J Bus Ethics (2015) 131:757–772
DOI 10.1007/s10551-013-2020-8
An Examination of Financial Sub-certification and Timing
of Fraud Discovery on Employee Whistleblowing Reporting
Intentions
D. Jordan Lowe • Kelly R. Pope • Janet A. Samuels
Received: 28 June 2011 / Accepted: 12 December 2013 / Published online: 1 January 2014
 Springer Science+Business Media Dordrecht 2013
Abstract The Sarbanes–Oxley Act of 2002 (SOX)
requires company executives to certify financial statements
and internal controls as a means of reducing fraud. Many
companies have operationalized this by instituting a sub-
certification process and requiring lower-level managers to
sign certification statements. These lower-level organiza-
tional members are often the individuals who are aware of
fraud and are in the best position to provide information on
the fraudulent act. However, the sub-certification process
may have the effect of reducing employees’ intentions to
report wrongdoing. We suggest that subordinates with
knowledge of a superior who committed a fraudulent act
and certified that there is no fraud will feel less personal
responsibility to report the act, thus, decreasing reporting
intentions. Additionally, we suggest that if the fraud is
discovered subsequent to the reports being filed with the
Securities and Exchange Commission (SEC), employees
will perceive lower management responsiveness to inves-
tigate the fraud, which will reduce intentions to report.
Using an experimental approach, we manipulate two
between-participant variables: (1) the presence or absence
of sub-certification by the transgressor and (2) the timing of
D. J. Lowe (&)
W. P. Carey School of Business, Arizona State University,
Tempe, AZ 85287-3606, USA
e-mail: jordan.lowe@asu.edu
K. R. Pope
College of Commerce, DePaul University, Chicago,
IL 60604-2287, USA
e-mail: kpope2@depaul.edu
J. A. Samuels
Thunderbird School of Global Management, Glendale,
AZ 85306-6000, USA
e-mail: janet.samuels@thunderbird.edu
fraud discovery, either before or after the reports have been
filed with the SEC. We find that when sub-certification is
present, perceived personal responsibility and intentions to
report were diminished compared to when sub-certification
is absent. Timing of the discovery of the fraudulent act did
not influence perceived management responsiveness or
reporting intentions. Supplemental analysis shows that
personal responsibility partially mediates the relationship
between sub-certification and reporting intentions. Our
findings suggest that audit committees and senior execu-
tives may want to carefully consider the costs and benefits
of the sub-certification process.
Keywords Sub-certification
Reporting intentions

