Determinants of occupational fraud losses: offenders, victims and insights from fraud theory
| DOI | https://doi.org/10.1108/JFC-10-2019-0136 |
| Published date | 29 January 2020 |
| Date | 29 January 2020 |
| Pages | 361-376 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Omari Zuberi Kalovya |
Determinants of occupational
fraud losses: offenders, victims
and insights from fraud theory
Omari Zuberi Kalovya
Department of Accounting, University of Dar es Salaam Business School,
Dar es Salaam, United Republic of Tanzania
Abstract
Purpose –The paper aim at empirical examination of the predictors of the occupational fraud losses by
drawing insightsevolving fraud theoretical frameworks.
Design/methodology/approach –A survey of fraud professionals and witnesses in Tanzania was
administered to collect data which profiledperpetrators, victims, losses and elements of financial pressure,
opportunity, capability and rationalization. A total of 109 responses were analyzed through ordinary least
squaresregressions.
Findings –The study found that apart from organizational and individual level predictors, interactive
fraud elements, incorporating situational factors and moderated by fraudster’s history have significant
influencein explaining the magnitude of observed fraudlosses.
Research limitations/implications –The findings of this studyhave implications for researchers and
managers in business in enhancing understanding of the predictors of the occupational fraud losses in
general, and specificallyin streamlining the efforts to prevent, detect and resolvefraud on timely basis so as
to minimizethe frequencies and magnitudes of occupationalfraud losses.
Originality/value –The study providesunique insights through empirical analysis thatdraws predictors
from both prior literatureand existing fraud theoretical frameworks. Unlike other studies relative importance
of each individual, organizational and situational factors including interaction effects of key variables, are
discussed.
Keywords Victims, Perpetrators, Occupational fraud, Fraud loss, Fraud theory
Paper type Research paper
1. Introduction
Occupational fraud involves “the use of one’s occupation for personal enrichment through
the deliberate misuse or misapplicationof the employing organization’s resources or assets”
(ACFE, 2018, p. 6). It encompasses a wide range of fraudulent schemes including asset
misappropriations, corruption, money laundering and fraudulent financial reporting.
Despite combating efforts occupational fraud continues to pose significant risks and
increasing losses for businesses and governments around the world. Recent studies, for
example, estimates that fraud losses accounts for about five per cent of global business
revenues (ACFE, 2018;Button et al.,2011;Holtfreter, 2008). If these estimates were to be
allowed to global GDP, the absolute value of the global losses may be as high as over
$4,000tn (in 2010 real GDP prices), enough to account for roughly 10 times the combined
GDP of 31 low income group countries[1]. Sincemost occupational frauds go undetected and
often quietly resolved to protect victim’s reputation, these estimates are most likely
understatement of the real business and community loss. The true cost of fraud might be
beyond comprehension(Manning, 2016).
Determinants
of occupational
fraud losses
361
Journalof Financial Crime
Vol.30 No. 2, 2023
pp. 361-376
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2019-0136
The current issue and full text archive of this journal is available on Emerald Insight at:
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Given this possibly “hard to absorb”realitybusiness community and other stakeholders
need to be certainly aware with conditions leading to severity of fraud losses (ACFE, 2018;
Bolimos and Choo, 2017;PwC, 2018).Such an understanding is necessary to inform business
community, practitioners and academics about the conditions and risks leading to high
fraud losses in business organizationsand therefore appropriate responses may be taken to
curtail the extent of fraud losses. For example,understanding organizational vulnerabilities
to occupational fraud may assistin the streamlining of prevention, detection and resolution
of occupational fraud cases. It is customary, for example, for auditors and other fraud
examiners to assess risk, plan auditsor investigations, and execute these plans based on the
concept of risks of material misstatements. Risks of material misstatements may in turn be
reflected in the potential magnitudeof occupational fraud losses.
At this point, it is important to distinguish between predictors of fraud losses from
determinants of fraud itself. While the latter is perhaps more interesting and may be
considered to include conditions, such as opportunities, motivations and rationalizations,
leading to fraud, the former intends to uniquely identify correlates, which are closely
associated with fraud losses. The significant numbers of prior studies have examined the
conditions leading to fraud(Albrecht et al., 1984; Cressey, 1950;Dellaportas, 2013;Dorminey
et al., 2012;Idolor, 2010;Wolfeand Hermanson, 2004;Zuberi and Mzenzi, 2019). On the other
hand, studies on the predictors of fraud losseshave been largely ignored and only a handful
of studies empirically examine this subject. Given the potential benefits discussed in the
previous paragraph,attempts to fulfill this knowledge gap are worth pursuing.
Empirically, few studies have attempted to discuss determinants of fraud losses. These
studies have focused on either individual fraudsters’profiles, (such as age, gender, tenure,
nationality, religion, education, fraud skills, position of influence and prior history) or
organization factors leading to fraud opportunities (such as size of an organization, ethical
culture and extent of control systems) or both in predicting fraud losses. Studies by
Timofeyev (2015),Peltier-Rivest and Lanoue (2015) and Krambia Kapardis and
Papastergiou (2016),Archambeault et al. (2015) and Omar et al. (2016), for example, agreeon
positive and statistically significantpredictors of certain fraudsters’characteristics such as
position of influence, the size of the victim and collusion. It is argued that managers and
executives in lieu of their positions, fraud involving collusion and management override of
control systems involve larger losses to their victims. In addition, these studies suggest
larger organizations with limited control systems are associated with larger fraud losses.
These studies, however, disagree on the significance of a number of other fraudsters’
profiles. While the study by Timofeyev (2015), indicated that financial strain, age, gender,
tenure and educational level and prior fraud-relatedpunishments had no influence on fraud
losses; these findings differ significantly from findings from similar studies by Peltier-
Rivest and Lanoue (2011) and Krambia Kapardis and Papastergiou (2016). Studies by
Holtfreter (2008),Omar et al. (2016) and ACFE (2018) agree on age and male as being
positively associated with larger fraud losses, yet Archambeaultet al. (2015) noted that it is
females not males who are associatedwith larger fraud losses.
As to organizational dimensions, Holtfreter (2008) found that size of a non-profit
organization had no influence in predicting fraud losses, a finding that was unusually
different from previous studies. Moreover, while studies by Peltier-Rivest and Lanoue
(2011),Peltier-Rivest and Lanoue (2015) and Holtfreter (2008) advocates cases for internal
control mechanisms such as hotlines and surpriseaudits as statistically significant controls
for cutting down occupational fraud losses. Timofeyev (2015) study, on the other hand,
found no influence of anti-fraudcontrol mechanisms in cutting these losses.
JFC
30,2
362
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