This study examines the impact of Sarbanes–Oxley on the nonprofit sector. Focusing on three key SOX policies applicable to charities—conflict-of-interest policies, records retention policies, and whistleblower policies—this study tests the relationship between the existence and addition of these policies on subsequent ethical and governance lapses as reflected in the issuance of “donor advisories” by the large third-party ratings agency Charity Navigator. The findings suggest that, controlling for other relevant organizational factors, the three SOX-inspired written policies are related to a reduced (...) likelihood of donor advisories in the organizations rated by Charity Navigator. (shrink)

All kinds of fraud are costly for the people engrossed both financially and often in terms of the time needed to clear their name when illegal use has been made of their personal details. The relationship among ethics, internal control, and fraud is important in the understanding of corporate social responsibility. This article uses an Ethical Process Throughput Model embedded in the Fraud triangle in order to better understand the interconnectedness of ethical positions and internal control systems that handle fraudulent (...) situations. Ethical positions are utilized to underscore how ethical behavioral control systems can be appropriately applied, which can provide unparalleled security, enhanced convenience, heightened accountability, better fraud detection and is very effective in depressing fraud, thereby improving CSR among organizations. (shrink)

The purpose of this study is to examine whether United States -style regulatory intervention to encourage whistle-blowing can be immediately effective if transplanted into another country with a distinctly different historical cultural background and institutional system. A total of 98 U.S. and 84 German accountants participated in a laboratory experiment relating to a case of financial statement fraud. The provision of anti-retaliation protection and monetary rewards for whistle-blowing were manipulated and participants were asked to assume the role of an internal (...) auditor. We hypothesize and find that the provision of anti-retaliation protection and monetary rewards encourage U.S. accountants to blow the whistle. In contrast, among German accountants, where their country features a historical fear and distrust of whistle-blowers, U.S.-style regulatory interventions are less effective. Together, our findings provide strong support for the theory of path-dependence, suggesting that whistle-blowing regulation should not be uniformly transplanted without due consideration of the unique history and culture of a country. (shrink)

The purpose of this paper is to examine whether anonymous reporting channels are effective in detecting fraud against companies. Fraud, which comprises predominantly asset misappropriation, represents a key operational risk and a major cost to organisations. The fraud triangle provides a framework for developing our understanding of how ARCs can increase detection of fraud. Using publicly listed company survey data collected by KPMG in Australia—where ARCs are not mandated—we find a positive association between ARCs and reported fraud. These results indicate (...) that ARCs are effective in detecting fraud. Additional analysis reveals that small firms derive the greatest benefit from adopting ARCs. We also find that independent boards do not directly influence the detection of fraud, but companies with independent boards detect more fraud because they implement ARCs. (shrink)

In the United States, the IRS now requires charities to publicly disclose any significant asset diversion, which is the theft or unauthorized use of assets, that the charity identifies during the year. We use this new disclosure to investigate whether strong governance reduces the likelihood of a charitable asset diversion. Specifically, for a sample of 1528 charities from 2008 to 2012, we simultaneously examine eleven measures of governance that capture four broad governance constructs: board monitoring, independence of key individuals, tone (...) at the top, and capital provider oversight. We find consistent evidence that good governance across all four constructs is negatively associated with the probability of an asset diversion. Of the eleven governance measures, our results indicate that monitoring by debt holders and government grantors, audits, and keeping managerial duties in-house are most strongly associated with lower incidence of fraud. Our results also indicate that the likelihood of a fraud is negatively associated with a board review of the Form 990, the existence of a conflict of interest policy, and the presence of restricted donations. In addition, we document that the likelihood of an asset diversion is negatively associated with program efficiency and positively associated with growth and organizational complexity. (shrink)

The objective of this study is to evaluate auditors’ perceived responsibility for fraud detection. Auditors play a critical role in managing fraud risk within organizations. Although professional standards and guidance prescribe responsibility in the area, little is known about auditors’ sense of responsibility for fraud detection, the factors affecting perceived responsibility, and how responsibility affects auditor performance. We use the triangle model of responsibility as a theoretical basis for examining responsibility and the effects of accountability, fraud type, and auditor type (...) on auditors’ perceived fraud detection responsibility. We also test how perceived responsibility affects auditor brainstorming performance given the importance of brainstorming in audits. A sample of 878 auditors participated in an experiment with accountability pressure and fraud type manipulated randomly between subjects. As predicted, accountable auditors report higher detection responsibility than anonymous auditors. We also find a significant fraud type × auditor type interaction with external auditors perceiving the most detection responsibility for financial statement fraud, while internal auditors report similar detection responsibility for all fraud types. Analysis of the triangle model’s formative links reveals that professional obligation and personal control are significantly related to responsibility, while task clarity is not. Finally, the results indicate that perceived responsibility positively affects the number of detection procedures brainstormed and partially mediates the significant accountability–brainstorming relation. (shrink)