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The Impact of Financial Incentives and Perceptions of Seriousness on

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DOI: 10.1007/s10551-016-3215-6

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J Bus Ethics
DOI 10.1007/s10551-016-3215-6
The Impact of Financial Incentives and Perceptions of Seriousness
on Whistleblowing Intention
Paul Andon1 • Clinton Free1 • Radzi Jidin1 • Gary S. Monroe1 • Michael J. Turner2
Received: 4 August 2015 / Accepted: 15 May 2016
 Springer Science+Business Media Dordrecht 2016
Abstract Many jurisdictions have put regulatory strategies
in place to provide incentives and safeguards to whistle-
blowers to encourage whistleblowing on corporate
wrongdoings. One such strategy is the provision of a
financial incentive to the whistleblower if the complaint
leads to a successful regulatory enforcement action against
the offending organization. We conducted an experiment
using professional accountants as participants to examine
whether such an incentive encourages potential whistle-
blowers to report an observed financial reporting fraud to a
relevant external authority. We also examine the effect of
perceived seriousness of the wrongdoing on accountants’
intention to whistleblow. We find that a financial incentive
results in a higher intention to whistleblow to a relevant
external authority. We also find that perceptions of the
seriousness of the wrongdoing are significantly and posi-
tively associated with accountants’ intention to whistle-
blow to a relevant external authority. We find a significant
interaction between the provision of a financial incentive
and the perceived seriousness of the wrongdoing on the
intention to report the wrongdoing externally. The intention
to report the financial reporting fraud externally is higher
when the level of perceived seriousness is higher, regard-
less of the availability of a financial incentive. However,
when the perceived level of seriousness is lower, the
presence of financial incentive results in a higher intention
to report the financial reporting fraud externally. These
findings indicate that the impact of a financial incentive on
& Paul Andon
p.andon@unsw.edu.au
1 whereby one exposes wrongdoing (Jubb 1999; Perry 1998). Near and
UNSW Business School, UNSW Australia, Sydney, Australia
2
UQ Business School, The University of Queensland,
St Lucia, Australia
the intention to whistleblow is moderated by perceptions of
the seriousness of the wrongdoing.
Keywords Whistleblowing
Sarbanes–Oxley Act
Dodd–
Frank Act
Financial incentives
Seriousness
Moral
awareness
Introduction
In spite of the enormous investment organizations
throughout the world have made into fraud detection tools,
processes, and structures, research has consistently identi-
fied whistleblowers as the most important source of fraud
detection (ACFE 2016).1 This is perhaps unsurprising
given the complexity and low public visibility of much
fraudulent activity within organizations. Since the financial
scandals of the early millennium in particular, regulators
throughout the world have underscored the importance of
whistleblowing in detecting and deterring organizational
misconduct and corporate fraud (Feldman and Lobel 2010).
In the US and elsewhere, a centerpiece of regulatory efforts
has been the implementation of financial incentives to
reward whistleblowers. However, the impact of these
incentives on potential whistleblowers, particularly
accounting professionals who are well positioned to iden-
tify and report fraud, is not well understood (Pope and Lee
2013).
1
Although there is no agreed-upon definition of whistleblowing, the
term has been used within the business vernacular to describe an act
Miceli (1985) define whistleblowing as organization members’
disclosure of illegal, immoral, or illegitimate practices under the
control of their employers, to parties who may be able to effect action.
123

