Breaking the silence: An empirical analysis of the drivers of internal auditors' moral courage

• DOI: http://doi.org/10.1111/ijau.12119
• Author: Khaled Hussainey,Hédi Noubbigh,Imen Khelil,Onsa Akrout
• Date: 01 July 2018
• Published date: 01 July 2018

ORIGINAL ARTICLE

Breaking the silence: An empirical analysis of the drivers of

internal auditors'moral courage

Imen Khelil

1,2

|Onsa Akrout

1

|Khaled Hussainey

3

|Hédi Noubbigh

1

1

Institut des Hautes Etudes Commerciales de

Carthage, Université de Carthage, Tunis,

Tunisia

2

RIM‐RAF, University of Manouba, Manouba,

Tunisia

3

Portsmouth Business School, Portsmouth

University, Portsmouth, UK

Correspondence

Professor Khaled Hussainey, Portsmouth

University, Portsmouth Business School,

Portsmouth, UK

Email: khaled.hussainey@port.ac.uk

This study investigates the effect of positive states, perceived supervisor support and

independence of internal audit function on internal auditors' moral courage. Although

extensive research has suggested that risk of feared consequences is the major cause

that inhibits internal auditors from reporting managerial fraud, there has been little

empirical investigation into the way of fostering internal auditors' moral courage to

speak up. This study used a survey of 146 internal auditors in Tunisia. The partial least

squares–structural equation model was used to test our hypotheses. The results indi-

cate that self‐efficacy, resilience, perceived supervisor support and the independence

of internal audit function have a positive effect on the internal auditors' moral cour-

age; however, state hope does not show a significant link. Additionally, we find that

women experience higher levels of moral courage than men do.

KEYWORDS

Ethics, fraud, internal audit

1|INTRODUCTION

Previous evidence has shown that internal auditors are more helpful in

detecting fraud and corruption than external auditors are (Halbouni,

2015; Jayalakshmy, Seetharaman, & Khong, 2005); nevertheless, they

are still reluctant to report them. Accordingly, academicians and pro-

fessionals describe them as “gatekeepers”who failed to prevent the

global financial scandals (Chambers & Odar, 2015). A growing body

of research has revealed that the fear of retaliation is the main cause

of the silence of nonreporting observers (Cassematis & Wortley,

2013; James, 2003; Khelil, Hussainey, & Noubbigh, 2016). Keil,

Tiwana, Sainsbury, and Sneha (2010) note that retaliation is common

and is reported to happen 17–38% of the time. It is manifested in sev-

eral forms, including job loss, intimidation, death threats, defamation

of character and negative impact on one's career, all of which can

exert a physical and psychological toll on the health of whistle‐blower

(Comer & Schwartz, 2017; Miceli, Near, & Morehead Dwoekin, 2008).

Moral courage is an attribute that motivates and enables individ-

uals to take the right path of action based on the ethics of their pro-

fessions (Sekerka, Bagozzi, & Charnigo, 2009). Morales‐Sánchez and

Cabello‐Medina (2013) support this view by noting that prosocial

behaviors, such as speaking up, require access to moral courage. Such

courage is a moral competency that implies overcoming fear.

Despite the great agreement in the literature that internal audi-

tors keep silent out of fear of reprisal, there have been few empirical

investigations into the factors that enhance their moral courage to

speak up when they encounter wrongdoings (e.g., Khelil et al., 2016;

Khelil, Hussainey, & Noubbigh, 2017). Until now, however, auditing

scholars have tended to focus on internal auditors' responsibilities in

disclosing management fraud and have not considered what encour-

ages them to exercise these responsibilities. Indeed, internal auditors

need not only to know what the right thing to do is, but also to have

the courage to do it (Khelil et al., 2016).

We aimed to fill this gap by examining the effect of positive states

(self‐efficacy, state hope and resilience), internal auditor's indepen-

dence and perceived supervisor support (PSS) on internal auditors'

moral courage to speak up when they encounter wrongdoings. Addi-

tionally, the examination of the Tunisian context makes a particular

contribution to the internal auditing works related to the Middle East

and North Africa (MENA), as little research has been conducted in this

region (Al‐Akra, Abdel‐Qader, & Billah, 2016).

The choice of the Tunisian context is justified by these main rea-

sons. First, although fraudulent deeds and malpractices continue to

propagate in such a country (Hentati‐Klila, Dammak‐Barkallah, &

Affes, 2017), too little attention has been paid to how to encourage

auditors to report fraud.

Received: 5 June 2017 Revised: 26 January 2018 Accepted: 26 March 2018

DOI: 10.1111/ijau.12119

268 © 2018 John Wiley & Sons Ltd Int J Audit. 2018;22:268–284.wileyonlinelibrary.com/journal/ijau

Second, nowadays, the internal audit function (IAF) is depicted as

part of the solution to perceived breakdowns in the systems of inter-

nal control, business reporting and ethical behavior (Bailey, Gramling

Jr., & Ramamootri, 2003). Asiedu and Deffor (2017) assert that an

effective IAF can reduce administrative corruption. Owing to the

growing importance of internal audit in ensuring corporate gover-

nance efficiency, the recent formal corporate governance guidance

inTunisia (code of best practices of corporate governance for Tunisian

public enterprises, in 2008, updated twice in 2012 and in 2014) has

strengthened the professional and ethical responsibilities of internal

audit within public and private organizations. Accordingly, a study on

what motivates Tunisian internal auditors to fulfill these responsibili-

ties is required.

