fraud. Such groups not only are responsible for establishing internal reporting channels, but also are responsible for training and communicating with employees about what to do should they discover wrongdoing such as fraud. The evidence on the effects of social confrontation on reporting intentions for two different internal report recipients should be helpful in training and communicating with employees regarding what to do in response to discovering fraud.

    Citation:

    Kaplan, S. E., K. R. Pope, and J. A. Samuels. 2010. The Effect of Social Confrontation on Individuals' Intentions to Internally Report Fraud. Behavioral Research in Accounting 22 (2): 51-67.

    Keywords:
    fraudulent financial reporting, misappropriation of assets, reporting intentions, social confrontation, transgressor, fraud
    Purpose of the Study:

    Fraud is a serious social and economic problem that adversely affects a broad range of stakeholders, including audit committee and board members, top managers, employees, auditors, creditors, shareholders, and pensioners. In their 2006 Report to the Nation on Occupational Fraud and Abuse, The Association of Certified Fraud Examiners (ACFE) estimates annual fraud losses to be approximately $652 billion, approximately 5 percent of the annual revenues of all U.S. organization. Curtailing fraud, however, is a particularly challenging problem facing organizations. Detecting fraud is difficult because those engaging in fraud generally attempt to conceal their behavior, fraud is not a predictable event, and auditors often have limited experience detecting fraud.

    The purpose of this paper is to report the results of an experimental study that provides evidence on the impact of an unsuccessful social confrontation with a supervisor, apparently engaging in fraud, on one’s reporting intentions to two different, legitimate internal report recipients.

    Design/Method/ Approach:

    The experiment involved a 2 x 2 design. Participants were evening M.B.A. students from a major university. A total of 96 participants completed the instrument. Among these participants, the mean age was 28.1 years, and mean work experience was over six years. Two-thirds of the participants were male. The evidence was gathered prior to September 2010.  

    Findings:

    The findings indicate that participants’ reporting intentions were jointly influenced by social confrontation and the reporting channel. Specifically, reporting intentions to the supervisor’s supervisor were stronger than reporting intentions to the internal auditor following an unsuccessful social confrontation with the transgressor. In contrast, participants’ reporting intentions to the supervisor’s supervisor were not stronger than reporting intentions to the internal auditor when social confrontation had not occurred. This pattern was also observed when controlling for social desirability bias. Further, the effect of social confrontation on reporting intentions did not vary across the two different fraudulent acts. The results, based on two different fraudulent acts, allow the authors to generalize beyond a hypothetical study that included only one fraudulent act. Overall, the authors view the results as consistent with participants increasing their consideration of the report recipient’s power as the witness' exposure to risk increased. That is, following an unsuccessful social confrontation with the transgressor, the witness lost anonymity, which also increased the witness’ exposure to risk and potential retaliation from the transgressor. Further, the results suggest that increasing one’s emphasis on the report recipient’s power following an unsuccessful social confrontation may extend to various kinds of fraud.

    Category:
    Independence & Ethics, Internal Control, Risk & Risk Management - Including Fraud Risk
    Sub-category:
    Reporting Ethics Breaches - Self & Others