examining motivational factors that influence the

EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 1

EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD

by

SamuelRoebuck

ASeniorHonorsProjectPresentedtothe

HonorsCollege

EastCarolinaUniversity

InPartialFulfillmentofthe

Requirementsfor

GraduationwithHonors

by

SamuelRoebuck

Greenville,NC

May2016

Approvedby:

LindaA.Quick,PhD,CPA

Accounting,CollegeofBusiness


ExaminingMotivationalFactorsthatInfluencetheLikelihoodofFraud

Abstract

InpartialfulfillmentofmyundergraduateHonorsCollegerequirements,Ihaveconductedthe

researchstudydescribedinthispaperinvestigatingthemotivationalfactorsthatinfluencethe

likelihoodoffraud.Inrecentpast,corporateAmericahasseensomeofthelargestfraud

scandalsinhistory.Thisresearchstudyexaminedmotivationalfactors,usedasindependent

variables,money,ideology,andcoerciontoseehowparticipantsrespondedtohypothetical

scenariosinwhichtheyhadtomakeadecisiononrevenuerecognition.Bydistributingonline

surveys,Icollecteddatasupportingtheideathatideologypotentiallyisastrongermotivational

thanmoneyorcoercion.ByanalyzingandrunningteststhroughSASAnalyticalSoftware,the

datadirectionallysupportedmyhypotheses.Afterconductingfurtheranalysis,interestingfacts

showthatthoseemployeeswhohavebeenworkingforsixmonthsormorearemorelikelyto

fraudulentlyrecognizemorerevenuethanthosewhohavebeenworkinglessthansixmonths.

Thisinformationcouldleadtoseriousinsightsonhowcompaniesandauditorsshouldaddress

differentscenarios.


Introduction

InpartialfulfillmentofmyundergraduateHonorsCollegerequirements,Ihave

conductedtheresearchstudydescribedinthispaperinvestigatingthemotivationalfactorsthat

influencethelikelihoodoffraud.Inrecentpast,corporateAmericahasseensomeofthelargest

fraudscandalsinhistory.FromthepricefixingscandalthattookplaceinvolvingAmerican

ownedcompany,ArcherDanielsMidland,tothecatastrophiceventsthathappenedatEnronat

theturnofthe21stcentury,fraudhasbeenacommonaspectinthecorporateworld(Jackson,

2014).Legislation,suchastheSarbanesOxleyActof2002(SOX),andthecreationofthePublic

CompanyAccountingOversightBoard(PCAOB)havebeenenactedtohelpgovernthe

accountingindustry.Also,theAssociationofCertifiedFraudExaminers(ACFE)releasesan

annualreportthatreviewsfraudulentactivityandgivesstatisticsonthisdata.Inthe2014ACFE

ReporttotheNationsonOccupationalFraudandAbuse,atypical“fraudster”profilewasmade

basedonaglobalstudyofover1400casesinmorethan100countries(ACFE,2014).Typical

demographicsonpotentialfraudstersarebetweentheagesof31-45,menoutnumberwomen

2:1andmostfraudoccurswithintheemployeesfirst5yearsofemploymentwithacompany

(ACFE,2014).

Itispertinentforauditorsandaccountantstounderstandwhyfraudoccursinorderto

preventit.Withthisinmind,examiningandexpandingupontheFraudTriangletheoryof

accountingwillhelpaidauditorsintheirongoingstruggletopreventfraudfromoccurring.The

FraudTriangletheoryisafundamentaltheoryintheaccountingliteraturethatwasdeveloped

byDonaldCresseyandEdwinSutherlandintheearly1950’s(Dormineyetal.2012).Theideaof

theFraudTrianglewasconceivedonthreeprimarycriteriathatmustbepresentforfraudto


occur:1)apersonmustfeelperceivedpressuretocommitfraud,2)apersonmustseea

perceivedopportunitytocommitfraud,3)and,apersonmustrationalizetheirfraudulentacts

tojustifytheiractions(Dormineyetal.2012).WolfeandHermansonexpandeduponthefraud

triangleandconductedresearchshowinganewelementthatcouldinfluencethelikelihoodfor

fraudtooccurwhichiscapability.Capabilityisapersonhaving“thenecessarytraitsand

abilities”toexecutethefraudulentactsuccessfully(WolfeandHermanson,2004).Wolfeand

Hermansonexplainsixcomponentsofapersonthathasthecapabilitytocommitfraud.First,a

personintheorganizationwithhighpositionorentitlementhastheabilitytobypassinternal

controlandusecoerciveactstoinfluencefraud.Forexample,aCEOorCFOmayhavethe

abilitytoinfluencedecisionsoverwhencontractstakeeffect(WolfeandHermanson,2004).

Thiscoerciveactmayimpactthetimingofrecognitionofexpensesorrevenues.Delayingorfast

trackingacontracttofraudulentlyalterthefinancialsofacompanyisanexampleofbypassing

internalcontrolgoalsthatarerequiredunderSection404oftheSarbanesOxleyActof2002.

Someonewhohastheintelligencetoabuseinternalcontrolsisanothercomponentinthe

capabilityelement.Intelligencediffersfromthatofanegotisticorarrogantperson.An

intelligentpersondoesn’tnecessarilyhavetobeanegoisttobecapableofcommittingfraud.