Moreover, considering moral courage as a moral muscle that spurs

the moral strength to face corruption (Sekerka, 2011), the investiga-

tion of theTunisian context is timely as Tunisia is in the midst of a rev-

olution at the social, economic, and financial levels. Such a revolution

aims to fight corruption (illegal acts, fraud, and unethical behaviors)

and to promote integrity in both the private and the public sectors

(Khelil et al., 2016).

For this study, 146 questionnaires were administered to Tunisian

internal auditors, and a partial least squares–structural equation model

(PLS‐SEM) was used to test our hypotheses.

Although the advantage of using structural equation modeling

(SEM) has been widely explained in previous studies to analyze

accounting behavioral data, SEM is still underutilized by accounting

behavioral scholars compared with related disciplines such as psychol-

ogy, management, and information systems (Hampton, 2015). Accord-

ingly, this study makes an original methodological contribution to the

behavioral accounting literature.

Our results show that self‐efficacy, resilience, PSS, and the IAF

independence have a positive effect on internal auditors' moral cour-

age. However, state hope does not show a significant link with the

moral courage of the internal auditor.

The paper is organized as follows. Section 2 discusses the

research background and reviews relevant literature. We develop

our hypotheses in Section 3 and discuss the research methodology

in Section 4. The analysis and discussion of results are presented in

Section 5. Section 6 concludes the paper.

2|RESEARCH BACKGROUND AND

RELEVANT LITERATURE

2.1 |The role of internal auditors in fraud reporting

Resounding corporate scandals have generated much public disap-

pointment, leading the internal auditing standard setters to seek ways

to reinforce the internal auditors' willpower to strive against corporate

malfeasance and promote truthfulness by restoring a responsibility for

fraud reporting not only internally but also externally.

The Institute of Internal Auditors (IIA, 2015) decrees in standard

2060 that:

the chief audit executive must report periodically to

senior management and the board on the internal audit

activity's purpose, authority, responsibility and

performance relative to its plan. Reporting must also

include significant risk exposures and control issues,

including fraud risks, governance issues and other

matters needed or requested by senior management

and the board.

Practice Advisory 2440–2, Communicating Sensitive Information

within and outside the Chain of Command, related to internal audit stan-

dard 2440, explains that in some situations an internal auditor may face

the dilemma of considering whether to communicate the information

to persons outside the normal chain of command or even outside the

organization. This communication is commonly referred to as “whis-

tle‐blowing.”The act of disclosing adverse information to someone

within the organization but outside the internal auditor's normal chain

of command is considered as internal whistle‐blowing, while disclosing

adverse information to a government agency or other authority outside

the organization is considered to be external whistle‐blowing.

The aforementioned requirements are supported by the academi-

cians who advocate that internal auditors are potential whistle‐

blowers by reporting illegal activities within organizations to audit

committees, boards of directors, or government agencies (Miceli, Near,

& Schwenk, 1991; Xu & Ziegenfuss, 2008).

In addition, and given the trust placed in the internal auditorsto fur-

nish accurate information on internal control, risk management systems

and corporate governance processes, the IIA Code of Ethics (IIA, 2013),

as well as the rules of conduct, specifies norms of behavior stressing a

set of cardinal principles that internal auditors should uphold.

Noting that “the integrity of internal auditors establishes trust and

thus provides the basis for reliance on their judgment,”the rules of

conduct emphasize that internal auditors must execute their work

with honesty, responsibility, and diligence. Similarly, the internal audi-

tors must make disclosures expected by law and within the profession.

An overwhelming body of research depicts speaking up about

fraud as an ethical and prosocial behavior as it has several beneficial

effects for organizations and for society at large (Harbour & Kisfalvi,

2014; Miceli et al., 2008). In this context, some authors use adjectives

inspired from ethical and religious glossaries when describing the

whistle‐blowers. Grant (2002) views them as “Saints of Secular Cul-

ture,”and Avakian and Roberts (2012) describe them as “prophets.”

According to Burke (2013), whistle‐blowers are “people of conscience”

who behave to spur human welfare.

2.2 |Internal auditors'moral courage and fraud

reporting

Despite the professional and ethical responsibility for fraud reporting,

internal auditors still face ethical conflicts when the disclosure of audit

findings can have deleterious effects on their careers (Khelil et al.,

2016). In fact, internal auditors are related to management not as

enablers but as individuals involved in the conflict. Independent audi-

tor/corporate management conflicts involve two sources of power:

the pecuniary temptations of management teams to induce auditors

to sanction ignobility versus the integrity of auditors to resist such

temptations (Bayou, Reinstein, & Williams, 2011).

KHELIL ET AL.269