The aim of this study is to investigate the way that
financial incentives designed to encourage whistleblowing
influence professional accountants’ intention to whistle-
blow. This paper is motivated by two key factors. The first
is the considerable recent activity on the part of regulators
internationally to provide incentives for whistleblowers as
corporate fraud social enforcement has become a key fea-
ture of regulatory policy (Feldman and Lobel 2010). A
central element of recent US legislation in the area has
been the creation of financial incentives for whistleblowers
who volunteer original information that results in sanctions
in the form of monetary fines. Perhaps most notably, the
Wall Street Reform and Consumer Protection Act 2010
(commonly referred to as the Dodd–Frank Act), enacted in
the aftermath of the global financial crisis, empowered the
Securities Exchange Commission (SEC) to make monetary
awards available to whistleblowers whose information
leads to successful SEC actions in certain circumstances.2
Outside of the US, financial rewards for whistleblowers
have been introduced in South Korea, Canada, Mexico, and
to a lesser extent China and India. Despite the clear policy
and organizational benefits that flow from an improved
understanding of the factors that facilitate whistleblowing,
the field remains relatively understudied (Feldman and
Lobel 2010).
The second motivating factor is the role of accountants
as key stakeholders in the detection and prevention of
organizational fraud and misconduct (Andon et al. 2015).
In its most recent 2016 Report to the Nations, the Asso-
ciation of Certified Fraud Examiners (ACFE) found that
more occupational frauds originated in accounting depart-
ments than in any other business unit (16.6 %). Further,
over 75 % of the occupational frauds they analyzed were
committed by individuals working in seven departments:
accounting, operations, sales, executive/upper manage-
ment, customer service, purchasing, and finance (ACFE
2016). These findings, which mirror similar findings else-
where (see, for example, Friedrichs 2002), focus attention
on a band of roles and responsibilities that have a close
connection to the accounting cycle. Consequently, indi-
viduals employed in accounting-related roles have a unique
opportunity to detect fraud. Accountants are also frequently
in a position to directly or indirectly observe manipulated
accounting records and circumvented internal controls.
Therefore, the whistleblowing intentions of professional
accountants are an important, and currently under-re-
searched, element of fraud detection and prevention.
2
These incentives are required to be between 10 and 30 % of the
monetary penalties collected. This initiative represents a significant
escalation not only in the incentives offered to whistleblowers, but
also an acknowledgement of the increased strategic regulatory
importance attached by the US Government to whistleblowers.
123
P. Andon et al.
Research looking at the relationship between percep-
tions of seriousness, financial incentives, and the intention
to whistleblow has been scant and mixed. Feldman and
Lobel (2010) found a significant interaction between
financial incentives and the perceived ‘severity’ of mis-
conduct whereby those who viewed the misconduct to be
relatively insignificant were likely to be influenced by
financial incentives, while there was no difference for those
who viewed the misconduct to be severe. However, it
should be noted that their study involved a different
wrongdoing, respondent population, and reward manipu-
lation than examined in the current study. Moreover, in an
examination of accounting and non-accounting fraud cases
in the US between 1996 and 2004, Dyck et al. (2010,
p. 2215) conclude that ‘‘monetary incentives for fraud
revelation appear to play a role regardless of the severity of
the fraud’’ (emphasis added). Given concerns regarding the
mixed evidence, this research seeks to examine these
effects using professional accountants currently employed
in an accounting role and currently working in the US. Our
study contributes to the literature by adding to our under-
standing of the effectiveness of financial incentives in
promoting the reporting of wrongful acts by professional
accountants in relation to the very type of fraud they are
likely to discover, financial statement fraud.
We conduct an experiment using professional accoun-
tants as participants to examine whether a financial
incentive, similar to that enacted as part of the Dodd–Frank
Act passed in 2010, encourages potential whistleblowers to
report an observed financial reporting fraud to external
authorities. We also examine whether the perceived seri-
ousness (operationalized in terms of harm and moral
wrongfulness) of the wrongdoing affects the intention to
whistleblow. We find that the presence of a financial
incentive results in a higher intention to whistleblow to a
relevant external authority than when no financial incentive
is present. We also find that perceptions of the seriousness
of the wrongdoing are significantly and positively associ-
ated with accountants’ intention to whistleblow to a rele-
vant external authority. We further find a significant
interaction between the provision of a financial incentive
and the perceived seriousness of the wrongdoing on the
intention to report the wrongdoing externally. The intention
to report the financial reporting fraud to a relevant external
authority is higher when the level of perceived seriousness
is higher, regardless of the availability of a financial
incentive. However, when the perceived level of serious-
ness is lower, the presence of a financial incentive results in
a higher intention to report the financial reporting fraud
externally than when no financial incentive is present.
These findings indicate that the impact of a financial
incentive on the intention to whistleblow is moderated by
perceptions of the seriousness of the wrongdoing.
The Impact of Financial Incentives and Perceptions of Seriousness…
The remainder of this paper is structured as follows.
‘‘Regulatory Attempts to Encourage Whistleblowing’’
section presents a brief overview of regulatory attempts to
encourage whistleblowing. ‘‘Prior Research’’ section sum-
marizes the experimental literature that examines factors
that affect the likelihood of an individual reporting a
wrongdoing. This is followed by ‘‘Hypothesis Develop-
ment’’ section, which develops the hypotheses tested in our
study. Our research method is discussed in ‘‘Research
Method’’ section, which is then followed by the presenta-
tion of our results in ‘‘Results’’ section. The final section
summarizes our study, its contribution to the literature, and
potential limitations of our research.
Regulatory Attempts to Encourage
Whistleblowing
Across the world’s largest economies, regulators have
increasingly sought to draw upon tools to provide support
to whistleblowing. Regulated financial incentives designed
to encourage whistleblowing are becoming a more accep-
ted response to the challenges of eliciting information
about illegitimate corporate conduct (Braithwaite 2013;
Bucy 2002a, b). The US has perhaps the most mature
provisions for whistleblower incentives. Under the US
False Claims Act, ‘‘qui tam’’ actions allow a whistleblower
to receive up to 30 % of monies recovered by government
from offenders in cases of public sector fraud, subject to
certain conditions. In 2006, amendments were made to the
US Internal Revenue Code to provide for economic
incentives aimed at encouraging whistleblowers to provide
information to the Internal Revenue Service on large-scale
tax fraud (over US$2 million). More recently, and specif-
ically focusing on corporate fraud, additional financial
incentives were enacted as part of the Dodd–Frank Act
passed in 2010. This Act founded the United States Secu-
rities and Exchange Commission (SEC) Office of the
Whistleblower, which is charged with administering the
reward of financial incentives to individuals who report
breaches of federal securities laws leading to a successful
SEC enforcement action against the offending organization
of more than US$1 million. To qualify for a financial
incentive between 10 and 30 % of funds recovered, the
whistleblower must voluntarily provide ‘‘original’’ infor-
mation (i.e., the information must have been derived from
‘‘independent knowledge or analysis’’) that is not already
known to the SEC. The amount of the incentive paid within
the percentage range is informed by a range of criteria set
out in the Act.
Other countries have also adopted legislated financial
incentives for whistleblowers. In South Korea, The Anti-
Corruption Act passed in 2001 allows the Anti-Corruption
and Civil Rights Commission (ACRC) to provide
whistleblowers with rewards of up to US$2 million for
information that contributes directly to recovering or
increasing revenues or reducing expenditures for public
agencies, and also may recommend awards for whistle-
blowing that has served the public interest (OECD 2012).
The Canada Revenue Agency (CRA) instituted the Stop
International Tax Evasion Program, under which the CRA
will reward whistleblowers up to 15 % of international tax
recoveries exceeding CA$100,000 (Fekete 2013). Mexico
introduced a whistleblower incentive scheme focused on
money-laundering (Wolf 2011). Other, less comprehensive
variations of whistleblower incentives are also evident in
China and India (Freshfields Bruckhaus Deringer LLP
2013). As indicated in Table 1, there is considerable vari-
ation among G20 countries with respect to financial
incentives.
Prior Research
Experimental research published in accounting, business
ethics, and other fields is beginning to identify important
characteristics of whistleblowing intentions and behavior.
Recent work has examined various procedures, protections,
and incentives that can be shaped by organizations and
regulatory authorities to influence whistleblowing inten-
tions and actions. Several procedural elements have been
identified to have a positive impact on whistleblowing
intentions, including formal reporting structures (Brennan
and Kelly 2007), policies and mechanisms incorporating
higher levels of procedural, distributive, and interactional
justice (Seifert et al. 2010), anti-retaliation protections
(Keenan 1990; Liyanarachchi and Adler 2011; Liya-
narachchi and Newdick 2009), and prior evidence of strong
organizational responses to whistleblowing (Curtis and
Taylor 2009; Taylor and Curtis 2013). Anonymous
reporting has been found to increase the frequency of
reporting (Atkinson et al. 2012); however, this literature
has yielded mixed findings, suggesting that the availability
of anonymous reporting channels is no better than pro-
tected identity reporting protections (Curtis and Taylor
2009) and do not affect the intention to report generally
(Pope and Lee 2013). Kaplan et al. (2012) report that in the
absence of prior experience of retaliation, respondents did
not differ in their intention to report between anonymous
and non-anonymous reporting channels, while experience
of retaliation lowered whistleblowing intentions through
non-anonymous reporting channels, but did not increase
anonymous reporting intentions. A small stream of papers
has begun to investigate the impact of financial incentives.
Xu and Ziegenfuss (2008) and Pope and Lee (2013)
highlight a positive relationship between incentives and
123
 P. Andon et al.

