Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

This is a public Custom Hive  public

research summary

    The Ties that Bind: The Decision to Co-Offend in Fraud.
    research summary posted July 28, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.04 Management Integrity 
    222 Views
    Title:
    The Ties that Bind: The Decision to Co-Offend in Fraud.
    Practical Implications:

    The phenomenon of co-offending is an important key to understanding fraudulent behavior. Understanding co-offending is best approached through a study of social ties. The reasons for co-offending vary according to the type of bond that exists between the co-offenders. Internal controls, such as job rotation policies, mandatory holidays with role replacement, forensic audits and surprise audits, that are specifically geared toward unraveling organizational cliques and subcultures help uncover fraudulent activities within a firm. This research suggests that the fraud triangle presents an overly parsimonious explanation of offending, and should incorporate materialistic, cultural, and affective considerations.

    Citation:

    Free, C., & Murphy, P. R. 2015. The Ties that Bind: The Decision to Co-Offend in Fraud. Contemporary Accounting Research 32 (1): 18-54.

    Keywords:
    fraud, forensic accounting, insider trading in securities, money laundering, co-offending
    Purpose of the Study:

    This article investigates the reasons why individuals co-offend in fraud. It is frequently observed that fraud has a greater economic impact on society than any other category of crime. “Co-offending” here refers to the perpetration of a fraud by more than one person and includes criminal cooperation at different times and places, a process in which individuals willingly pool their resources in the pursuit of shared but illegal goals. The focus of the article is on why some offenders opt to co-offend rather than offend alone in committing fraud. In the case of fraud, co-offending carries the risk that one party will cheat an accomplice, divulge his or her identity to authorities, or increase the latter’s likelihood of detection or arrest. In spite of these risks, in the many cases it is only by building a co-offending group that the opportunity can be accessed.

    Design/Method/ Approach:

    The authors researched instances where the fraud was perpetrated by a group of co-offenders. The data for this study is drawn from semi-structured interviews with 37 participants in the United States, 31 of whom were serving a sentence for fraud, and 6 of whom had completed their prison sentences. In each instance, the fraud was perpetrated by a group of two or more co-offenders. Each inmate had to volunteer to be interviewed. The evidence was collected prior to June 26, 2014.

    Findings:

    Two dimensions of fraudulent co-offending were identifiedthe primary beneficiary of the fraud and the nature of group attachmentto derive three distinct archetypes of bonds between co-offenders: (1) individual-serving functional bonds, (2) organization-serving functional bonds, and (3) affective bonds.

    • The findings suggest that the social nature of fraud is not merely an incidental feature of the crime but is instead a potential key to understanding its etiology and some of its distinctive features.
    • 60 percent of responders committed fraud as a co-offender.
    • The largest portion of participants (21 of 37) fell in the individual-serving functional bounds category. Usually, under this category, one person suggests that fraud and others follow.
    • Some individuals often feel a need to emulate others outside of greed or financial need.
    • In some instances organizational costs and benefits are more salient to offenders than self-interest.
    • Group norms of loyalty, trust and distrust, and even antagonism toward other parties can cement a group together while providing easy rationalizations for perpetrating fraud.
    • Some participants felt that societal and cultural factors effectively sanctioned fraud.
    Category:
    Risk & Risk Management - Including Fraud Risk
    Sub-category:
    Management Integrity