“…when presented with seemingly identical opportunities and motives, why does one person or organization turn to fraud and another does not? No one really knows.”
(Wells 2004, p. 74)
Abstract
We introduce the concept of fraud tolerance, validate the conceptualization using prior studies in economics and criminology as well as our own independent tests, and explore the relationship of fraud tolerance with numerous cultural attributes using data from the World Values Survey. Applying partial least squares path modeling, we find that people with stronger self-enhancing (self-transcending) values exhibit higher (lower) fraud tolerance. Further, respondents who believe in the importance of hard work exhibit lower fraud tolerance, and such beliefs mediate the relationship between locus of control and fraud tolerance. Finally, we find that people prone to traditional gender stereotypes demonstrate higher fraud tolerance and document subtle differences in the influence of these cultural attributes across age, religiosity, and gender groups. Our study contributes to research on corporate governance, ethics, and the antecedents of work-place dishonesty.
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Notes
The attitude studied in this paper has been considered in different contexts by scholars from different disciplines. Some examples include “tax morality” (focus on the single question and single context of tax compliance) and “civic cooperation” (focus on the aggregated country-level data that combined one indicator for several questions and explored its role in overall economic growth). Our use of “fraud tolerance” takes a different approach as discussed later in the paper.
The World Values Survey is a global research program that explores the evolution of people’s values around the world since 1981. Every five years researchers collect new data by administering a representative survey at a global scale that accesses people’s opinions on variety of issues. The World Values Survey web site provides open access to all this data (see World Values Survey 2020 for more details). We note numerous studies in accounting that use this data including Bhagwat and Liu (2020), Brochet et al. (2019), Isidro et al. (2020), Knechel et al. (2019), and Pevzner et al. (2015).
Such focus on individual and community-based differences in beliefs and values (i.e., intra-country rather than inter-country differences) is consistent with prior studies in criminology and allows us to avoid the confounding effects of cross-country differences in GDP, corruption, and similar macro-economic factors that might influence attitudes toward fraudulent behavior that are outside the scope of our investigation.
Fraud is inherently an interdisciplinary subject but scholars from different fields approach it from slightly different perspectives and utilize their own discipline-centric terminology. This leads to a multiplicity of labels to define similar constructs. For example, scholars from the disciplines outside accounting who are not familiar with fraud triangle framework often use the terms “attitude”, “verbalization”, “neutralization”, or “justification” to label perpetrator ability to rationalize the crime.
“Some of our most respectable citizens got their start in life by using other people’s money temporarily” or “In the real estate business there is nothing wrong about using deposits before the deal is closed” are examples of such general rationalizations (Cressey 1973, p. 96).
The examples of the specific dishonest or deviant economic acts vary across different waves of WVS but some questions such as justification of cheating on taxes are included more often than others.
Accounting scholars are more familiar with this labeling approach in the context of “generalized trust”, another proxy for social capital that relies on a single WVS question and which is extensively used in empirical accounting research.
See also summary in Torgler (2007a) and Torgler (2016). Some of these studies use the same questions from the European Value Survey. Results from these studies suggest that some individuals are “simply predisposed not to evade” taxes due to internalized social norms or potential guilt (Long and Swingen 1991, p. 130) and do not look for ways to cheat on their taxes (Alm et al. 1992; Dulleck et al. 2016).
As reported in Knack and Keefer (1997, p. 1257): “Twenty wallets containing $50 worth of cash and the addresses and phone numbers of their putative owners were ‘accidentally’ dropped in each of twenty cities, selected from fourteen different western European countries. Ten wallets were similarly ‘lost’ in each of twelve U. S. cities. … The percentage of wallets returned in each country … is correlated with TRUST at .67, and with item (d) of the CIVIC index, on the acceptability of ‘keeping money that you have found’ at .52.”.
These attributes are not randomly selected and represent some of the most studied constructs in the WVS survey, meaning that they have been extensively validated in prior research. For example, the dichotomy of self-enhancing vs. self-transcending values is a central point of the theory of Basic Human values, developed by Shalom H. Schwartz (e.g., Schwartz 1992, 1994, 1999, 2012). Locus of control is a fundamental construct capturing the differences in evaluation of environment “that has been formally studied for more than 50 years” (Galvin et al. 2018, p. 820; Johnson et al. 2015). Future research might explore other social attributes that may be relevant to fraud tolerance using other sources of data.