Aslongasthepotentialfraudsterisknowledgeableandexperiencedwiththecontrolsand

weaknesseswithinanorganizationtheyarecompletelycapableofcommittingfraud.Thisleads

ustothenextpointinthecapabilityelementthatWolfeandHermansonillustrateintheir

research.Anegotisticandarrogantpersonalsohasthecapabilitytocommitfraud.Thistypeof

personbelievestheyaresmarterthantheauditingcontrolandcouldworktheirwayoutof

troubleiftheyweretogetcaught.Egoisacontrolledfactorthatwillplayaroleinmyresearch.


Next,someonewhoisaneffectiveliarandcankeeptrackoftheirliesisavitalcomponentto

capability.Finally,apersonwiththecapabilitytocommitfraudmustbeabletotoleratestress

verywell.Whencommittingfraud,whichcouldleadtocriminalpunishment,apersonmustbe

abletodealwithimmenseamountofstresstheywillgothroughwhencommittingfraud.

WithintheperceivedpressureportionoftheFraudTriangle,anewacronym,MICE,has

beendeveloped.Theacronymisabasisofmotivationalfactorsthatwillincreasethelikelihood

forfraudtooccur.Theacronymisbrokenupasfollows:(M)isformoney,(I)isforideology,(C)

isforcoercion,and(E)isforegoorentitlement.Historically,moneyandegohavebeenseenas

keymotivatorsforfraud,buttheoreticaldiscussionpieces(e.g.Dormineyetal.2012)suggest

thatadditionalmotivatorsmayexist.Timeandtimeagain,wehaveseenfraudcasesthateither

areduetosomemonetizedincentiveortheego/entitlementthatthepotentialfraudster

possessesaboutthem.InDecemberof2008,thewholeworldlearnedaboutamanbythe

nameofBernieMadoff.Mr.Madoff,OwnerofBernardL.MadoffInvestmentSecuritesLLC,was

exposedinaPonzischemethatcostinvestorsupwardsof$65billion(Yang2014).Mr.Madoff’s

Ponzischemepromisedhighreturnsoninvestmentsforitsclientstoencourageinvestors.Ponzi

schemesaredrivenbyamotivatedindividualthatusesnewmoneyfromincominginvestments

topayoffthepromisedreturnsofolderinvestments(Yang2014).Theresidualamountthatis

leftoveristhentakenaspureprofitforthemotivatedindividual.InthecaseofBernieMadoff,

investorsmadeaclaimforapproximately$7billioninreturnswhentherewasonlyaround

$200to$300milliontogive(Yang2014).Thisisaclearcaseinwhichmoney(M)hadinfluenced

Madofftotaketheinvestorsmoneyforhimselfandcommitafraudthatwouldlandhima150-

yearsentenceinprison(Yang2014).Anothermajorfraud,whichoccurredinthemid-1990’s,


involvedArcherDanielsMidland(ADM).ADMisthenationslargestproducerofagricultural

commodities(HenkoffandRao,1995).Withthehelpofinformant,MarkWhitacre,theFBI

uncoveredperhapsthelargestpricefixingscandal,involvingmultiplecompaniesworldwide,in

history.MarkWhitacrewastheyoungestexecutivetoworkatADMandwasintroducedtothe

pricefixingscandalin1992(HenkoffandRao,1995).Mr.Whitacrehasbeendescribedasa

“prodigiousworkaholicwithazestforhisjob”(HenkoffandRao,1995,p.64).Hereveledina

lavishlifestyleowningaverylargehometoaccommodatehissmallcarcollectionandproviding

hisfamilywithnothingbutthebest(HenkoffandRao,1995).InapersonalinterviewIhadwith

Mr.Whitacre,Igottohearhisfirsttakeonthescandalitselfandhismotiveforengaginginsuch

anact.IaskedMr.Whitacrewhetherornothisegoorentitlementplayedaspecificrolein

gettingonboardwiththepricefixingscandalatADM.IconcludedfromMr.Whitacrethathis

egoandentitlementplayedamassiveroleinthefraud.Hetoldmethatafterallofthelong

hoursofstudyingandsimultaneouslyreceivinghisundergraduateandgraduatedegreesfrom

OhioStateUniversityandlaterreceivinghisdoctoratedegreefromCornellUniversity,hefelt

thateverythinghewasreceivingwaswelldeserved(M.Whitacre,personalcommunication,

June6,2015).Hewassoaccustomedtothisnewlifestylethathisegoandentitlement

overcamehimandhisethics.Ideologyisafactorthatfocusesonpeople’sbeliefsand

perceptiononthings.Forexample,apersonmaybeinfluencedtoreportfraudulentrecordsto

meetacertaingoalsothatlowerlevelemployeeswillnotbelaidoff.Coercionistheinfluence

upper-levelmanagementhasonanemployeetocommitfraud.Forexample,aCEOcould

negativelyinfluenceamanagerorcontrollertoengageinfraudulentreportingorelsetheywill

befiredimmediatelyandpotentiallyblacklistedfromanyotherpotentialjobs.


Thepurposeofthisstudyistohelpprovideinsighttomotivationalfactorsbesides

money,whichincreasethelikelihoodforfraudtooccur.Basedonaccountingliterature,forthe

typeofstudyIplantoconduct,MBAstudentsare“entirelyappropriateinstudies”duetothe

factthey“havesomeaccountingknowledgeandinvestingexperience”(Libbeyetal.2002).By

usingMBAstudentsasproxiesformanagers,Icangaininsighttothebehaviorofactual

managers.Basedonmyfindings,furtherresearchcouldinvestigatehowmanagersandauditors

couldpreventthesetypesoffraudfromoccurring.