Table 1 A global survey of whistleblowing provisions (G20 nations Hypothesis Development

listed in order of GDP)
Nation External financial incentives In brief, we expect that both the presence of a financial
incentive and high perceptions of seriousness are positively
Public sector laws Private sector laws
related to the intention to whistleblow. We further propose
European Union 3 3 that this positive relationship between financial incentives
United States 3 1 and intention to whistleblow will be moderated by the
China 3 2 perceived seriousness of observed wrongdoing.
Japan 3 3
Germany 3 3
France 3 3 The Impact of Financial Incentives
United Kingdom 3 3
Brazil 3 3 Offering individuals financial incentives by a regulator to
Russia 3 3 report externally (i.e., to an authority outside their employ-
Italy 3 3 ing organization) has been found to have a significant
India 3 2 influence on whistleblowing intentions (Feldman and Lobel
Canada 3 2 2010; Pope and Lee 2013). While broader social–psycho-
Australia 3 3
logical research may suggest that whistleblowing intentions
Mexico 3 2
could be animated by a sense of organizational loyalty, and
to benefit their organization, available evidence indicates
South Korea 3 1
that there is significant under-reporting of wrongdoing
Indonesia 3 3
(Ethics Resource Center 2013; Miceli and Near 1992).
Turkey 3 3
In situations such as this, where regulators seek to motivate
Saudi Arabia 3 3
reporting in the observed absence of an intrinsic motivation
Argentina 3 3
to do so, it has been long argued that a financial reward is a
South Africa 3 3
potent motivational tool (see, for example, Callahan and
Ratings 1 very/quite comprehensive, 2 somewhat/partially compre- Dworkin 1992; Porter et al. 1976). Accordingly, as descri-
hensive, 3 absent/not at all comprehensive bed above, in recent years regulators throughout the world
have set up schemes whereby whistleblowers who volunteer
original information to external authorities are able to
reporting, but other studies find this to be a complex receive financial bounties. These financial incentives to
association. Feldman and Lobel (2010) find evidence that whistleblow are believed to foster opportunistic motivation
the effect of incentives can be impacted by elements such to reveal wrongdoing where they might not have otherwise
as the size of the incentive, duties to report, internal (Schmidt 2005), in a manner that may be likened to the
motivation to report, and gender (males being more effects of an employee performance bonus (Callahan and
affected by incentives). Dworkin 1992). This is important given the observation that
Thus, the emerging literature on financial incentives many instances of illegitimate corporate conduct go unre-
suggests that the effects of such incentives, while holding a ported (Miceli and Near 1992).
lot of promise, are complex in terms of how they directly Research generally lends support to the positive impact
and indirectly affect whistleblowing intentions and actions. of financial incentives on whistleblowing intentions. Xu
However, despite Miceli and Near’s (1992) call for further and Ziegenfuss (2008) report that the likelihood of internal
research examining the effectiveness of financial rewards on auditors reporting wrongdoing is increased when incentives
people’s intention to whistleblow, research on the effec- are offered by their employing organization. Pope and Lee
tiveness of financial incentives in the private sector is (2013) report similar findings from their study using MBA
‘‘woefully lacking’’ (Pope and Lee 2013, p. 602). Our study students. However, evidence from Feldman and Lobel
adds to the existing academic and practitioner literature by (2010) and Brink et al. (2013) is more equivocal. While
adding to our understanding of the effectiveness of financial Feldman and Lobel (2010) report that financial incentives
incentives in promoting the reporting of wrongful acts, and were the most significant mechanism influencing reporting
certain variables that are likely to impact on the effective- intentions, they also found that participants predicted the
ness of such measures. The following section draws on the reporting intentions of a stranger to be more affected by
literature reviewed to formulate hypotheses, which in turn financial incentives than their own reporting intentions (a
elaborates in more detail how we seek to extend extant social desirability response bias effect), that males were
understanding of financial incentives and whistleblowing. more affected by financial incentives than females, that

