An examination of the effects of procedural safeguards on intentions to anonymously report fraud

Steven Kaplan, Kurt Pany, Janet A. Samuels, Jian Zhang

Research output: Contribution to journalArticle

39 Scopus citations

Abstract

The Sarbanes-Oxley Act of 2002 (SOX, Sec. 301) requires audit committees of public companies to establish procedures for employee anonymous reporting of concerns regarding questionable accounting, internal control, or auditing matters. Audit committees have great flexibility in their implementation of this requirement. To address this issue, this paper reports the results of two experimental studies. Our first experimental study examines whether an anonymous hotline possessing stronger procedural safeguards, including external administration and related procedural safeguards, increases fraud-related reporting intentions in comparison with one possessing weaker procedural safeguards, including internal administration. Respondents' intentions to report a fraudulent act were greater under the weaker safeguards condition as compared with the stronger safeguards condition. These results were not anticipated, and an ancillary study was conducted examining internal versus external anonymous hotline administration, holding constant other procedural safeguards. The results show that respondents' intentions to report a fraudulent act were stronger under an internally administered hotline. Thus, our results suggest that an externally administered anonymous hotline may not increase fraud reporting. Our findings have implications for those who oversee and evaluate the operating effectiveness of controls.

Original languageEnglish (US)
Pages (from-to)273-288
Number of pages16
JournalAuditing
Volume28
Issue number2
DOIs
StatePublished - Nov 1 2009

Keywords

  • Anonymous reporting channel
  • Fraudulent financial reporting
  • Misappropriation of assets
  • Reporting intentions

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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