Misappropriation of assets
Fraud
Introduction
Fraud has been and continues to be a problem that
adversely affects a host of stakeholders. The Association of
Certified Fraud Examiners (ACFE) recently estimated that
typical organizations lose approximately 5 % of their
annual revenues to fraud (ACFE 2012). Applied to the
estimated gross world product, this figure translates to a
potential global loss of more than $2.9 trillion USD.
Spurred by large fraud cases such as Enron and WorldCom,
the Congress enacted the Sarbanes–Oxley Act of 2002
(SOX) as a means of combating fraud and addressing a
number of weaknesses in the corporate financial reporting
process. SOX instituted certain measures to encourage and
protect whistleblowers by providing for anonymous whis-
tleblowing, establishing penalties for retaliation against
whistleblowers, and clearly defining appropriate channels
(Dworkin 2007).
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758
Another major provision of SOX was to provide for
more accountability for company executives regarding
their responsibility for the financial statements. Sec-
tion 302 of SOX states that key company executives are
required to certify financial statements that are filed with
the Securities and Exchange Commission (SEC). The
company’s chief executive officer (CEO) and chief finan-
cial officer (CFO) must sign a statement indicating they
have read the financial statements, they are not aware of
any false or misleading statements, and they believe that
the financial statements present an accurate picture of the
company’s financial condition (Geiger and Taylor 2003;
Maroney and McDevitt 2008). Management must also
make assertions regarding the effectiveness of the com-
pany’s internal controls over financial reporting (SOX
2002). A similar certification process is in place in Canada
(Goodfellow and Willis 2007).
Organizations have operationalized Section 302 of SOX
to include the implementation of ‘‘upstream certification’’
or ‘‘sub-certification’’ processes (Leone 2003). Sub-certi-
fication is a ‘‘control system comprising internal certifica-
tions of financial data by the subordinate employees who
provide that data’’ (Geiger and Taylor 2003; Vance 2010).
Financial statement sub-certification is a process that
allows the CEO and CFO to cascade certifications and
representations to various levels within the organization
(Deloitte and Touche 2007). The levels at which organi-
zations implement sub-certification can vary dramatically
as some organizations include treasurers, directors, con-
trollers, and analysts in this process (AFP 2003a; IIA
2004). Indications are that sub-certifications are being used
extensively, as many organizations have incorporated a
form of sub-certification within their human resource pol-
icy. For example, a PwC survey (2003) found that com-
panies expected an average of 18.6 executives other than
the CEO and CFO to provide (sub)certifications.
Sub-certification can consist of certification of financial
information, internal controls, and/or knowledge of any
fraud or wrongdoing. In larger organizations, typically a
higher-ranking employee reports directly to the CFO and/
or CEO on the (1) completeness and accuracy of the
financial information pertaining to their area of responsi-
bility, (2) the effectiveness of disclosure controls and
procedures, and/or (3) design of internal control over
financial reporting (AFP 2003b).
Sub-certification is intended to reduce an organization’s
risk of fraud by adding more accountability within the
organization, strengthening internal controls, and helping
organizational employees have a greater understanding of
their roles and responsibilities (Vance 2010). This process
is designed to give key executives increased confidence
that others in management have designed and put necessary
controls in place. Further, the sub-certification process
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D. J. Lowe et al.
should increase communication as key executives are made
aware of any known accounting issues (Deloitte and Tou-
che 2007). Although these are the intended benefits of this
process, our study suggests that sub-certification may have
unintended consequences.
Sub-certification is commonly implemented by requir-
ing key managers, but not their subordinates, to sub-certify
information. These subordinates often have knowledge of
issues related to accounting information that their superiors
are not aware of and, thus, they play a crucial role in the
sub-certification process. For example, Sandra Hofman,
CIO at Mapics, Inc. states that, ‘‘Before I sign, I share my
information with all my direct reports to make sure they
know I am getting ready to sign, and I ask them to share
with me anything I might not yet be aware of’’ (CIO Insight
2004).
These lower-level organizational members are often the
individuals who are aware of fraud and are in the best
position to provide information on the fraudulent act.
However, the sub-certification process may have the effect
of reducing employees’ intentions to report wrongdoing.
The purpose of this study is to determine whether the sub-
certification process can decrease subordinates’ intention to
whistleblow when observing a superior engaged in fraud.
We suggest that subordinates with knowledge of a superior
engaging in a fraudulent act, in which the superior certifies
that there is no fraud, will feel less personal responsibility
to report the act, thus, decreasing reporting intentions. To
our knowledge, this is the first study that has examined sub-
certification and its influence on the whistleblowing
process.
Additionally, we examine how the timing of discovery
of fraud affects reporting intentions. Subordinates may
discover fraud before or after financial reports and certifi-
cations have been filed with the SEC. The timing of this
discovery may influence perceptions of management
responsiveness which, in turn, may affect reporting
intentions.
We conducted an experimental study using evening
MBA students as participants. Participants received back-
ground information about a company and a single hypo-
thetical scenario describing the discovery by an employee
of a fraudulent act of their supervisor. We utilized a 2 9 2
between-participant design in which participants were
randomly assigned to a cell composed of one of the two
levels of sub-certification by the supervisor (present or
absent) and one of two levels of timing of the report
(already filed or not yet filed with the SEC). In response to
the scenario, participants were asked to indicate their per-
sonal responsibility to act, their perception of management
responsiveness to reporting, and their whistleblowing
reporting intentions using anonymous and non-anonymous
reporting channels.
Financial Sub-certification and Timing of Fraud Discovery
Our results indicate that the presence of sub-certification
lessens one’s personal responsibility and intentions to
report a potential fraud.1 We also found that personal
responsibility mediates the relationship between sub-certi-
fication and reporting intentions. However, whether the
certified reports were filed with the SEC before or after
discovery of the fraud had no effect on perceptions of
management responsiveness or whistleblowing intentions.
We believe that our study and related findings will be
useful to company managers as they continue to determine
procedures that will encourage whistleblowing. Our results
suggest that while SOX implemented both the certification
process and whistleblowing provisions as a means of
reducing fraud, companies’ methods of implementing sub-
certification may offset this. Thus, the intended provisions
of SOX to deter fraud may not be fully realized due to the
unintended effects of sub-certification to weaken whistle-
blowing intentions.
In the next section of the paper, we provide the neces-
sary background and develop our hypotheses. This is fol-
lowed by the research method. Next, we discuss our results.
Finally, we discuss the results and provide important
implications of our study as well as its limitations.
Background and Hypotheses Development
Whistleblowing
Curtailing fraud is a paramount challenge facing most
organizations. At the crux of this issue is the inherent
difficulty in detecting fraud in the workforce given that
those engaging in fraud are often adept at concealing their
behavior, and auditors generally have very little experience
in detecting fraud (Cohen et al. 2009; Nieschwietz et al.
2000). Employees can play an important role in the early
detection of fraud (Kaptein 2010; Moberly 2006). In fact,
consistent evidence indicates that employee tips are the
single most frequent source of fraud detection, as this
method was used in detecting about 40 % of occupational
fraud (ACFE 2012).2 This suggests that employees, other
than those directly involved in committing fraud, often
become aware of the fraudulent behavior. This is high-
lighted by recent evidence that 20 % of US employees
have personal knowledge of occupational fraud (Slovin
2006). Thus, employees who become aware of fraud can
1
It is important to note that the results of our study regarding
whistleblowing behavior are generalizable to those subordinates who
become aware of fraud and are familiar with the financial reporting
process of their organization including the certification (or sub-
certification) process.
2 3
The next most popular detection method is management review at
about 15 % (ACFE 2012).
759
play an important role in its early detection and reporting
(ACFE 2012; Graham 1986; Hooks et al. 1994).
In spite of knowledge of an occurrence of fraud,
research reports that only about half of all employees who
observe wrongdoing actually report it (Miceli et al. 2008).
Thus, it is important to understand why individuals who
observe wrongdoings decide to (or not to) whistleblow.
Researchers have begun to develop models to better
understand whistleblowing behavior and to encourage
strategies that might improve employees’ reporting inten-
tions. Near and Miceli (1995) proposed a model that
identifies several factors that affect an individual’s likeli-
hood of whistleblowing. These authors contend that there
are five primary factors that influence effective whistle-
blowing. The first three factors relate to individual vari-
ables and include (1) characteristics of the whistleblower,
(2) characteristics of the complaint recipient, and (3)
characteristics of the alleged wrongdoer. The next two sets
of factors relate to the (4) characteristics of the wrongdoing
and (5) characteristics of the organization. In this study, we
focus on the characteristics of the organization. The
implementation of SOX has changed certain characteristics
of public companies, namely, organizations’ financial
reporting process. We suggest that characteristics of the
sub-certification process influence intentions to whistle-
blow by altering individuals’ perceived personal respon-
sibility to report as well as their perception of the
management’s responsiveness to their report.3
Personal Responsibility
Personal responsibility is considered an important compo-
nent in deciding to report an issue (Graham 1986; Miceli
and Near 1984). Graham defined personal responsibility as
‘‘the psychological state of feeling personally responsible
for responding to an issue of principle…’’ (Graham 1986,
p. 39). In Graham’s (1986) model, perceived personal
responsibility for the issue is related to job assignment, a
personal sense of social responsibility, and the extent of
exposure to the issue. Schultz et al. (1993) proposed that
when whistleblowing is perceived as prosocial organiza-
tional behavior, perceived personal responsibility for
reporting will be positively related to an individual’s
decision to report the issue. Additionally, Miceli and Near
(1992) suggest that higher moral judgment development
could increase the perception of wrongdoing of the act,
thus, increasing responsibility for action. Finally, Miceli
and Near (1984) state that whistleblowing is sometimes
seen as an individual’s role responsibility. Thus, based on
prior studies, individuals may feel a personal responsibility
These two factors were also included in the study by Keil et al.
(2010) as specific factors in their research model.
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760
to report questionable acts based on their moral sense of
right and wrong (whistleblowing may be viewed as a moral
obligation or social responsibility) or a sense of commit-
ment and loyalty to the organization (whistleblowing may
be viewed as a role responsibility). Prior research has found
evidence that perceived personal responsibility is posi-
tively correlated to individuals’ reporting intentions (Ayers
and Kaplan 2005; Kaplan and Whitecotton 2001; Schultz
et al. 1993; Smith et al. 2001).
When a company institutes sub-certification for senior
managers, but not for subordinates, we suggest that this
will reduce the subordinates’ perceived personal responsi-
bility for several reasons. As noted above, personal
responsibility can stem from a sense of moral obligation.
When the superior sub-certifies that there is no fraud, the
subordinate may then view the fraudulent act as being less
serious. Since the superior, who presumably is more
experienced, has sub-certified that he/she is not aware of
fraud, the subordinate may defer to their superior’s asser-
tion of ‘‘no fraud’’ and reduce their own assessment of the
severity of the fraudulent behavior. Even knowing that the
superior is required to sign off on the certification state-
ment, the subordinate may still be influenced and reduce
their assessment of the seriousness of the act. Prior research
has found that individuals tend to overconfidently presume
that observed behavior of others is due to their distinct
character traits or dispositional factors at the expense of the
role of contextual factors (Ross 1977). This fundamental
attribution error may cause subordinates to downplay the
situational constraints of the sub-certification process and,
instead, attribute the ‘‘no fraud’’ certification to their
superior’s belief that serious fraud does not exist. More-
over, the subordinate may view the behavior as less serious
given that sub-certification means the superior will be held
accountable for their actions and be subject to litigation.4
Litigation risk related to the sub-certification process may
influence the subordinate to perceive that the superior is
somewhat credible and less likely to be lying, thus, less-
ening the perception of the seriousness of the fraud.
Miceli and Near (1992, p. 138) note that seriousness of
the wrongdoing ‘‘may cause the focal member to believe he
or she is responsible for acting on it.’’ Schultz et al. (1993)
and Kaplan and Whitecotton (2001) both found that audi-
tors were more likely to report questionable acts when the
act was perceived as being relatively serious. Thus, we
suggest that sub-certification will reduce perceived seri-
ousness of the behavior and, therefore, reduce perceived
personal responsibility.
4
An individual providing a false Section 302 certification report
could potentially be subject to both SEC civil action and private
stockholder action for violating federal securities laws (Geiger and
Taylor 2003; SEC 2002).
123
D. J. Lowe et al.
Additionally, the subordinate may be more likely to
decide that this is not ‘‘his or her problem’’ since the per-
petrator has signed a statement alleging that he/she is not
aware of any fraud. This is analogous to the bystander
effect as individuals are less likely to help when other
people are present (Latane and Darley 1970; Mesmer-
Magnus and Viswesvaran 2005). In this instance, the other
person is the signer of the sub-certification agreement who
is accepting responsibility for the financial statements,
thus, diffusing the subordinate’s responsibility.
Thus, we expect the presence of a manager’s sub-cer-
tification to reduce both perceived personal responsibility
and reporting intentions. This leads to the following
hypotheses:
H1a When a superior engaging in fraud sub-certifies that
no fraud exists, a subordinate aware of the fraud will per-
ceive less personal responsibility for reporting compared to
when sub-certification is absent.
H1b When a superior engaging in fraud sub-certifies that
no fraud exists, a subordinate aware of the fraud will have
lower intentions for reporting fraud compared to when sub-
certification is absent.
Management Responsiveness
Both Graham (1986) and Near and Miceli (1985) proposed
that perceived likelihood of the organization’s follow-up
on the matter (management responsiveness) would affect
whistleblowing. Management responsiveness is defined as
the ‘‘extent to which management of the company will be
responsive toward solving the reported problems’’ (Smith
et al. 2001). Miceli and Near (1992) suggest that man-
agement responsiveness is an important factor for at least
two reasons: (1) it signals that appropriate action will be
taken to address the unethical issue and (2) it offers reas-
surance to the whistleblower that he or she will be pro-
tected from retaliation. Prosocial actions such as
whistleblowing are influenced by the extent to which an
individual feels capable of bringing about change (Dozier
and Miceli 1985), and whistleblowing is more likely to be
effective when management is responsive to whistleblow-
ing reports. Research indicates that the perceived extent of
follow-through actions by an organization results in an
increased likelihood of individuals’ inclination to report
unethical conduct (Trevino and Weaver 2001; Zhang
2009). Thus, the perceived willingness of management to
initiate corrective action is likely to be an important factor
affecting whistleblowing intentions. We suggest that the
timing of fraud discovery may influence perceived man-
agement responsiveness.
Certification statements are filed with the SEC along
with quarterly and annual financial reports. Individuals
Financial Sub-certification and Timing of Fraud Discovery 761

