The Problem Is Fraud: Is the Solution Government Bounties?

• Author: Cecily Raiborn,Dan Hargrove
• Published date: 01 September 2013
• DOI: http://doi.org/10.1111/basr.12012
• Date: 01 September 2013

The Problem Is Fraud: Is the

Solution Government

Bounties?

DAN HARGROVE AND CECILY RAIBORN

ABSTRACT

Whistle-blowing is the disclosure of organizational

wrongdoing by internal or external parties either within

the organization or publicly to outsiders who may be

able to effect a positive change in action or activities.

Organizations have been encouraged, especially since the

passage in 2002 of the Sarbanes–Oxley Act, to establish

a culture in which whistle-blowing is seen as a positive

mechanism to correct misconduct rather than a negative

attack.

This article addresses (1) whistle-blowing in relationship

fraud and (2) governmental “bounties” paid to persons

who are willing to provide knowledge of organizational

transgressions. The fraud could occur through a variety

of mechanisms but, regardless of the fraud’s cause, the

long-run result will be harmful to the organization, its

employees, its customers, and the society in which the

organization operates. The question is whether bounties

are the most effective means by which to reduce the

harm created by fraud.

Dan Hargrove, Attorney at Law, Waters & Kraus, LLP, San Antonio, TX. E-mail: dhargrove@

waterskraus.com. Cecily Raiborn, McCoy Endowed Chair in Accounting, McCoy College of

Business, Texas State University–San Marcos, San Marcos, TX. E-mail: craiborn@txstate.edu.

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Business and Society Review 118:3 299–324

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INTRODUCTION

Whistle-blowing refers to the process of disclosing orga-

nizational wrongdoing by internal or external infor -

mants; disclosure can be within the organization or

publicly to individuals who are able to effect a positive change in

action or activities. Organizations have been encouraged, espe-

cially since the passage in 2002 of the Sarbanes–Oxley Act (SOX),

to create a culture in which whistle-blowing is viewed as a positive

mechanism to correct misconduct rather than a negative tale-

telling, finger-pointing attack.

This article addresses the issue of whistle-blowing in relation to

incidences of fraud, and governmental incentives of “bounties”

paid to persons who are willing to step forward and elaborate

about knowledge of organizational transgressions. The fraud

could occur through improper billing, illegal bribery, or misrep-

resentation of financial statement results. Regardless of the

fraud’s cause, the long-run result will be harm . . . harm to the

organization, its employees, its customers, and the society in

which the organization operates. The question is whether boun-

ties are the most effective means by which to reduce the harm

created by fraud.

MAJOR WHISTLE-BLOWER BOUNTY LAWS

A variety of federal and state whistle-blower “bounty” or

“informer” laws are in effect. Such laws allow the government to

pay an award to an informer who presents information that leads

to a governmental financial recovery. Three of the major federal

laws are the False Claims Act, the Tax Relief and Health Care Act,

and the Dodd–Frank Wall Street Reform and Consumer Protection

Act.

False Claims Act

The False Claims Act (FCA) was originally enacted during the Civil

War to stop defense contractor fraud from being perpetrated

against the Union. Under the FCA, a false claim is any request or

demand that the government pay (directly or indirectly) for a false

300 BUSINESS AND SOCIETY REVIEW