Inthisstudy,Iamgoingtoprimarilyfocusontheideologyandcoercionfactorsofthe

MICEacronym.Whileleavingthemoneyfactorasacontrolformyexperiment,itwillprovidea

basistocompareresultsfromideologyandcoercionfactors.Withthesemotivationalfactorsas

theprimaryfocus,Iexpecttofindstrongresultsastowhatinfluencesfraud,whichcanleadto

researchonhowtobetterpreventthesekindsofactsfromhappeninginthefuture.The

purposeofthisstudyistohelpprovideinsighttomotivationalfactorsbesidesmoney,which

increasethelikelihoodforfraudtooccur.Basedonaccountingliterature,forthetypeofstudyI

plantoconduct,MBAstudentsare“entirelyappropriateinstudies”duetothefactthey“have

someaccountingknowledgeandinvestingexperience”(Libbeyetal.2002).ByusingMBA

studentsasproxiesformanagers,Icangaininsighttothebehaviorofactualmanagers.Based

onmyfindings,furtherresearchcouldinvestigatehowmanagersandauditorscouldprevent

thesetypesoffraudfromoccurring.

Background

TheFraudTriangleisafoundationaltheoryusedinauditingtoexaminewhite-collar

crimessuchasembezzlement.DonaldCresseyandhismentor,EdwinSutherland,developed


theFraudTriangleintheearly1950’s(Dormineyetal.2012).ThehypothesisthatCressey

createdstatedthatforfraudtooccur,perceivedpressure,perceivedopportunity,and

rationalizationmustbepresent(Dormineyetal.2012).Pressurecanarisefromanumberof

differentreasons.Dormineyandhiscolleagueslookatpressureunderafinancialstandpoint.A

personcouldbeexperiencingfinancialstruggles,whichtheydon’tfeelliketheycouldspeakto

anyoneabout(Dormineyetal.,2012).Thiscreatesthemotiveorthepressureforoneto

commitfraud.Oncepressurehasbeenestablished,thepotentialfraudsterseeksoutan

opportunity.Onemightnoticeaweaknessofinternalcontrolortheycouldpotentiallyhave

accesstoconfidentialdata,suchaspayroll.Afterthepotentialfraudsterhasrecognizedthis

opportunity,theymakesurethechanceofbeingcaughtisslim(Dormineyetal.2012).Afterthe

fraudhasoccurred,thefraudstermovestotherationalizationprocess.Ultimately,thefraudster

beginstojustifytheiractionsandcalmhimorherselfdownbythinkingthattheyaresafeand

thatnooneisgoingtofindout(Dormineyetal.2012).Forinstance,afraudstercouldlookback

ontheirfraudandthink“Ineededthismoneymuchmorethanthiscompanydoes,noonewill

noticethat$XXXXismissinganyhow,Iwillbefine.”

Recently,researchhasbeenconductedtoexpandthefraudtriangleandfocuson

differentaspectsofthetriangle.Thistypeofresearchincludeshowdifferentmotivators,

controls,orenvironmentstriggerfraudtooccur.Specificallyinthe“perceivedpressure”aspect

ofthefraudtriangle,anewacronymisusedtoappropriatelyidentifydifferentmotivatorsfor

fraudoffenders(Dormineyetal.2010).SuggestedbyProfessorJasonThomas,theacronym

MICEstandsformoney,ideology,coercion,andego/entitlement(Dormineyetal.2010).MICE


focusesonthefourdifferentmotivatorsandhowtheyinfluencefraudsterstoengageintheact

ofcommittingfraud.

Typically,moneyandegoarethemostcommonmotivationsthatinfluencethe

likelihoodforfraudtooccur(Dormineyetal.2012).ThemoneyaspectoftheMICEacronym

dealswithfinancialincentives.Whenemployeesarefacedwiththeopportunitytoobtainextra

money,itmakescommittingfraudsoundabitmoreappealing.Ideologyisalessfrequent

motivatorthatinfluencesfraud.Theideologymotivationalfactorisderivedfromtheideasand

valuesthatthepotentialfraudsterbelievesin.Forinstance,specificallycitedbyDormineyand

hiscolleaguesin“TheEvolutionofFraudTheory,”anideologicalmotivatormayconstitute

someonewhoisevadingtaxesbecausetheybelievethatthey“payenoughtaxes”or“the

governmentdoesn’tdeservetheirmoney”(Dormineyetal.2012,p.563).Coercionisabased

onsituationsinwhichupperlevelmanagementisheavilyinfluencingemployeestocommit

fraud.Theemployeecouldalsobenefitfromthefraudulentactfinancially,orconversely,their

jobcouldbejeopardized.Forexample,ascenariowhereaCEOpromisesaninternalauditora

largestipendforfalsifyingrecordsinordertoavoidinterferencefromanexternalauditing

groupwouldbeatypeofcoercion.Finally,theego/entitlementportionoftheMICEacronymis

builtupontheself-perceptiononehas.Ifapotentialfraudsterbelievesthattheyare

“untouchable”or“toogood”tobequestioned,thiscouldleadtopotentialactsoffraud.

Dormineyandhiscolleagueselaborateontheego/entitlementportionoftheMICEacronym

(Dormineyetal2012).