may become aware of fraudulent acts either before the Table 1 Participant demographic information
certification and financial reports are filed with the SEC or All Passed manip.
subsequent to their filing. If the organization has not yet participants checks
filed reports with the SEC, then management could take n = 76 n = 54a
action and make changes to reports without having to
Age
notify people outside of the organization. However, once
Mean 29.0 29.5
the reports have been filed with the SEC, then any follow-
Std. dev. 4.7 5.1
up by management on the fraud would likely involve
Gender
restating the reports and notifying people outside of the
Female 36 % 31 %
organization. Thus, reporting a fraud after reports are filed
Male 64 % 69 %
is a larger consequence to the organization compared to
Years of work experience
reporting prior to reports being filed. From an individual’s
Mean 6.7 7.0
perspective, he/she may view management as being less
Std. dev. 4.7 4.9
likely to follow up on the whistleblowing report once it is
filed with the SEC. Thus, this would reduce the likelihood Have discovered a person of greater 49 % 52 %
authority engaging in questionable
of reporting the incident. This leads to the following behavior
hypotheses: Have certified financial information or 24 % 22 %
internal controls
H2a When a subordinate becomes aware of the fraud
a
prior to reports being filed with the SEC, the subordinate Participants correctly responding to the manipulation check ques-
will perceive greater management responsiveness for tion or not answering the question
reporting compared to when the fraud is discovered after
reports are filed with the SEC. discovered a person of greater authority engaging in
questionable behavior; 24 % had previously certified
H2b When a subordinate becomes aware of the fraud financial information or internal controls. Given that these
prior to reports being filed with the SEC, the subordinate evening MBA students have substantial work experience
will have higher intentions for reporting fraud compared to and that many have directly or indirectly seen or con-
when the fraud is discovered after reports are filed with the fronted many opportunities for questionable acts to occur,
SEC. we believe that they represent a reasonable group of par-
ticipants for this study.5
These demographic variables also serve as a check on the
Method randomization of the various levels of the independent var-
iable. Statistical tests performed on the demographic vari-
In this section, the research design, participants, task, and ables indicate that randomization was successful across
independent and dependent variables for the experiment are treatment levels for gender and prior experience with whis-
discussed. The experiment utilizes a 2 9 2 between-par- tleblowing. Age and work experience were not completely
ticipant design with reporting intentions, personal respon- randomized (with one of the four cells being significantly
sibility, and management responsiveness as the dependent different from the other three). We analyzed age and work
measures. The fully crossed design uses sub-certification experience and found that these variables were not signifi-
(absent or present) and timing of report (already filed or not cantly related with any of the dependent measures, nor were
yet filed with the SEC) as between-participant independent they significantly correlated with any perceptual measures
variables. The participants’ task was to provide their which may influence reporting intentions (e.g., perceptions
whistleblowing reporting intentions either using an anony- of seriousness of the act). Table 1 provides complete
mous company hotline or via the internal auditor. demographic information regarding participants.

Participants Task

Participants were evening Masters of Business Adminis-
tration (MBA) students from a major university in the
United States. A total of 76 participants completed the case
instrument. The average age of the participants was
29.0 years; professional work experience averaged about
6.7 years. Sixty-four percent of the participants were male.
Mean responses indicate that 49 % of participants had
Participants were given a case instrument describing APEX
Inc., a hypothetical manufacturer of industrial consumable
materials. During the last few years, APEX had produced
5
Several recent studies (Ayers and Kaplan 2005; Chiu 2003; Kaplan
and Schultz 2007; Kaplan et al. 2011) have also used MBA students
to examine reporting intentions for questionable acts.