“Fraud diamond framework” is an extension of the “fraud triangle framework” and includes a perpetrator’s capability as a fourth fraud antecedent. According to this model, perpetrator’s capability reflects combination of personal traits and skills, including perpetrator’s position, intelligence, ego, ability to coerce, ability to lie, and resistance to stress (Wolfe and Hermanson 2004).
Sociologists often combine self-enhancing and self-transcending value orientations in a single measure to explain the societal roots of criminal behavior (Ganon and Donegan 2010; Itashiki 2011; Konty 2005), but psychologists stress the orthogonal nature of these dimensions (Frimer et al. 2011; Trapnell and Paulhus 2012; Wiggins 1991).
In sociology, self-enhancing vs. self-transcending values relate to the concept of “anomie”, the building block of “strain theory” (Donegan and Ganon 2008; Merton 1938; Messner and Rosenfeld 2001; Thorlindsson and Bernburg 2004). Konty (2005) suggested the label “micro-anomie”, measured as the difference between individual scores for self-enhancing and self-transcending values, to capture a particular cognitive state that prompts deviant behavior where self-interest dominates social-interest due to conflicting social messages. Research in psychology uses a different terminology while distinguishing two fundamental human motives: agency and communion. Similar to a self-enhancing orientation, agency “entails motives to advance the self within a social hierarchy: achievement, social power, or material wealth” (Frimer et al. 2011, p. 150). Communion, which is similar to a self-transcending orientation, reflects “benevolence to familiar others, or a more universalized concern for the well-being of disadvantaged, distant others, or the ecological well-being of the planet” (Frimer et al. 2011, p. 150). The labels of agency vs. communion are often referred to as “getting ahead” vs. “getting along” (Hogan and Holland 2003).
Early research explored work-related beliefs as part of the construct “Protestant Work Ethic” (PWE) as originally defined by Weber in 1905 (Weber 2001, reprint). In the 1970s several scholars developed measurement scales for PWE and the more general concept of “Work Ethic” (Mirels and Garrett 1971, Buchholz 1977, 1978). Consistent with this assumption about the link of hard work and morality, Aquino and Reed (2002) included the trait “hard-working” as one of nine characteristics of a moral person while developing their “moral identity” instrument.
Researchers used an internet sample designed by Knowledge Networks who completed all the field work of collecting the data. “KnowledgePanel®, created by Knowledge Networks, is a probability-based online Non-Volunteer Access Panel. Details are available at http://www.worldvaluessurvey.org/WVSDocumentationWV6.jsp accessed on 01/22/2019.
The sample size of 1,816 observations is sufficient for our analysis. Rough guideline suggests at least 10*maximum number of paths to be analyzed that lead to a single construct, or 10*8 = 80 in our case. Also, using the Cohen (1992) power table, the reasonable sample size for a model with six paths to one single construct is 157.
Jarvis et al. (2003) suggest that it is appropriate to model a construct as reflective when (1) assumed causality direction is from the construct to the indicators, (2) indicators are expected to be interchangeable and co-vary with each other, and (3) the indicators are assumed to have the same underlying antecedents and consequences. PLS also facilitates modeling of the latent constructs through formative (also known as composite) indicators. Formative indicators are not expected to be interchangeable, are not expected to correlate highly with each other, and capture different aspects of the underlying latent construct. While evaluating the appropriateness of a formative measurement model, researchers mostly focus on content validity (see Hair et al. 2017 for more details). Also, the choice of formative indicators should be grounded in theory and capture all major facets of the construct.
We exclude two questions that might be relevant to fraud: (1) “Stealing property” and (2) “Accepting a bribe”. Very few respondents openly justify such actions, resulting in high levels of kurtosis and skewness, e.g., kurtosis for “stealing the property” is 10.08, with skewness of 3.03. Our results remain substantially unchanged when we add “stealing property” and “accepting bribes” to the model (see more detailed discussion on p. 33–34), but we note high VIFs for both of these variables (> 3.3) that increase concern about common method bias. The indicators used in this study have less elevated degrees of kurtosis and skewness, e.g., kurtosis for “claiming benefits” is 4.153, with skewness of -2.17. Our approach is similar to those in other studies on “civic” or “economic” morality (e.g., Letki 2006).