Theyclassifytwokindsofegosasthe“predator”andthe“accidentalfraudster.”

Respectively,onecanintentionallycommitfraudulentactsor,attheotherendofthespectrum,


onecanaccidentallycommitanactoffraud.Toelaborate,theaccidentalfraudsteristypically

viewedasanupstandingcitizenthatislikedbymanyandnoonewouldexpectthispersonto

beapotentialfraudster(Dormineyetal.2012).Contrarily,thepredatoristobeseenas

someonewhoislikelytocommitfraud.Theyarequestionableintermsoftheirethicalityand

moralityanditwouldnotbeasurpriseifthispersonwouldbeconvictedofafraud(Dorminey

etal.2012).Bearingthisaccountingliteratureinmind,thisledmetothequestionsIintendto

lookatandthedevelopmentofmyhypotheses.

TheoryandHypothesisDevelopment

Ideologyandcoercionarethefocalpointsofthisresearchstudy;therefore,itisimportant

tounderstandhowthesemotivationalfactorshavebeenexaminedinpreviousaccounting

literature.DoneganandGanon(2008)haveconductedresearchonfactorsthatcause

accountingtransgressionbasedoncriminologyliterature.Basedontheirresearchandthe

criminologyliteratureviewofcoercion,theyhaveconcludedthatcoercionis“theprimary

socialforceleadingtothecommissionofcrimes”(Donegan&Ganon,2008,p.8).Coercionhas

beenseeninanumberofdifferentcasesintherecenthistoryincludingtheactsthattookplace

atWorldCominvolvingBettyVinson.In1997,Mrs.Vinsonwastoldtoreachintoareserve

accounttocoverahugeamountofcostsandboostearnings(Pulliam,2003).Mrs.Vinsonand

otherstaffaccountantsinformedthehigher-levelmanagersoftheimproperaccountingbut

werestilltoldtodoso.Thisledtooneofthebiggestfinancialfraudsandultimatelytheendof

WorldCom.


Oneofthelessfrequentmotivationalfactorsforfraudtooccurhasbeenideology.As

previouslymentioned,Ihavelookedatdifferentinstanceswheremoney,coercionand

ego/entitlementhavealldrivenpeopletoengageinfraudulentactivity.Ideologyfocuseson

onesbeliefsandmorals.Whatapersonbelievesincouldinfluencethemtocommitfraud.

Dormineyandhiscolleaguesviewideologicalfraudassomeonewhoiscommittingafraudto

“achievesomeperceivedgreatergood”(Dormineyetal.2012,p.563).

WhileIhaveexaminedpreviousresearchthathasshownsomeofthesemotivational

factorsasthereasonforfraudtooccur,therehasbeennoresearchthathasindependently

focusedonthesedifferentmotivesandtheinfluencetheyplayonindividuals.Thisledtothe

developmentofthegoalandresearchquestionsIintendtofocuson.Thegoalofmyresearch

projectistoconductanexperimentonfraudandtheMICEacronympertainingtofraud.My

researchwillinvestigatethefollowingquestions:

1. HowwillMBAstudents(usedasproxiesformanagers)respondtodifferentmotivational

factorsoftheMICEacronym?

2. Arethereenvironmentalfactors,otherthanmoney(M),thatwillincreasethelikelihood

ofanindividualcommittingfraud?

a. Istheideologicalgoal(I)ofhelpingothersoutforlittleornopersonalfinancial

benefitanappealingreasontocommitfraud?

b. Arecoerciveacts(C)byupperlevelmanagementanappealingreasontocommit

fraud?

Bearingthesequestionsinmindandcurrentaccountingliterature,thisledtothedevelopment

ofthreedifferenthypotheses.Inmyscenarios,recognizingmorerevenuecanbeseenas


behavinginafraudulentmanner(e.g.,acceleratingrevenuerecognitionbeforethetermsofthe

contracthavebeenmet).

Therehavebeensomerecentchangesdealingwithemployeeprotectionfrom

employers.Employeesundercoercivepressurefromhigher-levelmanagershavemultiple

resourcestohelpthemreportthiscoerciontoindividualsinapositiontohelp.With

implementationslikethewhistleblowerhotline,createdfromtheSarbanesOxleyactof2002,

andotheractssuchastheWhistleblowerProtectionEnhancementactof2012,employeeshave

morereasontofeelsafeagainstactsofcoercion.Basedonthis,Ipredictthatwhenfacedwith

themotivationalfactorofcoercion,MBAstudentswillbeleastliketorecognizemorerevenue.

Thisleadstothefirsttestablehypothesis:

Hypothesis1:Participantswillbeleastlikelytorecognizemorerevenuewhena

coercionfactorisbeingexhibitedinthescenarios.

Whenaparticipantisleftwithroomforinterpretation,thiscouldhighlyinfluencethe

participant’sdecisioninwhetherornottheywillcommitfraud.Thisleadstomynext

hypothesis,Ibelievethatwhenaparticipantisfacedwithascenariothatcouldleaveroomfor

interpretationorasituationthatismoreflexibletheywillbemoreapttocommitfraud.

Hypothesis2:Participantswillbemorelikelytorecognizemorerevenuewhenthe

scenarioleavesroomforinterpretation.