123
762
steady operating results, but had recently performed at
slightly below the industry average. Participants were told
that the company’s CEO and the board of directors had
agreed to set more aggressive financial performance goals
for the current year. Background information about the
company also described the certification process whereby
the CEO is required to certify various matters involving the
company’s internal controls and financial statements prior
to the financial reports being sent to the SEC.
The next part of the instrument presented a hypothetical
scenario describing a purchasing manager engaging in
misappropriation of assets. The case described a false
billing scheme6 in which the company is being billed for
services not received by a fictitious company (a shell
company).7 The purchasing manager has set up a system in
which direct payments from the company are sent to
himself. More specifically, the company was being billed
for computer cleaning kits which consisted of cheap Q-tips
and gauze pads and which greatly exceeded the number of
computers in the office. The invoices for these kits were
just below the threshold where the purchasing manager
would need to get approval from his supervisor. In addi-
tion, the three suppliers of these kits did not have supplier
files. Instead, information on the suppliers was kept in the
purchasing manager’s office and the suppliers had similar
names and were located in the same city. The case indi-
cated that the assistant purchasing manager, who is under
the supervision of the purchasing manager, discovered the
scheme by accident when reviewing and tracing vendors’
unusual invoices in the purchasing manager’s absence and
he is ‘‘convinced’’ that the purchasing manager engaged in
questionable behavior.
The case concluded with participants’ assessments of
the assistant purchasing manager’s intention to report the
fraudulent scheme as well as assessments regarding per-
sonal responsibility and management responsiveness. Par-
ticipants were also asked questions about their perceptions
of the fraudulent act, the potential consequences to the
employee and the organization if the fraudulent act was
reported, and the ethics of not reporting the act. These
perceptual measures were generated based on models of
whistleblowing (Graham 1986; Miceli and Near 1992) and
recent whistleblowing research (Ayers and Kaplan 2005;
Kaplan et al. 2009). Finally, participants were asked to
respond to certain demographic questions such as their age,
work experience, etc., and two manipulation check ques-
tions to assess their attentiveness to the case materials.
6
A false billing scheme was selected because it represents one of the
most frequent schemes for manufacturing companies to misappropri-
ate assets and because it often involves substantial amounts of cash
(ACFE 2012).
7
For more information on shell companies, see Wells (2008,
pp. 97–104).
123
D. J. Lowe et al.
Independent Variables
Sub-certification
Sub-certification was operationalized between participants
at two levels—sub-certification present and sub-certifica-
tion absent. Under sub-certification present, the case pro-
vided participants with a visual organizational chart as well
as a written description of the certification and sub-certi-
fication process. The case stated that APEX has instituted a
‘‘sub-certification’’ process whereby managers are also
required to certify the financial results and/or internal
controls for their respective area of responsibility. As part
of the year-end procedures, the purchasing manager
(alleged wrongdoer) signed a certification statement that
attested to the company’s strong internal controls in pur-
chasing and that he was not aware of any fraud issues. The
certification statement was then sent directly to the CEO.
Under sub-certification absent, the case provided par-
ticipants with a visual organizational chart and a written
description of the certification process by the CEO. How-
ever, sub-certification was not discussed. Rather, it was
explicitly stated in the case that no other managers or
subordinates sign certification statements.
Timing of Fraud Discovery
Timing was manipulated between participants at two lev-
els—the fraud was discovered after the CEO had filed
financial reports and certification statements with the SEC
or the fraud was discovered before these reports were filed
with the SEC.
Dependent Measures
Reporting Intentions
Participants were given the option of reporting to the
company’s internal auditors or to an anonymous telephone
hotline. These two reporting outlets represent standard
means that employees have to report concerns regarding
questionable business practices (Kaplan and Schultz 2007;
Robertson 2010). Internal auditors are considered natural
outlets for whistleblowers as they are typically involved
with establishing a standard process for investigating
allegations or suspicions of misconduct (PwC 2002; Read
and Rama 2003).8 Regarding anonymous telephone hot-
lines, SOX (Section 301) indicates that audit committees of
8
Read and Rama (2003) found that 69 % of chief internal auditors
included in their survey received reports of wrongdoing or question-
able acts. About 40 % these reports related to fraud.
Financial Sub-certification and Timing of Fraud Discovery
public companies are required to establish anonymous
whistleblowing procedures whereby employees can submit
issues of concern (Dworkin 2007).
Given the reporting options discussed above, partici-
pants were asked, ‘‘How likely is it that you would pro-
actively self-report this instance of questionable behavior
to the internal auditors (alternatively to an anonymous
telephone ethics hotline?)’’ Participants responded to this
measure using a seven-point scale anchored by one (‘‘very
unlikely’’) and seven (‘‘very likely’’). This measure of
reporting intentions is similar to that used in previous
research (Ayers and Kaplan 2005; Kaplan and Whitecotton
2001; Schultz et al. 1993; Taylor and Curtis 2009). Given
that participants may have selected to report via one
reporting channel and not another, we calculated a general
‘‘highest reporting channel’’ variable. This was calculated
as the highest reporting intention regardless of channel and
served as our dependent measure. In this manner, we
attempted to minimize the effect of reporting channels on
our results. Having multiple reporting channels available to
employees enables them to select the channel they are most
comfortable using to share potentially sensitive informa-
tion (Miceli et al. 2009).9 We selected two common
reporting channels (one anonymous and one non-anony-
mous) and combined the reporting measures as reporting
channel was not a variable of interest in this study.
Personal Responsibility
For personal responsibility, we asked participants to assess
the ‘‘personal responsibility (duty or obligation) of the
assistant purchasing manager to report the questionable act
discussed in the case.’’ Participants responded on a nine-
point scale with endpoints of one ‘‘very low’’ and nine
‘‘very high.’’
Management Responsiveness
To measure management responsiveness, we asked par-
ticipants, ‘‘Imagine that the questionable behavior descri-
bed in the case was reported to the internal auditors
(through an anonymous telephone ethics hotline). Please
indicate the likelihood that the questionable behavior will
be thoroughly investigated.’’ Participants responded on a
nine-point scale with endpoints of one ‘‘very unlikely’’ and
nine ‘‘very likely.’’ Given that participants responded to
the likelihood of management responsiveness for both
9
SOX (2002) requires companies to provide anonymous whistle-
blowing channels for their employees. Since the issuance of SOX,
researchers have often provided multiple channels to their participants
as a means of increasing external validity (see Kaplan and Schultz
2007; Kaplan et al. 2009, 2011; Robertson 2010; Robertson et al.
2011). We likewise follow this procedure.
763
reporting channels, we use the result that matched the
channel for the highest reporting intention (consistent with
reporting intentions).
Results
Manipulation Checks
To determine whether participants were cognizant of our
manipulations, we inserted manipulation checks near the
end of the case. Participants responded to the following
item, ‘‘In the case, certain individuals may have been
described as either certifying or planning to certify the
financial reports and/or internal controls.’’ In response to
this question, participants answered either that the CEO
and Purchasing manager both certified or planned to certify
the financial reports or only the CEO certified or planned to
certify the financial reports (no sub-certification). Among
the 76 participants, 54 answered correctly, 20 answered
incorrectly, and 2 did not answer this question. A Chi
square analysis found that the sub-certification condition
was not a significant variable regarding manipulation check
failure rate (p [ 0.70). We also asked participants, ‘‘In the
case, has the CEO already filed the financial reports with
the SEC?’’ Among the 76 participants, 71 answered cor-
rectly, 4 answered incorrectly, and 1 did not answer this
question. In total, the 22 participants who failed one or both
manipulation checks were subsequently dropped from the
analysis.10 The statistical results are based on the responses
of these 54 participants who answered correctly or did not
respond. As shown in Table 1, the demographic measures
among those who passed the manipulation checks were
almost identical for all participants.
Covariates
Prior research on sensitive and/or ethical judgments indi-
cates that individuals have a tendency to portray them-
selves favorably (Cohen et al. 1998, 2001; Zerbe and
Paulhus 1987). Chung and Monroe (2003) refer to this
tendency as social desirability bias (SDB). We acknowl-
edge that the possibility exists that participants’ reporting
10
Participants responding incorrectly to the two manipulation check
items were dropped because of a lack of ‘‘inclusion importance’’
(Yates 1990, p. 376). In this regard, Tan and Yates (1995, p. 315)
contend that ‘‘if a decision maker never even acknowledges the
existence of a particular dimension, the decision maker cannot
possibly respond to that dimension.’’ Further, the two participants
who did not respond to the manipulation check questions were not
dropped as we do not know if they paid attention to the manipulation.
Thus, to be conservative, we retained these two observations. It is
important to note that the results are very similar when we exclude
these two participants from our analyses.
123
764 D. J. Lowe et al.

