Understanding the fraud theories and advancing with integrity model

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shefali Saluja ◽  
Arun Aggarwal ◽  
Amit Mittal
Keyword(s):  
Theoretical Background ◽  
Traditional Theory ◽  
Second Phase ◽  
Fraud Triangle ◽  
Mice Model ◽  
Corporate Fraud ◽  
Content Type ◽  
Fraud Theory ◽  
Triangle Theory ◽  
Major Factors

Purpose The fraud landscape talks about the existence of fraudulent activities and can be assessed with the help of fraud literature. Taking this into consideration, this paper qualitatively revisits the famous fraud triangle theory developed by Donald R. Cressey (1950) which is the most traditional theory to detect a fraud. This paper aims to discuss various fraud models that have been extensions to fraud triangle theory and reviews the factors that drive a corporate fraud. This study is divided into two phases. The first phases discuss the various theories which have been developed to detect and prevent corporate frauds in organisations, and in the second phase the authors recognize “integrity” as a new extension to the basic fraud theory. The integrity model has been introduced as “fraud square” contributing to the development of fraud theory. Integrity plays a very important role in detecting corporate frauds, and this paper will act as a theoretical benchmark for future references. The implication of this study would help future researchers, academicians and practitioners to understand the fourth element of the fraud theory and would help improve the professional standards of organisations and regulators. Design/methodology/approach This paper revisits the literature in detail and reviews the most acknowledged models to explain “why people commit frauds” – the fraud triangle, fraud scale, the fraud diamond, the ABC model, the MICE model and the SCORE model. The authors contend that the traditional models need to be modernized to acclimate to the current developments in the rapidly increasing fraud incidents, both in occurrence and seriousness. Additionally, this paper builds on theoretical background to generate new model so as to improve the understanding behind the major factors which lead to commitment of frauds. Findings The authors identify a major element – integrity – in the research. As per ACFE 2020, “There are more than 3.3 billion people in the global workforce, half of them takes illegal use of gains from the organisation and some are discipled with integrity who does not cause any harm to the organisation.” To prevent fraud, integrity plays a very important role in organisations (Bakri et al., 2017). It has been found that individuals with less integrity are basically specified to a greater level of mismanagement. The organisations that have worked with integrity will improve performance at work and will always promote the best employees to work with less supervision. Originality/value This paper develops the integrity model to contribute to the development of fraud theory by identifying the key factors that play a major role in whether fraud will actually occur and acting as a theoretical benchmark for all future reference.

Advancing theory of fraud: the S.C.O.R.E. model

2019 ◽  
Vol 26 (1) ◽  
pp. 372-381 ◽  
Author(s):  
Georgios L. Vousinas
Keyword(s):  
Design Methodology ◽  
Major Element ◽  
White Collar ◽  
Theoretical Background ◽  
Fraud Triangle ◽  
Mice Model ◽  
Key Factors ◽  
Content Type ◽  
Major Factors ◽  
Future Reference

Purpose This paper aims to elaborate on the theory of fraud by enhancing the existing theories behind the factors that force people to commit fraud. Design/methodology/approach The paper reviews the most commonly used and widely accepted models for explaining why people commit fraud – the fraud triangle, the fraud diamond, the fraud scale and the MICE model. The author argues that these models need to be updated to adapt to the current developments in the field and the ever-growing fraud incidents, both in frequency and severity, and builds on the theoretical background to create a new model so as to enhance the understanding behind the major factors which lead to the commitment of fraud. Findings The author identifies a major element – ego – which plays a crucial role in compelling people to commit fraud and concludes in the formation of the S.C.O.R.E. model, which is graphically depicted in the fraud pentagon. He goes further by adding the factor collusion to better apply in cases of white-collar crimes. Originality/value The paper develops the S.C.O.R.E. model to contribute to the development of fraud theory by identifying the key factors that play a major role in whether fraud will actually occur and acting as a theoretical benchmark for all future reference.