123
The Impact of Financial Incentives and Perceptions of Seriousness…
high internal motivation diminishes the impact of financial
incentives, and that in certain circumstances financial
incentives can ‘crowd out’ internal reporting motivation,
resulting in lower reporting intentions than if no reward
were offered at all. Brink et al. (2013) find that the impact
of financial incentives is also conditioned by the strength of
evidence of wrongdoing at the whistleblower’s disposal.
Overall, the general implication of this literature is that
financial incentives are likely to have a positive impact on
whistleblower intentions to report wrongdoings. Based on
current claims, we hypothesize that financial incentives
will result in a higher intention to report a financial
reporting fraud to a relevant external authority.
H1 The presence of a financial incentive will result in a
higher intention to report a wrongdoing externally.
Perceptions of Seriousness and Intrinsic Motivations
Motivations to report wrongdoing can be divided into intrinsic
and extrinsic motivations (Harackiewicz and Sansone 2000).
Extrinsic motivation is linked to actions that are driven by
external commands or rewards such as payments (Harack-
iewicz and Sansone 2000). Alternatively, intrinsic motivation is
the driver when behavior is chosen from within the individual
out of a sense of moral or civic duty (Deci et al. 1999a; Kasser
and Ryan 1996). Intrinsic motivation was originally focused on
some inherent interest in a task (see, Deci et al. 1999a). Over
time, the concept has expanded to include many additional
intrinsic motivations such as morality, duty, legitimacy, fair-
ness, loyalty, and identity (Feldman 2011). Alternatively,
extrinsic motivation was originally focused on monetary
rewards (see Deci et al. 1999a) but has since been expanded to
include various legal, verbal, social, and organizational mech-
anisms that seek to influence people to engage in socially
desirable behavior (Feldman 2011).
Scholars have suggested that the perceived seriousness
of wrongdoing is a predictor of an individual’s intrinsic
motivation to blow the whistle. A wrongdoing that is per-
ceived as more serious is more likely to be reported to a
relevant authority (Clinard and Yeager 1983; Dozier and
Miceli 1985; Near et al. 2004; Taylor and Curtis 2010).
The perceived seriousness of a wrongdoing should affect
the intention to report the wrongdoing externally. Drawing
on data from a diverse panel of working adults in the US
using a theft case example, Feldman and Lobel (2010) find
that the intention to whistleblow externally is associated
with what they term ‘severity.’ Accordingly, we expect a
positive association between perceptions of the seriousness
of a wrongdoing and the intention to report a financial
statement fraud externally.
H2 There is a positive association between perceptions of
the seriousness of a wrongdoing and the intention to report
a wrongdoing externally.
The Moderating Impact of Seriousness
in the Presence of Financial Incentives
Whether a whistleblower is motivated by intrinsic or
extrinsic factors may depend on the context. Based on
intrinsic–extrinsic motivation theory, we expect that the
provision of a financial incentive is unlikely to have an
effect on the intention to report a wrongdoing if a wrong-
doing is perceived as very serious. In contrast, if the
wrongdoing is not perceived as very serious, then the
financial incentive is likely to have an effect on the
intention to report a wrongdoing. Feldman and Lobel
(2010) argue that monetary rewards can affect the level of
reporting a wrongdoing unless the underlying wrongdoing
is perceived as being in some way morally offensive. When
the whistleblower attaches an ethical significance to the act
of reporting, monetary rewards are less consequential in
determining his or her actions because the intrinsic moti-
vation to right the wrongdoing is the whistleblower’s pri-
mary motivation. Fehr and Falk (2002) claim that where
people attribute their behavior to external rewards, they
have a tendency to discount any consideration of intrinsic
incentives for their behavior and that extrinsic incentives
drive their decision about whether to report the wrongdo-
ing. Across a range of experimental tasks, tangible rewards
have been shown to have the potential to undermine
intrinsic motivation (Deci et al. 1999a, b), resulting in
considerable long-term counterproductive results (Deci
et al. 1999a). Feldman and Lobel (2010) found a significant
interaction between financial incentives and the perceived
‘severity’ of misconduct whereby those who viewed the
misconduct to be relatively insignificant were likely to be
influenced by financial incentives, while there was no
difference for those who viewed the misconduct to be
severe.
In summary, intrinsic–extrinsic motivation theory sug-
gests that people are more likely to report a wrongdoing
that is perceived as serious irrespective of any financial
incentive to report the wrongdoing. In contrast, a financial
incentive is likely to have an effect on the likelihood of
reporting a wrongdoing when the wrongdoing is perceived
as less serious.
H3 Perceived seriousness of observed wrongdoing mod-
erates the relationship between financial incentives and the
intention to report a wrongdoing externally.
123

