For the Sherlock of financial crimes at WVU, data is the future but human nature is forever

Fraud research from Kip Holderness examines topics like whistleblowing, auditor bias and performance feedback. (WVU Photo/Nathaniel Godwin)

(Editor's note: This Mountaineer Spotlight is part of WVU Research Week which runs through April 5.)

Fraud and forensic accounting expert Kip Holderness has always relished a good mystery.

“Growing up, Sherlock Holmes was probably my favorite,” he said. “It’s fun to dig into those books and figure out ‘whodunit.’ That’s a big part of forensics. The courts aren’t as focused on a defendant’s motive as on proof of who did the crime, but for anyone reading about the case, the human element is what makes the story interesting. I enjoy both sides — the detective work of forensics and the psychology of fraud.”

Holderness, an associate professor at the WVU John Chambers College of Business and Economics, likes knowing what makes people tick and why they do things they shouldn’t. His research explores employee deviance and “psychological entitlement,” which he described as “an inflated sense of deservingness unjustified by merit or performance.”

Holderness’s journey with WVU began in 2013.

“I’ve lived in eight other states and outside the country, but I’ve been in Morgantown longer than anywhere. This is home for me and my family,” he said. “I love that for people throughout West Virginia, even if they never went to school at WVU, we are their University. Everyone has the ‘Flying WV’ on their cars.”

When he first arrived at the Chambers College, he was researching how entitlement affects employees’ propensity to steal and cheat. He had set up an experiment in which he paid participants for the number of paper mazes they claimed to have solved. After the participants left, Holderness dug through the trash. To figure out which mazes were whose, he had marked each paper with invisible ink. That told him how many mazes each participant really did versus the amount they’d claimed.

“The study showed a tie between entitlement and the extent to which participants lied to us,” he said. “It was one of the first experiments I did at WVU, and there were awkward moments when other faculty would poke their heads in my office and I’d be working on a pile of kids’ mazes, or I’d send the department chair my request to expense invisible ink pens. But everyone was very supportive from the start and I published a lot of research stemming from that experiment.

“One thing I learned was that entitled people are hypersensitive to others’ thoughts and opinions, and if we put them in a setting where they can influence their boss or other people they care about, they’ll actually cheat less than people who are not entitled. That means if companies know certain employees are entitled, they can create incentive and monitoring structures that get a lot out of those employees, and the employees can flourish.”

Holderness’s textbook “Cost Accounting: A Data Analytics Approach” came out this year, and he has long taught cost accounting to undergraduates, updating his teaching to ensure today’s students are skilled at reading, understanding, processing and communicating companies’ financial data.

“The world has more data than ever before and the big thing now in forensic accounting is data analytics. Everything’s tracked, and all that data can be used in forensic investigations. But it takes tools and creativity to understand what’s out there and how to use it.”

With the specter of recession on the national horizon, Holderness sees opportunity for forensic accountants.

“Fraud is easier to cover up when times are good. When the economy starts going south, fraud allegations increase and forensics work really picks up. Our undergrad, master's, doctoral and doctor of business administration students have no shortage of job offers. Governments and companies are increasingly proactive at finding fraud, going after even small stuff. I have former students investigating multi-million dollar frauds and others investigating embezzlement in local fire departments,” he said. 

“Our forensic accounting program is growing, with increasing demand from agencies like the DEA, ATF, FBI and IRS. Plus, state and local governments are putting anti-fraud resources in place to protect taxpayer assets. There’s buzz about how AI and other new resources for analyzing data and taking shortcuts might eliminate accounting jobs — I haven’t seen it. Nearly all of our accounting students graduate with multiple job offers.”

How common is fraud? Most people cheat a little bit, Holderness revealed.

“The majority of us cheat to the extent that we can still justify to ourselves that we’re good people. Given the opportunity to steal a lot of money with no risk of being caught, most won’t do it. I’ve seen this in my experiments. From an economics perspective, that doesn’t make sense — people should steal as much as they can if there’s no consequence. It’s the psychological element that keeps us in check.”

-WVU-