Aswehaveseenwithpreviousliterature,mostfraudschemesincludeafactorofmoney,

coercion,orego/entitlement.However,Ipredictthatparticipantsthatareexposedtoscenarios

includingideologicalfactorswillbethemostlikelytorecognizemorerevenue.Ideologyisaless


frequentmotivationalfactorforfinancialfraudwhencomparedtoelementssuchasmoney,

coercion,orego.However,whenusingMBAstudentsasproxiesformanagers,Ipredictthat

theywillbeknowledgeableabouttheoutletstheyhaveforreportingcoercionwhentheyare

beingcoerced,andwillhavemoreofareactiontoanideologyfactor.Ipredictthatwhen

peopleareputinaplaceinwhichtheyaregoingtofeelsympathyandempathy,thiswillmake

therationalizationprocessmucheasierthanthatofbeingcoercedintocommittingfinancial

fraud.

Hypothesis3:Participantswillbemostlikelytorecognizemorerevenuewhenan

ideologicalfactorisbeingexhibitedinthescenarios.

Methodology

Mystudyusesa3x2between-groupdesign.The3x2betweengroupdesignswillbe

madeupbyatotalofsixdifferenthypotheticalscenarios.Thethreemotivationalfactorsthat

arebeinginvestigatedaremoney,ideologyandcoercion.Witheachofthesethreemotivational

factorstherewillbetwoversionsofthescenario.Oneversionofthescenariowillleadthe

participanttoaveryconcretedecision.Basedontheinformationgiventheyshouldbeableto

makeachoicefairlyquickly.Ontheotherhand,theotherscenariowillleavetheparticipant

withroomforinterpretation.Whentheyaretoldthatthemajorityofthecontractual

agreementwillbegivenonthefirstoftwelvefertilizertreatments,thiswillleavesome

speculationfortheparticipant.Thepremiseforthesescenariosisbasedonahypothetical

situationinwhichtheparticipantsareplacedinamanagerialroleofpreparingfinancial

statementsforamidsizeagriculturalcompany.Inthescenarios,theparticipantsaregoingtobe

exposedtoadifferentmotivationalfactor,whichcouldimpacttheirdecisiononimproperly


recognizingrevenue.ThetestinstrumentwasadministeredthroughQualtricsdirectlytoMBA

studentsthatareattendingalargepublicuniversity.Participantshadtwowaysofcompleting

theinstrument:onahardcopyinclassoronanelectroniccopyonlineatthediscretionofthe

MBAinstructor.Acasestudywasdevelopedinwhichahypotheticalscenarioispresentedand

willincludeourmanipulationsofourindependentsvariablesrelatedtoideologyandcoercion.

ByusingaLikertScale,ImeasuredresponsesthataregivenbytheMBAparticipants.These

responsesarerelatedtothelikelihoodofcommittingfraud,whichservedasourdependent

variable.Afterthedependentmeasure,open-endedquestionswereaskedtodeterminewhat

influencedtheirdecisions.Tocombatsocialdesirabilitybias,Iaskedinfirst-person,whatthe

participantwoulddo,andinthird-person,whattheparticipantthinkstheaverageperson

woulddo.Attheendinstrument,Iincludedamanipulationchecktoensurethatparticipants

attendedtothemanipulationpresentedtothem.Also,byaskingdemographicalquestionsI

gainbackgroundinformationontheparticipants.

DataAnalysis

AfteradministeringthesurveyelectronicallyviaQualtrics,Igathered78completed

responsestobeusedforanalysis.Afterexportingthegathereddata,thedatawaspreparedina

SASfriendlyformattoruntestsondifferentmotivationalfactorsandwhetherornottherewas

anysignificancetotheresults.Thefirstteststhatwererunfocusedontheimpactofthe

independentvariablesontheparticipant’sdecision-making.AsshownbelowinTable1,the

independentvariables,MOTIVandAMBIG,aretestedindependently,andthenagaintheyare

testedtogether.TheindependentvariableMOTIV,focusedontheactualmotivationalfactors

(Money,Ideology,andCoercion)thattheparticipantswereexposedtointheirsurveys.The


independentvariableAMBIG,focusedontheelementofambiguitythatparticipantswere

Exposedtointheirsurvey.Thisambiguitycomesfromthefactthatsomeparticipantswereleft

withroomforinterpretationontheirsurveys.Finally,atestwasrunlookingatbothofthese

independentvariablestogether.

Table1:MOTIV,AMBIG&MOTIV*AMBIG

Basedontheseresults,thereisstrongsupportingdatathatprovidesstatistical

significanceineachofthesecategories.LookingatthePr>Fcolumn,wecanseethateachof

thesetestshasvalueslessthan0.05,indicatingstatisticalsignificance.Withthatbeingsaid,

theseresultsdidnothappenmerelybychancebutratherthereisalinktoourparticipant’s

responsesandthelikelihoodoffraud.ShownbelowinTable2istheaveragedollaramountof

eachscenariofortheresponsesthatwerecollected.Byexaminingthisdata,Ihavefoundsome

directionalsupportformyhypotheses.Forexample,whenparticipantswerefacedwith

coercionandambiguousscenarios,asopposedtomoney/ambiguousandideology/ambiguous,

theywereleastlikelytofraudulentlyrecognizerevenueaswecanseebythe$387,500.00in

Table2.Thisdirectionallysupportshypothesisonethatstatesthatparticipantswillbeleast

likelytorecognizemorerevenuewhenacoercionfactorisbeingexhibitedinthescenarios.