Research Method
This section of the paper describes our experimental
materials, measurement of variables, selection of our par-
ticipants, response rate, and analysis of demographic data.
Experimental Design and Measurement of Variables
We used a between-subject quasi-experimental design with
one manipulated variable (financial incentive) and one
measured variable (perceived seriousness of the wrongdo-
ing). Financial incentive was manipulated at two levels
(financial incentive or no financial incentive) and perceived
seriousness of the wrongdoing was measured rather than
manipulated. Participants were presented with a case sce-
nario, based on a combination of recent real-life financial
statement frauds, where they were asked to assume the role
of a certified public accountant (CPA) employed as a senior
accountant within the accounting department of AgFoods
Inc., a public company in the business of grain marketing
and exporting. The experimental materials stated ‘‘One
evening, while working late on a set of files to meet a
reporting deadline, you discovered information indicating
that the financial controller of AgFoods has made a series
of accounting entries recognizing fictitious revenue totaling
$50,000,000. After being unable to find any supporting
documentation, you raised the matter with the financial
controller who was dismissive of your concerns. It is clear
to you that these entries have caused AgFoods to materially
misrepresent its reported earnings. Based on recent cases,
you expect that the SEC would impose sanctions in the
form of a fine of approximately $5,000,000 if the company
is investigated and found guilty of fraudulent financial
reporting.’’3 Participants were also informed that
‘‘AgFoods has a dedicated hotline in place for employees
to report any concerns regarding accounting, auditing and
internal control matters in a confidential and anonymous
manner,’’ and that ‘‘there are no explicit protections under
current law against an employer retaliating against an
individual presenting an allegation of illegal behavior
either internally to their employer or externally to the rel-
evant government authority.’’
3
Great care was taken to develop a realistic scenario framed around a
case of financial statement fraud. Real-life cases as reported in
national newspapers formed the basis for the scenario used in our
experimental material. The scenario was piloted with the assistance of
(1) 3 persons from industry and (2) 9 university academics
independent to the research. Utilizing a case vignette to manipulate
situational variables is consistent with prior studies of whistleblowing
(Mesmer-Magnus and Viswesvaran 2005; Miceli et al. 2008). It is
acknowledged, however, that using a brief hypothetical scenario
cannot adequately capture the richness of the real-life environment,
the formal and informal structures and networks within firms,
personal ambitions, integrity, and much else besides.
123
P. Andon et al.
Participants were next exposed to the manipulated
treatment, i.e., information whether a financial incentive
was (was not) available for reporting the financial reporting
fraud. The financial incentive available manipulation read
as follows:
Under current law, the US Securities and Exchange
Commission (SEC) provides a financial reward to
individuals who volunteer original information to a
relevant external authority that results in monetary
sanctions against the offending company that exceed
$1,000,000. The amount of the financial reward will
be between 10 and 30 % of such monetary sanctions
collected by the securities regulator.
The no financial incentive available manipulation read
as follows:
Under current law, there are no provisions for paying
financial rewards to individuals who volunteer orig-
inal information to the US Securities and Exchange
Commission that result in monetary sanctions against
the offending company.
Following this, participants were asked to indicate how
likely they thought it was that they would formally report
the fictitious revenue entries to a relevant external authority
using a nine-point scale anchored by 1 = very unlikely and
9 = very likely (Report Externally). These responses are
used as the dependent variables in our subsequent analyses.
Participants were then asked to answer a number of
other questions including a question used to measure our
test variable regarding participants’ perceptions of the
seriousness of the wrongdoing (Seriousness). To capture
participants’ perceptions of the seriousness of the wrong-
doing, they were asked to assess the seriousness of the
fictitious accounting entries using a nine-point scale
anchored by 1 = not serious and 9 = very serious.4
As proposed by Schultz et al. (1993), the Model of
Discretionary Reporting posits that, in addition to the
perceived seriousness of a wrongdoing, the decision to
report a questionable act is also influenced by the perceived
personal costs (or benefits) of reporting. Participants were
asked to assess the costs (and benefits) of reporting the
fictitious revenue entries to the relevant external authority
using a nine-point scale anchored by 1 = no cost (benefit)
and 9 = very high cost (benefit). For our subsequent
analyses, we use the net cost minus benefit score by sub-
tracting the cost of reporting responses from the benefit of
4
We also asked participants to assess the level of harm and moral
wrongfulness associated with the fictitious accounting entries. We do
not include the level of harm and the level of moral wrongfulness as
covariates in our models as they were highly correlated with the level
of seriousness.
The Impact of Financial Incentives and Perceptions of Seriousness…

reporting responses for the relevant assessments of external Table 2 Questionnaire survey response pattern
reporting. Total
Participants were also asked to indicate the amount of
ethics-related training they had undertaken in their career Accepted invitation and passed screening (working the 177
U.S. in an accounting role)
using a nine-point scale anchored by 1 = no ethics training
and 9 = a large amount of ethics training. They also Less incomplete 39
reported whether they held a professional accounting des- Completed 138
ignation; their level of satisfaction with their current job Completion rate 77.97 %
using a nine-point scale; age; gender; and whether they Less failed manipulation checks 58
had, as part of their work experience, discovered a person Total usable responses 80
or persons of greater authority engaging in potentially Response rate 45.20 %
wrongful behavior.
Response Rate
Participants
The survey response pattern is shown in Table 2. Invita-
Participants are professional accountants currently
tions were sent out by Qualtrics to a targeted audience of
employed in an accounting role and currently working in
respondents registered as professional accountants in the
the US who were members of a national panel obtained by
Qualtrics respondent database. At the researcher’s request,
Qualtrics Inc., an international online research company.5
Qualtrics sent the questionnaire to respondents over the age
Respondents were recruited to the panels through two
of 25. Age 25 was chosen as it would be unlikely that
methods: self-registration or third-party (e.g., airline mile
respondents could be a qualified professional accountant at
clubs) recruiting. Participants receive cash-equivalent
any lower age. Two screening out questions were also
rewards which can be redeemed for gift cards, airline
included, which were first that the respondent had to be
miles, magazine subscriptions, etc. The recruitment cam-
currently employed in an accounting role, and second that
paign typically appeals to some combination of incentives,
the respondent had to be currently working in the US. A
self-expression, fun, social comparison, curiosity, or con-
total of 177 respondents passed the initial screening con-
venience (Poynter and Comley 2003). Like most online
ditions. However, 39 were eliminated because the survey
panels, the panel sample was recruited using non-proba-
was incomplete. This resulted in a total of 138 completions,
bility recruitment methods (see, Baker et al. 2010). The
a 77.97 % completion rate. Within the 138 completions,
sample was chosen randomly from the panel. Survey
however, 58 respondents failed the manipulation check
respondents opened a link to the online survey with help
question, leaving a total of 80 usable responses, a 45.20 %
from Qualtrics’ survey administrators. Qualtrics received a
response rate.6
payment for access to their panel and handled the com-
pensation of respondents.
Descriptive Statistics
Professional accountants were chosen as the sampling
group because they are key stakeholders in the detection
Data on demographic factors including age and gender
and prevention of organizational fraud and misconduct,
were collected. Questions were also posed concerning
particularly in relation to financial statement fraud. Further,
whether as part of the respondent’s work experience they
they have a high level of practical experience working in a
had ever discovered a person or persons engaging in
professional environment. In addition, our experimental
potentially wrongful behavior and if they currently held a
materials are about an accountant who discovered infor-
professional accounting designation. Descriptive statistics
mation concerning a wrongdoing involving fraudulent
regarding these categorical demographic questions posed
financial reporting. As such, professional accountants are
are displayed in Table 3.
likely to have experienced ethical dilemmas such as those
Table 3 highlights that sample respondents were evenly
contained within the questionnaire. Therefore, professional
spread across working-age categories [25–34: 19 (23.8 %);
accountants are considered to be appropriate participants in
35–44: 18 (22.5 %); 45–54: 21 (26.3 %)], with only a
our study.
small proportion of respondents being aged over 65
[65–74: 5 (6.3 %); and over 75: 1 (1.3 %)]. While a
majority of the sample respondents were female (65 %),
5
Qualtrics panels have been used in several related fields such as
6
business ethics (e.g., Ferguson et al. 2014), marketing and logistics These failure rates are similar to those in other studies using
(e.g., Albaum et al. 2014), psychology (e.g., Wright and Carlucci electronic survey methods (e.g., Andrews et al. 2003; Oppenheimer
2011), and environmental decision making (e.g., Rosoff et al. 2013). et al. 2009).