Table 2 Descriptive statistics

Timinga Sub-certificationb
Absent Present Overall

Report not yet filed with the SEC n = 15 n = 14 n = 29

Reporting intentionc 6.80 (0.41)d 6.29 (0.91) 6.55 (0.74)
Personal responsibilitye 8.60 (0.51) 7.93 (1.27) 8.28 (1.00)
Management responsivenessf 7.47 (1.96) 7.43(1.45) 7.45 (1.70)
Social desirability biasg 0.67 (1.11) 0.50 (1.34) 0.59 (1.21)
Seriousnessh 8.60 (0.83) 7.43 (1.50) 8.03 (1.32)
Morally wrongi 8.93 (0.26) 8.57 (0.65) 8.76 (0.51)
Unethicalj 8.53 (0.74) 7.79 (1.76) 8.17 (1.36)
Accountabilityk 5.67 (3.04) 4.86 (3.13) 5.28 (3.06)
Personal costl 8.13 (0.92) 7.36 (2.41) 7.76 (1.81)
Report Filed with the SEC n = 12 n = 13 n = 25
Reporting intention 6.67 (0.78) 6.08 (1.75) 6.36 (1.38)
Personal responsibility 8.42 (0.79) 8.15 (1.14) 8.28 (0.98)
Management responsiveness 7.83 (1.27) 7.54 (1.27) 7.68 (1.25)
Social desirability bias 0.17 (0.39) 0.38 (0.65) 0.28 (0.54)
Seriousness 7.75 (0.87) 7.69 (1.11) 7.72 (0.98)
Morally wrong 8.58 (0.67) 8.31 (1.03) 8.44 (0.87)
Unethical 8.42 (0.67) 7.54 (1.51) 7.96 (1.24)
Accountability 3.92 (2.31) 5.38 (3.12) 4.68 (2.81)
Personal cost 7.17 (1.90) 6.85 (1.68) 7.00 (1.76)
Overall n = 27 n = 27
Reporting intention 6.74 (0.59) 6.19 (1.36)
Personal responsibility 8.52 (0.64) 8.04 (1.19)
Management responsiveness 7.63 (1.67) 7.48 (1.34)
Social desirability bias 0.44 (0.89) 0.44 (1.05)
Seriousness 8.22 (0.93) 7.56 (1.31)
Morally wrong 8.78 (0.51) 8.44 (0.85)
Unethical 8.48 (0.70) 7.67 (1.62)
Accountability 4.89 (2.83) 5.11 (3.08)
Personal cost 7.70 (1.49) 7.11 (2.06)
a
Timing was manipulated between participants at two levels: the financial report was or was not yet filed with the SEC when the participant became
aware of the questionable behavior
b
Sub-certification was manipulated between participants at two levels: present or absent. When sub-certification was absent, only the CEO certified the
financial statements. When sub-certification was present, the CEO certified the entire financial statements and the division manager certified the division’s
financial statements for the CEO
c
Participants were asked the likelihood of their reporting the questionable behavior (via an internal auditor and an anonymous hotline). Participants
provided their assessment using a 7-point scale where one was ‘‘Very Unlikely’’ and seven was ‘‘Very Likely.’’ ‘‘Reporting Intention’’ dependent measure
was calculated by taking the higher of the two reporting intention measures (internal auditor and reporting hotline)
d
Means are shown with standard deviations shown below in parentheses
e
Participants were asked to provide their assessment of the personal responsibility (duty or obligation) to report the fraud using a 9-point scale where 1
was ‘‘very low’’ and 9 was ‘‘very high’’
f
Participants were asked to provide their assessment of the likelihood that the questionable behavior would be investigated (assuming it was reported)
using a 9-point scale where 1 was ‘‘very unlikely’’ and 9 was ‘‘very likely’’
g
Social desirability bias measure is the difference between the likelihood of reporting intentions that participants reported and the likelihood of reporting
intentions that participants indicated someone else would report
h
Participants were asked to provide their assessment of the seriousness (i.e., the amount of harm done) of the questionable act using a 9-point scale where
1 was ‘‘very low’’ and 9 was ‘‘very high’’
i
Participants were asked to provide their assessment of the extent to which they believed the questionable act was morally wrong using a 9-point scale
where 1 was ‘‘very small’’ and 9 was ‘‘very large’’
j
Participants were asked to provide their assessment of the likelihood that there is a general consensus among people that the questionable act is unethical
using a 9-point scale where 1 was ‘‘very unlikely’’ and 9 was ‘‘very likely’’
k
Participants were asked to provide their assessment of the person’s accountability for potential fraud using a 9-point scale where 1 was ‘‘very low’’ and 9
was ‘‘very high’’
l
Participants were asked to provide their assessment of the personal cost (i.e., trouble, risk, discomfort) to the person reporting the fraud assuming their
identity is revealed when reporting the fraud using a 9-point scale where 1 was ‘‘very low’’ and 9 was ‘‘very high’’

123
Financial Sub-certification and Timing of Fraud Discovery 765

Table 3 Correlation analyses

RPTG SUB TIME RESP MGMT SDB SERIOUS WRONG UNETH ACCT COST

Reporting Intention 1.00 -0.28* 0.03 0.32* 0.14 0.14 0.31* 0.14 0.17 0.04 0.22
(RPTG)a
Sub-Certification (SUB)b -0.26* 1.00 0.04 -0.18 -0.10 0.02 -0.29* -0.22 -0.24* 0.05 -0.11
Timing (TIME)c -0.09 0.04 1.00 0.00 0.03 -0.14 -0.22 -0.19 -0.13 -0.08 -0.26*
Personal Responsibility 0.32* -0.25* 0.00 1.00 0.13 0.25 0.41** 0.47** 0.36** 0.21 0.35**
(RESP)d
Management 0.00 -0.05 0.08 0.12 1.00 -0.17 0.29* 0.14 0.32* 0.05 -0.11
Responsiveness
(MGMT)e
Social Desirability Bias 0.16 0.00 -0.16 0.25 -0.26 1.00 0.09 0.08 0.05 0.27* -0.05
(SDB)f
Seriousness (SERIOUS)g 0.29* -0.29* -0.13 0.58** 0.23 0.14 1.00 0.48** 0.20 0.06 0.20
Morally Wrong 0.17 -0.24* -0.23 0.51** 0.19 -0.02 0.49** 1.00 0.50** -0.07 0.31*
(WRONG)h
Unethical (UNETH)i 0.14 -0.32* -0.08 0.37** 0.25 -0.15 0.29* 0.58** 1.00 0.10 0.29*
j
Accountable (ACCT) 0.14 0.04 -0.10 0.19 0.08 0.31* 0.14 -0.09 0.00 1.00 0.02
Personal Cost (COST)k 0.23 -0.17 -0.21 0.37** -0.17 0.00 0.14 0.36** 0.37** 0.12 1.00
Pearson (parametric) correlations are reported left of the diagonal (italic entries). Spearman’s rho (nonparametric) correlations are reported right
of the diagonal
* Correlation is significant at the 0.05 (two-tailed)
** Correlation is significant at the 0.01 level (two-tailed)
a
Participants were asked the likelihood of their reporting the questionable behavior (via an internal auditor and an anonymous hotline).
Participants provided their assessment using a 7-point scale where one was ‘‘Very Unlikely’’ and seven was ‘‘Very Likely.’’ ‘‘Reporting
Intention’’ dependent measure was calculated by taking the higher of the two reporting intention measures (internal auditor and reporting hotline)
b
Sub-certification was manipulated between participants at two levels: present or absent. When sub-certification was absent, only the CEO
certified the financial statements. When sub-certification was present, the CEO certified the entire financial statements and the division manager
certified the division’s financial statements for the CEO
c
Timing was manipulated between participants at two levels: the financial report was or was not yet filed with the SEC when the participant
became aware of the questionable behavior
d
Participants were asked to provide their assessment of the personal responsibility (duty or obligation) to report the fraud using a 9-point scale
where 1 was ‘‘very low’’ and 9 was ‘‘very high’’
e
Participants were asked to provide their assessment of the likelihood that the questionable behavior would be investigated (assuming it was
reported) using a 9-point scale where 1 was ‘‘very unlikely’’ and 9 was ‘‘very likely’’
f
Social desirability bias measure is the difference between the likelihood of reporting intentions that participants reported and the likelihood of
reporting intentions that participants indicated someone else would report
g
Participants were asked to provide their assessment of the seriousness (i.e., the amount of harm done) of the questionable act using a 9-point
scale where 1 was ‘‘very low’’ and 9 was ‘‘very high’’
h
Participants were asked to provide their assessment of the extent to which they believed the questionable act was morally wrong using a
9-point scale where 1 was ‘‘very small’’ and 9 was ‘‘very large’’
i
Participants were asked to provide their assessment of the likelihood that there is a general consensus among people that the questionable act is
unethical using a 9-point scale where 1 was ‘‘very unlikely’’ and 9 was ‘‘very likely’’
j
Participants were asked to provide their assessment of the person’s accountability for potential fraud using a 9-point scale where 1 was ‘‘very
low’’ and 9 was ‘‘very high’’
k
Participants were asked to provide their assessment of the personal cost (i.e., trouble, risk, discomfort) to the person reporting the fraud
assuming their identity is revealed when reporting the fraud using a 9-point scale where 1 was ‘‘very low’’ and 9 was ‘‘very high’’

intentions in our study may reflect a SDB. To control for
this potential bias, we asked participants their reporting
intentions using a third person perspective. We measure
SDB by taking the difference between the participant’s
highest reporting intention dependent measure and that
same reporting channel using the third person perspective.
This measure is then utilized as a covariate in our analyses,
similar to previous research (Chung and Monroe 2003;
Chung et al. 2004; Cohen et al. 1998, 2001; Kaplan et al.
2010).
We also attempted to identify potential covariates by
examining if the demographic measures (e.g., age, work
experience, etc.) were significantly related to the dependent
measures. None of the demographic measures satisfied

