Editorial

Citation

Bierstaker, J.L. and Seol, I. (2010), "Editorial", Management Research Review, Vol. 33 No. 3. https://doi.org/10.1108/mrr.2010.02133caa.001

Editorial

Article Type: Editorial From: Management Research News, Volume 33, Issue 3.

About the Guest Editors

James Bierstaker received his PhD in Accounting from the University of Connecticut in 1995, and also holds a BS in Accounting from Fordham University. Dr Bierstaker is an Associate Professor at Villanova University, where he teaches Financial Auditing and Fraud Examination. He is an Associate Editor of Issues in Accounting Education, and is on the editorial boards of Current Issues in Auditing, Behavioral Research in Accounting and Managerial Auditing Journal. His primary research interests include behavioral auditing research, corporate governance research and instructional research. Currently, he is working on research projects pertaining to the effect of technology on the audit process, the influence of compensation schemes on corporate governance, external auditors' reliance on internal audit and how new audit approaches and training influence auditor risk assessments including fraud risk factor identification. Dr Bierstaker has 35 publications in accounting journals, including Accounting, Organizations and Society, Auditing: A Journal of Practice & Theory, Fraud Magazine, Behavioral Research in Accounting, Issues in Accounting Education, Journal of Information Systems, Accounting Horizons and Managerial Auditing Journal.

Inshik Seol is an Associate Professor of Accounting at Clark University. His research interests are in the audit studies and accounting education. His articles have appeared in Accounting, Organizations and Society, Auditing: A Journal of Practice & Theory, International Journal of Auditing, Issues in Accounting Education and other academic and professional journals. He has been awarded a Fulbright Scholarship to Korea.

Special issue on “Fraud prevention and detection”

Fraud is a significant moral and ethical issue and a serious threat to our economy. A recent survey by the Association of Certified Fraud Examiners suggests that corporations lose about 7 percent of revenues per year to fraud or $994 billion in total (ACFE, 2008). Despite the seriousness of the issue, and its widespread effect on businesses, non-profits, consumers and individuals, research on fraud is still in its infancy. Although much of fraud research is published in accounting journals, ultimately the responsibility for designing proactive fraud prevention programs rests with management.

The purpose of this special issue of Management Research Review is to raise awareness among academics and practitioners about the seriousness of fraud as well as important tools for detecting or preventing it in both the public and private sector. For example, Ronald J. Huefner shows how failure to follow internal controls, lack of oversight by the supervisory board, collusion among top executives, and substandard auditing all contributed to a multi-million dollar public fraud that led to new rules for the financial management of school districts, including requirements for audit committees and internal auditors.

Richard G. Brody highlights the importance of human resources not only performing a traditional background check, which has some important limitations, but combining this with other methods such as honesty tests. Brody provides specific examples of how these tools could have saved organizations significant financial resources and costs to their reputation.

Patrick Kelly and Carol A. Hartley focus on gambling addictions, which provide among the most powerful motivations to commit fraud and caution managers of organizations in particular that are located near a casino. Their recommendations for management include surprise audits of inventory and cash, what to look for in terms of changes in employee behavior, rotation of job duties, and careful protection of bank statements and cash receipts.

Anna Alon and Peggy Dwyer find that accounting students who brainstorm about fraud in groups outperform individuals in identifying fraud risk factors, consistent with the approach now required for auditors in SAS 99. In addition, groups who used a decision aid outperformed groups who did not have a decision aid, however, individuals were more likely to rely on the aid than groups. This finding suggests that despite the prevalence of decision aids for fraud risk assessment in practice, groups may be under-reliant on these tools.

Chad Albrecht, Chad Turnbull, Yingying Zhang and Christopher J. Skousen examine fraud and corruption overseas in Korean organizations known as chaebols. Although initially credited for advancing Korea's economic development, Albrecht et al. use the fraud triangle theory to analyze how fraud occurred at four of Korea's most prominent organizations. Albrecht et al. also shed light on the issue of how cultural differences influence perceptions about what is ethical. This is an extremely important area of research in need of further investigation, since corruption is one of the fastest growing areas of fraud, and much of it occurs overseas. A recent survey found that 27 percent of reported fraud cases involve corruption, making it the most commonly occurring fraud scheme (ACFE, 2008), and median losses from corruption ($375,000) are second only to financial statement fraud losses. In addition, the number of companies reporting corruption and bribery has increased 71 percent.

An additional article that went through the regular review cycle by R. Steven Flynn, provides additional insights into how previous penalties of other upper level managers may be inducements to prevent current managers from fraudulently stating earnings. It was found that investors viewed the earnings restatement penalties as fraud deterrents, providing a level of protection comparable to that offered by financial statement certifications, a mandated practice originally intended to deter fraud. These results suggest that investors' awareness of past restatement penalties could help to enhance the credibility of currently reported earnings.

Overall, these articles provide a starting point for fraud research in a variety of important areas including fraud in the public sector, corruption, fraud prevention, decision aids and powerful pressures to commit fraud. Hopefully this special issue will stimulate more research in each of these areas, as well as bring about collaboration between accounting and management scholars.

James L. Bierstaker and Inshik SeolGuest Editors

Reference

Association of Certified Fraud Examiners (ACFE) (2008), 2008 Report of the Nation on Occupational Fraud and Abuse, ACFE, Austin, TX.