Hypothesistwoshowsmoderatedirectionalsupport.Comparingmoneywithambiguityand

Source DF Type III SS Mean Square F Value Pr > F

MOTIV 2 5.29606E+11 2.64803E+11 201.42 0.0006

AMBIG 1 2.06069E+11 2.06069E+11 156.74 0.0011

MOTIV*AMBIG 1 2.02929E+11 2.02929E+11 154.35 0.0011


moneywithoutambiguity,thereisaquitealargedifference.Whenparticipantswerefaced

withscenariosinvolvingmoneyandambiguitytheaverageresponsetotaled$783,363.60,as

opposedtoparticipantswhoencounteredscenariosinvolvingmoneywithnoambiguity,which

totaledto$457,089.00.Basedonaccountingliterature,ideologyisalessfrequentmotivational

factorforfraudtooccur.Interestinglyenough,participantsthatwerefacedwithanideological

scenariowithnoambiguityrecognizedmorerevenuethanthoseparticipantsthatwerefaced

withmoneyandcoercionscenarioswithoutambiguity.Thisdirectlysupportshypothesisthree

whichstatesthatparticipantswillbemostlikelytorecognizemorerevenuewhenan

ideologicalfactorisbeingexhibitedinthescenarios.

Table2:AveragesofEachScenario

Thenexttestsfocusedonparticipantsworkexperience.AfterrunningthedatainSAS,

wefoundinterestingdatathatlinkedthelikelihoodofparticipantsworkexperienceandfraud.

TheresultscanbeseenbelowinTable3.Theseresultsarestunninginthefactthattheyare

highlysignificant.LookingatWORKEXPRandACCTWORK,thePr>Fvaluesequatedto0.0005

and0.0008,respectively.Bearinginmindthatthisresearchstudyisbasedonone-tailed

hypotheses,thisisextraordinary.

Money-Ambiguity

Coercion-Ambiguity

Ideology-Ambiguity

Money-NoAmbiguity

Coercion-NoAmbiguity

Ideology-NoAmbiguity

$786,363.60

$387,500.00

$404,546.00

$457,089.00

$387,500.00

$663,076.90


Table3:WORKEXPR&ACCTWORK

Afterfindingtheseresults,Icomparedthedatagatheredbetweenthosewhohadsixor

moremonthsofaccountingworkexperiencetothosewithlittletonoaccountingwork

experience.Whatwefoundwhenlookingatthisdatawasquiteinteresting.Onaverage,those

whohavesixmonthsormoreofaccountingworkexperiencerecognizedapproximately

$628,537.00.Conversely,thosewithlittletonoaccountingworkexperiencerecognizedonly

$454,000.00onaverage.ThoseaveragescanbeseenbelowinTable4.Thatisalmosta

$175,000differencebetweenthetwogroupsofparticipants.Whilemyhypothesesdonot

directlyaddressthesefindings,theyarenonethelessfascinating.Theseresultscouldleadtoa

numberofdifferentavenuesforresearchandsignificantinformationforauditorsandmanagers

inassessingfraudrisks.

Participantswith6monthsormoreaccountingworkexperience

Participantswithlessthan6monthsofaccountingworkexperience

$628,537.00 $454,000.00

Conclusion

Throughthisresearch,Iexpectedtogainabetterknowledgeofwhyfraudoccursand

whattypesofscenarioscatalyzefraud.SincetheMICEacronymisfairlynewtoaccounting

Source DF Type III SS Mean Square F Value Pr > F

WORKEXPR 15 4.21E+12 2.80484E+11 213.35 0.0005

ACCTWORK 2 4.6817E+11 2.34085E+11 178.05 0.0008


literature,thisresearchisbeneficialtotheaccountingsociety.Bybetterunderstandingwhat

typesoftriggersandenvironmentalfactorsplayaroleinapotentialfraudster’shead,wecan

takeactiontohelppreventthisfromhappening.Lookingathowparticipantsrespondedto

theseindividualscenarioscanhelpauditorsandpreparersbettersafeguardonthesesinstances

offraud.Basedonmyknowledgeoftheaccountingliteratureandanalyzingthegathered

results,Iwouldsaythattherearedefinitesignsthatmoneyandcoercionarenottheonlymajor

playersinmotivationalfactorsforfraud.Withstatisticalsignificance,auditorscanlookintothis

researchandseethatnotonlymoneyoregoplaymajorrolesinfraudbutideologycould

potentiallybecomeamajormotivationalfactorforfraud.Afterlookingattheresultscomparing

thetwocategoriesofparticipantsbasedonworkexperience,auditorsandmanagementcan

takeintoaccounttheserisks.PertheACFE,weestablishedthatmostemployeeswhocommit

fraudarewithintheirfirstfiveyearsofworkingwithacompany(ACFE,2014).Thisleadsto

manyunansweredquestionswithinbusinessorganizationsandcouldleadtopotential

developmentofnewstandardsettingforpubliccompanies.Someoftheunansweredquestions

include:Howshouldacompanyaddresstherisksthatareassociatedwiththeseemployees?Is

thecompanyatfaultfornotrequiringanethicstraining?Shouldanethicscourseberequiredin

highereducationbeforeemployeesentertheworkforce?Isthisamatterofweakinternal

controlsoristhisatrendthatisimpactingindustriesacrossAmerica?Nomatterwhatthe

questionsthatmayariseare,thisresearchstudyhasuncoveredpotentialfraudthreatsat

multiplelevels.Thestatisticalsignificanceshowsthatthisdidn’tsimplyhappenasacoincidence

buttheredefinitelyisanissuethatneedstobeaddressed.


