Meric Craig Bloch theorizes that punishing people who are caught committing fraud is not an effective way to deter fraud. The reasons behind his theory:
- Employees who commit fraud don’t anticipate getting caught. The threat of sanctions does not deter them because they don’t expect to face them. To deter them, you have to raise the “perception of detection” – people who believe they will be caught committing fraud are less likely to commit it.
- Employees who commit fraud rationalize their conduct so that it seems legal or justified. They do not see their actions as wrong.
- Because employees who commit fraud are primarily motivated by status, the greatest threat they face is that their crime will be detected.
- Sanctions are reactive – you are punishing someone after the damage to the company has been done.