Fraud prevention initiatives in the Nigerian public sector

2018 ◽  
Vol 25 (2) ◽  
pp. 527-544 ◽  
Author(s):  
Rabiu Abdullahi ◽  
Noorhayati Mansor
Keyword(s):  
Public Sector ◽  
Structural Equation ◽  
Equation Modeling ◽  
Control Mechanisms ◽  
Fraud Triangle ◽  
Fraud Prevention ◽  
Content Type ◽  
The Public ◽  
The Government ◽  
Triangle Theory

Purpose Detecting and preventing fraud are challenging and risky tasks, especially in a fast developing economy such as Nigeria. The efforts become crucial in the government sectors, as they involve public’s trust and resources. The purpose of this study is to examine the relationships between the fraud incidence and the elements of fraud triangle theory (FTT) with the aim of combating current fraud outrages in the Nigerian public sector. Design/methodology/approach A survey was conducted and 302 questionnaires were distributed to the staff of the departments of accounting, internal auditing and investigation of ten selected ministries, departments and agencies of Kano State, Nigeria. Structural equation modeling (SEM) was used to analyze the data. Findings The study reveals a significant relationship between three elements of FTT and fraud incidences in the Nigerian public sectors (p-value < 0.001 for pressure and opportunity and p-value = 0.024 for rationalization). Practical implications The findings of the study are useful for forensic accountants and the Nigerian anti-graft bodies to enhance existing control mechanisms in fraud prevention initiatives. The research also contributes to bridge the gap in academic theory and empirical study related to FTT. Social implications Fraud scandals can cause public’s frustration, damage the reputation and integrity of the ruling government and result in negative image of the public sector. Originality/value Accordingly, the study suggests a salary scale reform (SSR) in the Nigerian public sector and improvement in fringe benefits to increase employees’ standard of living. The study concludes with recommendations to enhance fraud awareness and training programs to the government employees.

Analysis of employee and management fraud in Tanzania

2019 ◽  
Vol 26 (2) ◽  
pp. 412-431
Author(s):  
Omari Zuberi ◽  
Siasa Issa Mzenzi
Keyword(s):  
Public Awareness ◽  
Descriptive Analysis ◽  
Principal Component ◽  
Financial Strain ◽  
Fraud Triangle ◽  
Public And Private ◽  
Content Type ◽  
Motivation Factors ◽  
Management Fraud ◽  
Triangle Theory

Purpose The study aims to explore specific motivations, rationalizations and opportunities that are involved in the occurrences of both employee and management fraud in the context of an emerging African country, Tanzania. It builds and extends from the fraud triangle theory. Design/methodology/approach A survey was developed and administered to 114 participants who had witnessed, had examined or had been involved in fraud resolutions. The participants included fraud examiners, business managers and owners, victims, auditors, lawyers, and law enforcement agents. The data collected were analysed using descriptive analysis, principal component analysis and correlation analysis. Findings The results revealed six motivation factors that incentivize employees and managers to engage in fraudulent behaviours. These are business financial strain, social incentives and pressure, greed, operating problems, internal pressures and malevolent work environment. In addition, fraudsters rationalized their behaviour through five significant neutralization techniques identified as social weighting, transferring of blame, denial of injury, attitude and prior fraud history. Lastly, victim organisations were identified to have three main fraud opportunities: poor control environment, inadequate control activities and circumstances that allowed collusive behaviour among fraudsters. Research limitations/implications While the study attempted to explore the motivations, opportunities and rationalizations from the perspectives of the fraud-fighting professionals and witnesses, their views and suggestions might be different from the actual known fraudsters or incarcerated individuals. Practical implications Business organisations, fraud-fighting professionals and general community must understand the factors behind fraud occurrences, so proper measures may be taken to limit the frequency and amount of fraud losses. Social implications Creation of public awareness and dialogue necessary for the prevention, fighting and deterrence against all forms of fraud. Originality/value Despite the occurrences of many scams in both public and private sectors, limited studies exist as to the triggers behind fraud occurrences in the context of the developing countries and whether these triggers are the same as in other contexts. This study is an attempt to fill this gap.

