Interest in the role of the reporting channel on whistleblowing has been fostered by the passage of the Sarbanes-Oxley Act of 2002, which requires that audit committees of public companies establish and oversee an anonymous reporting channel for questionable accounting or auditing matters. But only limited information exists as to the likely effectiveness of such a channel as compared to a non-anonymous channel. The purpose of our paper is to report the results of an experimental study examining participants' intentions to report fraud using anonymous and non-anonymous reporting channels given information about the outcomes from a previous non-anonymous whistleblowing incident. The experiment manipulates the outcomes to both the previous whistleblower and to the transgressor. We find that while negative outcomes from the perspective of a previous non-anonymous whistleblower (either the occurrence of retaliation against that person or no negative repercussions to the previous transgressor) lowered participants' non-anonymous reporting intentions, these negative outcomes did not decrease participants' anonymous reporting intentions. But when, no such negative outcomes from the previous whistleblower's perspective have occurred, our participants' reporting intentions did not differ between the anonymous and non-anonymous channels.
In response to a series of high-profile financial statement frauds, Congress passed the Sarbanes-Oxley Act of 2002, which, in part, made several changes directed towards strengthening public companies' internal controls and expanding the responsibilities of audit committees. Under Section 301, audit committees of public companies are required to establish and oversee a reporting channel for anonymous employee reporting of questionable accounting or auditing matters. Presumably, requiring an anonymous reporting channel strengthens internal control related to fraud detection by ensuring that employees have access to a reporting channel with relatively low personal costs.
But establishing and operating an anonymous reporting channel is costly to public companies. Ordinarily, such a reporting channel is not intended to and need not displace other reporting channels, such as reporting non-anonymously and directly to a superior. Indeed, regarding reporting channels, best practices include the availability of multiple channels for employees to report their concerns about illegal and unethical behavior (e.g., Association of Certified Fraud Examiners, 2005 and The Network, Inc., 2006). Thus, even when an audit committee for a public company has established an anonymous reporting channel, informal reporting channels will generally be available which allow employees to non-anonymously report questionable acts to a superior. Given multiple channels, circumstances in which such a channel outperforms a non-anonymous channel are uncertain and not addressed by prior research.
In this paper we present the results of an experimental study that provides new evidence on whether the availability of an anonymous reporting channel, relative to a non-anonymous reporting channel, improves reporting intentions in settings where individuals may be particularly hesitant to report fraud.1 We specifically focus on fraudulent financial reporting as the wrongdoing incident because of the large organizational and societal costs related to fraudulent financial reporting and because the anonymous reporting provisions in SOX are specifically intended as a reporting channel for questionable accounting such as fraudulent financial reporting. Participants in the study were online MBA students who were attending a meeting on campus. They received background information about a company and a single scenario describing the discovery of another employee engaging in a fraudulent financial reporting act. Participants, assuming they were facing the situation described in the scenario, provided their intention to report the act through (1) a non-anonymous reporting channel and (2) an anonymous reporting channel.
In a between participants design, information about the organization's follow-through outcomes from a previous non-anonymous whistleblowing incident was manipulated, as follows: (1) the presence or absence of retaliation taken against a previous whistleblower, and (2) the presence or absence of negative repercussions taken against a previous transgressor.2 Consistent with our hypotheses, we find that participants' reporting intentions for the non-anonymous, but not the anonymous, reporting channel are significantly lower under either condition that discourages reporting. Furthermore, we find that when a previous whistleblower faced retaliation or when a previous transgressor did not face negative repercussions, non-anonymous reporting intentions were significantly lower than anonymous reporting intentions. But when no such negative outcomes from the perspective of the whistleblower existed, non-anonymous reporting intentions did not differ significantly from anonymous reporting intentions.3
In the next section of the paper we develop the study's hypotheses and research questions. This is followed by discussions of our research method and results. The final section of the paper addresses the study's implications as well as its limitations.
