Detecting Fraud: The Role of the Anonymous Reporting Channel
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The purpose of this paper is to examine whether anonymous reporting channels (ARCs) are effective in detecting fraud against companies. Fraud, which comprises predominantly asset misappropriation, represents a key operational risk and a major cost to organisations (ACFE, http://www.acfe.com/uploadedFiles/ACFE_Website/Content/rttn/2012-report-to-nations.pdf, 2012; KPMG, http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Documents/fraud-bribery-corruption-survey-2012v2.pdf, 2012). The fraud triangle (incentives, opportunities and attitudes) provides a framework for developing our understanding of how ARCs can increase detection of fraud. Using publicly listed company survey data collected by KPMG in Australia—where ARCs are not mandated—we find a positive association between ARCs and reported fraud. These results indicate that ARCs are effective in detecting fraud. Additional analysis reveals that small firms derive the greatest benefit from adopting ARCs. We also find that independent boards do not directly influence the detection of fraud, but companies with independent boards detect more fraud because they implement ARCs.
KeywordsAnonymous reporting channel Whistleblowing Fraud Asset misappropriation
We would like to thank the late Professor Colin Ferguson for the provision of the KPMG Fraud Survey data.
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