Final answer:
Co-workers are typically in the best position to detect fraud due to their close proximity to day-to-day operations and exchanges within the company. However, bureaucratic resistance to internal criticism and the risk of personal cost can deter employees from reporting misconduct, despite their capability to observe it.
Step-by-step explanation:
It's true that co-workers are usually in the best position to detect fraud within an organization. Employees working closely together on a daily basis are more likely to notice discrepancies or unethical behavior that may indicate fraudulent activities. The close proximity to operations and communication channels give co-workers unique insights that external parties might not have.
However, there's a significant barrier to internal fraud detection: the bureaucratic environment. Bureaucracies can be protective of their reputation and, as such, may resist internal criticism. This creates a dilemma for employees - to decide between reporting misconduct, with the risk of personal and professional repercussions, or to turn a blind eye to secure their livelihood.
This situation mirrors a prisoner's dilemma where much depends on the trust and relationships between individuals. Despite being in an advantageous position to identify wrongdoing, the decision to report is complicated by potential personal costs and the cultural dynamics within the organization.