While it would be desirable to use several indicators for construction of the latent variable, this is the only question in WVS that relates to locus of control.
One of the advantages of the PLS-SEM is that it does not assume a normal distribution for the data. However, this feature precludes the use of the parametric tests of significance, traditionally used in regression analyses. Instead, PLS-SEM relies on bootstrapping to estimate the significance of both outer loadings and path coefficients. “Bootstrapping is a resampling technique that draws a large number of subsamples from the original data (with replacement) and estimates models for each subsample. It is used to determine standard errors of coefficients to assess their statistical significance without relying on distributional assumptions” (Hair et al. 2017, p. 313). In theory, a larger number of bootstrapping samples leads to more reliable inferences, although improvements in the estimates of standard errors become negligible as each sample becomes a smaller portion of the entire analysis. Our results were consistent with those obtained with smaller bootstrapping samples such as 1000 and 500.
Prior research suggests that the attitudes related to civic cooperation and morality are stable over decades in large populations. Our state-level sample consists of 50 states plus the District of Columbia. We obtained the state statistics from www.statista.com except for employee complaints, which come from the website of the US Equal Opportunity Commission (https://www1.eeoc.gov/eeoc/statistics/enforcement/state_17.cfm accessed on 01/22/2019).
The heterotrait–monotrait (HTMT) ratio of correlations is a method of assessing the discriminant validity in PLS-SEM that outperforms the Fornell-Larcker criterion (Hair et al. 2017). The highest HTMT ratio in this sample was between the self-enhancing values and fraud tolerance constructs (0.358).
The highest level of collinearity between the latent constructs (Inner VIF values) was 1.09 between self-transcending values and fraud predisposition. The highest level of VIF for the indicators (Outer VIF values) was 2.56 in case of V53R: Beliefs that men make better business executives than women.
The bootstrap confidence interval does not include the “zero point” with a t value of 6.704.
The f-squared statistic of Locus of Control in explaining Beliefs in Hard work is 0.054.
In case of the “consistent PLS algorithm”, the relevant path coefficients increase in the same direction: path coefficient on self-enhancing values changes from 0.262 to 0.308 and the path coefficient on beliefs in hard work changes from -0.251 to -0.352.
We apply PLS-MGA approach with 5,000 bootstrap samples. We also conducted multi-group analyses comparing (1) people in managerial position vs. non-managerial position (as indicated by the WVS item V232 in USA version) and (2) people who characterize themselves as a “chief wage earner” vs. those who do not (as indicated by the WVS item V233 in USA version). Our tests do not reveal any significant differences in path coefficients between these groups.
Other potential denominations included Orthodox, Muslim, Jew, and Buddhist. We have fewer than 50 observations of these groups. 571 survey participants chose “None, do not belong to denominations” and 273 respondents selected “Other, non-specified”. These respondents are included in our first set of tests for religiosity overall. There were no significant differences in path coefficients between Protestants and those who selected “None, do not belong to denominations”, between Protestants and those who selected “Other, non-specified”, and between Catholics and those who selected “Other, non-specified”. The only difference between Catholics and those who selected “None, do not belong to denominations” was the stronger impact of Belief_in_Hard_Work on Fraud_Tolerance for Catholics.
