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Publication date: 10 February 2020

Hakan Ozcelik

Accounting-based financial scandals caused by fraudulent financial reports negatively affect the financial markets and cause loss of confidence in investors. Financial…

Abstract

Accounting-based financial scandals caused by fraudulent financial reports negatively affect the financial markets and cause loss of confidence in investors. Financial reporting quality needs to be improved in order to build and maintain trust in financial markets. To increase the quality of financial reports, fraudulent financial reporting risks should be defined. At this point, regulators, practitioners, and researchers are in constant search.

There are improved approaches to the detection of financial reporting frauds in the literature. Many studies have been conducted on the “Fraud Triangle Theory” and the “Fraud Diamond Theory” approaches. The Fraud Triangle Theory argues that while fraudulent action is taking place in defining the elements of press, rationalization, and opportunity, the Fraud Diamond Theory approach argues that in order to achieve these three elements, the capability to carry out a fraud in individuals must be improved.

In this study, it is aimed to investigate the effect of Fraud Diamond elements on fraudulent financial reports. For the scope of the research, data of 26 companies from Manufacturing Industry enterprises operating in BORSA ISTANBUL between 2013 and 2017 were used. Financial reports of the companies are divided into two groups: (1) Fraudulent Financial Reports and (2) Non-Fraud Financial Reports. The hypotheses developed within the scope of the research were tested using the Logistic Regression analysis in IBM SPSS Statistic 20 program.

As a result of the study, it has been determined that there is a negative correlation between borrowing level, asset profitability, independent audit firm, auditor exchanges and institutionalization level, and fraudulent financial reports. It was understood that the change in assets and the size of the audit committee did not have any effect on the fraudulent financial reports.

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Contemporary Issues in Audit Management and Forensic Accounting
Type: Book
ISBN: 978-1-83867-636-0

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Article
Publication date: 30 September 2014

Nor Azrina Mohd Yusof and Ming Ling Lai

– This paper aims to present an integrative model in predicting corporate tax fraud.

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Abstract

Purpose

This paper aims to present an integrative model in predicting corporate tax fraud.

Design/methodology/approach

This paper is grounded on three theories, namely, the theory of reasoned action, theory of planned behaviour and the “Fraud Diamond Theory”.

Findings

By integrating these three theories, this paper proposes that individual cognitive factors, fraud diamond factors and organizational factors such as normative and control factors influence managers to commit corporate tax fraud.

Practical implications

Practically, the proposed integrative model enables the government and tax authority to understand on why corporate managers engage in corporate tax fraud. It will also allow them to devise practical methods and strategies to prevent the corporate managers to engage in tax fraud.

Originality/value

This study has merit that proposed an integrative model in predicting corporate tax fraud. Research on corporate tax fraud has been the subject of limited investigation; hence, this study contributes to the tax compliance literature by proposing an integrative model to study corporate tax fraud in a Malaysian tax setting. Future studies can be conducted to test the proposed integrative model in examining the circumstances of managers’ intention to commit corporate tax fraud.

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Journal of Financial Crime, vol. 21 no. 4
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 26 July 2021

Arief Hidayatullah Khamainy, Mahrus Ali and M. Arif Setiawan

The purpose of this paper is to evaluate the effect of the new fraud diamond model in explaining financial statement fraud.

Abstract

Purpose

The purpose of this paper is to evaluate the effect of the new fraud diamond model in explaining financial statement fraud.

Design/methodology/approach

The variables used to examine the factors consist of motivation, opportunity, personal integrity and capability. This research used manufactured companies listed in the Indonesia Stock Exchange of the 2015–2019 period as the population.

Findings

There has been a positive influence between personal financial need (OSHIP), nature of the industry (RECEIVABLE) and history of sale (SG) toward financial statement fraud, while the negative effect is found only in the effective monitoring (IND).

Research limitations/implications

The new fraud diamond model theory which is used as a reference in this study is a new and under-developed theory. So the author suggests that further research on this theory be carried out to strengthen the new fraud diamond model theory and ensure whether it can be used as a reference to find out the causes of financial statement fraud. In addition, the object used in this study is limited to manufacturing companies, so the author suggests that further research combine several types of companies.

Originality/value

The research finding supports the new fraud diamond model theory in elaborating the financial statement fraud phenomenon.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 29 August 2019

Ni Wayan Rustiarini, Sutrisno T., Nurkholis Nurkholis and Wuryan Andayani

This paper aims to discuss the factors that cause individuals to commit fraud, especially in the public procurement context. All this time, an empirical review of public…

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Abstract

Purpose

This paper aims to discuss the factors that cause individuals to commit fraud, especially in the public procurement context. All this time, an empirical review of public procurement fraud has only focused on the macro and micro level, as well as its losses on the country's economy. This paper highlights individuals’ fraudulent behavior from the four elements of the fraud diamond theory, namely, pressure, opportunity, rationalization and capability.

Design/methodology/approach

This paper is a literature review that discusses the fraudulent behavior of bureaucrat as a procurement official in the context of public procurement. This review uses fraud diamond theory as its theoretical framework to explain the attributes to do fraud.

