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.
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Although there is no agreed-upon definition of whistleblowing, the term has been used within the business vernacular to describe an act whereby one exposes wrongdoing (Jubb 1999; Perry 1998). Near and Miceli (1985) define whistleblowing as organization members’ disclosure of illegal, immoral, or illegitimate practices under the control of their employers, to parties who may be able to effect action.
These incentives are required to be between 10 and 30 % of the monetary penalties collected. This initiative represents a significant escalation not only in the incentives offered to whistleblowers, but also an acknowledgement of the increased strategic regulatory importance attached by the US Government to whistleblowers.
Great care was taken to develop a realistic scenario framed around a case of financial statement fraud. Real-life cases as reported in national newspapers formed the basis for the scenario used in our experimental material. The scenario was piloted with the assistance of (1) 3 persons from industry and (2) 9 university academics independent to the research. Utilizing a case vignette to manipulate situational variables is consistent with prior studies of whistleblowing (Mesmer-Magnus and Viswesvaran 2005; Miceli et al. 2008). It is acknowledged, however, that using a brief hypothetical scenario cannot adequately capture the richness of the real-life environment, the formal and informal structures and networks within firms, personal ambitions, integrity, and much else besides.
We also asked participants to assess the level of harm and moral wrongfulness associated with the fictitious accounting entries. We do not include the level of harm and the level of moral wrongfulness as covariates in our models as they were highly correlated with the level of seriousness.
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Prior research suggests the potential influence of these variables on individual’s intention to whistleblow. For example, Liyanarachchi and Adler (2011) provide evidence of the influence of age and gender on accountants’ likelihood to whistleblow. Besides, Kaplan et al. (2009) demonstrate the association between gender and individuals' intention to report fraudulent financial reporting. Also, as discussed earlier in this section, Schultz et al. (1993) suggest that perceived personal costs (or benefits) of reporting influenced individual’s decision to report a questionable act. Further, prior studies posit that ethics training program could influence accountants' intention to whistleblow (e.g., Decker and Calo 2007; Vadera et al. 2009).
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Funding for this study was received from Chartered Accountants Australia and New Zealand and the Accounting & Finance Association of Australia and New Zealand.
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Andon, P., Free, C., Jidin, R. et al. The Impact of Financial Incentives and Perceptions of Seriousness on Whistleblowing Intention. J Bus Ethics 151, 165–178 (2018). https://doi.org/10.1007/s10551-016-3215-6
- Sarbanes–Oxley Act
- Dodd–Frank Act
- Financial incentives
- Moral awareness