Reporting Fraud: An Examination of the Bystander Effect and Evidence Strength

• In Event: Fraud Research

Abstract

We conduct an experiment to examine the occurrence of the bystander effect on willingness to report a fraudulent act. Specifically we investigate the impact of evidence strength on managers’ decisions to blow the whistle in the presence and absence of other employees who have knowledge of the wrongdoing. Results indicate that when there is strong evidence indicating a fraudulent act, individuals with sole knowledge are more likely to report than when others are aware of the fraudulent act (the bystander effect). However, the bystander effect is not found when evidence of fraud is weak. Further, a mediated moderation analysis indicates that perceived personal responsibility to report mediates the relation between others’ awareness of the questionable act and reporting likelihood, suggesting that the bystander effect is driven by diffusion of responsibility. Our results have implications for all types of organizations that wish to mitigate the detrimental effect of fraud. Specifically, training or incentives may be necessary to overcome the bystander effect in an organization.

Authors

• Alisa Gabrielle Brink, Virginia Commonwealth University

• Christopher Kevin Eller, Virginia Commonwealth University

• Huiqi Gan, Virginia Commonwealth University