123
766
Table 4 ANOVA results. Dependent variable: personal responsibility
Source of variation Type III SS df MS F Significance
(one-tailed)
Between subjects
Sub-certificationa 2.925 1 2.925 3.10 0.042
Timingb 0.006 1 0.006 0.01 0.469
Sub-cert. 9 Timing 0.560 1 0.560 0.59 0.222
Participants were asked to provide their assessment of the personal
responsibility (duty or obligation) to report the fraud using a 9-point scale
where 1 was ‘‘very low’’ and 9 was ‘‘very high’’
a
Sub-certification was manipulated between participants at two levels:
present or absent. When sub-certification was absent, only the CEO cer-
tified the financial statements. When sub-certification was present, the
CEO certified the entire financial statements and the division manager
certified the division’s financial statements for the CEO
b
Timing was manipulated between participants at two levels: the finan-
cial report was or was not yet filed with the SEC when the participant
became aware of the questionable behavior
these conditions, and consequently the analyses do not
include any additional covariates (other than the SDB
measure).
Descriptive Statistics and Correlation Analyses
The descriptive statistics of the dependent variables, the
covariate, and additional variables we analyze are pre-
sented in Table 2. Overall, these statistics suggest that our
participants viewed the questionable act as quite serious,
morally wrong, and unethical (with means about 8 on a
9-point scale). In addition, while participants expressed a
moderately high level of personal responsibility to report,
they did not perceive that they were necessarily account-
able for the questionable act.
Correlation analyses are presented in Table 3. From
these analyses, it is clear that the perceived seriousness,
morality, and unethicality of the act are correlated with
each other (p \ 0.05), and that they are each highly cor-
related (p \ 0.01) with personal responsibility to report the
questionable act. Interestingly, the perceived personal cost
of being identified when reporting the questionable act is
highly correlated (p \ 0.01) with personal responsibility to
report, the degree of moral wrongness, and the unethicality
of the act.
Tests of Hypotheses
Hypothesis 1a predicts that the presence of sub-certifica-
tion will reduce individuals’ sense of personal responsi-
bility to report the questionable act. We test this hypothesis
using Analysis-of-Variance (ANOVA), with the experi-
mental manipulations of sub-certification (present, absent)
123
D. J. Lowe et al.
and timing (filed, not filed) serving as the independent
variables and the dependent variable being perceived per-
sonal responsibility to report the questionable act. As
shown in Table 4, a significant main effect is revealed
(F = 3.10; one-tailed p \ 0.05). As expected, we find that
participants’ perceived responsibility is significantly lower
when sub-certification is present (8.04) than when it is
absent (8.52) (means and standard deviations shown in
Table 2). Thus, the presence of sub-certification signifi-
cantly reduced perceived personal responsibility and
Hypothesis 1a is supported.
Hypothesis 1b predicts that individuals’ intentions to
report fraud when sub-certification is present will be sig-
nificantly weaker than when sub-certification is absent. We
test this hypothesis using Analysis-of-Covariance
(ANCOVA), with the experimental manipulations of sub-
certification (present, absent) and timing (filed, not filed)
serving as the independent variables and reporting inten-
tion being designated as the dependent variable. We also
utilized SDB as a covariate.11
As shown in Table 5, a significant main effect is
revealed (F = 3.67; one-tailed p \ 0.04). As expected,
individuals in the sub-certification present condition (6.19)
provided significantly lower reporting intentions than
individuals in the sub-certification absent condition (6.74)
(means and standard deviations are shown in Table 2).12
Thus, Hypothesis 1b is supported.
Hypothesis 2a theorizes that individuals’ perceptions of
management responsiveness will be higher when the
financial statements have not been filed with the SEC.
Participants were asked about management responsiveness
for each reporting channel. We used management respon-
siveness for the reporting channel corresponding with the
highest reporting intention. Means for management
responsiveness using the highest reporting channel are 7.45
when fraud is discovered prior to the report being filed with
the SEC and 7.68 when fraud is discovered after the report
has been filed with the SEC (see Table 2). We test this
hypothesis using ANOVA, with the experimental manip-
ulations of sub-certification (present, absent) and timing
(filed, not filed) serving as the independent variables and
the dependent variable being management responsiveness.
As shown in Table 6, an insignificant main effect is
revealed (F = 0.32; one-tailed p \ 0.29). Thus, Hypothe-
sis 2a is not supported.
Hypothesis 2b predicts that individuals’ intentions to
report fraud when the financial statements have not been
filed with the SEC will be significantly higher than their
11
The analysis used the general linear models package of SAS which
adjusts for unequal cell sizes.
12
Similar results were obtained using the internal audit and
anonymous hotline intentions measures individually.
Financial Sub-certification and Timing of Fraud Discovery 767

Table 5 ANCOVA results. Dependent variable: reporting intention

Source of variation Type III SS df MS F Significance (one-tailed)

Covariate
Social Desirability Biasa 1.44 1 1.44 1.28 0.132
Between subjects
Sub-certificationb 4.151 1 4.151 3.67 0.031
Timingc 0.182 1 0.182 0.16 0.346
Sub-cert. 9 Timing 0.067 1 0.067 0.06 0.404
Participants were asked the likelihood of their reporting the questionable behavior (via an internal auditor and an anonymous hotline).
Participants provided their assessment using a 7-point scale where one was ‘‘Very Unlikely’’ and seven was ‘‘Very Likely.’’ ‘‘Reporting
Intention’’ dependent measure was calculated by taking the higher of the two reporting intention measures (internal auditor and reporting hotline)
a
Social desirability bias measure is the difference between the likelihood of reporting intentions that participants reported and the likelihood of
reporting intentions that participants indicated someone else would report
b
Sub-certification was manipulated between participants at two levels: present or absent. When sub-certification was absent, only the CEO
certified the financial statements. When sub-certification was present, the CEO certified the entire financial statements and the division manager
certified the division’s financial statements for the CEO
c
Timing was manipulated between participants at two levels: the financial report was or was not yet filed with the SEC when the participant
became aware of the questionable behavior

