Fear as a Motivation to Commit Management Fraud: A Conceptual Paper Regarding Ethics and Executive Accounting

Abstract

Motivators for financial statement fraud are different than for traditional fraud that involved theft, management fraud and misappropriation of assets, respectively. Traditional theft of assets involves some element of greed and financial pressure is probably the most likely motivator for these frauds. Management fraud, the intentional misstatement of financial results in reports filed with regulatory agencies and made known to the public through various media, however is quite different in what is being attempted. Although there can be gain to the company, the fraud itself is not gaining financial position for management as much as it is preventing the loss of financial position. This is motivation for executives that revolve around potential damages to their ego when their failed vision for the company is known. This loss or reputation and status for the company executive creates a primary motivator that is the fear of failure. The executive also can entertain persistent, possibly delusional rationalizations for the hope for success in turning the situation around. This conceptual paper explores models for applying this idea to current fraud theory. It also posits that proper risk management evaluation can assist in reducing the incidence of management fraud not just by reducing the likelihood of losses occurring that can act as a catalyst for management fraud but by providing plans for addressing potential negative downturns when they occur that mitigates the strength of this fear.