Volume 31, Issue 2,
, Pages 203-215
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In this paper, we first describe a “Broken Trust” theory that was introduced by Albrecht el al. [Albrecht, W. S., Albrecht, C. C., & Albrecht, C. O. (2004). Fraud and corporate executives: Agency, Stewardship and Broken Trust. Journal of Forensic Accounting, 5, 109–130] to explain corporate executive Fraud. The Broken Trust theory is primarily based on an “Agency” theory from economic literature and a “Stewardship” theory from psychology literature. We next describe an “American Dream” theory from sociology literature to complement Albrecht el al.'s (2004) Broken Trust theory. Like the Broken Trust theory, the American Dream theory relates to a “Fraud Triangle” concept to explain corporate executive Fraud. Finally, we provide some anecdotal evidence from recent high profile corporate executive Fraud to explore the American Dream theory. We conclude our thoughts on corporate executive Fraud from a teaching perspective.
In this paper, we first describe a “Broken Trust” theory that was introduced by Albrecht, Albrecht, and Albrecht (2004) to explain corporate executive Fraud. The Broken Trust theory is primarily based on an “Agency” theory from economic literature and a “Stewardship” theory from psychology literature. We next describe an “American Dream” theory from sociology literature to complement Albrecht et al. (2004) Broken Trust theory. Like the Broken Trust theory, the American Dream theory relates to a “Fraud Triangle” concept to explain corporate executive Fraud. We are motivated to explain corporate executive Fraud because whenever corporate Fraud has been studied, CEOs and CFOs are most involved. For example, the COSO-sponsored study by Beasley, Carcello, and Hermanson (1999) found that CEOs were involved in 72 percent of the financial statement Fraud cases. The next most frequent perpetrators in descending order of frequency were the controller, COO, vice presidents, and members of the board.
We define “corporate executive Fraud” as follows. First, a corporate scandal is a scandal involving allegations of unethical behavior on the part of a company. It follows that a corporate accounting scandal is a scandal involving unethical behavior in accounting, that is, accounting Fraud. Accounting Fraud includes intentional financial misrepresentations (e.g., falsification of accounts) and misappropriations of assets (e.g., theft of inventory) (AICPA, 2002). Intentional financial misrepresentations involving the management of a company are referred to as corporate executive Fraud, whereas misappropriations of assets involving the employee of a company are referred to as employee Fraud. Taken together, corporate executive Fraud is intentional financial misrepresentations by trusted executives of public companies, which typically involve creative methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets, or underreporting the existence of liabilities.
Finally, we provide some anecdotal evidence from recent high profile corporate executive Fraud1 to explore the American Dream theory. We are well aware of the fact that anecdotal evidence is weak evidence without empirical validation. However, our paper is written to provoke thoughts on corporate executive Fraud in American society and to stimulate further empirical research on social variables of executive Fraud. We also believe that a better understanding of corporate executive Fraud would help to address some issues from a teaching perspective in our concluding thoughts.
Potential theories of corporate executive Fraud
Albrecht et al. (2004) describe a Broken Trust theory to explain corporate executive Fraud. It should be noted that they have never used the term “Broken Trust” in their theory. We took the liberty of labeling their theory as the Broken Trust theory. Since Albrecht et al. (2004) derive their Broken Trust theory by linking the Agency theory and Stewardship theory to the Fraud Triangle concept in corporate Fraud literature, we first describe the Agency theory, follow by the Stewardship theory,
Origin of the American Dream theory
The term “the American Dream” was introduced into contemporary social analysis in 1931 by historian James Truslow Adams to describe his vision of a society open to individual achievement. Interestingly, Adams sought to have his history of the United States, Epic of America, entitled The America Dream, but his publisher rejected the idea, believing that during the Great Depression, consumers would never spend three dollars “on a dream.” (Adams, 1931, p. 68). The term soon became a sales slogan
An intense emphasis on monetary success (pressure)
An intense emphasis on monetary success in the corporate environment, which promotes productivity and innovation, also induces Fraud by corporate executives. Messner and Rosenfeld (1994, p. 8) argue that monetary success, which is responsible for the impressive accomplishments of American society, is also responsible for generating strong pressures to succeed in a narrowly defined way and to pursue such success by “any means necessary” including Fraud. In other words, while monetary success has
In sum, the three key features of the American Dream theory – Intense emphasis on monetary success, corporate executives exploit/disregard regulatory controls, and corporate executives justify/rationalize fraudulent behavior – have their institutional underpinnings in the capitalist economy of the United States (i.e., the institution of economy, see Footnote 6). What is distinctive about the capitalist economy of the United States, however, is the exaggerated emphasis on monetary success, which
We believe that the exaggerated emphasis on monetary success incorporated in American Dream will continue to be a catalyst for Fraud by corporate executives in the United States.11
We gratefully acknowledge the insightful comments and suggestions made by the three anonymous reviewers. We thank Roberto Kelso, President of the Panamanian Association of Fraud Examination, for his helpful comments. We also thank Steve Albrecht for his feedback and inspiration. An earlier version of this paper was presented at the 17th Asian Pacific Accounting Conference in New Zealand. We are grateful for the comments and feedback we received from the conference participants.