Findings

Public procurement is a high-risk area for fraud (corruption), particularly in the government institution. It cannot be denied that the situation factor (pressure and opportunity) will interact with psychological aspects (rationalization) and individual capability to direct the individuals to commit fraud. This study discusses how existing pressure (motivation) and opportunities are used by individuals who have the capability to rationalize their actions. This literature review also endeavors to shed light on the strategy to prevent, detect and control the causes of fraud.

Practical implications

This paper provides an understanding of regulators, auditors and other employees in recognizing the characteristics and nature of fraud antecedents. This understanding can help prevent various forms of procurement fraud that occur within their organizations. This paper also can be a guideline to assist public sector organizations in designing effective internal control systems to prevent fraud in the process and practice of public procurement.

Social implications

Public procurement has a central role that enables the government to allocate the budget effectively and efficiently. Compliance in implementing procurement rules and procedures will improve the quality of public services.

Originality/value

There exists relatively little study outlining the factors underlying of bureaucrats’ (procurement official) opportunistic behavior on procurement activities. The authors focused on bureaucrats’ behavior because they have unique positions of power and responsibility of the procurement process. On the one hand, they have a crucial role in serving the public and safeguarding public assets. On the other hand, they have the ability to collaborate with politicians and business actors in corrupt procurement practices. Therefore, the discussion on this topic is very relevant and interesting.

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Journal of Public Procurement, vol. 19 no. 4
Type: Research Article
ISSN: 1535-0118

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Article
Publication date: 7 February 2020

Kizito Ojilong’ Omukaga

The purpose of this study was to determine the influence of the elements of the fraud diamond theory in detecting financial statement fraud among non-financial firms in…

Abstract

Purpose

The purpose of this study was to determine the influence of the elements of the fraud diamond theory in detecting financial statement fraud among non-financial firms in Kenya. Secondary data used to calculate ratios and figures representing the study variables was collected using a checklist for each of the targeted firms listed in the Nairobi Securities Exchange in Kenya for the 2013-2017 period.

Design/methodology/approach

Secondary data used to calculate ratios and figures representing the study variables was collected using a checklist for each of the targeted firms listed in the Nairobi Securities Exchange in Kenya for the 2013-2017 period. Convenience sampling technique was used to come up with a sample size of 35 out of the targeted population of 45 non-financial firms listed in Kenya (78% representation). This sample size was representative enough of the targeted population.

Findings

The results strongly supported that all the four elements of the fraud diamond triangle influenced financial statement fraud in Kenya. However, using three parameters, namely R2, predicted sign and standard error, to compare the applicability of either the Yoon et al. (2006) or the modified Jones (1991), our study findings are mixed. It is therefore imperative that a new model should be developed in detecting earnings management in the Kenyan context. Note that including other variables will to a greater extent increase the explanatory power in detecting earnings management practiced by non-financial firms listed in Kenya.

Research limitations/implications

Use of secondary information in the study was one limitation. Certain financial information was missing from some of the targeted firms’ official websites and the Nairobi Securities Exchange research handbooks. The researcher ensured that only non-financial firms whose audited financial statements were easily accessible were included in the study. Firms whose records were not readily available were excluded from the survey.

Practical implications

Practically, this study enables regulatory authorities in Kenya to understand the extent with which each element of the fraud diamond theory could be relied on in detecting financial statement fraud. Moreover, it will advise them on the areas to lay more emphasis when attempting to detect financial statement fraud using this model.

Originality/value

The main value of this study is the determination of the key elements of the fraud diamond theory, which have influence on financial statement fraud among non-financial firms listed in Kenya.

Details

Journal of Financial Crime, vol. 28 no. 3
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 1 April 2019

Soheil Kazemian, Jamaliah Said, Elham Hady Nia and Hamidreza Vakilifard

The paper aims at examining the influences of the elements of fraud diamond on the asset misappropriation within the banking industry of Iran. Primary data were collected…

Abstract

Purpose

The paper aims at examining the influences of the elements of fraud diamond on the asset misappropriation within the banking industry of Iran. Primary data were collected through 191 survey questionnaires administered among employees of the top three banks in Iran, which own above 60 per cent of market shares in the banking industry of the country.

Design/methodology/approach

Primary data were collected through 191 survey questionnaires administered among employees of the top three banks in Iran, which own above 60 per cent of market shares in the banking industry of the country.

Findings

Results strongly supported that all four elements of fraud risk significantly influence bank employee asset misappropriation in Iran. To minimize employee fraud, the banking industry should reduce opportunities and employee negative rationalization through strong internal control.

Research limitations/implications

The findings of this study are useful for policymakers, bank managers, industry practitioners and academics to understand and subsequently implement strategies to mitigate asset misappropriation.

Practical implications

Managerial implications, limitations of the study and suggestions for future research are also included in this paper.

Originality/value

The main value of this paper is the determination of the key variables that constitute the fraud diamond theory and its dimensions on the asset misappropriation within the banking industry in Iran.

