Examining the predictors of fraud in state-owned enterprises: an application of the fraud triangle theory
| DOI | https://doi.org/10.1108/JMLC-05-2021-0053 |
| Published date | 16 July 2021 |
| Date | 16 July 2021 |
| Pages | 427-444 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Godfred Matthew Yaw Owusu,Theodora Aba Abekah Koomson,Stanley Agbenya Alipoe,Yusuf Ahmed Kani |
Examining the predictors of fraud
in state-owned enterprises: an
application of the fraud
triangle theory
Godfred Matthew Yaw Owusu,Theodora Aba Abekah Koomson
and Stanley Agbenya Alipoe
Department of Accounting, University of Ghana Business School,
Accra, Ghana, and
Yusuf Ahmed Kani
Department of Business Administration and Marketing,
University of Medical Sciences and Technology, Khartoum, Sudan
Abstract
Purpose –This paper aims to investigatethe views of employees on the motives behind frequently reported
fraudulent activitiesat the workplace. Using the fraud triangle theory (FTT) as the theoreticallens, 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 analysisshowed that pressure, rationalization and opportunity
are importantin explaining why employees engage in fraudulent activitiesat the workplace.
Originality/value –The findings do not only provideempirical support for the applicability of the FTT in
the Ghanaian contextbut most importantly offer some useful insights into the fraud discourse from the public
sector workers’perspective.
Keywords Fraud, Structural equation modelling, Fraud triangle, State-owned enterprises
Paper type Research paper
Introduction
Fraudulent acts perpetuated by people closely connected with business organizations
(internal fraud), as well as individuals outside the business (external fraud) have often
been associated with the collapse of some of the world giant and otherwise vibrant
corporations such as Enron, Tyco, WorldCom, Carillion and Steinhoff (Low et al., 2008).
The 2016 Report on Crime Surveys by PricewaterhouseCoopers (2016) concludes that
one out of every three organizations surveyed experiences fraud of some sort in both
developed and emerging markets. Indeed, the report found over 43% of all organizations
studied from 40 nations across the globe to have suffered from one form of a fraudulent
act or the other. The effect of these fraudulent acts has been documented in several
reports.
Fraud triangle
theory
427
Journalof Money Laundering
Control
Vol.25 No. 2, 2022
pp. 427-444
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2021-0053
The current issue and full text archive of this journal is available on Emerald Insight at:
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The Association of Certified Fraud Examiners (ACFE), in their 2018 Report to the
Nations (ACFE, 2018) for instance, documents that about 5% of the total revenue to
organizations are lost annually due to fraud. Severalstudies on fraud have also emphasized
how fraudulent activities have affected businesses and economies globally over the years
(Andoh et al.,2018;Asmah et al.,2019;Gullkvist and Jokipii, 2013;Mustafa and Youssef,
2010;Zahari et al.,2020). The unfortunate reality is that the number of fraud cases continues
to increase, posing more threatsto businesses and economies. Between 2016 and 2018, fraud
cases recorded globally increased by about 12% (ACFE, 2018;PWC, 2018). The rise in
reported fraud cases, in part, may explain the surge in research interest on fraud in recent
times. Despite the growth in research interest on issues of fraud over the years, there exist
some important gapsin the literature which the current study attempts to address.
Firstly, notwithstanding the fact that the occurrence of fraud is a global issue, extant
studies have focused on America, Asia,Europe and other developed economies (Bierstaker
et al.,2006;Chaudhary et al.,2012;Sharma and Panigrahi, 2013;Wicaksono and Urumsah,
2017;Yusof and Lai, 2014;Zona et al., 2013) with less attention given to developing
economies, particularly African countries. Interestingly, the reported fraud cases in
developing countriescontinue to be higher compared to that of developed countries in recent
times. As revealed by the 2018 Report to The Nation (ACFE, 2018), the continent Africa
recorded the second largest percentage of all reported fraud cases. Ghana is, particularly, a
case in point with regard to the issue of corruption-led fraud in Africa as the country is
adjudged to be among Sub-Saharan African nations with a high rate of corruption
perception (Bamidele, 2013;Transparency International,2012, 2009). Ghana has recorded a
corruption perception index (CPI) score of between 40 and 50 over the past decade
(Transparency International, 2020) and for 2020, Ghana ranked 75th out of 180 countries
examined by Transparency International. With a 2-point increase from 2019’s CPI index,
Ghana recorded an index of 43 for the year 2020. This brought the countryto a sore rank of
40–49 out of 100, representinga high level of corruption (Transparency International, 2020).
Several studies also report increasing cases of asset misappropriation and financial
statement fraud among Ghanaian firms in recenttimes (Koomson et al., 2020;Asmah et al.,
2019). Studies fromthe African perspective, specifically Ghana, are,therefore, relevant to the
fraud literature giventhe high prevalence rate of reported fraud cases.
Secondly, most existingstudies on fraud have focused on private businesses which exist
mainly for profit-seeking motives (Asmah et al.,2019;Gullkvist and Jokipii, 2013;Mustafa
and Youssef, 2010;Zahari et al., 2020) with less attention on state-owned or governmental
organizations. Defined to be those enterprises where the state, regional governments or
cities have significant control, through full, majority or significant minority ownership
(OECD, 2005), state-ownedenterprises play a crucial role in the development of any country.
Despite the significant role such enterprises play in an economy, especially, in providing
goods and services that would otherwise not be attractive to private enterprises, they have
been at the centre of most reported fraud casesin many countries. Statistically, close to half
of the fraud reported cases occur in public or governmental organizations alone (ACFE,
2018).
Whilst studies that examined the occurrence of fraud in state-owned enterprises are
scant, the few existing ones have also focusedlargely on its prevalence and effects (ACFE,
2018) and the preventive initiatives (Abdullahi and Mansor, 2018) with less focus on the
factors that influence individualsto engage in fraud in these organizations. This study fills
these gaps in the fraud literature by specifically examining the fraud phenomenon and the
motivation for employees to engage in fraudulent acts in state-owned enterprises. Relying
on the fraud triangle theory (FTT) as our theoretical foundation, we investigate the
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