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The Role of Power in Financial Statement Fraud Schemes

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Abstract

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.

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Notes

  1. While some financial statement frauds involved easily understood transactions (e.g., WorldCom), Enron was a very complicated fraud that involved off-balance sheet Special Purpose Entities (SPOs, now called Variable Interest Entities), and transactions that occurred between Enron and these various off-balance sheet entities.

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Authors and Affiliations

  1. Huntsman School of Business, Utah State University, Logan, UT, USA

    Chad Albrecht & Daniel Holland

  2. University of Essex, Colchester, UK

    Ricardo Malagueño

  3. ESADE Business School, Universidad Ramon Llull, Barcelona, Spain

    Simon Dolan

  4. Faculty of Management, University of Haifa, Haifa, Israel

    Shay Tzafrir

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  1. Chad Albrecht
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  2. Daniel Holland
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  3. Ricardo Malagueño
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  4. Simon Dolan
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  5. Shay Tzafrir
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Correspondence to Chad Albrecht.

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Albrecht, C., Holland, D., Malagueño, R. et al. The Role of Power in Financial Statement Fraud Schemes. J Bus Ethics 131, 803–813 (2015). https://doi.org/10.1007/s10551-013-2019-1

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