References:

AssociationofCertifiedFraudExaminers(ACFE).2014.ReporttotheNationonOccupational

FraudandAbuse.Austin,TX:ACFE

DoneganJ.,&Ganon,M.(2008).Strain,DifferentialAssociation,andCoercion:Insightsfromthe

CriminologyLiteratureonCausesofAccountant'sMisconduct.AccountingandthePublic

Interest,1-20.

Dorminey,J.,Fleming,A.,Kranacher,M.,&RileyJr.,R.A.(2012).TheEvolutionofFraud

Theory.IssuesInAccountingEducation,27(2),555-579.

Dorminey,J.W.,Fleming,A.,Kranacher,M.,&RileyJr.,R.A.(2010).BeyondtheFraudTriangle.

(coverstory).CPAJournal,80(7),16-23.

Henkoff,R.,&Rao,R.M.(1995).SOWHOISTHISMarkWhitacre,ANDWHYISHESAYING

THESETHINGSABOUTADM?(coverstory).Fortune,132(5),64-68.

Jackson,R.A.(2014).WhenExecutivesGoBad.InternalAuditor,71(5),30-36.

Libby,R.,Bloomfield,R.,&Nelson,M.W.(2002).Experimentalresearchinfinancial

accounting.Accounting,Organizations&Society,27(8),775-810.

Pulliam,S.(2003).Overtheline:AStafferOrderedtoCommitFraudBalked,thenCaved---

PushedbyWorldComBosses,accountantBettyVinsonHelpedCooktheBooks---A

ConfessionattheMarriott.WallStreetJournal.Availableonlineat:

http://www.wsj.com/articles/SB105631811322355600


Wolfe,D.T.,&Hermanson,D.R.(2004).TheFraudDiamond:ConsideringtheFourElementsof

Fraud.CPAJournal,74(12),38-42.

Yang,S.(2014).5YearsAgoBernieMadoffWasSentencedto150YearsInPrison–Here'sHow

HisSchemeWorked.BusinessInsider.Availableonlineat:

http://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7


Appendix:

Introduction

Thankyouforparticipatinginthisexperiment.Thepurposeofthisexperimentistoexamine

howindividualsmakedecisionsbasedonvariousfinancialreportingscenarios.Listedinthistest

instrumentaredifferentscenarios.Afteranalyzingeachscenario,pleaserespondtoeachof

thesecasesusingtheprovidedscale.Eachofthesescenariosarecompletelyfictionaland

hypothetical.

Therearenoincorrectresponsestothesescenariosandyourresponseswillremain

anonymous.Yourparticipationiscompletelyvoluntary.Byadvancingtothenextpage,youare

indicatingyouragreementtoparticipateinthisstudy.Afterrespondingtoeachofthe

scenarios,youwillbeaskedtoanswersomebasicbackgroundquestions.

Again,thankyouforyourparticipationandifyouwouldliketoreceiveasummaryofthe

results,pleasecontactmeviaemailatxxxxxxxxxxxxxxxxxx.

Sincerely,

xxxxxxxxxx

AccountingBSBA

HonorsCollegec/o2016

Underthedirectionof:

xxxxxxxxxxxxxx


Eachparticipantwillreceiveoneofthefollowingsixscenarios!

Youareanemployeeatamediumsizedcompany(100-300employees)thatspecializesin

agriculturalproductsandtechnology.Yourbiggestresponsibilityistopreparequarterlyand

annualfinancialstatementsforupperlevelmanagementandboardmembers.

Afterbeinganemployeeforthiscompanyforapproximatelyfiveyears,youhavenoticedthatit

isn’tuncommonforyourupperlevelmanagerstosetsteepgoals.Duetoeconomicfactorsand

otheroutsideimpacts,theagricultureindustryhasbeenreallystrugglingduringitsbusiest

quarter(April-June).Thecompanyhassetanintendedrevenuetargetof$6.75milliondollars

forthequarter.

AmbiguousContract

A$1.2millionnon-cancellablecontractualagreementwasmadebetweentheagricultural

companyandafarmingoperationonApril1,2015tospreadfertilizeron12separateoccasions

betweenApril1,2015andMarch31,2017.TheinitialapplicationoffertilizeronApril1,2015

providesthemajorityofthebenefittothefarmingoperation;subsequentapplicationsof

fertilizermaintainand/orenhancetheoriginalapplication.RefertoFASBCodification2014-09

(shownbelow).

NoAmbiguityContract

A$1.2millionnon-cancellablecontractualagreementwasmadebetweentheagricultural

companyandafarmingoperationonApril1,2015tospreadfertilizeron12separateoccasions

betweenApril1,2015andMarch31,2017.RefertoFASBCodification2014-09(shownbelow)

forrecognitionamendments.

Money

Byrecognizing$1.2millioninrevenueduringQ2(quartertwo)ofthefiscalyear,yourcompany

willsurpasstherevenuetargetandyouwillwalkawaywitha$52,000bonusattheendofyear.

Youarequicklyapproachingtheendofthereportingperiodandyouneedtomakeadecision.

Ideology


Thecompanyisreallytryingtohititsintendedrevenuetarget.Whiletherearenodirect

consequencestoyourcompensationoremploymentbycomingupalittlebitshort,missingthe

revenuetargetwilllikelyleadtoseverallayoffsoflowerlevelemployeeswithinthecompany.

