Maximum Style Tec School of Cosmetology Human Service Practice in The Criminal Justice Field the issue of whistleblowers who take action for personal fame

Maximum Style Tec School of Cosmetology Human Service Practice in The Criminal Justice Field the issue of whistleblowers who take action for personal fame or benefit. This presents us with a dilemma: does the presence of a material benefit reduce the ethical value of an action? Perhaps, conversely, is doing something “good” without apparent material benefit morally superior than actions taken that have some personal benefit? If someone is employed by a division of the United Nations as a physician and does eye surgery on poor people in a poor country, are they less “good” than an American physician who spends his/her vacation doing the same thing without pay?

It is an interesting side discussion to the idea of whistle blowing.

References

https://www.socialworkers.org/About/Ethics/Code-of-Ethics/Code-of-Ethics-English

Guthrie, C. P., & Taylor, E. Z. (2017). Whistleblowing on Fraud for Pay: Can I Trust You? Journal of Forensic Accounting Research, 2(1), A1–A19. https://doi-org.proxy-library.ashford.edu/10.2308/… JOURNAL OF FORENSIC ACCOUNTING RESEARCH
Vol. 2, No. 1
2017
pp. A1–A19
American Accounting Association
DOI: 10.2308/jfar-51723
Whistleblowing on Fraud for Pay:
Can I Trust You?
Cynthia P. Guthrie
Bucknell University
Eileen Z. Taylor
North Carolina State University
ABSTRACT: The SEC whistleblower bounty program’s effectiveness in increasing
external reports of illegal acts suggests that employers might increase internal
whistleblowing by offering monetary awards. We propose and test a model that explores
how monetary incentives affect trust, and ultimately whistleblowing intent, in both high
and low retaliation threat environments. Results of a 2 (high/low retaliation threat) 3 2
(money/no money) experimental study of 295 U.S. adults confirm that low (high)
retaliation threat positively (negatively) relates to whistleblowing intent, mediated by trust.
Monetary incentives moderate the relationship between retaliation threat and trust such
that when retaliation threat is low, money increases organizational trust, leading to higher
whistleblowing intent, but when retaliation threat is high, monetary incentives do not
significantly influence trust. We also find that in a high retaliation threat environment with
monetary incentives present, intrinsically motivated individuals report significantly lower
levels of trust compared to trust levels reported by extrinsically motivated individuals. Our
findings help managers understand how and when monetary incentives may be effective
in increasing internal whistleblowing.
Keywords: whistleblowing; corporate governance; retaliation threat; monetary
incentives; fraud.
Data Availability: Data are available from the first author.
We thank the editor, associate editor, and two anonymous reviewers for their helpful comments. We also thank
Andrew Hayes, workshop participants at North Carolina State University and University of North Texas, discussants
and participants at the 2015 Forensic Accounting Midyear Meeting and the 2015 Public Interest Midyear Meeting for
helpful feedback on earlier versions of this paper. In addition, we thank the Accounting Department at the Poole
College of Management and Bucknell University College of Management for providing funding for this study.
Editor’s note: Accepted by Charles D. Bailey.
Submitted: December 2015
Accepted: December 2016
Published Online: February 2017
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INTRODUCTION
D
etecting occupational fraud (i.e., asset misappropriation, corruption, and fraudulent
financial reporting) is a key accounting control function. According to the most recent
industry data on fraud (Association of Certified Fraud Examiners [ACFE] 2016),
whistleblowing, or reporting of suspected or observed misconduct, is the method for detecting
the greatest percentage of occupational frauds (39.1 percent) and these tips (51.5 percent) most
often come from company employees. Audit committees are increasingly involved in investigating
whistleblowing reports (Whitehouse 2014) and often task chief internal auditors with receiving and
researching them (Guthrie, Norman, and Rose 2012), placing whistleblowing policy and
investigations squarely under accountants’ purviews. Accounting professionals on audit
committees, in executive management positions, and in internal and external audit functions
should also be especially attentive to practices that increase internal fraud detection and reporting,
as they are the parties responsible for developing, implementing, and testing internal controls.
Because whistleblowing is such an important control, it has become part of the regulatory
landscape.1 In the U.S. in particular, the SEC’s Office of the Whistleblower (OWB) initiated a
bounty program that pays monetary incentives to those who provide information about illegal acts
committed by public registrants. The OWB has seen a significant response to its bounty program,2
indicating that monetary incentives are effective in increasing external whistleblowing reports.
