The Role of Codes of Conduct and Mentoring as Social Controls that Encourage Honesty
Gondowijoyo, Pujawati
Organizations typically lose 5% of their annual revenues to fraud (Association of Certified Fraud Examiners [ACFE], 2020). Despite the extensive investment in anti-fraud controls, reported fraud statistics are not declining (ACFE, 2020, 2018). Management can complement the existing anti-fraud controls that prevent participation in fraud (e.g., segregation of duties) with social controls that support employees to resist temptations to commit fraud. Focusing on fraudulent financial reporting, the costliest fraud category (ACFE, 2020), I examine how social controls can support honesty among employees, first in solo reporting and then in recruitment into group misreporting context. Across three online experiments, I examine how autonomy support conveyed by the language of codes of conduct and relational support from mentors influence employee honesty in both contexts.
In a solo reporting context, I find that code autonomy support does not affect the reporting of individuals with high internal motivations to report honestly (i.e., high internals). However, individuals with low internal motivations (i.e., low internals) are less likely to report honestly when receiving codes with high (versus low) autonomy support. Additionally, individuals report more honestly when paired with mentors with high (versus low) relational support, particularly when they prefer to consult their mentors.
In a group reporting context, I find that high internals are more likely to report honestly (i.e., refuse to join others to misreport) when receiving codes with high (versus low) autonomy support. However, code autonomy support does not influence honest reporting by low internals. Further, I also find that individuals are more likely to informally disclose peer misconduct to mentors who offer high (versus low) relational support. However, mentor relational support does not influence proteges’ whistleblowing, regardless of the moral courage of the protégés (i.e., fortitude to uphold one’s ethical stance in the face of social or economic pressure; Sekerka et al., 2010).
Collectively, my results illuminate the potential role of social controls in supporting honest reporting in organizations, with implications for accounting literature, theory, and practice.
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