As the COVID-19 pandemic was unfolding, a surge in scams was registered across the globe. While COVID-19 poses higher health risks for older adults, it is unknown whether older adults are also facing higher financial risks as a result of COVID-19 scams. Here, we examined age differences in vulnerability to COVID-19 scams and individual difference measures that might help explain them. A lifespan sample of sixty-eight younger, 79 middle-aged, and 63 older adults recruited through Prolific completed (...) questions and questionnaires online. In a within-subjects design, each participant responded to five COVID-19 solicitations, psychological measures, and demographic questions. Age group comparisons revealed that older adults were marginally less likely to perceive COVID-19 solicitations as genuine than middle-aged adults were. In addition, older adults perceived significantly fewer benefits than both younger and middle-aged adults did and perceived marginally higher risks than younger adults did. Hence, older adults did not exhibit greater vulnerability to COVID-19 scams. Regardless of age, intentions to respond to COVID-19 solicitations were positively predicted by higher levels of educational attainment, being married, past fraud victimization, and higher levels of positive urgency. As expected, stronger genuineness and benefit perceptions positively predicted action intentions, whereas stronger risk perceptions negatively predicted action intentions As such, COVID-19 scam susceptibility appears to be the result of a impulse control issue that is not easily inhibited, not even by past experiences of scam victimization. (shrink)

Financial gerontology can be defined as investigating relations between finances and aging. Authors such as Neal E. Cutler, Kouhei Komamura, Davis W. Gregg, Shinya Kajitani, Kei Sakata, and Colin McKenzie affirm that financial literacy is an effect of aging with concern about the issue of finances, as well as stating that it is the effect of longevity and aging on economies or the financial resilience of older people.

The rising tide of corporate scandals and audit failures has shocked the public, and the integrity of auditors is being increasingly questioned. It is crucial for auditors and regulators to understand the main causes of audit failure and devise preventive measures accordingly. This study analyzes enforcement actions issued by the China Securities Regulatory Commission against auditors in respect of fraudulent financial reporting committed by listed companies in China. We find that auditors are more likely to be sanctioned by the (...) regulators for failing to detect and report material misstatement frauds rather than disclosure frauds. Further analysis of the material misstatements indicates that auditors are more likely to be sanctioned for failing to detect and report revenue-related frauds rather than assets-related frauds. In sum, our results suggest that regulators believe auditors have the responsibility to detect and report frauds that are egregious, transaction-based, and related to accounting earnings. The results contribute to our knowledge of auditors’ responsibilities for detecting frauds as perceived by regulators. (shrink)

This study investigates how managers in firms that have committed fraud strategically use socially responsible activities in coordination with their fraudulent financial reporting practices. Using propensity score matching to select control firms that have a similar probability of fraud in the pre-fraud benchmark period, we find that the corporate social responsibility performance of fraudulent firms in the fraud-committing period is significantly higher compared with the CSR performance of non-fraudulent control firms during this period, and compared with that during their (...) own pre-fraud benchmark periods. This higher CSR performance by fraudulent firms is achieved by means of investing in both stakeholder and third-party CSR categories and by improving in CSR strengths. Furthermore, the increase in CSR performance is more pronounced for fraudulent firms with a weak governance environment, and for firms located in high-religiosity states. Overall, our findings suggest that fraudulent firms strategically adjust their CSR performance to coordinate with their fraudulent financial activities. (shrink)

Recently, the variety of the financial frauds have increased, while the number of victims became difficult to estimate. The purpose of this paper is to present the main profiles of financial frauds’ victims using a reviewing method. The analysis captures the main theoretical and empirical background regarding the motives and circumstances of becoming a victim, the dynamics of several social and demographical characteristics of this type of victims, as well as a sample of relevant case studies (...) from some developing countries. The main finding is that, in literature, most of the victims are male people of different ages, employed, married or single, regardless the level of education. For developing countries such as China, India and Nigeria, the majority of victims act out of naivety and desire to escape from poverty, while some victims from Latin America, China and Nigeria are influenced by greed and lack of empathy, without thinking of further consequences for their families and friends involved. Moreover, most of the victims are convinced to invest in financial schemes by family members, friends, or acquaintances. (shrink)

Organizations of all types are vulnerable to frauds. Banks contribute to a significant extent in a country’s economic development by generating a large part of revenue in the service sector. Deterrence of fraud is impossible without understanding it. The present study attempts to extract themes by highlighting the major areas of the bank fraud literature within a specific time frame of 2000–2019 and finding the research gaps citing the future scope for research. Post the review of existing literature, using (...) thematic analysis, two major themes were observed by the author, namely, “regulatory and compliance”–based studies and studies related to the “socio psychological” aspect of the literature. An examination of themes indicated that the popularity of the research areas shifted from accounting frauds or balance sheet frauds in early 2000s to areas such as cyber frauds and identity theft at the later decade. The present study paves way forward for future research on the bank customer’s vigilance, experiences and perspectives on frauds. Other significant areas of research include coping mechanisms with the various challenges faced by banks in marketing themselves after any major fraud occurrence. (shrink)