However, the existence of monetary incentives for external reporting poses a challenge to
managers, since the potential for a large payout from the SEC may increase the likelihood that
employees will report their suspicions of misconduct externally, rather than internally. Companies
should prefer internal to external reporting, as internal reporting allows management and the board
of directors to address misconduct early on, lowers the threat of reputational damage, and
minimizes regulatory enforcement (e.g., fines, debarments, and other restrictions), making internal
reporting far less costly than external reporting (Braithwaite 2013). In light of these costs, it is
worthwhile for managers to consider how they can use monetary incentives to increase internal
whistleblowing.
Whistleblowing antecedents relate to organizational, individual, and situational factors (Dozier
and Miceli 1985). The organizational factor of prime interest in this study is the provision of
monetary incentives. Prior literature on monetary incentives for whistleblowing in the context of
occupational fraud is mixed and sparse. Some studies find a positive association (Berger,
Perreault, and Wainberg 2015; Boo, Ng, and Shankar 2016), while others find no direct effect
(Brink, Lowe, and Victoravich 2013), suggesting that the relationship between monetary incentives
and whistleblowing intent is influenced by multiple factors. In the time since the SEC launched its
bounty program, the number of firms offering monetary incentives for internal whistleblowing has
risen, from 8.6 percent in 2010 to 12.1 percent in 2016 (ACFE 2016). Given the increase in the use
of rewards and the mixed findings in the prior literature, it is important to explore how these
incentives work and whether and how they interact with other known organizational and individual
factors to influence whistleblowing.
For this study, we focus on the organizational factor (retaliation threat) and the individual
factor (perceptions of organizational trust). Because of retaliation threat’s well-established
1
2
The U.S. Sarbanes-Oxley Act of 2002 (SOX), the U.S. Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, and the U.K. Bribery Act 2010 all have whistleblowing provisions.
The effectiveness of monetary rewards is suggested by the 20 percent increase in the number of reports
submitted to the SEC’s OWB after it enacted a bounty program (SEC 2014).
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relationship with whistleblowing, and because this is a factor largely under management’s control,
we explore how monetary incentives influence whistleblowing intent in the presence/absence of
retaliation threat. The other relevant factor in our study is organizational trust. Extant research
shows that employee trust in an organization plays a crucial role in extra-role behaviors such as
whistleblowing (Colquitt, Conlon, Wesson, Ng, and Porter 2001). Further, retaliation threat
influences perceptions of organizational justice, which works through trust, to influence
whistleblowing (Seifert, Stammerjohan, and Martin 2014). We focus on trust in the organization,
rather than trust in an immediate supervisor, based on findings that trust in the organization overall
mediates the relationship between organizational justice and internal whistleblowing (Seifert et al.
2014). We therefore include trust as a mediator in our study.
Our experiment with 295 U.S. adult participants investigates how retaliation threat, trust, and
monetary incentives work together to influence employees’ intent to whistleblow via a company’s
ethics hotline after discovering a false billing fraud.3 We find that trust fully mediates the
relationship between retaliation threat and whistleblowing intent. Additionally, monetary incentives
moderate the relationship between retaliation threat and trust, increasing trust only when retaliation
threat is low. We posit that this effect is due to consistent positive messaging; the organization
expects whistleblowing, supports whistleblowers (by protecting them from retaliation), and values
whistleblowing (by paying an award). In cases where the organization sends inconsistent
messages (i.e., an initial negative message of allowing retaliation, followed by a positive message
of offering monetary incentives), we find that trust levels are lower than when no money is offered,
but not significantly. Our results suggest that in some circumstances, monetary incentives act in
concert with other organizational and individual factors to influence whistleblowing intent.
Managers should be aware of the effects of consistent and inconsistent messaging when
implementing bounty programs, as bounty programs may be ineffective in the presence of
retaliation threat.
The remainder of this paper is as follows: we provide a literature review and development of
hypotheses, followed by the method, and then analysis and results. We conclude with a discussion
of our findings, recommendations for practice, study limitations, and suggestions for future
research.
