The Effect of Evidence Strength and Internal Rewards on Intentions to Report Fraud in the Dodd-Frank Regulatory Environment

Abstract

SUMMARY: There are many unanswered questions and concerns regarding the consequences of the fraud whistleblowing environment created by the Sarbanes-Oxley (SOX) and Dodd-Frank Acts. While SOX requires audit committees to implement anonymous internal reporting channels, the Dodd-Frank Act offers substantial monetary incentives that encourage reporting to the Securities and Exchange Commission (SEC). To mitigate concerns that employees might bypass internal channels, some companies are considering offering internal whistleblowing incentives. However, it is unclear how internal incentives will affect employee whistleblowing behavior. We experimentally examine the impact of an internal incentive on employees' intentions to report fraud. Across treatments, we find a greater likelihood of reporting internally than to the SEC. Evidence strength interacts with the presence of an internal incentive such that SEC reporting intentions are greatest when evidence is strong and an internal incentive is present. When evidence is weak, the presence of an internal incentive decreases SEC reporting intentions. Data Availability: Data used in this study are available from the authors upon request.

The motivations of external whistleblowers and their impact on the intention to blow the whistle again

“…For example, Miceli et al () maintained that monetary payouts to whistleblowers could increase internal whistleblowing in terms of its intention and its frequency. Brink, Lowe, and Victoravich () found that monetary rewards for internal whistleblowing increase the intention to use internal channels to report wrongdoing as they replace the role of morality as an intrinsic motivator in the decision whether or not to blow the whistle. Keil et al () also reported that “benefit‐to‐cost differential” creates the intention to blow the whistle.…”

Building a bulletproof whistleblowing environment: an accountant’s perspective

“…Sarbanes-Oxley Act of 2002 requires public companies to have an anonymous reporting channel to record whistleblowers issues; however, this act does not specify how the reporting channel should be administered. Several studies have examined the effect of reporting channel anonymity (Brink et al, 2013;Curtis and Taylor, 2009;Kaplan and Schultz, 2007). Laws and regulations regarding reporting channel would have significant influence in the developing world.…”

“…The climate of an organisation is influenced by many factors such as the ethical environment, internal rewards and organisation response to prior whistleblowing incidents (Gao and Brink, 2017). Increasing internal rewards increases reporting to SEC (Brink et al, 2013). If the organisation has a history of taking swift actions against ethical violations and fraudulent activities, then employees are more likely to report ethical violations and fraudulent activities (Taylor and Curtis, 2013).…”

Reporting Concerns about Earnings Quality: An Examination of Corporate Managers

“…We contacted a management representative for each company directly, and 951 companies agreed to participate in the study. (2010) and Brink et al (2013), who find that employees are more likely to report concerns over earnings quality internally, rather than externally. Note also that the standard deviations for reporting via a hotline or externally are more than twice the magnitude of reporting internally, indicating less consensus amongst managers regarding these two reporting options.…”