Macroeconomic factors, corporate governance and financial malpractices in Nigerian banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alexander Ehimare Omankhanlen ◽  
Ediomi Abasi-Favor Tometi ◽  
Ese Urhie
Keyword(s):  
Corporate Governance ◽  
Holistic Approach ◽  
Fraud Triangle ◽  
Macroeconomic Factors ◽  
Content Type ◽  
The Past ◽  
Triangle Theory ◽  
Code Of Corporate Governance ◽  
Practical Implications ◽  
Actual Loss

Purpose Many studies have traced the collapse of most banks in the past to weak corporate governance. In response to this, the Central Bank of Nigeria established a Code of Corporate Governance which was made mandatory for all banks in Nigeria since 2003. Fifteen years after this provision the amount of actual loss attributed to financial malpractices in banks is still substantial. Available statistics show that the number of fraud cases has been on the increase in recent times. Design/methodology/approach This study examined the extent to which corporate governance has mitigated or moderated the effect of two macroeconomic factors – unemployment and inflation – on fraud in Nigerian banks. An interactive model was specified and estimated with PROCESS – a computational tool developed by Andrew Hayes. Findings The result revealed that while the structure of corporate governance by banks in Nigeria moderates the effect of unemployment, the reverse is the case for inflation. Practical implications This goes to show that the motivation factor stipulated by the fraud triangle theory holds sway in Nigeria. Originality/value It is recommended that efforts to bring a lasting solution to the challenge of financial malpractices in Nigerian banks must adopt a holistic approach.

scholarly journals Opportunity, job pressure and deviant workplace behaviour: does neutralisation mediate the relationship? A study of faculty members in public universities in Nigeria

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Michael Olalekan Adeoti ◽  
Faridahwati Mohd Shamsudin ◽  
AlHamwan Mousa Mohammad
Keyword(s):  
Ethical Climate ◽  
Public Universities ◽  
Workplace Deviance ◽  
Faculty Members ◽  
Fraud Triangle ◽  
Content Type ◽  
Work Pressure ◽  
Triangle Theory ◽  
Interpersonal Deviance ◽  
The Relationship

PurposeThe purpose of the present study was twofold: (1) to examine the direct effect of the dimensions of opportunity (i.e. ethical climate and institutional policy) and dimensions of job pressure (i.e. workload and work pressure) on workplace deviance (i.e. organisational and interpersonal deviance) and (2) to assess the mediation of neutralisation in the relationship between the dimensions of opportunity, job pressure and workplace deviance.Design/methodology/approachThe present study drew from the fraud triangle theory (FTT; Cressey, 1950) and the theory of neutralisation (Sykes and Matza, 1957) to achieve the research objectives. Survey data from 356 full-time faculty members in Nigerian public universities were collected. Partial least square-structural equation modelling (PLS-SEM) was employed to analyse the data.FindingsThe results indicated that opportunity and job pressure significantly affected workplace deviance. As expected, neutralisation was found to mediate the negative relationship between ethical climate and interpersonal deviance and the positive relationship between workload, work pressure and interpersonal deviance. Contrary to expectation, neutralisation did not mediate the relationship between opportunity, pressure and organisational deviance.Research limitations/implicationsThe sample was drawn from academics in public universities and the cross-sectional nature of this study means that the findings have limited generalisations.Practical implicationsThis study offers insights into the management of Nigerian public universities on the need to curb workplace deviance amongst faculty members. This study recommends that the management improve the work environment by enhancing the ethical climate and institutional policies and reviewing the existing workload that may constitute pressure to the faculty members.Originality/valueThe present study provides empirical support for the fraud triangle theory and theory of neutralisation to explain workplace deviance.

Examining the predictors of fraud in state-owned enterprises: an application of the fraud triangle theory

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Godfred Matthew Yaw Owusu ◽  
Theodora Aba Abekah Koomson ◽  
Stanley Agbenya Alipoe ◽  
Yusuf Ahmed Kani
Keyword(s):  
Structural Equation ◽  
Empirical Support ◽  
Partial Least Square ◽  
Least Square ◽  
Fraud Triangle ◽  
Data Collection Tool ◽  
Content Type ◽  
The Public ◽  
Triangle Theory ◽  
The Empirical Analysis

Purpose This paper aims to investigate the views of employees on the motives behind frequently reported fraudulent activities at the workplace. Using the fraud triangle theory (FTT) as the theoretical lens, the study examines the effect of pressure, opportunity and rationalization on fraudulent acts by employees at the workplace. Design/methodology/approach The study follows a correlational quantitative approach using questionnaires as the main data collection tool. A total of 243 valid responses from employees working in different state-owned enterprises in Ghana were used in the empirical analysis. The hypothesized relationships of the study were tested using the partial least square-structural equation modelling technique. Findings The results from the structural analysis showed that pressure, rationalization and opportunity are important in explaining why employees engage in fraudulent activities at the workplace. Originality/value The findings do not only provide empirical support for the applicability of the FTT in the Ghanaian context but most importantly offer some useful insights into the fraud discourse from the public sector workers’ perspective.