LITERATURE REVIEW AND DEVELOPMENT OF HYPOTHESES
Retaliation Threat
An important provision (Section 301) of the Sarbanes-Oxley Act of 2002 (SOX, U.S. House of
Representatives 2002) requires the audit committee of public companies to provide would-be
whistleblowers with a reporting channel. Moreover, Section 806 of SOX prohibits retaliation against
whistleblowers who report fraud (U.S. House of Representatives 2002). Nonetheless, fear of
retaliation remains one of the greatest concerns among potential whistleblowers4 (Near and Miceli
3
4
Forty-seven percent of companies with hotlines receive whistleblowing tips compared to only 28 percent of
companies without hotlines (ACFE 2016).
Fear of retaliation is an individual perception of an organizational factor. Retaliation takes many forms, ranging
from extreme actions, such as firing or demotion, to lesser actions, such as denial of raises or promotions, or
exclusion from decisions or projects (Ethics Resource Center 2010). Traceable actions (those that leave
evidence such as physical harm, online harassment, harassment at home, job shift, demotion, and cuts to
hours or pay) are also on the rise, increasing 27 percent from 2009 to 2011.
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1995; Ethics Resource Center 2010); thus, we include this important factor in our study. This threat
faces many internal whistleblowers (employees), who, according to the ACFE’s (2016) Report to
the Nations, make up the largest single group (51.5 percent) of occupational fraud whistleblowers.
According to a 2011 business survey, ‘‘Nearly half (46 percent) of those who choose not to report
observed misconduct cite fear of retaliation as the cause’’ (Ethics Resource Center 2005, 5;
emphasis added). Prior research also finds negative effects of retaliation on whistleblowing,
primarily through its characterization as a perceived cost (Curtis 2006; Kaplan and Whitecotton
2001). In a meta-analysis of 21 articles, Mesmer-Magnus and Viswesvaran (2005) find a strong
negative correlation between retaliation threat and whistleblowing intent. A number of
organizational factors are linked to both retaliation threat and whistleblowing intent, including
organizational culture (Berry 2004), management’s ethical tone (Mayer, Nurmohamed, Trevin?o,
Shapiro, and Schminke 2013), employee perceptions of organizational justice (Seifert, Sweeney,
Joireman, and Thornton 2010), and organizational response (Taylor and Curtis 2013). In the
current study, we focus on organizational trust as a mediator of retaliation threat, because trust is
important in promoting organizational citizenship behaviors (OCB), as we discuss below.
Organizational Trust
In general, trust provides conditions under which positive organizational outcomes such as
cooperation and higher performance are more likely to occur (Dirks and Ferrin 2001). Trust
develops through positively valenced dimensions such as integrity, consistency, competence,
loyalty, concern, and openness (e.g., Mishra 1996; Keyton and Smith 2009). Research has
consistently revealed positive relationships between perceived levels of procedural and distributive
justice, trust, and outcomes such as OCB (Colquitt et al. 2001; Cohen-Charash and Spector 2001).
More recently, social exchange theory has been integrated to capture the obligatory dynamics
between perceptions of justice and reciprocative behaviors such as whistleblowing. In a metaanalysis of justice studies, Colquitt et al. (2013) find that social exchange quality (including trust)
mediates the relationship between justice and reciprocative behaviors such as OCB and task
performance.
Seifert et al. (2014) specifically examine trust in a whistleblowing context and find that trust in
the organization mediates the relationship between three types of organizational justice
(procedural, distributive, and interactional) and whistleblowing intent. With regard to whistleblowing, procedural justice indicates an employee’s level of satisfaction that the procedure for dealing
with reporting wrongdoing is fairly administered; distributive justice is an employee’s satisfaction
with the outcome (the wrongdoing is stopped and the whistleblower does not encounter retaliation)
(Near, Dworkin, and Miceli 1993); and interactional justice is the perception that the whistleblower
is treated respectfully and with dignity. Thus, in addition to implementing a policy that establishes
the expectation that employees will blow the whistle, managers who reduce retaliation threat by
developing and implementing a protective policy for whistleblowers are acting with integrity and
concern, which builds organizational trust. Conversely, managers who allow retaliation
communicate that they do not support whistleblowers, and thus create a culture lacking in trust,
which can have a significant negative influence on an employee’s choice to report wrongdoing
(Hubbs and Kniesche 2016). Based on this, we propose our first set of hypotheses:
H1a: Low (high) retaliation threat increases (decreases) whistleblowing intent.
H1b: Trust mediates the relationship between retaliation threat and whistleblowing intent.
