Public policy misses root of corporate fraud

BOSTON – Public policy responses to corporate fraud are inadequate because they focus too much on external reward considerations at the expense of other causes of deception by corporate managers, according to a working paper commissioned for the Federal Reserve Bank of Boston.

Written by two management science professors at MIT – Dan Ariely and Nina Mazar – it argues that public policy, including the Sarbanes-Oxley provisions, over-emphasise an assumption that all fraud occurs because fraudsters weigh the consequences of a fraudulent act against the repercussions, and decide a deceptive act is worthwhile.

"The policies now assume fraud is based on the cost-benefit calculations; that people consider the benefits and the costs of the act, and decide to commit the