Over the past decade, a number of accounting and financial reporting frauds have led to lost stock wealth, destroyed public trust, and a worldwide recession that called for necessary reform. Regulatory responses and systemic reforms quickly followed, and we show that, while necessary, these reforms are insufficient. The purpose of this paper is to forward virtuous professionalism as a necessary path toward restoring financial reporting systems. We take the position of external observer and analyze the accounting profession (...) over time to assess what has transpired within our financial reporting systems. Our analysis reveals that the combined influence of commercialism and regulatory response has led to a systemic decline in accounting’s professional ideals and, as a result, an erosion of public trust. We then propose virtuous professionalism as a necessary process for restoring financial reporting systems based on sociological, professional, and philosophical theories. We argue that virtuous professionalism is necessary for restoring the public servant identity of the accounting professional. We conclude that efforts to restore financial reporting systems should begin with reforms that restore professional identity shaped by virtues. (shrink)

At present, there are more and more frauds in the financial field. The detection and prevention of financial frauds are of great significance for regulating and maintaining a reasonable financial order. Deep learning algorithms are widely used because of their high recognition rate, good robustness, and strong implementation. Therefore, in the context of e-commerce big data, this paper proposes a quantitative detection algorithm for financial fraud based on deep learning. First, the encoders are used (...) to extract the features of the behaviour. At the same time, in order to reduce the computational complexity, the feature extraction is restricted to the space-time volume of the dense trajectory. Second, the neural network model is used to transform features into behavioural visual word representations, and feature fusion is performed using weighted correlation methods to improve feature classification capabilities. Finally, sparse reconstruction errors are used to judge and detect financial fraud. This method builds a deep neural network model with multiple hidden layers, learns the characteristic expression of the data, and fully depicts the rich internal information of the data, thereby improving the accuracy of financial fraud detection. Experimental results show that this method can effectively learn the essential characteristics of the data, and significantly improve the detection rate of fraud detection algorithms. (shrink)

This document discusses the status of research on detection and prevention of financial fraud undertaken as part of the IST European Commission funded FF POIROT (Financial Fraud Prevention Oriented Information Resources Using Ontology Technology) project. A first task has been the specification of the user requirements that define the functionality of the financial fraud ontology to be designed by the FF POIROT partners. It is claimed here that modeling fraudulent activity involves a mixture of law and facts (...) as well as inferences about facts present, facts presumed or facts missing. The purpose of this paper is to explain this abstract model and to specify the set of user requirements. (shrink)

I examine social capital’s impact on financial reports. Based on the social capital literature, I predict that the quality of the financial reports is higher when a firm is headquartered in a region with high social capital. Consistent with this prediction, I find that the firms that are headquartered in this type of region in the USA have a lower probability of committing fraud by misrepresenting financial information. Further, I find that the firms in regions with high (...) social capital have lower levels of discretionary accruals and much more readable annual reports. (shrink)

Next SectionClaims for reimbursement of child support, the reversal of property settlements and compensation can arise when misattributed paternity is discovered. The ethical justifications for such claims seem to be related to the financial cost of bringing up children, the absence of choice about taking on these expenses, the hard work involved in child rearing, the emotional attachments that are formed with children, the obligation of women to make truthful claims about paternity, and the deception involved in infidelity. In (...) this paper it is argued that there should not be compensation for infidelity and that reimbursement is appropriate where the claimant has made child support payments but has not taken on the social role of father. Where the claimant’s behaviour suggests a social view of fatherhood, on the other hand, claims for compensation are less coherent. Where the genetic model of fatherhood dominates, the “other” man (the woman’s lover and progenitor of the children) might also have a claim for the loss of the benefits of fatherhood. It is concluded that claims for reimbursement and compensation in cases of misattributed paternity produce the same distorted and thin view of what it means to be a father that paternity testing assumes, and underscores a trend that is not in the interests of children. (shrink)

: In the last two decades, scientists, government officials, and science policy experts have expressed concerns about the increasing role of financial interests in research. Many believe that these interests are undermining research by causing bias and error, suppression of results, and even outright fraud. This paper seeks to shed some light on this view by (1) explicating the concept research bias, (2) describing some ways that financial interests can cause research biases, and (3) discussing some strategies for (...) mitigating or managing the influence of financial interests. These strategies include (a) using government funds to counter-balance privately funded research, (b) increasing public input into government funding decisions, (c) disclosing and managing conflicts of interest in research, (d) auditing data, (e) expanding access to data. Since it is neither possible nor desirable to eliminate financial interests from research, the wisest policy is to manage and counter-balance these interests for the good of science and society. (shrink)

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 organization. We 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. We (...) also examine the effect of perceived seriousness of the wrongdoing on accountants’ intention to whistleblow. We find that a financial incentive results in a higher intention to whistleblow to a relevant external authority. We 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. We 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. (shrink)

