The Offender-Guardian Overlap: An Analysis of the Guardianship Structure in Corporate Financial Fraud

• In Event: Understanding and Addressing Corporate and White-Collar Crime

Abstract

Corporate financial statement and accounting frauds are among the costliest white-collar crimes due to their potential impact on national and international economies. As such, the current financial reporting system encompasses multiple levels of guardianship (i.e., internal controls, internal and external audits, Public Company Accounting Oversight Board inspections). Yet, in prior cases, guardians at each level have failed to abide by their fiduciary responsibility or even assumed the roles of offenders or co-conspirators. This overlap in guardians and offenders can be attributed to the unique characteristics in the financial reporting process, such as the reliance on specialized knowledge and the non-definitive nature of financial accounting. Guided by the opportunity perspective (specifically routine activities theory and the fraud triangle), we analyzed a series of case studies from the post-Enron and Sarbanes-Oxley Act era to examine whether opportunities for fraud and concealment occur as a result of this breakdown of corporate guardianship structure. We further integrated concepts from the extant corporate crime literature (e.g., organizational goal orientation, neutralization, regulatory capture) to assess potential motivations, rationales and mechanisms that could lead to fraud when coupled with opportunities presented by the offender-guardian overlap. Implications for theory and practice will be discussed.

Authors

• Fiona Chan, Michigan State University

• Carole Gibbs, Michigan State University