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We promote awareness of the features of emails that propose advanced fee fraud schemes. These are commonly known as 419 emails (after Section 419 of the Nigerian Penal Code). We outline the structural features of 419 emails and conduct a preliminary study of their distinctive linguistic features, using word frequency counts and DICTION text analysis software. We find that the incidence of first person singular pronouns is seven times greater in 419 emails than non-419 emails. We suggest elements of a future research agenda that can build on our preliminary results to help reduce advanced fee fraud.
Challenges to the fraud triangle: Questions on its usefulness
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This interdisciplinary review highlights a significant body of work on white-collar crime and recognises that fraud can take shape through individual, collective or systemic forms (Cooper et al., 2014). The effort has raised different questions and provides new understanding of the term ‘fraud’ (see Choo & Tan, 2007; Croall, 2001; Donegan & Ganon, 2008; Gabbioneta et al., 2013; Neu, Everett, Rahaman, & Martinez, 2013; Sutherland, 1949; Williams, 2013; see also Dellaportas, 2014; Murphy & Dacin, 2011; Murphy, 2012). Fraud has been examined in different substantive areas taking into consideration the various practices and situational contexts in which it occurs (Choo & Tan, 2007; Cooper et al., 2013; Donegan & Ganon, 2008; Gabbioneta et al., 2013; Neu, Everett, Rahaman, & Martinez, 2013; Palmer, 2012).
Fraud is increasing with frequency and severity. In this paper, I explore the assertion of the fraud triangle as a useful practitioner framework employed to combat fraud. This paper is anchored through Fairclough's critical discourse theory, and is supported with evidence from three accounting fraud cases. The findings indicate that the Association of Certified Fraud Examiner's (ACFE) perpetuates a discourse that presents a restricted version of fraud. Fraud is a multifaceted phenomenon, whose contextual factors may not fit into a particular framework. Consequently, the fraud triangle should not be seen as a sufficiently reliable model for antifraud professionals.
Beyond the fraud triangle: Swiss and Austrian elite fraudsters
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The FT is a sub-set of the more generic Crime Triangle, and though it focuses us away from broader issues of the non-incrimination of privileged business elites (Barak, 2012; Friedrichs, 2009),2 it is commonly used in academic and professional circles as a heuristic framework for explaining fraud. Fraud courses are rare in business schools (Choo & Tan, 2007), especially before the financial crisis: nevertheless, though awareness alone might not have prevented the corporate excesses that led to the crisis, it has been asserted that “every corporate executive needs to understand the fraud triangle” (Biegelman & Bartow, 2006, p. 33). The fundamental sociological conception of how we construct the motivation to commit a crime is found in the academic contributions of Mills (1940) and Cressey (1953), who note “that motives are not biological drives which ‘cause’ us to act in certain ways”; but this is only part of the explanation of why and where offending happens (Shover & Hochstetler, 2006).
We suggest that when using the fraud triangle, academics and professionals should take account of the insights gleaned from our study, in which Switzerland and Austria's “elite” white-collar offenders with high professional standing and respectability were interviewed. Our perpetrators consider that only opportunity is a universal precondition of acts defined by others as fraud, though perceived pressure is salient to most frauds. By contrast, financial incentives are not required to be motivational elements. The frequently cited “rationalisation” is too simplistic: rather, a fraud-inhibiting inner voice before the crime and a guilty conscience after it were present among those interviewed.
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