intentions to report fraud when filing has already occurred. Table 6 ANOVA results. Dependent variable: management respon-
We tested this hypothesis using the ANCOVA model dis- siveness
cussed for H1b. As shown in Table 5, the main effect for Source of variation Type III SS df MS F Significance
timing was insignificant at traditional levels for the (one-tailed)
reporting intentions measure. Therefore, Hypothesis 2b is
Between subjects
not supported.
Sub-certificationa 0.372 1 0.372 0.16 0.347
Timingb 0.761 1 0.761 0.32 0.286
Supplemental Analysis Sub-cert. 9 0.221 1 0.221 0.09 0.380
Timing
While timing of filing is not significant in the tests above, Participants were asked to provide their assessment of the likelihood
sub-certification is significant. Thus, we perform supple- that the questionable behavior would be investigated (assuming it was
mental analysis related to sub-certification. We surmise reported) using a 9-point scale where 1 was ‘‘very unlikely’’ and 9
that the effect of sub-certification will be to decrease one’s was ‘‘very likely’’
a
sense of personal responsibility, thus, reducing reporting Sub-certification was manipulated between participants at two
levels: present or absent. When sub-certification was absent, only the
intentions. That is, we expect a mediation process in which CEO certified the financial statements. When sub-certification was
personal responsibility mediates the relationship between present, the CEO certified the entire financial statements and the
sub-certification and reporting intentions. Baron and Kenny division manager certified the division’s financial statements for the
(1986, p. 1177) detail the steps to test for the presence of a CEO
b
mediating variable. The first condition they identify is that Timing was manipulated between participants at two levels: the
financial report was or was not yet filed with the SEC when the
there must be an association between the independent participant became aware of the questionable behavior
measure (sub-certification) and the potential mediating
variable (personal responsibility). We determined in our Regarding the third condition identified by Baron and
analysis for H1a that there was a significant relationship Kenny (1986, p. 1177), when the mediation variable (personal
between sub-certification and personal responsibility. We responsibility) is included in the model, the mediation variable
test this again in Table 7, Panel A using a logistic regres- must be associated with the dependent measure (reporting
sion analysis to show the relationship. Thus, the first intention), and the independent measure (sub-certification)
mediation condition is met. should then become insignificant or lose significance. As
The second condition for mediation requires that the shown in Table 7, Panel C, adding personal responsibility to
independent variable (sub-certification) be shown to affect the ANCOVA models reduces the significance of sub-certifi-
the dependent measure (reporting intention). We tested the cation to a p-value of 0.08. Thus, we conclude that personal
relationship in Table 5 as part of H1b. The ANCOVA is responsibility partially mediates the relationship between sub-
shown again in Table 7, Panel B. certification and reporting intention.

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768 D. J. Lowe et al.

Table 7 Mediation tests

Step 1: Regress the mediator (personal responsibility) on the independent variable (sub-certification)
Reporting Intention = b0 ? b1 Personal Responsibility ? e
Variable Predicted relation Beta Wald coefficient Exp Significance (one-tailed)

Personal Responsibility ? 0.56 3.07 1.75 0.04

Step 2: Regress the dependent variable (reporting intention) on the independent variable (sub-certification). This is a repeat of our Hypothesis 1b
which we test with an ANCOVA with Reporting Intentions as the dependent variable, sub-certification and timing as independent variables, and
social desirability bias a mediator
Source of variation Type III SS df MS F Significance (one-tailed)

Covariates
Social Desirability Bias 1.44 1 1.44 1.28 0.132
Between subjects
Sub-certification 4.151 1 4.151 3.67 0.031
Timing 0.182 1 0.182 0.16 0.346
Sub-cert. 9 Timing 0.067 1 0.067 0.06 0.404

Step 3: Regress the dependent variable (reporting intention) on the independent variable (sub-certification) and mediator (personal
responsibility). For this step, we re-run the ANCOVA with Reporting Intentions as the dependent variable, sub-certification and timing as
independent variables, and social desirability bias a covariate and also add the mediator (personal responsibility)
Source of variation Type III SS df MS F Significance (one-tailed)

Mediator
Personal Responsibility 3.55 1 3.55 3.29 0.038
Covariate
Social Desirability Bias 0.47 1 0.47 0.44 0.255
Between subjects
Sub-certification 2.24 1 2.24 2.07 0.078
Timing 0.27 1 0.27 0.25 0.308
Sub-cert. 9 Timing 0.18 1 0.18 0.16 0.344

Variables: Reporting Intentions = Participants were asked the likelihood of their reporting the questionable behavior (via an internal auditor and
an anonymous hotline). Participants provided their assessment using a 7-point scale where one was ‘‘Very Unlikely’’ and seven was ‘‘Very
Likely.’’ ‘‘Reporting Intention’’ dependent measure was calculated by taking the higher of the two reporting intention measures (internal auditor
and reporting hotline); Personal Responsibility = Participants were asked to provide their assessment of the personal responsibility (duty or
obligation) to report the fraud using a 9-point scale where 1 was ‘‘very low’’ and 9 was ‘‘very high’’; Social Desirability Bias = Social
desirability bias measure is the difference between the likelihood of reporting intentions that participants reported and the likelihood of reporting
intentions that participants indicated someone else would report; Sub-certification = Sub-certification was manipulated between participants at
two levels: present or absent. When sub-certification was absent, only the CEO certified the financial statements. When sub-certification was
present, the CEO certified the entire financial statements and the division manager certified the division’s financial statements for the CEO;
Timing = Timing was manipulated between participants at two levels: the financial report was or was not yet filed with the SEC when the
participant became aware of the questionable behavior

An alternative explanation for our results could be that
the presence of sub-certification reduced reporting inten-
tions due to an increased fear of retaliation. That is, the
supervisor signed a sub-certification statement indicating
that he/she was not aware of fraud when, in fact, he/she has
committed a fraudulent act. A subordinate may view the
supervisor as having more to lose by having the fraudulent
act discovered and the retaliation may be greater. We do not
believe this is a plausible alternative explanation for several
reasons. First, participants rated the ‘‘personal cost (i.e.,
trouble, risk, discomfort) to the subordinate assuming that
his/her identity is revealed when reporting the questionable
act’’ on a scale of one to nine where nine was ‘‘very high.’’
The mean response to this question when sub-certification
was present was 7.11, while the mean response when sub-
certification was absent was 7.70 (see Table 2). These
means were not significantly different (t-stat. = 1.21;
p [ 0.20).
Second, we had participants give reporting intentions for
both a non-anonymous and an anonymous reporting
channel. Presumably, if participants were concerned about
retaliation, they would be able to report using the anony-
mous reporting channel. Third, we analyzed the results to
determine if the reporting channel ‘‘shifted’’ to anonymous