The Sarbanes–Oxley Act of 2002 requires company executives to certify financial statements and internal controls as a means of reducing fraud. Many companies have operationalized this by instituting a sub-certification process and requiring lower-level managers to sign certification statements. These lower-level organizational members are often the individuals who are aware of fraud and are in the best position to provide information on the fraudulent act. However, the sub-certification process may have the effect of reducing employees’ intentions to report wrongdoing. (...) We suggest that subordinates with knowledge of a superior who committed a fraudulent act and certified that there is no fraud will feel less personal responsibility to report the act, thus, decreasing reporting intentions. Additionally, we suggest that if the fraud is discovered subsequent to the reports being filed with the Securities and Exchange Commission, employees will perceive lower management responsiveness to investigate the fraud, which will reduce intentions to report. Using an experimental approach, we manipulate two between-participant variables: the presence or absence of sub-certification by the transgressor and the timing of fraud discovery, either before or after the reports have been filed with the SEC. We find that when sub-certification is present, perceived personal responsibility and intentions to report were diminished compared to when sub-certification is absent. Timing of the discovery of the fraudulent act did not influence perceived management responsiveness or reporting intentions. Supplemental analysis shows that personal responsibility partially mediates the relationship between sub-certification and reporting intentions. Our findings suggest that audit committees and senior executives may want to carefully consider the costs and benefits of the sub-certification process. (shrink)

How do hip-hop songs produced from 2017 to 2023 depict and rationalize online fraud? This study examines the depiction of online fraudsters in thirty-three Nigerian hip-hop songs on nine popular streaming platforms such as Spotify, Deezer, iTunes, SoundCloud, Apple Music, and YouTube. Using a directed approach to qualitative content analysis, we coded lyrics based on the moral disengagement mechanism and core themes derived from existing literature. Our findings shed light on how songs (a) justify the fraudulent actions of online fraudsters, (...) (b) blame and dehumanize victims of online romance fraud, (c) glamorize online fraud, and (d) provide insights into prevailing attitudes, indigenous linguistics, and worldviews regarding cybercrime victimization. Specifically, our analysis shows the presence of moral disengagement mechanisms, including "dehumanization," “minimizing own agency,” and "displacement of responsibility." Moreover, we identify core contextual themes pertinent to online fraud in the Nigerian context: (a) "cyber spiritualism" and (b) "the North-South divide." This research underscores the global influence of musicians whose songs are easily accessible on diverse music platforms in trivializing the plight of online fraud victims. We argue that these artists' persuasive messages not only downplay but also satirize the victims' predicaments, thus contributing to the cultural worldviews and dimensions of online fraud. We conclude by underscoring these songs' capacity to actualize, reshape, and actively engage with the narratives of glamorization, justification, spiritualism, colonial legacies, gender dynamics, and societal implications. We recommend that future research endeavors explore non-conventional data sources adept at capturing the intricate fabric of cultural attitudes and dynamics. (shrink)

The United States Court of Appeals for the Eighth Circuit held that ERISA did not preempt a Minnesota tort claim alleging fraud and negligent misrepresentation against primary-care physicians who failed to disclose their financial incentives to minimize specialist referrals. The original action was filed in state court after the plaintiff's husband died of heart failure, alleging that his family doctors had assured him that referral to a cardiologist was unnecessary. The plaintiff filed a wrongful death suit against the doctors, (...) their clinic, and her husband's HMO. Her complaint against the HMO alleged that certain financial incentives built into the HMO-physician contract were designed to minimize referrals to specialists. The HMO removed the case to the District of Minnesota, contending that ERISA preempted the plaintiff's wrongful death claim. (shrink)

The United States Court of Appeals for the Eighth Circuit held that ERISA did not preempt a Minnesota tort claim alleging fraud and negligent misrepresentation against primary-care physicians who failed to disclose their financial incentives to minimize specialist referrals. The original action was filed in state court after the plaintiff's husband died of heart failure, alleging that his family doctors had assured him that referral to a cardiologist was unnecessary. The plaintiff filed a wrongful death suit against the doctors, (...) their clinic, and her husband's HMO. Her complaint against the HMO alleged that certain financial incentives built into the HMO-physician contract were designed to minimize referrals to specialists. The HMO removed the case to the District of Minnesota, contending that ERISA preempted the plaintiff's wrongful death claim. (shrink)

This study applies a computer-mediated discourse analysis to the study of discourse structures and functions of ‘419’ emails — the Nigerian term for online/financial fraud. The hoax mails are in the form of online lottery winning announcements, and email ‘business proposals’ involving money transfers/claims of dormant bank accounts overseas. Data comprise 68 email samples collected from the researcher’s inboxes and colleagues’ and students’ mail boxes between January 2008 and March 2009 in Ota, Nigeria. The study reveals that the writers (...) of the mails apply discourse/pragmatic strategies such as socio-cultural greeting formulas, self-identification, reassurance/confidence building, narrativity and action prompting strategies to sustain the interest of the receivers. The study also shows that this genre of computer-mediated communication has become a regular part of our internet experience, and is not likely to be extinct in the near future as previous studies of email hoaxes have predicted. It is believed that as the global economy witnesses a recession, chances are that more creative and complex ways of combating the situation will arise. Economic hardship has been blamed for fraud/online scams, inadvertently prompting youths to engage in various anti-social activities. (shrink)