123
 P. Andon et al.

Table 3 Demographic categorical descriptive statistics of the Results

participants
Category Number of participants Percentage Recall that our financial incentive test variable was
manipulated, whereas our test variable for participants’
Total participants 80 100
perceptions of the seriousness of the wrongdoing was
Age
measured. To capture participants’ perceptions of the
25–34 19 23.8
seriousness of the wrongdoing, participants were asked to
35–44 18 22.5 assess the seriousness of the fictitious accounting entries
45–54 21 26.3 using a nine-point scale anchored by 1 = not serious and
55–64 16 20 9 = very serious. The mean and standard deviation for this
65–74 5 6.3 variable were 7.91 and 1.943, respectively, while the
Over 75 1 1.3 median is 9 (not tabulated). As shown in Panel A of
Gender Table 4, 77.6 % of participants assessed the level of seri-
Male 28 35 ousness as either 8 or 9, whereas the rest of the participants
Female 52 65 (22.4 %) assessed the level of seriousness between 1 and 7.
Professional accounting designation The hypotheses are tested using ANCOVAs. The
Yes 56 70 dependent variable for the testing of H1, H2, and H3 is
No 24 30 measured using the participants’ responses for a question
Prior experience of wrongful behavior about how likely it is that they would report the fictitious
Yes 27 33.8 entries to a relevant external authority using nine-point
No 43 53.8 scales where 1 = very unlikely and 9 = very likely. Apart
Not sure 10 12.5 from the two test variables, Financial Incentive and Seri-
ousness, we also include four covariates in our analyses:
(i) Age, (ii) Gender, (iii) Costs–benefits, and (iv) Ethics
this broadly accords with the proportion of women now
training.8
employed in accounting-related roles (for example, the
Recall that H1 addresses the effect of a financial
Bureau of Labor Statistics reports that women make up
incentive on accountants’ intention to report the wrong-
63 % of all accountants and auditors in the US7). A total of
doing externally. The ANCOVA results reported in Panel
56 (70 %) of our sample respondents indicated that they
C of Table 5 show a significant main effect for Financial
held a professional accounting designation. Finally, 27
Incentive on accountants’ intention to report the financial
(33.8 %) of our sample had prior experience of observing
reporting fraud externally (F = 4.848, p = 0.016 one-
wrongful behavior as compared to 43 (53.8 %) who had
tailed). Consistent with H1, the means reported in Table 5,
not, and 10 (12.5 %) who were unsure. In addition to these
Panel A indicate that accountants’ intention to report the
categorical questions, two additional demographic ques-
financial reporting fraud externally is significantly higher
tions were posed. First, respondents were asked to rate the
when there is a financial incentive compared to when there
amount of ethics-related training that they had undertaken
is no financial incentive (mean difference = 0.878,
in their career, posed on a nine-point scale with 1 being no
p = 0.016 one-tailed). In line with this, parameter esti-
ethics training and 9 being a large amount of ethics train-
mates in Panel D of Table 5 show a negative coefficient for
ing. The mean for this item was 5.95 with a standard
Financial Incentive (B = -3.959, standard error 1.798).
deviation of 2.470. Finally, participants were asked to
This suggests that accountants are less likely to report a
indicate how satisfied they were with their current job,
wrongdoing externally when there is no financial incentive
anchored on a nine-point scale with 1 being very dissatis-
to do so relative to when there is such an incentive. Overall,
fied and 9 very satisfied. The mean for this item was 7.24
the findings support H1.
with a standard deviation of 1.795.
8
Prior research suggests the potential influence of these variables on
individual’s intention to whistleblow. For example, Liyanarachchi
and Adler (2011) provide evidence of the influence of age and gender
on accountants’ likelihood to whistleblow. Besides, Kaplan et al.
(2009) demonstrate the association between gender and individuals’
intention to report fraudulent financial reporting. Also, as discussed
earlier in this section, Schultz et al. (1993) suggest that perceived
7
Current Population Survey, Bureau of Labor Statistics, ‘‘Table 11 personal costs (or benefits) of reporting influenced individual’s
Employed Persons by Detailed Occupation, Sex, Race, and Hispanic decision to report a questionable act. Further, prior studies posit that
or Latino Ethnicity,’’ 2014. Available at http://www.bls.gov/cps/ ethics training program could influence accountants’ intention to
cpsaat11.pdf (Accessed 22 July 2015). whistleblow (e.g., Decker and Calo 2007; Vadera et al. 2009).

