Understanding the fraud theories and advancing with integrity model

Abstract

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.

Citation

Saluja, S., Aggarwal, A. and Mittal, A. (2022), "Understanding the fraud theories and advancing with integrity model", Journal of Financial Crime, Vol. 29 No. 4, pp. 1318-1328. https://doi.org/10.1108/JFC-07-2021-0163