Few areas of health law practice present as many quandaries for the ethical health lawyer as health care fraud and abuse. The activities addressed by the anti-fraud laws – such as payment for referrals and submission of false claims – not only have a direct impact on the financial viability of the federal health care programs, but go to the heart of the ethical behaviors expected of those who transact business with the government. The severe consequences of violating these (...) proscriptions include significant monetary penalties, ineligibility to participate in the federal health care programs, and even imprisonment. It is no wonder, then, that compliance with the fraud and abuse laws is a key consideration in any health care venture. At the same time, ethical considerations make this area of health law particularly vexing for counsel, raising numerous challenges that include how to balance the strategic goals of current clients against the interests of future clients and whether to advise clients to self-report potential violations even when illegal intent may not easily be shown. (shrink)

Motivated by the disproportionately high incidence of fraudulent financial reporting in the IT sector where technological capability is a major source of competitive advantage, this study investigates the possible relationship between technological capability and fraud probability in the IT sector. Technological capability is measured by a firm’s technical efficiency relative to peers in transforming cumulative R&D resources into innovative output, which is a source of competitive advantage, according to the resource-based view of the firm. Technical efficiency is estimated via (...) data envelopment analysis. A sample of fraud firms taken from Accounting and Auditing Enforcement Releases is matched with control samples of non-fraud firms. Consistent with the RBV, technological capability is found to have a negative and economically significant effect on fraud probability. Moreover, fraud probability is insignificantly associated with the scale efficiency of innovative activities, as investment in R&D resources per se is not a source of sustainable competitive advantage. (shrink)

Despite the preponderance of advance fee fraud scams, many in society still fall victim to such con games. The internet has provided scammers with an opportunity to perpetrate fraud on a global scale. In particular, the 419 email scam has become a popular tool used by scammers to entice their victims. Our purpose is to establish rhetorical moves that exist in these 419 messages, and then analyze the intention of the scammers behind each move — a scam must shake (...) the potential victim out of the status quo behavior. In other words, how is the content of particular moves able to facilitate change in a potential victim’s mind, goading him or her to unwise action? After examining each move in light of features considered necessary for mind change, it was determined that the scammers are most concerned about building solidarity with the mark and playing to a mark’s egocentrism, both of which keep the mark from making well-informed decisions. (shrink)

This article examines the impact of the prevailing state ownership in the Chinese stock market on corporate governance and the financial regulatory system, respectively, as the internal and external monitoring mechanisms to deter corporate fraud and protect investors. In line with the literature that state ownership exaggerates the agency problem, we find that the retained state ownership in privatised firms increases the incidence of regulatory enforcements against fraud. For the state-owned enterprises (SOEs), however, larger state ownership is associated with (...) a lower incidence of enforcement actions. This is attributed to the mutual political affiliation of the fraudulent SOEs and the regulatory commission. A new regulation "Solutions for Listed Firm Checks" promulgated in March 2001 has mitigated this effect by empowering the regulatory commission to increase the severity of regulatory conditions. Our evidence confirms the improvement in the regulatory environment and investor protection in the Chinese stock market brought about by the regulatory reform and development. (shrink)

Despite the police preventing special fraud victimisation of older adults, both the number of cases and the amount of damage have remained high in Japan. ‘Special fraud’, in Japan, is a crime in which victims are tricked by fraudsters who through phone or postcards impersonate the victims’ relatives, employees and other associates, to dupe the victims of their cash or other valuables. The number of recognised cases of special fraud has been turned to increase in 2021. Although police or consumer (...) affairs administrations have been conducting all-encompassing enlightenment or public education for prevention, it is also necessary to reach out to those who are vulnerable to fraud. In this study, we determine the psychosocial characteristics of victims of special fraud in Japanese older adults. We analysed the age, gender, education, residential status, household satisfaction, risk perception and scam vulnerability scale of 56 older adults aged 60 years or older who had been victims of special fraud and 99 older adults aged 60 years or older who had never been victims of special fraud. The study found that the victimised older adults were more likely to be females who live alone and go out less frequently than the non-victimised older adults. The total scores of the scam vulnerability scale were higher among the elderly victims of special fraud compared to those who had never been scammed, suggesting that the psychosocial characteristics of victims of special fraud among older adults are being female, living alone, going out infrequently, having high confidence against fraud victimisation and responding quickly to phone calls and unknown visitors. Therefore, government agencies or family members should take care of older women who meet these characteristics to reduce their contact with fraudsters. (shrink)

Despite increasing public attention and media coverage of fraud, no solution to this problem has been designed specifically for the not-for-profit sector. This study focuses on charities in England and Wales and examines variables derived from a content analysis of 42 fraud and 42 no-fraud charities' annual reports and financial statements. We use logistic regression to explain and predict fraud in the charity sector. We examine whether a range of governance-type variables are significantly related to the likelihood of fraud (...) in charities. We find that smaller boards, which imply a small cosy environment for governance, are associated with a greater likelihood of fraud, suggesting that larger boards enhance monitoring in the not-for-profit sector. Also, a low or zero-level of grant funding is associated with a greater likelihood of fraud, implying that monitoring by long-term donors is also important in curbing fraud. (shrink)