We conduct a number of such post hoc tests that suggest it is unlikely that CMB presents a validity threat for the current study. First, Harman’s single-factor test reveals that only 20.3% of variance in the indicators used in our model is accounted by a single factor, which is much lower than the suggested 50% threshold. Following Kock (2015a) test for CMB in PLS-SEM, we do not observe any VIFs in excess of 3.3, again indicating that it is unlikely that our model suffers from common method bias. We also apply two techniques applicable to Confirmatory Factor Analysis under CB-SEM. In particular, we used the Unmeasured Common Latent Factor (UCLF) approach (Podsakoff et al. 2003, 2012) and the CFA marker (Williams et al. 2010). To create non-ideal marker variable that supposedly does not correlate with our constructs we used two questions from the World Value Survey: (1) whether participants perform “mostly manual” vs. “mostly intellectual” tasks (V231) and (2) whether participants perform “mostly routine” vs. “mostly creative” tasks (V232). The largest difference in standardized regression weights between the original model and the UCLF model is 0.11, which is below the recommended cut-off of 0.20. The difference between Chi-square of baseline and Method-C Model with the CFA marker is not significant at p < 0.05. Thus, the evidence provides additional support that our results are not affected by CMB.
As Speklé and Widener (2018, p. 11) put it in the context of the management accounting research: “Objective performance measures, thus, may lack content validity in that they do not necessarily capture what the researcher wishes to measure. Therefore, even though objective measures may be less biased, they could still be inferior to subjective, perceptual measures if the latter provide a better coverage of the performance dimensions of interest.”.
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Acknowledgements
We thank the Accounting and Business Ethics section editor of “Journal of Business Ethics” Charles Cho, three anonymous reviewers, participants of 2017 American Accounting Association Ethics Symposium, 2018 American Accounting Association Forensic Accounting Section Meeting, 2018 AAA annual meeting, 2019 Conference of the AAA Public Interest Section, the workshop in University of Cincinnati and anonymous reviewers for 2018 Audit Midyear Meeting for providing feedback on this project. We are also grateful to Anna Alon, Jan Bouwens, Renee Flasher, Theresa Libby, Pamela Murphy, and Sri Ramamoorti for their helpful comments. Special thanks to Hyun Park for assistance with running the audit fee model.
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Supplementary Information
Appendices
Appendix 1: World Values Survey Questions Used in This Study
Introduction by Interviewer
We are carrying out a global study of what people value in life. This study will interview samples representing most of the world's people. You have been selected at random as part of a representative sample of the people in the United States. We'd like to ask your views on a number of different subjects. Your input will be treated strictly confidential but it will contribute to a better understanding of what people all over the world believe and want out of life.
Questions for Independent Variables
Indicators for Dependent Variable: Fraud Tolerance
Please tell me for each of the following actions whether you think it can always be justified, never be justified, or something in between, using this card. (Read out and code one answer for each statement):
Never justifiable | Always justifiable | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
V198. Claiming government benefits to which you are not entitled | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
V199. Avoiding a fare on public transport | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
V201. Cheating on taxes if you have a chance | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
Questions for Independent Variables
Indicators for Gender Bias
For each of the following statements I read out, can you tell me how strongly you agree or disagree with each. Do you strongly agree, agree, disagree, or strongly disagree?
Strongly agree | Agree | Disagree | Strongly disagree | |
|---|---|---|---|---|
V 51. On the whole, men make better political leaders than women do | 1 | 2 | 3 | 4 |
V 52. A university education is more important for a boy than for a girl | 1 | 2 | 3 | 4 |
V 53. On the whole, men make better business executives than women do | 1 | 2 | 3 | 4 |
Indicators for Self-enhancing Values
Now I will briefly describe some people. Using this card, would you please indicate for each description whether that person is very much like you, like you, somewhat like you, not like you, or not at all like you?
Very much like me | Like me | Somewhat like me | A little like me | Not like me | Not at all like me | |
|---|---|---|---|---|---|---|
V71. It is important to this person to be rich; to have a lot of money and expensive things | 1 | 2 | 3 | 4 | 5 | 6 |
V 73. It is important to this person to have a good time; to "spoil" oneself | 1 | 2 | 3 | 4 | 5 | 6 |
V 75. Being very successful is important to this person; to have people recognize one’s achievements | 1 | 2 | 3 | 4 | 5 | 6 |
V 76. Adventure and taking risks are important to this person; to have an exciting life | 1 | 2 | 3 | 4 | 5 | 6 |
Indicators for Self-transcending/Communal Values
Now I will briefly describe some people. Using this card, would you please indicate for each description whether that person is very much like you, like you, somewhat like you, not like you, or not at all like you?
