Strain, Differential Association, and Coercion: Insights from the Criminology Literature on Causes of Accountant's Misconduct

Abstract

This paper introduces to the accounting literature two prominent criminology theories, strain and differential association, as possible explanations for criminal behavior by accountants and applies a recent integration of the two, coercion theory, to three recent financial statement frauds. We argue that understanding and preventing fraudulent accounting can be furthered by placing the phenomenon within the context of criminology research, which supports both individual and group-level explanations for white-collar crime. We also suggest that the American Institute of Certified Public Accountants (AICPA) moved too quickly in adopting Cressey's fraud triangle as the explanatory model for financial fraud in Statement on Auditing Standards (SAS) No. 99. Our analysis, although exploratory in nature, suggests that examining financial statement fraud through the lens provided by criminology theory may provide new insights into its causes as well as tools for detection and prevention. We conclude with a discussion of policy implications.

Theorizing Financial Crimes as Moral Actions

“…Explanations of this purported rationality should not only be sought in the psychological traits of the individual offender (crime propensity); but, also, in the wider social, political and economic contexts, as well as the operational contingency (criminogenic exposure) of the setting. These points of complementarity are undergirded by a larger diagnostic strand of literature that is wedded to a conception of fraud as the outcome of a process of transmission, which is aligned with the cultures, codes and customs of settings with criminogenic features (Beasley et al, 2010;Donegan & Ganon, 2008;Gabbionetta et al, 2013;Mitchell et al, 1998;Stuebs & Wilkinson, 2010). In a setting characterised by executive greed (as in the Cattles fraud), systematic manipulation (as in the LIBOR scandal), the view of the industry as one of profit maximisation and light-touch regulation has now become the normal functioning of the market and which have has crowded out concerns about ethics and morality (Sikka, 2015, p. 14; see also Ashforth & Anand, 2003;Bishop et al, 2017;Murphy & Dacin, 2011).…”

“…see Choo & Tan, 2007;Cooper et al 2013;Donegan & Gagon, 2008;Lokanan, 2015a). However, of late, a small, but emerging band of accounting scholars have started to step out of this ontological box and portray financial fraud less as the result of individual deviance and more as the outcome of societal and organisation collusion (Braithwaite, 2013;Dedoulis, 2006;Donegan & Ganon, 2008;Free, Macintosh, & Stein, 2007;Free & Murphy, 2013;Gabbioneta et al, 2013;Stuebs & Wilkinson, 2010).…”

“…Collusion and organisational culture are considered the key nodes of problematisation and represent a more systemic expression of institutionalised corruption and financial fraud (Ashforth & Anand, 2003;Lehman & Okcabol, 2005;Lokanan, 2014;Neu et al, 2013;Power, 2013) that is facilitated by an inadequate and compromised internal control system (Beneish, Billings, & Hodder, 2008;Gabbioneta et al, 2013;Rae & Subramaniam, 2008;Rezaee, 2005). Farber (2005) and later Donegan and Ganon (2008) further emphasised that group qualities of trust and loyalty serve as purported attributes through which opportunities for committing fraud become apparent to organisational leaders and employees. These accounts lend ontological weight to the subtext that the opportunity to commit fraud is not something that is suddenly discovered, as in a street deviant who steals the jeweller's watch while the jeweller was away from the counter; rather, as Davis and Pesch (2013) so eloquently put it, the opportunities are cleverly camouflaged in a structured system of well-organised interdependent actors.…”

“…While the fundamental principles of SAT are intuitive, it is by no means presented as the holy grail of fraud theories. Rather, SAT is part of the ongoing scholarship to encourage debate as we work together to tweak existing theories (Anand et al, 2014) or create new theories that capture the vast array of how fraud is perpetrated (Braithwaite, 2013;Donegan & Ganon, 2008). In this regard, the postulates of SAT are seen as gateways for a more collective perspective to the study of financial fraud and answer calls for research on the macro-sociological explanation of financial crimes (Cooper et al, 2013;Davis & Pesch, 2013;Donegan & Ganon, 2008;Dorminey, Fleming, Kranacher, & Riley, 2010;Lokanan, 2015a;Morales et al, 2014).…”

“…Indeed, these recent high profile cases continue to give life to the ACCA's (2016) claims and come with their own reflections that increase the battle cry for reforms (Power, 2013;Lokanan, 2015a). Such reforms invariably focus on surveillance mechanisms (Anand, Dacin, & Murphy, 2014;Donegan & Ganon, 2008;Murphy, & Dacin, 2011;Williams, 2013) that place emphasis on understanding the personality traits of individuals who are at high risk of offending (Price & Norris, 2009, p. 538). It is this characterisation of detecting and preventing fraud risks that inspires and motivates the present analysis.…”