Is it suitable for your local governments? A contingency theory-based analysis on the use of internal control in thwarting white-collar crime
| Date | 11 March 2020 |
| Pages | 770-786 |
| DOI | https://doi.org/10.1108/JFC-10-2019-0128 |
| Published date | 11 March 2020 |
| Author | Nanang Shonhadji,Ach Maulidi |
Is it suitable for your
local governments? A contingency
theory-based analysis on
the use of internal control in
thwarting white-collar crime
Nanang Shonhadji
Department of Accounting, Sekolah Tinggi Ilmu Ekonomi Perbanas Surabaya,
Surabaya, Indonesia, and
Ach Maulidi
Business School, University of Edinburgh, Edinburgh, UK and
Department of Accounting, BINUS Graduate Program,
Bina Nusantara University, Jakarta, Indonesia
Abstract
Purpose –Thepurposeofthisstudyistoextendexistingtheorybydevelopingacontingencytheoryforthe
public sector and to provide a landscape for local government to deal with white-collar crime. In recent years, the
theme of risk management and internal controls, which is popular in the industry and private sector, has been
mirrored by public sector organisations. Of course, it is to improve fraud risk control systems. We have to accept
that public sector organisations have a growing need to control the (fraud) risks in a rapidly changing economic
environment. Within this situation an effective internal control is becoming strategically important in many
organisations, as it is proving to be a cost-efficient way to manage these risks in everyday operations.Here, the
authors conducted a case studyon the risk management control system at an Indonesian local government.
Design/methodology/approach –This study uses mixed methods, integrating quantitative and
qualitative data –in-depth interviews and questionnaires were required to address the social phenomenon
being investigated.
Findings –This study found that the structure of the control system fits a generic model, in which control
systems are fundamental factors to alldepartments. It shows that control systems can support managers to align
employee capabilities, activities and performance with the organisation’s goals and missions. In addition, the
Retraction notice: The publishers of Journal of Financial Crime wish to retract the article “Is it
suitable for your local governments? A contingency theory-based analysis on the use of internal
control in thwarting white-collar crime”by N. Shonhadji and A Maulidi which appeared in Volume 29,
Issue 2, 2022.
It has come to our attention that statistical errors are present within the article and therefore the
findings cannot be relied upon.
As part of an investigation into the article’sfindings, the authors were requested to provide a copy of
the dataset so that the editorial team could verify the findings. The authors were unable to provide the
dataset and stated they had committed statistical errors. The authors would like to note that any
wrongdoing was unintentional.
This article has been retracted at the authors’request.
The author guidelines of the Journal of Financial Crime make it clear that submitted articles must
include data free from errors that may affect the understanding of the article.
The journal sincerely apologises to its readers.
JFC
29,2
770
Journalof Financial Crime
Vol.29 No. 2, 2022
pp. 770-786
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2019-0128
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
Retracted
authors could identify, risk assessment and monitoring activities are effective measures of controlling
organisation’s activities, and potentially could diagnose potential (fraud) risks, deterring to the achievement of
organisational aims. Ideally, those aspects should be performed on a continuous basis if organisations want to
prevent the spread of numerous potential menaces. In other words, if an organisation fails to carry out risk
assessment correctly, it will result in unidentified possibility of fraud risks. The more explicit the risk assessment,
the more effective the detection of fraud.
Practical implications –It can be alternative to considerCommittee of Sponsoring Organizations of the
TreadwayCommission’s internal control as fraud mitigationin local government.
Originality/value –This study offers new directive discussionabout internal controls as notion of fraud
mitigation.
Keywords Internal controls, Contingency theory, Local government, Fraud risk
Paper type Research paper
Introduction
The existence of internal control, within local government, has overarching factor in achieving
organisation’s objectives and thwarting financial crime. Many professionals mentioned it is, in
the daily conduct of business, defined as a useful point of reference when considering an
organisation’s risk management framework (Committee of Sponsoring Organizations of the
Treadway Commission, 2013). Without any mitigation action, the tactics and modus operandi
used to produce fraudulent profits can be much more complex. This is substantially evidenced
by cases occurring in local governments around the world, for example, cases happening in
UK. A local government auditor’sreportasstatedinBBC (2013) News highlighted cases of
suspected fraud; it shows the average loss from each fraud case in U K public sectors rose by15
per cent. Then, in Wales, an investigation in Bermuda Government uncovered a series of bogus
payments. An investigation report released by BBC (2018) News mentioned the ultimate cost of
the fraud was estimated at £1.3m. In these cases, the suspects are accused of laundering
proceeds of £1.7m ($2.4m), which was to spend on a lavish lifestyle.
Separately, United States Government Accountability Office (2016) reported that the
governmental improper payments remained increase significantly than previous year, from
$137bn in 2015 to $144bn in 2016. Approximately $44 and $34bn of the government-wide
improper payments happening in 2016 are caused by insufficient documentationand the inability
to authenticate eligibility. These cases provide a framework for the discussion of the likelihoodof
errors and fraud which are caused by administrative tasks. Practically, this supports a regular
study completed by Association of Certified Fraud Examiners (ACFE) (2018), documented that a
lack of internal controls is cited as the primary factor for dishonest people to steal assets, engage
in corrupt business practices and manipulate organisation’sfinancialstatements.
Although there is considerable research on fraud prevention, focused on governmental
sectors (Smith, 2008;Doig and Macaulay, 2008), there is little attention on the efficacy of the
updated internal control –integrated framework released by the Committee of Sponsoring
Organizations of the Treadway Commission (2013) .Infact,ithasbeenwidelyusedbyprivate
sectors listed in the USA and Japan as a control for managing the complexity and pace of
changing business environment and potential (fraud) risks (COSO, 2013). To date a conceptual
discussion on internal control as anti-fraud measures is required. As any organisation knows,
advanced fraudsters are constantly finding new ways to perpetrate fraud. Importantly, this
study is to answer a research call mentioning that there is no evidence or little evidence on the
mechanism linking internal control and substantive procedures to reduce fraud or employee
theft in organisation (Donelson et al., 2017). Conceptually, this study uses the COSO revised
internal control framework that still keeps the original’s core components of internal control –
A contingency
theory-based
analysis
771
Retracted
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