Recent financial fraud legislation such as the Dodd–Frank Act and the Sarbanes–Oxley Act (U.S. House of Representatives, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, [H.R. 4173], 2010 ; U.S. House of Representatives, The Sarbanes–Oxley Act of 2002, Public Law 107-204 [H.R. 3763], 2002 ) relies heavily on whistleblowers for enforcement, and offers protection and incentives for whistleblowers. However, little is known about many aspects of the whistleblowing decision, especially the effects of contextual and wrongdoing attributes on (...) organizational members’ willingness to report fraud. We extend the ethics literature by experimentally investigating how the nature of the wrongdoing and the awareness of those surrounding the whistleblower can influence whistleblowing. As predicted, we find that employees are less likely to report: (1) financial statement fraud than theft; (2) immaterial than material financial statement fraud; (3) when the wrongdoer is aware that the potential whistleblower has knowledge of the fraud; and (4) when others in addition to the wrongdoer are not aware of the fraud. Our findings extend whistleblowing research in several ways. For instance, prior research provides little evidence concerning the effects of fraud type, wrongdoer awareness, and others’ awareness on whistleblowing intentions. We also provide evidence that whistleblowing settings represent an exception to the well-accepted theory of diffusion of responsibility. Our participants are professionals who represent the likely pool of potential whistleblowers in organizations. (shrink)

This study examines a sample of three editions of 19 financial accounting and auditing textbooks (n = 57) to explore the state of accounting educational content through the coverage of five key topics (ethics, professional judgment, governance, corporate social responsibility, and fraud) and 16 accounting scandals/troubled corporations. The study method is descriptive and uses independent sample t tests to identify significant differences over time and between countries. The major findings are fourfold. First, some topics' coverage and/or scandals exist in (...) most of the sample's books based on their indexes. However, the page coverage for these topics/scandals is not overwhelming when compared to the number of pages in these texts. Second, the scandals/troubled corporations' page coverage increased between the earliest and the later editions as did a depth of coverage trend measure. Third, U.S. texts in the sample contained significantly more pages devoted to these topics and scandals than the non-adapted Canadian sample texts. Finally, and as expected, the sampled auditing texts contain significantly more pages devoted to these topics and scandals compared to the other financial accounting texts in the sample. Educators and textbook authors interested in the future of business and accounting education will find this study of interest. If reminding accounting students of the ethical dilemmas they will face in their future careers is important, then this study indicates places where coverage in this sample of texts may be enhanced either through the use of standalone supplementary ethics texts or instructor introduced sources. (shrink)

This article is about the manifestations of similarities between two seemingly distinct groups of Nigerians: cybercriminals and politicians. Which linguistic strategies do Twitter users use to express their opinions on cybercriminals and politicians? The study undertakes a qualitative analysis of ‘engaged’ tweets of an elite law enforcement agency in West Africa. We analyzed and coded over 100,000 ‘engaged’ tweets based on a component of mechanisms of moral disengagement (i.e., advantageous comparison), a linguistic device. The results reveal how respondents defend the (...) actions of online fraudsters (“the deviant group”) by strategically comparing them to the wrongful acts of corrupt politicians (“the respectable group”). Similarly, the results show how respondents positioned this linguistic strategy to compare “the powerless group” (online fraudsters) and “the powerful group” (politicians) in society. Indeed, tweet responses suggest that the Economic and Financial Crimes Commission (EFCC) generally looks downwards for culprits (i.e., online fraudsters) while ignoring fraudulent politicians. We conclude that the process by which some actions are interpreted as a crime compared to others is a moral enterprise. (shrink)

This study explores how financial executives retrospectively account for their crossing the line into financial statement fraud while acting within or reacting to a financialized corporate environment. We conduct our investigation through face-to-face interviews with 13 former C-suite financial executives who were involved in and indicted for major cases of accounting fraud. Five different themes of accounts emerged from the narratives, characterizing executives’ fraud immersion as a meaning-making process by which the particulars of the proximal social context (...) and individual motivations collectively molded executives’ vocabularies of fraud immersion. Our executives’ narratives portray their fraud entanglement as typically occurring in small, incremental steps. Their accounts expand our understanding of the influence of socialization on executive-level financial fraud beyond the individualized focus of the fraud triangle model. (shrink)

This paper presents a comparative analysis of three American and three European corporate failures. The first part of the analysis is based on a theoretical framework including six areas of ethical climate; tone at the top; bubble economy and market pressure; fraudulent financial reporting; accountability, control, auditing, and governance; and management compensation. The second and third parts consider the analysis of these cases from fraud perspective and in terms of firm-specific characteristics and environmental context. The research analyses shed light (...) on the fact that, despite major differences between Europe and U.S. in terms of political institutions, laws and regulations as well as managerial practices, there are significant similarities between six groups. The analysis also demonstrates that, the ethical dilemma has been coupled with ineffective boards, inefficient corporate governance and control mechanisms, distorted incentive schemes, accounting irregularities, failure of auditors, dominant CEOs, dysfunctional management behavior and the lack of a sound ethical tone at the top. Significant similarities were also observed in the analysis from the fraud triangle perspective. However, there are several major differences between the six corporate failure cases particularly with regard to ownership structure, coverage in media, and legal, regulatory and governance frameworks. This research study may have several academic and practical contributions, particularly because of multidisciplinary, international features, and comparative analyses used in the paper. (shrink)