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Monetary Incentives
Monetary incentives have proven effective in increasing the number of external reports to the
OWB but, in general, research provides mixed results for the effect of extrinsic motivations (e.g.,
money) on prosocial behaviors, such as whistleblowing. Priming individuals with an economic
focus (e.g., providing monetary incentives) leads to more selfish and less prosocial behavior (Gino
and Mogilner 2014; Molinsky, Grant, and Margolis 2012; Stout 2014; Vohs, Mead, and Goode
2006), suggesting that monetary awards may discourage prosocial individuals (i.e., those who are
internally motivated) from reporting. Feldman and Lobel (2010) state that monetary rewards are
the least effective motivators for whistleblowing because they commoditize reporting and
substitute extrinsic motivation (i.e., personal gain), crowding out intrinsic motivation (e.g., helping
others), also known as ‘‘motivational crowding’’ (Berger et al. 2015; Brink et al. 2013). Individuals
who have a prosocial value orientation may react differently to monetary incentives than those with
a pro-self-orientation (Boone, Declerck, and Kiyonari 2010). In this context, while monetary
incentives might encourage pro-self-employees who would not otherwise whistleblow to report
(Carson, Verdu, and Wokutch 2007), incentives might also reduce reporting by prosocial
whistleblowers who would have reported in their absence, reducing whistleblowing overall.
Organizations employ both prosocial and pro-self-individuals, yet must offer consistent policies
and incentives. Accordingly, understanding the overall effect of monetary incentives is important.5
The limited research examining the relationship between monetary incentives and internal
whistleblowing, specifically, has mixed results. Berger et al. (2015) find a significant positive
relationship between financial incentives and internal whistleblowing, although only when the fraud
is large enough for the whistleblower to qualify for the reward. Xu and Ziegenfuss (2008) find that
cash rewards are positively associated with internal reporting intent among internal auditors;
however, this effect is greater for internal auditors with lower levels of moral reasoning, indicating
that monetary incentive effectiveness depends on individual factors.
Because trust is such an important factor in OCB (Cohen-Charash and Spector 2001; Colquitt
et al. 2001), and because we expect that trust mediates the effect of retaliation threat on
whistleblowing intent, we now explore how the provision of monetary incentives may moderate the
threat-trust relationship. Trust implies belief in another person or entity; distrust implies fear of the
other and a tendency to attribute sinister intentions to the other (Lewicki and Weithoff 2000). While
there is disagreement as to whether distrust is the same as low levels of trust, violated trust, or is a
separate but linked construct, it is clear that distrust or a lack of trust can impede desired
organizational outcomes (Keyton and Smith 2009). Behavior that is opposite of trust building
(lacking integrity, being inconsistent, incompetent, unconcerned, disloyal, and closed) destroys
trust. Inconsistent messaging can quickly damage trust and create significant repercussions to the
organization (Galford and Drapeau 2003). In this study, we explore how the consistency or
inconsistency of the message sent by providing monetary incentives influences employees’
organizational trust and, thus, their internal whistleblowing intent.
In an environment of low retaliation, where management has indicated that it supports
whistleblowers by offering protection for them, the addition of monetary incentives furthers that
5
Management could introduce monetary incentives in a number of ways. Accordingly, we explore two possible
incentive framings—compensation (stated as a percentage of salary) and reward (stated as a percentage of
the fraud). (See Appendix A for language and context.) We do not hypothesize how these framings might
influence participants’ responses, but we include framing in our analysis as a covariate.
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FIGURE 1
Hypothesized Model of Moderated Mediation
positive message by directly valuing whistleblowers’ reports. The consistent communication of
support and value for whistleblowing should increase organizational trust. Conversely, in an
environment of high retaliation, where management has communicated that it does not support
whistleblowers (a negative message), employees may perceive the subsequent offering of monetary
incentives (a seemingly positive message) as inconsistent, and thus the offer of money may reduce
trust. Whistleblowers may believe that the company is ‘‘buying their silence’’ rather than paying for
useful information, especially if the report exposes wrongdoing that seemingly benefits the
organization or top management, such as fraudulent financial reporting or corruption. Employees
may also believe that management is paying to discover fraudulent behavior that harms the bottom
line, but that it does not care about the whistleblower’s welfare once the report has been ‘‘purchased,’’
a reasonable assumption given the inaction on the part of management to protect the source of that
tip. Further, in a high retaliation threat situation, offering extrinsic incentives in the form of money may
backfire, causing potential whistleblowers to fear retaliation not just from reporting, but also from
reporting on a colleague for profit, as Boo, Ng, and Shankar…
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