Considerations when investigating fraud in different cultures
While many aspects of human thought and behaviour are universal, my Psychology degree taught me that cultural differences can lead to often surprising differences in how people think, feel, and act; Senior Associate Valeryia Dockrell reports.
One of the key distinctions between national cultures can be characterised into individualism versus collectivism.
You will find individualistic cultures in Western European countries and North America where there is emphasis on individual goals rather than the group. Whereas Asian countries which have a collectivist culture, such as Japan, India and China, will emphasise group goals and personal relationships.
This is just one of the many ways in which culture can be split and examined, and even within this categorisation there are various nation-specific cultural differences.
It is certainly important to acknowledge that cultural differences exist and where an activity might be perceived as normal in one culture, it maybe be considered corrupt when investigated using the cultural values of another.
Culture also has an influence on the detection of fraud, where individuals in one culture may be less likely to speak out, or simply don’t recognise that fraud and corruption is taking place, as the observed practises are not perceived as wrong.
Looking at an example of a collectivist culture such as Japan, we can look at certain cultural traits which are more prevalent in this nation, such as obedience and loyalty.
While these characteristics can have a positive influence in some environments, they can be damaging in the case of fraud and corruption.
In 2015, it was uncovered that Toshiba had inflated their profits numbers by £780m over a period of 7 years from 2008 to 2014. An investigative panel concluded that it was the culture of silence, obedience and loyalty which influenced fraudulent accounting practices.
Additionally, although senior management did not explicitly instruct that fraud be committed, it is believed that they relied on the Japanese corporate culture of obedience. Falsification of the profits occurred as a result of impossible targets, which lead to employees lower in the hierarchy doing whatever it took to meet them.
Some research suggests that loyalty to colleagues and the business that is found in collectivist cultures will mean that employees will be reluctant to disclose improper behaviours of others and in turn discourages whistleblowing.
Data indicates that whistleblowing is the most effective way to detect fraud, therefore cultures which value group goals and harmony, can have a negative impact on fraud detection.
Research found that collectivism is negatively associated with auditor’s compliance with fraud risk assessment procedures as they are more motivated to maintain group harmony as part of their national cultural values.
Another cultural theory looked at tight and loose cultures in terms of enforcing social norms, and can be compatible characteristics with individualism.
For example, East Asia is collectivist and tight, and the US is loose and individualistic. But some places that are individualistic can also be tight such Germany and Switzerland.
In a 2018 study it was identified that people from tight cultures, like Norway, reported less tolerance for insurance fraud, were less likely to commit the fraud, and they perceive higher level of risk of being caught than their counterparts from loose cultures, such as Ukraine.
Other studies looked specifically at different cultures in relation to specific behaviours such as acceptability of bribe payments. Accountants in Asian and Pacific regions were found to not consider bribes as fraudulent behaviour.
A study of Chinese salespeople suggested that their attitudes towards unethical behaviour were more tolerant than those of their US counterparts.
Additionally, in African countries, such as Nigeria, there is a perception that a bribe is needed to solve various forms of administrative problems in a timely manner and refusal to give a bribe may be met with negative consequences.
As well as other areas of impact, such as culture and susceptibility to becoming a victim of fraud.
However, it should be remembered that despite national cultures, there are many subcultures and individual differences that can also have an effect.
The keynote is that to prevent, discover, and investigate fraud, the impact of culture should be understood. Failure to consider cultural differences may lead to ineffective fraud prevention and detection, in turn leading to major financial loss to the
business and reputational damage.
Typical anti-fraud policies may not consider cultural differences, which is especially important for a company which operates across different jurisdictions.
There are many other cultural differences and influences that can be discussed, such as power distance which relates to how society deals with inequality, masculinity and uncertainty avoidance, etc.
To fight fraud, you should understand the cultures in which you operate, then you can instil a corporate culture within your business that employees can identify with to facilitate an anti-fraud environment.
For further information about how we can help with investigating fraud, do get in touch with us!
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