123
The Impact of Financial Incentives and Perceptions of Seriousness…
Table 4 Assessment of
Panel A: frequency table
seriousness of wrongdoing
Level of seriousness
1—not serious
4 4
5 2
6 4
7 5
8 13
9—very serious
Total
H2 considers the effect of accountants’ perception of the
seriousness of the wrongdoing on their intention to report a
wrongdoing externally. Panel B of Table 5 shows that there
is a positive correlation between accountants’ perception of
the seriousness of the wrongdoing and their intention to
report it externally (Pearson correlation = 0.447,
p = 0.000 two-tailed). The ANCOVA results reported in
Panel C of Table 5 show a significant main effect for
Seriousness on the intention to report externally
(F = 10.977, p = 0.000). Consistent with our expectation,
parameter estimates presented in Panel C of Table 5 show
a positive coefficient (B = 0.184, standard error = 0.170).
These results show a significant positive association
between the accountants’ perception of the seriousness of
the wrongdoing and their intention to report the financial
reporting fraud externally. In other words, accountants’
intention to report the wrongdoing to a relevant external
authority is significantly higher when the perceived level of
seriousness is high relative to when the perceived level of
seriousness is low. These findings provide support for H2.
Recall that H3 addresses the interaction effect between
Financial Incentive and Seriousness on the intention to
report the financial reporting fraud externally. Panel C of
Table 5 shows a significant interaction between Financial
Incentive and Seriousness on the intention of reporting the
financial reporting fraud externally (F = 3.162, p = 0.040
one-tailed). As predicted, parameter estimates in Panel D
of Table 5 indicate a positive coefficient for the interaction
between Financial Incentive and Seriousness (B = 0.389,
standard error = 0.219). The interaction between Financial
Incentive and Seriousness is depicted in Panel E of
Table 5. The parameter estimate for the interaction and the
graph depicted in Panel E of Table 5 indicates that
accountants’ intention to report the financial reporting
fraud externally is significantly higher when the level of
perceived seriousness is higher, regardless of the avail-
ability of a financial incentive. However, when the level of
seriousness is lower, the presence of a financial incentive
increases the intention to report the wrongdoing externally.
Frequency Percent Cumulative percent
3 3.8 3.8
5.0 8.8
2.5 11.3
5.0 16.3
6.3 22.5
16.3 38.8
49 61.3 100.0
80 100.0
These findings show the roles of seriousness of wrongdoing
in moderating the effect of financial incentive on accoun-
tants’ intention to whistleblow externally, thereby provid-
ing support for H3. In the presence of this significant
interaction effect, the main effect for Financial Incentive
needs to be interpreted with caution. The findings
demonstrate that the effect of financial incentive on the
intention to report the wrongdoing externally depends on
the perception of the seriousness of the wrongdoing.
Results for the Covariates
Although not related to our hypotheses, we find that three
of the four covariates included in our analyses as presented
in Table 5, Panel C, are significant. Recall that the results
presented in Table 5 are for the intention to report a
wrongdoing externally. The three significant covariates are
Age (F = 3.900, p = 0.026 one-tailed), Ethics Training
(F = 7.738, p = 0.004, one-tailed), and Gender
(F = 8.019, p = 0.003). The Costs–benefits variable is not
significant. The parameter estimates presented in Panel D
of Table 5 show that older accountants are more likely to
report a wrongdoing externally than younger accountants,
which is consistent with the findings in prior research
(Liyanarachchi and Adler 2011). The parameter estimate
for Ethics Training shows that accountants who have
undertaken more ethics-related training during their career
have a higher intention to report a questionable act exter-
nally than those who have undertaken less training. This is
consistent with suggestions in prior research that more
ethics-related training would lead to a higher likelihood of
reporting questionable act (e.g., Decker and Calo 2007;
Vadera et al. 2009). The results also show that the intention
of reporting a wrongdoing to an external authority is higher
among female accountants than male accountants. This is
generally consistent with the findings in prior research that
female participants are more likely to report a wrongdoing
and fraudulent financial reporting than male participants
(Kaplan et al. 2009)
123
 P. Andon et al.

Table 5 Intention to report externally

Panel A: mean for financial incentive
Financial incentive Mean Std. error

Yes 5.701 .323

No 6.579 .304
Panel B: correlation between seriousness and intention to report externally
Intention to report externally

Seriousness
Pearson correlation .447
Sig. (two-tailed) .000
N 80

Panel C: ANCOVA results

Source Type III sum of squares df Mean square F Significance (one-tailed)

Corrected model 144.475 7 20.639 5.966 .000

Intercept 0.541 1 0.541 0.156 .347
Age 13.491 1 13.491 3.900 .026
Costs–benefits 0.008 1 0.008 0.002 .481
Ethics training 26.770 1 26.770 7.738 .004
Gender 27.740 1 27.740 8.019 .003
Financial incentive 16.772 1 16.772 4.848 .016
Seriousness 37.972 1 37.972 10.977 .000
Financial incentive 9 seriousness 10.938 1 10.938 3.162 .040
Error 249.075 72 3.459
Total 3594.000 80
Corrected total 393.550 79

Panel D: parameter estimates

Parameter Expected sign B Std. error

Intercept 3.056 1.489

Age .344 .174
Costs–benefits .003 .062
Ethics training .243 .088
Gender -1.284 .453
Financial incentive - -3.959 1.798
Seriousness ? .184 .170
Financial incentive 9 seriousness ? .389 .219

123
The Impact of Financial Incentives and Perceptions of Seriousness…

Table 5 continued
Panel E: interaction between financial incentive and seriousness

The dependent variable is the participant’s response to the following question: How likely do you think it is that you would formally report
the fictitious revenue entries to the relevant external authority? Responses are captured using a nine-point scale anchored by 1 = very
unlikely and 9 = very likely. Age is the participant’s age. Costs–benefits is the difference between the participant’s response to the
questions asking the participants to assess the costs and benefits of reporting the fictitious revenue entries to the relevant external authority
using nine-point scales anchored by 1 = no cost (benefit) and 9 = very high cost (benefit). Ethics training is the amount of ethics-related
training participants had undertaken in their career using a nine-point scale anchored by 1 = no ethics training and 9 = a large amount of
ethics training. Gender is the participant’s gender. Financial incentive is a manipulated variable for financial incentive available or no
financial incentive available. Seriousness is a continuous variable based on the participant’s assessment of the seriousness of the
wrongdoing using a nine-point scale where 1 = not serious and 9 = very serious
R2 = .367 (adjusted R2 = .306)