In this paper, we investigate a large-scale financial statement fraud to better understand the process by which individuals are recruited to participate in financial statement fraud schemes. The case reveals that perpetrators often use power to recruit others to participate in fraudulent acts. To illustrate how power is used, we propose a model, based upon the classical French and Raven taxonomy of power, that explains how one individual influences another individual to participate in financial statement fraud. We (...) also provide propositions for future research. (shrink)

We examine the relation between worker substance abuse and workplace fraud in a sample of medical doctors. Relative to their peers, we observe that doctors engaging in substance abuse are between 50 and 100 times more likely to commit fraud in a given year. This result is consistent with research suggesting that substance abuse both creates financial pressures and impairs the functioning of cognitive self-regulatory mechanisms. Our results are robust in within-subject tests and between-subject tests, as well as in (...) tests using instrumental variables that exploit exogenous variation in the state-level availability of opioids, a commonly abused substance. (shrink)

This paper examines the collective fraudulent behaviors taking place during the residential real estate bubble in the United States from 2002 to 2006 and the influence of others’ choices on decision making leading to a herd mentality. The antecedents of collective fraud are discussed in terms of the sociological theory behind human herding and the fraudulent behaviors during the real estate bubble are examined. Using archival witness testimony as a primary basis for analysis, this paper argues that without widespread collective (...) fraud, the bubble may not have developed and the herd mentality may have dissipated without the consequences of financial disaster. The aim of an analysis of this nature is to offer a plausible explanation of some of the preconditions to the event under study. (shrink)

Following the financial crisis and recent recession, the center of gravity of global economic growth and competitiveness is shifting toward emerging economies. As a leading and increasingly influential emerging economy, China is currently attracting the attention of academics, practitioners, and policy makers. There has been an increase in research interest in and publications on issues relating to China within high-quality international academic journals. We therefore organized a special issue conference in conjunction with the Journal of Business Ethics in Lhasa, (...) Tibet, on May 19–20, 2014, on Business Ethics in Greater China: Past, Present and Future. The papers for the special issue focused on the intersection of ethics and finance, and fit within one of the three themes: environment and sustainability, corporate social responsibility, and fraud. Within these themes, issues of intellectual capital protection, gender equality, political connections, regional development, investor protection, corporate stewardship, trust and corruption, and corporate transparency each play a significant role. In this paper, we survey these studies and the related literature to provide a comprehensive coverage of business ethics and finance issues that affect China. (shrink)

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that firms penalize CEOs for fraud by lowering their pay. We also find that CEO compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these (...) effects. Our results also indicate that corporate governance mechanisms influence the magnitude of punishment. We find that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced compared to those at non-fraud firms. (shrink)

This research applies the theory of planned behavior to corporate managers’ decision making as it relates to fraudulent financial reporting. Specifically, we conducted two studies to examine the effects of attitude, subjective norm and perceived control on managers’ decisions to violate generally accepted accounting principles (GAAP) in order to meet an earnings target and receive an annual bonus. The results suggest that the theory of planned behavior predicts whether managers’ decisions are ethical or unethical. These findings are relevant to (...) corporate leaders who seek to improve ethical work climates of organizations and to many regulators, accountants, corporate governance officials and investors. (shrink)

For several decades, most discussion on financial fraud has centered 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, behavioral economics, and social psychology is integrated to develop and support an alternative fraud model, called the disposition-based fraud model. 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. (shrink)

This is a theoretical treatment of the term "Sha Zhu Pan" (杀猪盘) in Chinese, which translates to “Pig-Butchering” in English. The article critically examines the propagation and validation of "Pig Butchering," an animal metaphor, and its implications for the dehumanisation of victims of online fraud across various discourses. The study provides background information about this type of fraud before investigating its theoretical foundations and linking its emergence to the dehumanisation of fraud victims. The analysis highlights the disparity between academic literature, (...) subjected to rigorous peer-review processes, and sensationalised narratives prevalent in the media. While academic works subject "pig butchering" to critical scrutiny and refrain from endorsing derogatory terms to depict fraud victims, numerous media outlets employ this term uncritically, further worsening the predicament of these victims. "Pig butchering" is firmly rooted in the concept of dehumanisation, and this article underscores how language moulds perceptions of fraud and behaviour, extending to the development of preventive strategies. The role of law enforcement agencies in generating and disseminating materials is also a central theme, emphasising their responsibility as trusted sources of information. We suggest that these agencies should adopt non-victim shaming language to encourage victims to report crimes and alleviate the stigma attached to victimisation. Additionally, the article offers valuable cross-cultural insights by comparing metaphors from Chinese and Nigerian contexts. This comparative analysis enriches our comprehension of the global dimensions of online fraud and its cultural diversities, highlighting the substantial impact of language on perceptions and behaviours. We advocate for a departure from victim-blaming tendencies perpetuated by select media outlets, urging a more compassionate and accurate portrayal of those affected by online fraud. We, therefore, call for a more empathetic and accurate portrayal of individuals affected by online fraud, aligning with the broader objective of promoting understanding and support for these victims. (shrink)

