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Employer power over H-1B workers could create financial risk

A new study says H-1B visa holders hired into accounting positions might be fearful of losing their jobs and could face pressure to perform unethical tasks.

A longstanding criticism of the H-1B program is that visa workers are in a quasi-indentured role because employers hold leverage over their ability to stay in the U.S. A new paper provided some evidence that this employer power puts H-1B visa holders in a problematic position, susceptible to abuse and fearful of exposing financial irregularities. It also comes at a cost to some companies.

The paper "Does U.S. Immigration Policy Facilitate Financial Misconduct?" focuses on the dynamic created by the H-1B visa holder's dependency on the employer to maintain legal residency in the U.S. It highlights the consequences of the vulnerable immigration status of visa holders.

A key finding in the paper is that after the annual H-1B cap was reduced from 195,000 to 65,000 in 2004, companies that had previously relied on H-1B visa holders in accounting positions experienced a decline in financial irregularities. The paper's four researchers concluded that H-1B workers in those financial roles were associated with a higher risk of financial misconduct not because the H-1B workers engaged in wrongdoing, but because they didn't feel empowered to point out errors, making it more feasible for financial misconduct to occur or remain unreported.

Because of the leverage employers have over visa workers, "managers can more easily pressure H-1B visa holders into performing unethical tasks, including the facilitation of financial misconduct," the paper said. Its researchers are from Drexel University's LeBow College of Business, Shanghai University of Finance and Economics, MIT Sloan School of Management, and City University of Hong Kong.

"A lower threat of whistleblowing can embolden managers to manipulate their financial statements," the paper said.

After the H-1B cap was reduced

The paper examined what happened when the H-1B visa cap was reduced in 2004. Demand for H-1B workers remained, but the cap reduction created a shortage of visa workers to fill accounting positions. The study found that companies that relied on H-1B visa holders to fill those positions between 2001 and 2003 experienced "a 2.3 percentage point reduction in the probability of an accounting irregularity after the reduction in the annual visa cap."

The methodology included looking at other factors that could explain the decline in irregularities, such as the enactment of the Sarbanes-Oxley Act in 2002. However, the researchers could not find any offsetting reasons.

Their vulnerability of immigration status makes reporting of financial misconduct riskier.
Dan DaiAssistant professor of accounting, Drexel University's LeBow College of Business

The paper isn't making an argument against hiring H-1B visa holders.

"We definitely do not mean that firms should avoid hiring foreign employees," said Dan Dai, one of the paper's authors and an assistant professor of accounting at Drexel LeBow. The financial irregularities are not the result of wrongdoing by visa holders, he said; instead, "their vulnerability of immigration status makes reporting of financial misconduct riskier."

Potential policy fixes include extending the grace period for visa holders, now at 60 days, before their ability to reside in the U.S. lawfully expires, said Nemit Shroff, one of the paper's authors and a professor of accounting at MIT Sloan. If visa workers were less fearful of having to leave the country, he said, they would be "less likely to be coerced by their boss into participating in misconduct and more likely to blow the whistle if they observe misconduct."

Criticism over the paper's data

Ron Hira, an associate professor of political science at Howard University, who has testified before Congress on problems with the H-1B visa program, was critical of the study and said the "paper's argument is not persuasive."

Hira said the paper's assumptions are based on Labor Condition Application (LCA) filings, which include wage attestations. The LCAs are not a direct measure of the number of H-1B workers employed by a specific firm, "weakening the paper's ability to accurately measure the number of H-1B accountants employed by any firm, and that's a significant drawback," he said.

To find out how many visa workers were employed at a particular firm, the researchers would need to gather Form I-129, the visa petition used to sponsor the worker, according to Hira.

"The upshot is that they aren't measuring the number of H-1B workers employed by each firm," he said, or whether the number of H-1B workers within any single firm is large or small.

Hira said the paper's shortcomings are deeper than accurately measuring H-1B visa numbers. The paper uses a "binary variable for H-1B accountant usage," meaning one of two possible variables: yes or no. In other words, a firm that applied for a single H-1B accountant and another that applied for 200 are categorized the same way as having used H-1B accountants, which is the key variable the researchers compared with the financial irregularities.

"If you wanted to do this study correctly, you'd look at the reliance of firms on H-1B accountants," Hira said. Those that have a larger reliance on H-1B workers might have more financial irregularities, but the paper's researchers can't test this because they don't have the appropriate data, he said.

In response, the authors emphasized that the risk of financial misconduct does not necessarily increase with the number of H-1B accountants a company employs. When companies engage in misconduct, the perpetrators typically need the cooperation of only one or a small handful of others in key areas, Shroff said.

"For example, if a firm is looking to manipulate its revenues, all it needs is one person in accounting to ship out additional inventory by creating a fake invoice," Shroff said. "Involving fewer people helps reduce the risk of detecting the misconduct, and thus all a perpetrator needs is one weak link."

Shroff said Hira's assertion that they do not have Form I-129 data is correct. Still, he argued that the paper's researchers used LCA data before 2004, when the H-1B cap was not met, meaning that employers were likely to get the visa worker they sought. The visa cap was not a limiting factor to identify firms likely to have filled accounting positions with H-1B visa holders.

"Our assumption is that firms that filled accounting positions with visa holders pre-2004 would similarly wish to fill these positions post-2004, but are more constrained in their ability to do so due to the reduction in the visa," Shroff said.

"While we recognize and concede the data limitations that Ron highlights, we believe such data limitations add noise to our analyses -- but not bias," he said.

Patrick Thibodeau covers HCM and ERP technologies for TechTarget Editorial. He's worked for more than two decades as an enterprise IT reporter.

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