Internal controls and fraud – empirical evidence from oil and gas company

2016 ◽  
Vol 23 (4) ◽  
pp. 1154-1168 ◽  
Author(s):  
Khairul Mizan Zakaria ◽  
Anuar Nawawi ◽  
Ahmad Saiful Azlin Puteh Salin
Keyword(s):  
Internal Control ◽  
Oil And Gas ◽  
Direct Access ◽  
Fraud Triangle ◽  
Contributing Factors ◽  
Academic Journal ◽  
Content Type ◽  
Study Approach ◽  
Internal Control Weaknesses ◽  
Triangle Theory

Purpose The purpose of this study is to examine the type of internal control weaknesses and its impact that leads to fraud activities in an oil and gas company, which is rarely found in empirical research. Design/methodology/approach A case study approach was taken to investigate and analyse the fraud incidents to the deepest understanding. A mixed method of data collection, specifically document analysis and interviews, was used. Findings The study found that internal control weaknesses can be major contributing factors for fraud to be committed. Poor supervision and improper documentation process provide opportunity to misappropriate the assets, worst off if it includes several people that cooperate to conduct those illegal malpractices. Research limitations/implications The results provide further confirmation of the fraud triangle theory on the causes of the fraud, i.e. opportunity because of weak internal control. It also validates with many prior studies conducted by global professional firms such as KPMG, PricewaterhouseCoopers and Association of Certified Fraud Examiners on fraud and its related causes and implications. This study, however, was conducted on only one company with limited number of interviews. Practical implications This study provides some recommendations to improve weak internal control, which in turn will reduce opportunities of fraud committed in the company. Originality/value This study is original, as it focuses on a company that operates in the highly specialized industry, i.e. oil and gas, which is rare in fraud literature, particularly in developing markets such as Malaysia. It has examined various documents and reports of employee fraud that are generally difficult to be accessed by researchers to be finally published in an academic journal. The findings of this study are inferred from direct access of company documents that are private and confidential.

Integrated thinking, earnings manipulation and value creation: Malaysian empirical evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nor Farizal Mohammed ◽  
Nor Aqilah Sutainim ◽  
Md. Shafiqul Islam ◽  
Norhayati Mohamed
Keyword(s):  
Empirical Evidence ◽  
Value Creation ◽  
Earnings Manipulation ◽  
Fraud Triangle ◽  
Integrated Reporting ◽  
Content Type ◽  
Prior Literature ◽  
Triangle Theory ◽  
Market Capitalisation ◽  
The Relationship

PurposePrior literature proposes that integrated reporting (IR) drives integrated thinking (IT), enabling an organisation to create value for stakeholders in both quantitative (economic performance) and qualitative manners (beyond financially-oriented information). Fraud triangle theory also predicts that earnings manipulation may also affect the creation of value. Thus, this study seeks to provide empirical evidence on the relationship between IT, earnings manipulation and value creation.Design/methodology/approachThis data sample comprises of 497 observations from 2014 to 2018 of the top 100 market capitalisation of Malaysian public listed companies (PLCs) in Bursa Malaysia. This study used an index score for IT variable and Beneish’s M-score as a proxy to detect earnings manipulations and to classify the companies into non-manipulators and manipulator companies. Value creation measurements consist of four variables under shareholder's value creation and one variable represents value creation through innovation.FindingsThe findings show that IT is significantly related to value creation, whereas earnings manipulation had no significant relationship with value creation except for value creation measured using Tobin's Q ratio. The alarming finding is that a fraud predictor, namely earning manipulation, measured by Beneish-M, is not a predictor of whether companies are creating better or less value.Originality/valueThis study is among the early literature that provides empirical evidence of the relationship between IT and value creation. Furthermore, this paper adds to look at the association of earning manipulation and value creation.

