Fraud Dynamics and Controls in Organizations – A Replication and Social-Norm-Theory Extension

Fraud exists in many organizations and generates large financial losses worldwide. Davis and Pesch (2013) developed an agent-based model to investigate the empirically difficult-to-capture phenomenon of fraud and provide valuable managerial guidance on fraud dynamics and anti-fraud interventions. This study replicates and extends their original model to test their results' and associated recommendations' internal and external validity. Our results of the close replication show that we can reproduce most of their findings, indicating a high internal validity of their results. Our extension exchanges the original behavioral imitation concept, by implementing social-norm theory as an alternative mechanism. As a result of modifying this key component of the model, fraud dynamics are less volatile, and only some qualitative results regarding anti-fraud interventions remain valid. In practical terms, this suggests a greater level of organizational inertia regarding fraudulent behavior than what the original model proposed: good news concerning the risk of fraud spreading but bad news when it comes to the eradication of fraudulent behavior.

Subjects

fraud in organizations

social norm theory

ABM

model replication

model extension

DDC Class

360: Social Problems, Social Services

302: Social Interaction

519: Applied Mathematics, Probabilities

Publication version

publishedVersion

Lizenz

https://creativecommons.org/licenses/by-nc-sa/4.0/

Name

2024-02-29_ACMAR_Fraud Control_Eckert.pdf

Type

Main Article

Size

529.24 KB

Format

Adobe PDF

Options

Fraud Dynamics and Controls in Organizations – A Replication and Social-Norm-Theory Extension