Summary and Conclusions
Many jurisdictions have put regulatory strategies in place
to provide incentives and safeguards to whistleblowers to
encourage whistleblowing on corporate wrongdoings. One
such strategy is the provision of a financial incentive to the
whistleblower if the complaint leads to a successful regu-
latory enforcement action against the offending organiza-
tion. We conducted an experiment using professional
accountants as participants to examine whether such an
incentive encourages potential whistleblowers to report an
observed accounting fraud to a relevant external authority.
We also examine the effect of perceived seriousness of the
wrongdoing on accountants’ intention to whistleblow. We
find that a financial incentive results in a higher intention to
whistleblow to a relevant external authority. We also find
that perceptions of the seriousness of the wrongdoing are
significantly and positively associated with accountants’
intention to whistleblow to a relevant external authority.
We also find a significant interaction between the provision
of a financial incentive and the perceived seriousness of the
wrongdoing on the intention to report the financial
reporting fraud to a relevant external authority. The
intention to report the financial reporting fraud externally is
higher when the level of perceived seriousness is higher,
regardless of the availability of a financial incentive.
However, when the perceived level of seriousness is lower,
the presence of financial incentive results in a higher
intention to report the financial reporting fraud to a relevant
external authority. These findings indicate that the impact
of a financial incentive on accountants’ intention to
whistleblow externally is moderated by perceptions of the
seriousness of the financial statement fraud. Given the
significant interaction effect between financial incentive
and seriousness, the main effect of financial incentive on
the intention to report the financial reporting fraud exter-
nally needs to be carefully interpreted. The results imply
that the influence of financial incentive on the intention to

123

report a wrongdoing externally is subject to the perceived
level of seriousness.
Our findings have important implications for regulatory
policy in relation to whistleblowing. They suggest that the
imposition of incentives is likely to importantly increase
the number of allegations, particularly in relation to inci-
dents that may be regarded as of lower significance. This
implies a stronger flow of potentially frivolous reports and
it is worth noting that the Office of the Whistleblower has
received 14,116 whistleblower tips9 but paid financial
incentives (totaling $54 million) to only 22 whistleblowers
between August 2011 and September 2015 (SEC 2015).
This increase in tip-offs has imposed a heavy and expen-
sive administrative load on the Office. However, a number
of options are available to regulators to mitigate the risk of
frivolous claims including stiff penalties for bad faith or
frivolous reports, particularly for serial whistleblowers.
These include meaningful penalties in the form of signifi-
cant fines for frivolous or vexatious allegations that are
clearly publicized and strong initial screening processes to
readily ascertain the likelihood of prosecution. On balance,
given the social and economic costs of financial statement
fraud, we argue that the benefits of increasing the intention
to whistleblow outweigh the additional costs of processing
reports.
Limitations
Potential limitations to our study arise because only pro-
fessional accountants currently working in the US who
registered their interest with Qualtrics Panels were inclu-
ded in the sample. As not all professional accountants
currently working in the US are registered with Qualtrics,
our sample of respondents may not be representative of the
population. Research has shown differences to exist in
motivation for questionnaire participation among panelists
(Albaum et al. 2014). Panelists who answer questions about
a sensitive topic can be less motivated to participate in
every motivational aspect except for incentives (other
motivational aspects include interest, to give an opinion,
curiosity, enjoyment, helping, recognition, and obligation).
Given that some scenarios involved the respondent being
offered a financial incentive to report a wrongdoing, there
may be a bias given that respondents could be predisposed
toward incentives. As such, it cannot be assumed that the
findings will be representative of the overall population of
professional accountants in the US. One of the standard
tests for non-response bias, early versus late respondents,
9 ACFE. (2016). Report to the Nations on Occupational Fraud and
The SEC received 3923 whistleblower tips in fiscal year 2015; 3620
tips in 2014; 3238 tips in 2013; 3001 tips in 2012; and 334 tips in
2011 (SEC 2015).
123
P. Andon et al.
was not applicable in this research as all responses were
made at the same time.
Our data were collected in late 2014, which is after the
implementation of the Dodd–Frank Act. As a result, the
experimental design involved treatments that require par-
ticipants to assume actual legislative provisions pertaining
to financial incentives and anti-retaliation protection cur-
rently operating in the US that were not in effect. We did
however include clear instructions for all participants,
reinforced by robust manipulation check questions. Finally,
we recognize the potentially confounding effects possible
as a consequence of the uneven and small sample sizes and
the lack of variation observed in perceived seriousness
measure, with 77.6 % of participants assessing the level of
seriousness as either 8 or 9 on a 9-point scale.
Opportunities for Future Research
More generally, although economically and socially criti-
cal, the decision to blow the whistle for financial statement
fraud remains in many ways mysterious. Promising ave-
nues for further research stem from the findings of this
study. The first relates to further understanding of how
seriousness is perceived in the context of occupational
fraud, and its interaction with incentives to whistleblow. In
this paper, we rely on a holistic assessment of seriousness
from participants. Additional analysis could manipulate
elements of harm (e.g., impacts of changes in the dollar
value of the offending) and moral wrongfulness (e.g., by
manipulating details of the case such as the motivation for
the offending) to better pinpoint how incentives connect to
specific elements of seriousness perception. Second, this
study focused on the commission of financial statement
fraud—further research could look into the relevance of
our findings in relation to other forms of occupational fraud
and white-collar crime (e.g., forms of bribery and corrup-
tion). Third, this paper highlights the value of incentives in
encouraging whistleblowing, but also alerts us to the
potential cost in terms of an increase in spurious reporting.
Consequently, research into efficient and effective filtering
screens that limit the cost to organizations and govern-
ments of spurious whistleblowing would add to the findings
presented in this paper.
Acknowledgments Funding for this study was received from Char-
tered Accountants Australia and New Zealand and the Accounting &
Finance Association of Australia and New Zealand.
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