Accountants Blowing the Whistle

To answer the question who blows the whistle on corporate fraud (which provided the raison d’etre for the Sarbanes—Oxley Act in the United States), Dyck, Morse, and Zingales (2010) examined 216 cases of alleged corporate fraud that included such well-known cases as Enron, HealthSouth, and WorldCom. They found that the SEC accounted for only 7 percent, auditors 10 percent, and litigation for 3 percent of the cases (p. 2214). They also found that monetary incentives played a significant role in a fraud being reported, with employees accounting for 41 percent of the frauds brought to light in the health-care industries (p. 2215): “Hence, a strong monetary incentive to blow the whistle does motivate people with information to come forward”

(p. 2215).

Because accountants and especially auditors are likely to come across fraud in the context of their work, they face the dilemma of whether to blow the whistle. Whether they do so has been found to be a function of their age, gender, and the threat of retaliation (Liyanarachchi and Adler 2011). More specifically, male accountants in the early years of their careers (aged 25—34 years) are more likely to blow the whistle than their female counterparts, and female accountants aged 45 years or older are less willing to blow the whistle if the retaliation threat is strong rather than weak. Finally, accountants in the mid-age group (35—44 years of age) are the most likely to blow the whistle, even if the retaliation threat is strong.

Earlier in this chapter, it was stated that both fraud and corruption alone or in combination can and do contribute to the demise of a corporation, and where this causes a domino effect, they may even facilitate a financial crisis like the one in 2008. Let us next focus on corruption.