The use of internal control systems and codes of conduct as anti-corruption practices: evidence from Vietnamese firms

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ngoc T.B. Le ◽  
Lien T.P. Vu ◽  
Thang V. Nguyen
Keyword(s):  
Control Systems ◽  
Internal Control ◽  
Codes Of Conduct ◽  
Ordinary Least Squares ◽  
Fraud Triangle ◽  
Public Officials ◽  
Cross Sectional ◽  
Specific Element ◽  
Content Type ◽  
Triangle Theory

PurposeDrawing from fraud triangle theory, the purpose of this paper is to examine whether the use of internal control systems and codes of conduct, as a specific element of internal control, helps firms to reduce law violations and bribery payments to public officials.Design/methodology/approachThe study is based on survey data of Vietnamese firms, conducted between September and December 2018. The authors run logistic and ordinary least squares regressions to test the hypotheses.FindingsThe study showed that the use of internal control systems has a negative and significant relationship with law violation but not with bribes paid to public officials. By contrast, the use of codes of conduct appears to reduce bribe payments but not law violations.Research limitations/implicationsCross-sectional data do not allow us to confirm causal relationships. The self-reported measures of the use of codes of conduct and internal control systems may suffer from social desirability biases and should be further validated with different samples of firms. Finally, the relatively modest number of firms that participated in the survey raises a concern of sample representativeness.Practical implicationsFor businesses, the application of codes of conduct and internal control systems enhances the reliability and certainty of the firm's operations as well as its integrity, contributing to the firm's long-term development. For policymakers, encouraging businesses to use internal control systems and codes of conduct would contribute meaningfully to the anti-corruption effort.Originality/valueBusinesses in emerging economies face a dilemma of how to participate in an anti-corruption agenda while staying profitable. This study shows that the use of internal control systems and codes of conduct would serve both purposes, contributing to businesses' sustainable development.

Antecedents and consequences of staff related fraud in the Ghanaian banking industry

2020 ◽  
Vol 27 (1) ◽  
pp. 188-201 ◽  
Author(s):  
Alexander Ekow Asmah ◽  
Williams Abayaawien Atuilik ◽  
Dominic Ofori
Keyword(s):  
Banking Industry ◽  
Fraud Triangle ◽  
Study Analysis ◽  
Content Type ◽  
Case Study Analysis ◽  
Financial Pressure ◽  
Antecedents And Consequences ◽  
Triangle Theory ◽  
Set Up

Purpose The purpose of this paper is to investigate the antecedents and consequences of employee fraud, focusing on the banking industry in Ghana. Design/methodology/approach A major bank was selected for the case study analysis. The researchers employed qualitative data analysis for the study. Content analysis of investigation reports and interviews of employees from different functional areas were used as the main data collection tools. Findings This study found that loans contracted by bank employees with huge repayment amounts put financial pressure on them to commit fraud. The study also found that inadequate controls in some areas of the bank can fuel the commission of fraud. In addition, aggrieved employees have highly chances of committing fraud. Huge punitive consequences were noted to exist for the employee who perpetrates the fraud and shareholders are also affected by the fraudulent behaviour of employees. Research limitations/implications Findings shown in the study confirm the hypotheses of the fraud triangle theory on the causes of fraud in spite of its criticisms. The findings are also consistent with extant studies on the antecedents and consequences of fraud. The use of one bank for the case study analysis as well as the three-year analysis period imposes a limitation on the study. Future studies can explore fraud using other different theoretical lenses. Gathering data from more than one bank and for a longer period of analysis may provide more accurate results. Practical implications This study provides some recommendations for fraud prevention in the banking industry in Ghana. The major one is the need for the central bank to collaborate with financial institutions to set up an effective credit worthiness system that will aid the monitoring of activities of the banks. Banks should also ensure that systems of controls are reviewed regularly to identify and deal with fraud. Originality/value This study is original, as it focuses on an industry that is highly susceptible to fraud because of issues of confidentiality with data and with the scanty literature on fraud.

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