Yourecognizethedifficultytheseemployeeswouldfaceiftheywerelaidoff,astherearefew

availablejobsinthisindustry,andmanyofthelowerlevelemployeeshavefamiliestosupport

withtheirincome.Theendofthereportingperiodiscomingupandyouneedtomakea

decision.

Coercion

Oneafternoon,youdecidedtostaylatetocatchuponsomework.TheCEOofthecompany

approachesyourdeskandbeginstotalkwithyou.Afterverybrieftalk,theCEOmadeit

apparentthathewantstherevenuetoberecognizedfullinQ2.Hementionstoyouhow

importantitistokeepajobinsuchacompetitiveindustryandhowhehasalotofconnections

withsimilarbusinesses.Theconversationmakesyouquestionyourjobsecurityandmakesyou

believeyouwillbefiredandblacklistedifyoudonotrecognizethisrevenueandmeetthe

target.Theendofthereportingperiodiscomingupandyouneedtomakeadecision.

YourTask:Basedontheinformationprovidedabove,youaretoanalyzethesituationand

respondtothebestofyourability.Somepertinentinformationaboutthiscompanyincludes:

1. Thecompanyhasmeteveryrevenuegoalsetsince2010.

2. Thecompanyisthemostsuccessfulagriculturalcompanyinthesoutheastregion

oftheUnitedStates.

PleaseindicatehowmuchrevenueyouwillrecognizeattheendofQ22015

$

Withtheinformationprovided,respondtoeachofthefollowingLikertScales.


PAGEBREAK!

Howstrongofaninfluencewouldthe(compensationpackage,concernoffamilies,coercive

chat)playinyourdecisionofhowmuchrevenuetorecognizeduringthecurrentreporting

period?

Didnotinfluencemydecisionatall

1 2 3 4 5Stronglyinfluencedmydecision

Howstrongofaninfluencedoyouthinkthe(compensationpackage,concernoffamilies,

coercivechat)wouldplayontheaveragepersonmakingthedecisionofhowmuchrevenueto

recognizeduringthecurrentreportingperiod?

Wouldnotinfluencedecisionatall

1 2 3 4 5Wouldstronglyinfluenceddecision


FASBNo.2014-09

{Providedtoallparticipants;availableastheyrespondedtodependentvariablequestions}

Thecoreprincipleoftheguidanceisthatanentityshouldrecognizerevenuetodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Toachievethatcoreprinciple,anentityshouldapplythefollowingsteps:

Step1:Identifythecontract(s)withacustomer.

Step2:Identifytheperformanceobligationsinthecontract.

Step3:Determinethetransactionprice.

Step4:Allocatethetransactionpricetotheperformanceobligationsinthecontract.

Step5:Recognizerevenuewhen(oras)theentitysatisfiesaperformanceobligation.

[Assumesteps1-4havealreadybeencompletedfortheabovecontract.]

Step5:RecognizeRevenueWhen(orAs)theEntitySatisfiesaPerformanceObligation

Anentityshouldrecognizerevenuewhen(oras)itsatisfiesaperformanceobligationbytransferringapromisedgoodorservicetoacustomer.Agoodorserviceistransferredwhen(oras)thecustomerobtainscontrolofthatgoodorservice.

Foreachperformanceobligation,anentityshoulddeterminewhethertheentitysatisfiestheperformanceobligationovertimebytransferringcontrolofagoodorserviceovertime.Ifanentitydoesnotsatisfyaperformanceobligationovertime,theperformanceobligationissatisfiedatapointintime.

Anentitytransferscontrolofagoodorserviceovertimeand,therefore,satisfiesaperformanceobligationandrecognizesrevenueovertimeifoneofthefollowingcriteriaismet:

1.Thecustomersimultaneouslyreceivesandconsumesthebenefitsprovidedbytheentity’sperformanceastheentityperforms.


2.Theentity’sperformancecreatesorenhancesanasset(forexample,workinprocess)thatthecustomercontrolsastheassetiscreatedorenhanced.

3.Theentity’sperformancedoesnotcreateanassetwithanalternativeusetotheentity,andtheentityhasanenforceablerighttopaymentforperformancecompletedtodate.


DemographicQuestions

1. Imaginethatyouhaveachoicebetweentwoseparateoptionsthatareshownbelow.Basedonyouropinion,pleasechoosewhichoptionyouwouldprefer.

a. 0.1%chanceofwinning$10,000anda99.9%chanceofwinning$0.b. 100%chanceofwinning$10.

2. Imaginethatyouhaveachoicebetweentwoseparateoptionsthatareshownbelow.

Basedonyouropinion,pleasechoosewhichoptionyouwouldprefer.a. 0.1%chanceoflosing$10,000and99.9%chanceoflosing$0.b. 100%chanceoflosing$10.

3. Pleaseindicatebelowwhichgraduatecoursesyouhavecompleted

{Courselistingisprovidedforparticipantstochoosecompletedcourses}

4. Approximatelyhowmanymonthsofaccountingworkexperiencedoyouhave?(Includinginternships)

5. IfyouranswertoQuestion4ismorethanzero,whatareasofaccountingdoyouhaveexperiencein?

a. Auditingb. Tax(IndividualPreparationorCorporate)c. Bookkeepingd. Other(pleasedescribe)_________________

examining motivational factors that influence the

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