In response to calls for more research on how to prevent or detect fraud (ACAP, Final Report of the Advisory Committee on the Auditing Profession, United States Department of the Treasury, Washington, DC, 2008 ; AICPA, SAS No. 99: Consideration of Fraud in a Financial Statement Audit, New York, NY, 2002 ; Carcello et al., Working Paper, University of Tennessee, Bentley University and Kennesaw State University, 2008 ; Wells, Journal of Accountancy, 2004 ), we develop a framework that identifies (...) three psychological pathways to fraud, supported by multiple theories relating to moral intuition and disengagement, rationalization, and the role played by negative affect. The purpose of developing the framework is twofold: (1) to draw attention to important yet under-researched aspects of ethical decision-making, and (2) to increase our understanding of the psychology of committing fraud. Our framework builds on the existing fraud triangle (PCAOB, Consideration of fraud in a financial statement audit. AU Section 316, www.pcaobus.org , 2005 ) which is used by auditors to assess fraud risk. The fraud triangle is composed of three factors that, together, predict the likelihood of fraud within an organization: opportunity, incentive/pressure, and attitude/rationalization. We find that, when faced with the opportunity and incentive/pressure, there are three psychological pathways to fraud nestled within attitude/rationalization: (1) lack of awareness, (2) intuition coupled with rationalization, and (3) reasoning. These distinctions are important for fraud prevention because each of these paths is driven by a different psychological mechanism. This framework is useful in a number of ways. First, it identifies certain insidious situational factors in which individuals commit fraud without recognizing it. Second, it extends our knowledge of rationalization by theorizing that individuals use rationalization to avoid or reduce the negative affect that accompanies performing an unethical behavior. Negative affect is important because individuals wish to avoid it. Third, it identifies several other methods fraudsters use to reduce negative affect, each of which could serve as potential “psychological red flags” and helps predict future fraudulent behavior. Finally, our framework can be used as a theoretical foundation to explore several interventions designed to prevent fraud. (shrink)

This paper employs theory of normal organizational wrongdoing and investigates the joint effects of management tone and the slippery slope on financial reporting misbehavior. In Study 1, we investigate assumptions about the effects of sliding down the slippery slope and tone at the top on financial executives’ decisions to misreport earnings. Results of Study 1 indicate that executives are willing to engage in misreporting behavior when there is a positive tone set by the Chief Financial Officer, regardless (...) of the presence or absence of a slippery slope. A negative tone set by the CFO does not facilitate the transition from minor indiscretions to financial misreporting. In Study 2, we find that auditors evaluating executives’ decisions under the same conditions as those in Study 1 do not react to the slippery slope condition, but auditors assess higher risks of fraud when the CFO sets a negative tone. Overall, our results indicate that many assumptions about the slippery slope and tone at the top should be questioned. We provide evidence that pro-organizational behaviors and incrementalism yield new insights into the causes of ethical failures, financial misreporting behavior, and failures of corporate governance mechanisms. (shrink)

We can calculate financial fraud, but how do we measure bad faith? How can we evaluate the words of the pharmaceutical industry or of eco-scientific ideologies, or the subtle deception found in political scheming? Henri Atlan sheds light on these questions through the concept of _ona'ah_, which in Hebrew refers to both fraud in financial transactions and the verbal injury inflicted by speech. The world of _ona'ah_ is a world of an "in-between," where the impossible purity of absolute (...) Platonic truth gives way to a more relative notion—the near-theft, the quasi-lie. Today it seems that no discourse is safe from fraudulent excesses, be they intentional or no. As both philosopher and biologist, Atlan works on several registers. He forges links between the Talmud, the Kabbalah, and the big questions of our time, multiplying the bridges between science, philosophy, and current ethical dilemmas. In a context of financial and moral crises that appear to be weakening our democracies, Henri Atlan's work allows us to rethink the status of fraud in the contemporary world. (shrink)

We examine whether analyst coverage influences corporate fraud in China. The fraud triangle specifies three main factors, i.e. opportunity, incentive, and rationalization. On the one hand, analysts may reduce the fraud opportunity factor through external monitoring aimed at discouraging managerial misconduct, which can moderate agency problems. On the other hand, analysts may increase the fraud incentive factor by pressurizing managers to achieve short-term performance targets, which can exacerbate agency problem. In either case, the potential influence of analysts on the fraud (...) rationalization factor may be more pronounced among firms that are more dependent on the capital market for corporate finance. Using a sample of Chinese listed firms, we show a negative association between corporate fraud propensity and analyst coverage, and that this effect is more pronounced among non-state-owned enterprises, which are more reliant on the stock market for external funding. These findings suggest that analyst coverage contributes to corporate fraud deterrence in emerging economies characterized by weak investor protection. The main policy implication is that further development of the analyst profession in emerging economies may benefit investors and strengthen business ethics. (shrink)