123
Financial Sub-certification and Timing of Fraud Discovery
reporting channels when sub-certification was present. We
analyzed the largest reporting intention for each participant
and coded the reporting channel as ‘‘anonymous hotline’’ if
they were more likely to report using the anonymous hot-
line than the internal auditor. On the other hand, if they
were more likely to report to the internal auditor than via
the anonymous hotline, we coded the channel as ‘‘internal
auditor.’’ When sub-certification was absent, 52 % of
participants used the ‘‘anonymous hotline’’ channel (versus
48 % using the ‘‘internal auditor’’ channel). When sub-
certification was present, 48 % of participants used the
‘‘anonymous hotline’’ channel (versus 52 % using the
‘‘internal auditor’’ channel). A Chi square analysis found
that this was not a significant difference in frequency
(p [ 0.75). Thus, given the results on perceived personal
cost and reporting channels used, we do not believe that
retaliation is an alternative explanation for our results.
Finally, we did a post-hoc analysis of ethical perception
measures. Given that the timing independent measure was
found to be insignificant for H2a and H2b, our analysis
consisted of the ethical perception variables with respect to
sub-certification. The mean ethical measures, by sub-cer-
tification, are shown in Table 2. Ethical perception mea-
sures included the perceived seriousness of the act, whether
the act was morally wrong, and the degree of unethicality
of the act. These perception measures were measured on a
nine-point scale where nine indicated more serious, ethical
violations. The results indicate that when sub-certification
is present, the questionable act is viewed as less serious
(8.22 when sub-certification is absent compared to 7.56
when sub-certification is present; p \ 0.05) and less
unethical (8.48 when sub-certification is absent compared
to 7.67 when sub-certification is present; p \ 0.05). There
is no significant difference between conditions in the per-
ception of whether the act is morally wrong. These results
are consistent with those reported earlier for personal
responsibility. That is, when participants perceive that their
superior has been involved in the certification process, they
view the act as being less serious and less unethical. We
had hypothesized that one reason that sub-certification may
reduce personal responsibility is that the act of the manager
sub-certifying that he/she was not aware of fraud would
result in the observer doubting the severity of the fraud.
With a lowered perception of the unethicality of the fraud,
individuals would lower their perception of responsibility
and their reporting intentions. The results shown in Table 2
support our conjecture. We also find that both the seri-
ousness and unethicality of the act are significantly related
to personal responsibility (see Table 3; correlations are
[0.37 with p-values \ 0.01). However, while seriousness
is correlated with reporting intention (correlation is 0.29,
p-value \ 0.04), unethicality of the act is not significantly
correlated with reporting intention (correlation is 0.14;
769
p-value [ 0.32). A mediation analysis finds that serious-
ness does not mediate the relationship between sub-certi-
fication and reporting intention (p [ 0.10). This suggests
that personal responsibility is influenced by more than just
seriousness and unethicality of the act and that all of these
items have a combined effect on reporting intention.
Discussion and Implications
This research represents the first study we are aware of that
has examined the effect of sub-certification and timing of
the discovery of fraud on whistleblowing reporting inten-
tions. When financial statements are subsequently found to
be fraudulent, managers, the firm, external auditors, and
equity holders face severe penalties. SOX was enacted to
reduce fraudulent behavior through enhanced whistle-
blowing provisions and the implementation of certification
requirements to key executives and indirectly to their
subordinate managers. However, little, if any, empirical
evidence exists regarding the impact of these sub-certifi-
cations on whistleblowing intentions. Understanding the
relationship between sub-certification and whistleblowing
is important to guide policy makers, managers, and audit
committees to effective corporate governance practices.
Our findings indicate that participants perceived lower
personal responsibility and reporting intentions when the
transgressor sub-certified compared to when sub-certifica-
tion was absent. To provide more insight into this process,
we examined personal responsibility as a possible mediator
in this process. We found that perceived personal respon-
sibility partially mediated the effect of sub-certification on
reporting intentions. These results are somewhat consistent
with Keil and Park (2010), in which personal responsibility
was found to partially mediate the relationship between
project assessment and willingness to report.
Our results have important implications for both theory
and practice. From a theoretical perspective, our results
extend previous research on the role of personal responsi-
bility in whistleblowing. Previous research recognizes the
importance of personal responsibility in general and sug-
gests that perceived personal responsibility influences
whistleblowing decisions (see Mesmer-Magnus and Vis-
wesvaran 2005; Near and Miceli 1995; Rehg et al. 2008).
In particular, Graham (1986) found that the number of
observers and extent of exposure to issues of principle are
both likely to reduce personal responsibility. Our study
extends prior research by demonstrating that an organiza-
tional characteristic (sub-certification) reduces perceived
personal responsibility. We also found that sub-certifica-
tion had the effect of lessening the perceived seriousness
and ethicality of the act. Given these results, future
research should attempt to model sub-certification and
123
770
provide a more comprehensive assessment of how this
organizational characteristic impacts the whistleblowing
process.
From a practice perspective, our results may also be
used to provide some guidance to audit committees and
other senior executives concerned with the certification
process. While the intention of rolling down the (sub)cer-
tification process to senior managers is to increase
accountability and deter potential fraud, our study suggests
that this process may have the unintended consequence of
reducing whistleblowing. Thus, two provisions of SOX that
were intended to be complementary in their influence on
fraud may be more complex in their interaction with each
other. To the extent that audit committees and other senior
executives wish to continue the sub-certification process,
they may want to examine the levels at which sub-certifi-
cation is rolled down.
In spite of the perceived drawbacks of sub-certifications,
we believe that overall this process may prove to be ben-
eficial by (1) encouraging management to become more
involved with major accounting issues (Maroney and
McDevitt 2008), (2) increasing investor confidence of the
financial reporting process, and (3) promoting the design
and implementation of sufficient internal controls (SEC
2002). Thus, our study suggests that rather than eliminating
certifications and sub-certifications, what may be needed is
to implement certain modifications to the existing sub-
certification process.
Finally, our results indicate that the timing of when the
fraud is discovered does not influence whistleblowing
intentions. That is, even if employees find out about a
potential fraudulent act after reports have already been filed
with a governmental agency, this does not diminish
reporting intentions. We acknowledge that our study
focused on a single time period related to whether the
timing of the report was before or after a specific filing
date. However, in a corporate setting, there are quarterly
filing dates in addition to the annual filing date to consider.
Thus, the effect of timing of the report on whistleblowing
behavior in a multiple time period context may be weak-
ened and, thus, account for our results. Another possible
explanation is that individuals are cognizant of the time it
takes to resolve a whistleblowing situation and that they do
not expect an immediate response or resolution. Generally
speaking, only after a thorough investigation can financial
statements be altered, and then only when the fraud is
material to the consolidated financial statements. Future
research may want to consider this variable more carefully
to determine if timing of the discovery of fraud in any way
influences reporting intentions.
The results of this study must be viewed in light of its
limitations. First, consistent with a large body of prior
research, we utilized an experimental approach with
123
D. J. Lowe et al.
participants responding to a hypothetical incident rather
than the occurrence of an actual wrongdoing. In an actual
setting, whistleblowing issues may elicit certain emotions
that are likely to play a diminished role in an experimental
setting. However, Miceli and Near (1984) advocate the use
of experimental approaches as a complement to survey and
archival approaches. We believe that an experimental
approach is particularly well suited to the current study
where it is difficult to control for potentially relevant fac-
tors such as sub-certification and timing the discovery of
fraud. In this regard, an experimental approach with a
carefully constructed case strengthens internal validity.
A second limitation is to note that we measured
reporting intention as a proxy for actual whistleblowing
behavior. This is consistent with a large body of research
that has examined whistleblowing in an organizational
setting (Ayers and Kaplan 2005; King 1997; Schultz et al.
1993; Kaplan et al. 2010). While we believe that intention
is a reasonable surrogate for behavior (see Ajzen 1991),
future research could examine actual behavior, perhaps in
an experimental economics framework. Additionally,
consistent with prior research (Kaplan et al. 2010), we
measure reporting intentions using first-person intentions
(would the participant report the behavior) with SDB as a
covariate. Personal responsibility was measured by asking
participants about the employee’s personal responsibility
(clarified as ‘‘duty or obligation’’) to report the question-
able act. Participants may have responded differently to the
personal responsibility question if it was also asked in the
first person.
A third limitation relates to our use of evening MBA
students as participants. These students are working pro-
fessionals who have substantial work experience, suggest-
ing that they were likely to have a good understanding of
the workplace (see Table 1). Participants also are repre-
sentative of employees who discover a wrongful behavior
such as fraud in their work environments. According to
Table 1, approximately 50 % of the participants have dis-
covered a person of greater authority engaging in ques-
tionable or wrongful behavior in their work environment.
While we believe our participants are representative of
employees who might discover a fraudulent act at work, we
have no direct evidence to support this.
Lastly, we acknowledge that the recent enactment of the
Dodd-Frank Act (U.S. House of Representatives 2010)
may have the effect of altering the nature of the whistle-
blowing process. This corporate governance mechanism
encourages individuals to report information regarding
violations of relevant securities laws through the SEC’s
anonymous online portal. Whistleblowers who report ori-
ginal information are entitled to substantial rewards based
on money recovered by the SEC when sanctions exceed $1
million. It is unclear how and to what extent the variables
Financial Sub-certification and Timing of Fraud Discovery
we examined in this study (e.g., personal responsibility,
sub-certification, report timing) would affect whistleblow-
ing behavior in this new regulatory environment. Future
research should examine the implications of the Dodd-
Frank Act with regard to whistleblowing behavior.
Acknowledgments The authors wish to acknowledge helpful
comments from Steve Kaplan. We would also like to thank DePaul
University for their assistance in obtaining research participants.
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