Very much like me | Like me | Somewhat like me | A little like me | Not like me | Not at all like me | |
|---|---|---|---|---|---|---|
V74. It is important to this person to do something for the good of society | 1 | 2 | 3 | 4 | 5 | 6 |
V 78. Looking after the environment is important to this person; to care for nature and save life resources | 1 | 2 | 3 | 4 | 5 | 6 |
Indicator for Locus of Control
V55. Some people feel they have completely free choice and control over their lives, while other people feel that what they do has no real effect on what happens to them. Please use this scale where 1 means “no choice at all” and 10 means “a great deal of choice” to indicate how much freedom of choice and control you feel you have over the way your life turns out (code one number):
No choice at all | A great deal of choice | ||||||||
|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
Indicators for Belief in Hard Work
Please indicate your views on each of the following issues. Using a 1 to 10 scale, where 1 means you agree completely with the statement on the left and 10 means you agree completely with the statement on the right, please select the number that best reflects your own views on each issue. (Code one number for each issue):
V99
Competition is good. It stimulates people to work hard and develop new ideas | Competition is harmful. It brings out the worst in people | ||||||||
|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
V100
In the long run, hard work usually brings a better life | Hard work doesn’t generally bring success—it’s more a matter of luck and connections | ||||||||
|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
Appendix 2: Summary list of all indicator variables
Main indicators for Fraud tolerance: How justifiable those actions are |
(V198) Claiming government benefits to which you are not entitled (on the scale from 1 (Never) to 10 (Always)) |
(V199) Avoiding a fare on public transport (on the scale from 1 (Never) to 10 (Always)) |
(V201) Cheating on taxes if you have a chance (on the scale from 1 (Never) to 10 (Always)) |
Additional indicators of Fraud tolerance for Robustness test: How justifiable those actions are |
(V200) Stealing property (on the scale from 1 (Never) to 10 (Always)) |
(V202) Someone accepting a bribe in the course of their duty (on the scale from 1 (Never) to 10 (Always)) |
Self-enhancing orientation |
(V71R) It is important to this person to be rich; to have a lot of money and expensive things (on the scale from 1 (not at all like me) to 6 (very much like me)) |
(V73R) It is important to this person to have a good time; to "spoil" oneself (on the scale from 1 (not at all like me) to 6 (very much like me)) |
(V75R) Being very successful is important to this person; to have people recognize one’s achievements (on the scale from 1 (not at all like me) to 6 (very much like me)) |
(V76R) Adventure and taking risks are important to this person; to have an exciting life (on the scale from 1 (not at all like me) to 6 (very much like me)) |
Self-transcending/communal orientation |
(V74R) It is important to this person to do something for the good of society (on the scale from 1 (not at all like me) to 6 (very much like me)) |
(V78R) Looking after the environment is important to this person; to care for nature and save life resources (on the scale from 1 (not at all like me) to 6 (very much like me)) |
Locus of Control (on the scale from 1 (No choice at all) to 10 (A great deal of choice) |
(V55) Some people feel they have completely free choice and control over their lives, while other people feel that what they do has no real effect on what happens to them |
Beliefs in Hard Work |
(V99R) Attitudes to competition (on the scale from 10 (Competition is good) to 1 (Competition is harmful)) |
(V100R) Hard Work and Success (on the scale from 10 (Hard work brings success in the long run) to 1 (it is all about connections and luck)) |
Gender Bias |
(V51R) On the whole, men make better political leaders than women do (on the scale from 1 (strongly disagree) to 4 (strongly agree)) |
(V52R) A university education is more important for a boy than for a girl (on the scale from 1 (strongly disagree) to 4 (strongly agree)) |
(V53R) On the whole, men make better business executives than women do (on the scale from 1 (strongly disagree) to 4 (strongly agree)) |
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Knechel, W.R., Mintchik, N. Do Personal Beliefs and Values Affect an Individual’s “Fraud Tolerance”? Evidence from the World Values Survey. J Bus Ethics 177, 463–489 (2022). https://doi.org/10.1007/s10551-020-04704-0
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DOI: https://doi.org/10.1007/s10551-020-04704-0