This study investigates whether firms with fraudulent financial reporting time their earnings announcements strategically and finds that fraudulent firms are more likely to disclose their earnings in the after-market hours during their fraud periods to postpone fraud detection. Cross-sectional tests show that firms with lower visibility are more likely to adopt and benefit from this timing strategy. In addition, fraudulent firms are found to time their conference calls strategically and package their earning news with forecasts to flood the market (...) with information and lower the fraud detection rate. Results also show that unethical managers may benefit from insider trading when their firms use a timing strategy to lower the detection rate. This study sheds light on a potential strategy that unethical managers may adopt to camouflage their fraudulent financial reporting. These results are robust to a variety of settings of samples and model specifications. (shrink)

This paper examines fraudulent financial reporting within the context of Jones' (1991) ethical decision making model. It was hypothesized that quantitative materiality would influence judgments of the ethical acceptability of fraud, and that both materiality and financial risk would affect the likelihood of committing fraud. The results, based on a study of CPAs employed as senior executives, provide partial support for the hypotheses. Contrary to expectations, quantitative materiality did not influence ethical judgments. ANCOVA results based on participants' estimates (...) of the likelihood that a "typical CPA" would manipulate reported results indicated that both materiality and risk significantly influenced the likelihood of fraud, but that the perceived morality of the action did not. In contrast, results based on participants' self-reported behavior indicated that materiality and the perceived morality of the action would influence the likelihood of fraud, but that financial risk would not. Regardless of the measure used for the likelihood of fraud, the results indicate that financial executives continue to be influenced by quantitative materiality when misstatements are clearly material on qualitative grounds. (shrink)

This study examines the impact of board gender diversity on financial misconduct. The findings suggest firms with gender-diverse boards commit fewer financial reporting mistakes and engage in less fraud. The findings hold after accounting for the potentially endogenous nature of board demographic characteristics via instrumental variable approach. Furthermore, the findings are consistent in pre- and post-regulation periods and hold for firms with good and bad governance. The findings do not seem driven by differences in effort or quality, in (...) terms of independence and expertise, of female and male directors. The benefit derived from increasing the number of female directors on corporate boards seems to diminish at higher levels of gender diversity, indicating that impact of gender diversity on decreasing the likelihood of financial misconduct may be a result of a change to board group dynamics. (shrink)

This study adapts the theory of reasoned action (Ajzen and Fishbein, 1980) to the behavior of fraudulent reporting on financial statements so as to examine the effects of moral reasoning and self-monitoring on intention to report fraudulently, using structural equation modeling. The paper seeks to investigate two of the red flags for financial statement fraud identified in Loebbecke et al.'s (1989) paper: client management displays a significant lack of moral fiber and client personnel exhibit strong personality anomalies. As (...) expected, high moral reasoners are more influenced than low moral reasoners by their own attitude towards the behavior. Contrary to prior research, low self-monitors are found to be more influenced than high self-monitors by subjective norms. Future research is recommended to investigate the counter-intuitive results for self-monitors, to consider the implications of group decision making as regards the promulgation of fraudulent financial statements, and to examine additional red flags for financial statement fraud. (shrink)

Using two experiments, I examine how apologizing for fraud influences investor's avoidance and revenge behavior. Investors in experiment one report how many shares they would sell and how likely they would be to pursue legal punishment after discovering fraud has occurred in an organization they are currently invested in and subsequently reading about management's response to the fraud. I manipulate the nature of fraud as fraudulent financial reporting or asset misappropriation. I also manipulate whether management apologizes, scapegoats responsibility, or (...) remains silent after the fraud. Results show avoidance and revenge behavior is more negative after misreporting fraud. Data suggest that this difference may be partially attributable to the underlying moral norm that is violated. Specifically, misreporting is primarily a moral violation of deception, whereas embezzlement is primarily a moral violation of stealing. Results also show differential investor reactions depending on the type of fraud and management's response. For misreporting, revenge behavior is higher when management apologizes, but there is no effect on avoidance behavior. For embezzlement, avoidance behavior is reduced when the organization apologizes, but revenge behavior is unaffected. In experiment two, I replicate the misreporting condition from experiment one and manipulate apology sincerity. Results show that apology sincerity is positively associated with revenge behavior. Results of these two experiments extend both accounting and trust repair research by emphasizing the importance of disentangling moral integrity-based trust violations and that the adage of "just say you're sorry" is helpful in some situations and harmful in others. (shrink)

Even as today’s spectacular advances in science enhance the quality of life, so also are new opportunities created for those who would deliberately mislead a scientifically ill-informed public. The scientific community, made up of those who participate in professional science organizations and publish their methods and findings in the open scientific literature, have a responsibility to keep the public informed of scams carried out in the name of science. Fraud within the scientific community should be quickly exposed by the (...) culture of openness. Secrecy in the name of national security offers a refuge for fraudulent science. (shrink)