Details

Journal of Financial Crime, vol. 26 no. 2
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 1 February 2022

Junying Liu, Yuqing Wang and Zhixiu Wang

This research aims to build a three-tiered driver system that entices contractor rule violations and explores the importance and the relationships among these drivers…

Abstract

Purpose

This research aims to build a three-tiered driver system that entices contractor rule violations and explores the importance and the relationships among these drivers, hence providing theoretical support for the contractor rule violations governance.

Design/methodology/approach

A literature review based on fraud diamond theory identified drivers from Pressure, Opportunity, Rationalization and Capability that drive contractor rule violations. In the Chinese context, through feedback, discussion and analysis of semistructured interviews with ten experts, an improved three-tiered driver system was drafted. Based on this system, a survey was conducted and scored with experts to provide the data for this research. The decision-making trial and evaluation laboratory (DEMATEL) method was used to determine relationships and influences between factors, and the DEMATEL-based analytic network process method was used to weigh these factors.

Findings

This paper systematically studied the drivers of contractor rule violations, specifically, the results showed that pressure had an important driving effect across the driver system, and those five factors – poor cultural atmosphere, weak internal control, prior experience, moral disengagement and information asymmetry – had the most influence on contractor rule violations. The results also indicated the strong effect pressure has on enticing rule violations and revealed that culture atmosphere and internal company governance played crucial roles in the occurrence of rule violations.

Practical implications

This study provided construction practitioners with a robust tool to analyze the drivers of contractor rule violations. The rule violation drivers in the construction practice scenes identified in this study can provide more direct and effective violation-related guidance for contractors, regulators and the industry.

Originality/value

Based on the new perspective of fraud diamond, this paper systematically bulit a three-tiered driver system combining theory with practice. This study contributed to understand the driver mechanism of contractor rule violations especially the importance of internal factors of contractors, which provided theory reference for compliance governance of construction industry.

Details

Engineering, Construction and Architectural Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0969-9988

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Article
Publication date: 17 July 2020

Christine Avortri and Richard Agbanyo

Fraud has become one of the most challenging issues facing the financial sector of most countries globally. These fraudulent transactions have led to loss of huge sums of…

Abstract

Purpose

Fraud has become one of the most challenging issues facing the financial sector of most countries globally. These fraudulent transactions have led to loss of huge sums of money to financial institutions, as well as to their depositors. The current crises in the financial sector of Ghana, especially among the Deposit Taking Institutions, has largely been attributed to connected lending and lending to affiliated party institutions which are fraudulent corporate governance issues. This study, therefore, aims to assess the determinants of fraud among management staffs in the banking sector of Ghana.

Design/methodology/approach

This study is anchored on the fraud diamond theory (FDT). Primary data was collected from 120 management staffs of the remaining 23 universal banks in Ghana. Estimation was done using structural equation modelling with maximum likelihood estimation technique.

Findings

Fraudulent activities in the banking sector of Ghana are driven by opportunities, pressure, rationalization and capacity to commit fraud, with capacity being the dominant factor.

Practical implications

The regulator should strictly enforce the structure of shareholding as directed in the corporative governance directive to prevent ownership of a bank in the name of one person or a family, which gives high capacity to the Chief Executive Officers to misuse funds. The offenders should also be punished. Finally, the regulator should improve their supervision.

Originality/value

This study places the FDT into the context of the current banking crises of Ghana. The study therefore goes a long way to guide the regulator and government to formulate and implement policies on shareholding structure of banks.

Details

Journal of Financial Crime, vol. 28 no. 1
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 20 August 2021

Polydoros Demetriades and Samuel Owusu-Agyei

The purpose of this paper is to examine Toshiba’s fraudulent financial reporting in relation to the fraud diamond (pressure, opportunity, rationalisation and capability).

Abstract

Purpose

The purpose of this paper is to examine Toshiba’s fraudulent financial reporting in relation to the fraud diamond (pressure, opportunity, rationalisation and capability).

Design/methodology/approach

A quantitative empirical research, analysing secondary data from Toshiba’s published annual reports before restatement, from 2008–2014 has been used. A simultaneous equations approach was used to test the hypothesis. Excel software was used to analyse secondary data and to carry out correlation analysis and descriptive statistics analysis.

Findings

This study uncovers evidence that pressure proxied by return on assets (ROA), the opportunity proxied by ineffective monitoring (BDOUT), rationalisation proxied by audit opinion (AO) and capability proxied by board member changes (BCHANGE) had moderate to strong relationship to financial statement fraud (FSF) (proxied by Beneish M-score model). However, ROA has a negative and significant effect on Toshiba’s FSF. BDOUT, AO and BCHANGE have positive and significant effect on Toshiba’s FSF. Furthermore, there is no multicollinearity problem within the four variables. Overall, this study has statistically proven that all dimensions of fraud diamond are required for the explanation of Toshiba’s accounting scandal.

Originality/value

Although a few studies discuss the four dimensions (fraud diamond), none, to our surprise, exists which explain the circumstances led Toshiba’s high-level executives to commit fraud. This study is the first thorough investigation of Toshiba’s accounting scandal that uses all four dimensions to explain Toshiba’s FSF.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 25 August 2021

Shefali Saluja, Arun Aggarwal and Amit Mittal

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…

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217

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.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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