The Influence of Unethical Pro-Organizational Behavior (UPB) on Internal Auditors’ Fraud Detection

• In Event: Breakfast with Research Roundtable Forum Session
  In Paper Session: Roundtable 1: Auditing

Abstract

Fraud is a widespread complex phenomenon that has many costly consequences. In order to restore the public confidence, the United States Congress passed the Sarbanes-Oxley Act (SOX) of 2002. The SOX mandates audit committees’ oversight of financial reporting and places accountability of the internal controls on the management. Unethical pro-organizational behavior (UPB) has become a standard feature in the workplace. While fraud is a purposeful or illegal act for someone's gains, UPB occurs when employees engage in unethical behavior to serve the organizations they belong.
Evidence of how and whether UPB influences internal auditors (IAs) is invaluable because of the unique roles IAs perform. Notably, the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5 requires the effectiveness of internal control over financial reporting, thus intends internal auditors’ enhanced roles to present critical measures as required by external auditors. Moreover, the 2017 Institute of Internal Auditors (IIA) Standards describe IAs to advance organizations' governance processes, evaluate the effectiveness of risk management and assist management in establishing effective controls. Therefore, we explored recent research. We structured the study by reviewing the conceptual definitions of the UPB, the fraud triangle, the auditor’s fraud, the internal auditor's roles, and also examining the recent related studies.
We find that in addition to the crucial social dimension, fraud has an essential instrumental climate. The aspects of UPB provide a rationalization for employees to commit fraud. The determinants that support fraud act involve pressure from management and incentives to achieve financial targets. We recognize that the studies on UPB are yet at an initial stage. More specifically, numerous studies have examined internal auditors' detection and prevention of fraud. However, they were on the individual gains of those engaging in fraud. Limited research has addressed whether the organization benefits from fraud. The theory predicts that employees participate in UPB to benefit their organizations. Our proposed research advances the literature by investigating the internal auditor’s conflict of interest in support of UPB, mainly in the context of the Fraud Triangle using Instrumental Climate as a moderating variable. Our review of the literature has identified this area as a meaningful gap that should be addressed.
Therefore, we offer two research questions:
(1) Using instrumental climate as a moderating variable, does UPB place undue pressure on internal auditors in fraud detection?
(2) Does the involvement of internal auditors in UPB benefit the organization they associate with than their gains?

Authors

• Joy Chacko, University of Scranton, Scranton, PA

• Anthony Fulmore, University of Scranton