Disclosure of fraud control information in annual reports as a means of discharging public accountability
| DOI | https://doi.org/10.1108/JFC-11-2019-0154 |
| Published date | 05 June 2020 |
| Date | 05 June 2020 |
| Pages | 464-493 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Ludek Seda,Carol Ann Tilt |
Disclosure of fraud control
information in annual reports
as a means of discharging
public accountability
Ludek Seda
Flinders Business School, Flinders University, Adelaide, Australia, and
Carol Ann Tilt
UniSA Business School, University of South Australia, Adelaide, Australia
Abstract
Purpose –This paper aims to investigate the disclosure of fraud-related activities in public sector
organisations in Australia.Specifically, the study reviews and evaluates the level and nature of fraud control
informationin annual reports of Commonwealth agencies and bodies.
Design/methodology/approach –The study usesa qualitative approach with the aim of expandingthe
body of empirical literature on disclosureof fraud control information in annual reports. The study further
uses the theory of accountability–an essential concept for organisationsthat exist for public interest.
Findings –The results show that there is some prima facie evidence of public accountability. However,
these results suggestthat current disclosures of fraud-related activitiesin annual reports are failing to ensure
the public is awareof activities used to combat fraud and its implicationsfor the public interest.
Practical implications –The results have importantimplications for developing a framework for good
reportingof fraud control activities.
Originality/value –This research study adds to the limited body of knowledge regarding how public
entitiesdischarge their accountability in relation to theirfraud control activities.
Keywords Fraud, Fraud disclosure, Public sector, Accountability,
Australian commonwealth entities
Paper type Research paper
1. Introduction
There are well-known cases of fraud in the private sector, such as Enron, Bernard Madoff
and WorldCom. In all these cases, shareholders lost billionsof dollars, many employees lost
their jobs and many people lost their retirement savings. There are also some high-profile
cases of private sector fraud in Australia.For example, HIH Insurance collapsed after being
mismanaged, as well as being involved in fraud(LongDog and Associates, 2011). Likewise,
the public sector in Australia is also not immune to fraud. As such, fraud control plays an
important role in protecting public funds at all levels of government, including the
Commonwealth [1]. Fraud control is understood as a risk management system, which
includes several components necessaryto combat fraud, such as fraud risk assessment and
fraud risk planning, prevention, detection and investigation measures (Commonwealth of
Australia, 2011).
Public sector organisations are of particular importance given that their role is to act in
the interest of the public. Therefore, the transparency and accountability of these
JFC
30,2
464
Journalof Financial Crime
Vol.30 No. 2, 2023
pp. 464-493
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2019-0154
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
organisations in relation to the safeguarding of public funds is an important area of
research. In particular, the role of the reporting or disclosureof fraud control information is
an under-researchedarea and, therefore, the focus of this paper.
This paper aims to investigate the extent and nature of fraud control information
disclosed by Australian Commonwealth public entities in their annual reports in 2011-2013
as a means of discharging their public accountability.To do so, two research questions were
formulated to guide the analysis:
RQ1. What is the extent and nature of voluntarydisclosure of fraud control information
in annual reports usedby Australian Commonwealth agencies and bodies?
RQ2. Do Australian Commonwealth public entities use disclosure of fraud control
information in annualreports to discharge their public accountability?
The Australian Government’sfinancial framework was supported by several key pieces of
financial management and accountability legislation, including the Financial Management
and Accountability Act (1997) (FMA Act) that set out the financial management,
accountability and audit obligations of agencies. In particular, the FMA Act instructed
agencies to manage public resources efficiently, effectively and ethically (Australian
Government, Department of Finance,2008c). Part 2, Division 5, of the FMA Act stated that
the term agency included departments of state, departments of the parliament and
prescribed agencies (Australian Government, 1997, part 2, para 5). The FMA Act therefore
covered all Commonwealth Departments of State such as Department of Defence,
Department of Foreign Affairs or Department of Education, Employment and Workplace
Relations, as well as other prescribed agencies, such as Federal Court of Australia,
Australian TaxationOffice or Medicare Australia.
Further, the Commonwealth Authorities and Companies Act 1997 (CAC Act) [2] also
regulated some aspects of corporate governance, financial management and reporting of
bodies subject to the CAC Act (Australian Government, Department of Finance, 2008a). The
bodies subject to the CAC Act were Commonwealth authorities and Commonwealth
companies (Australian Government, Department of Finance, 2008b). The CAC Act,
therefore, covered Commonwealth statutory authorities and companies such as Australian
Broadcasting Service Corporations, Australian Postal Corporation or National Library of
Australia.
The FMA Act and CAC Act entities had an obligation to follow the good practise of
corporate governance, financial management and accountability, as they were entrusted
with public money and public property. This obligation was also reflected in other relevant
legislations, including the Australian Commonwealth Fraud Guidelines. This paper
considers how theseentities followed these obligations and dischargedtheir accountability.
The paper is structured as follows. Section 2 provides some background information on
disclosure the public sector.This is followed by three sections which review the literature on
accountability and disclosure in annual reports in Section 3. An outline of the research
design is then presented in Section 4, followed by results, discussion and conclusions in
Sections 5-7.
2. Accountability and the public sector
Accountability, as a mechanism that makes organisations responsive to the public, has
become somewhat of an icon of goodgovernance (Bovens, 2007) and forms the basis of trust
between public institutions and society(Kluvers, 2003). Citizens have a right to be informed
about the government’s conduct (Barton, 2006). Similarly, managers who are employed to
Disclosure of
fraud control
information
465
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