Friday, November 16, 2012

White collar crime

In my lecture management information systems Michael Schermann from Lehrstuhl für Wirtschaftsinformatik of Technische Universität München presented on the incentives of in-company crime and instruments for preventing it.
He started off with the traditional explanation of crime where criminals would simply balance between their crime incentive and the opportunity of being punished. Thus, high punishment would be enough to move the balance and ban crime...
However, from practice and from recent experiments we know this does not really hold. People rather have a moral account from where they withdraw and upload credits for their activities: if you buy green, you're more likely to steal...[1].
Furthermore, the simple cost/benefit analysis of fraud is also overwritten by an inner concept relating to fraud of users. It could be shown that fraud outside one's peer-group is less accepted than one's inside peer-group [2].
As example of fraud Michael listed corruption, higher billing of services/products, and non-cash fraud, e.g. manipulation of salaries - he said 15% of salaries would be adjusted higher than they should be. This shows that the traditional concept of incentive-punishment does not hold and is rather being replaced with an inner self-concept of values: if people park illegally, they are more prone to donate to beggar - in order to compensate their wrong behavior by adjusting their moral inner account.
Interestingly, most fraud is detected by hints of others. Thus, companies have started introducing whistle blower channels in order to collect these hints in a more systematic way. Michael proposed to translate business strategy into core values, which have to be lived up by top-management. There should be a clear list of don'ts to be avoided in companies. Control in companies can focus either on input (if output is hard to measure, e.g. as in research) or on input (e.g. sales).
The practical challenge, however, is to smartly balance between burden and effect. IT can help to better manage and control performance and coherence in order to be more responsive to risks, e.g. software can help to crunch down 126k of suspect emails down to a 1,2k messages.
Michael's slides can be found here.
[1] Nina Mazar and Chen-Bo Zhong: Do Green Products Make Us Better People? Psychological Science February 2010 , first published on March 5, 2010 
[2] Gino, F., Ayal, S. & Ariely, D. (2009). Contagion and differentiation in unethical behavior: The effect of one bad apple on the barrel. Psychological Science, 20 (3), 393-398.
ariely: coke was gone, dollar where there -) distance to money increases crime

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