When reports of corporate embezzlement and fraud surface, it’s easy to assume that a greedy executive was behind the plan, eager to line his pockets. But according to a recent study, it’s more often fear and embarrassment, brought on by a threat to the executive’s reputation and status.
The Jacksonville University study found that, though fraud may indeed bring in extra money for the company or executive, it’s not usually the primary reason fraud was committed. Instead, when an executive’s vision doesn’t pan out, he or she set things into motion as an attempt to rescue damaged egos.
As evidence, the researchers examined the famous fraud case at Enron. In this case, executives fudged the balance sheet to cover up losses because they were afraid of looming financial failure – not because they were hoping to gain particular economic advantage.
Fear is a powerful motivator for many executives because of their lofty status. They’re typically well known and respected in business circles, which mean they’re heavily invested in their position and feel a great weight to uphold their reputation. If they were to experience public failure, not only would it damage their ego, but it also would affect their ability to lead others in the industry.
For many, this means they’d lose everything – a reality that makes fraud seem like an attractive alternative.
The study also outlines a model of executive fraud that utilizes the familiar fraud triangle: it begins with an ill-advised risk, which leads to fear of failure, which leads to the fraud triangle (ability, motivation and rationalization), which leads ultimately to fraud.
Ultimately, the researchers concede that there may still be cases in which fraud is motivated by greed, but maintained that fear of failure is the primary motivator. And while these findings don’t present a long-term solution, they do provide insight into how examiners and regulators can better detect and prevent fraud from happening in the future.
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