A longitudinal assessment on the development of financial fraud offending

Pages1173-1189
Published date10 June 2020
DOIhttps://doi.org/10.1108/JFC-04-2020-0059
Date10 June 2020
AuthorDzhansarayeva Rima,Alimkulov Yerbol,Baissalov Ali,Bissengali Liliya,Kevin Beaver
Subject MatterAccounting & Finance,Financial risk/company failure,Financial crime
A longitudinal assessment on the
development of nancial
fraud oending
Dzhansarayeva Rima,Alimkulov Yerbol,
Baissalov Ali and Bissengali Liliya
Al-Farabi Kazakh National University, Almaty, Kazakhstan, and
Kevin Beaver
King Abdulaziz University, Jeddah, Saudi Arabia
Abstract
Purpose Fraudulent behaviors have a signicant inuence on society, impact millions of citizens and
result in billions of dollars in losses.Consequently, it is essential to understand the potential correlatesand
causes of nancial fraud offending. To date, however, there has not been much research examining the
developmental origins to nancial fraudoffending. The purpose of this study is to address this gap in the
literature.
Design/methodology/approach Longitudinal data drawn from the National Longitudinal Study of
Adolescent to Adult Health were analyzed. The measures of socialization and individual differences were
assessed in adolescence,and then examined to determine whether they predicted the oddsof credit card and
check fraudsin adulthood.
Findings The results revealed that the measures of parental socialization were unrelated to later-life
nancial fraud. Associatingwith delinquent peers was associated with nancialfraud in some of the models
as was low self-controland nonviolent propensities.
Practical implications In this study,the authors discuss the implications of the currentstudy and offer
suggestionsfor future research.
Originality/value To the best of authorsknowledge, this is one of the rst studies to examine the
developmentalunfolding of fraud offending in a nationallyrepresentative sample.
Keywords Add health, Adulthood, Crime, Developmental, Financial fraud
Paper type Research paper
Introduction
Fraudulent behaviors exert a tremendous toll on society. Annually, nearly 17 million US
citizens are the victims of some type of fraud or identitytheft, resulting in losses amounting
to more than $16bn (Javelin Strategy and Research, 2018). Moreover, an analysis of yearly
fraud victimization suggests that this has been a growing problem (Javelin Strategy and
This research uses data from Add Health, a program project directed by Kathleen Mullan Harris and
designed by J. Richard Udry, Peter S. Bearman and Kathleen Mullan Harris at the University of North
Carolina at Chapel Hill. It funded by grant P01-HD31921 from the Eunice Kennedy Shriver National
Institute of Child Health and Human Development, with cooperative funding from 23 other federal
agencies and foundations. Special acknowledgment is due to Ronald R. Rindfuss and Barbara
Entwisle for assistance in the original design. Information on how to obtain the Add Health data les,
which are available on the Add Health website (www.cpc.unc.edu/addhealth). No direct support was
received from grant P01-HD31921 for this analysis.
Development
of nancial
fraud
oending
1173
Journalof Financial Crime
Vol.27 No. 4, 2020
pp. 1173-1189
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2020-0059
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
Research, 2018). A part of this increase in fraudulentbehaviors can be tied to the amount of
personal and nancial data that are housed inan electronic format and thus are vulnerable
to hacks, Internet scams and other cyber-attacks (Wall, 2007;Yar, 2006). Moreover,
improvements in the detection of fraud, and being aware when fraud victimization has
occurred, has possibly contributedto higher rates of reporting such behaviors. Whatever the
reason for the increase in fraud, there is now evidence to indicate that the number of fraud
victims and the costs associatedwith such victimization is on par with the victims and costs
associated with more traditionalstreet crimes (Friedrichs, 2007;Titus, 2001).
Two of the more common types of fraud affecting a substantial proportion of the
population are check and creditcard frauds. Check fraud occurs when a crime is committed
that involves the passing of fake or forged checks whereas, credit card fraud is typically
viewed as some type of unauthorized use of a credit or debit card. These are two of the more
common types of fraud with credit card fraud accounting for more than $25bn on losses
annually on a worldwide basis (Nilson, 2016) and check fraud accounting for about $7bn
annually (American Bankers Association, 2017). Given the tremendous losses associated
with fraud, it is not too surprising that there has been a great deal of research examining
various aspects relatedto fraudulent behaviors.
Much of the research examiningfraudulent behaviors has been descriptive in natureand
has focused on describing the total number of fraud incidents, the amount of losses
associated with fraud and the types of fraud schemes that have been perpetrated (Allison
et al., 2004;Javelin Strategy and Research, 2018). A line of research has focused on the
victims of fraud and identied risk factorsthat might increase the chances of being a victim
of fraud. The results from these studies have identied sociodemographic factors, such as
gender, are important in the risk of being victimized (Holtfreter et al., 2008). Beyond just
descriptive studies, there has been certain research attempting to develop and/or test
theoretical explanations for why certain people are more or less likely to be the victims of
these types of fraudulent behaviors(Holtfreter et al., 2008;Pratt et al., 2010). Comparatively
less research, however, has focused on the potential factors that might be involved in the
development and etiologyof persons who engage in fraudulent behaviors.
This omission in the fraud literature is a signicant oversight for at least two key
reasons. First, understanding the risk factors that might lead a person to commit nancial
fraud would be useful in developing theories that more fully specify the reasons why
persons become fraud offenders. By doing so, therewould be a better understanding of the
causes of why people engage in fraud and, consequently, prevention programs would be
better suited to potentially thwart the development of such criminal offenders. Second, and
relatedly, knowing the risk factors for persons who are most likely to commit acts of fraud
could be helpful in the creation of programs that make potential victims aware of who is
most likely to try to scam them outof their money or otherwise fraudulently victimize them.
Against this backdrop, the aim of the current paper is to examine the development of
offenders who engage in fraudulent behaviors. To do so, we analyze longitudinal data and
examine whether a wide array of risk factors in adolescence predict involvement in credit
card and check frauds in adulthood. Moreover, we explore some potential protectivefactors
that might reduce the odds of engagingin such types of fraud.
The nature of nancial fraud oenders
Much of what is known specically about nancial fraud offenders is based on descriptive
analyses that have largely focused on sociodemographic factors. For instance, one study
reported that fraud offenders tend to be white, male and in their mid-to-late twenties and
early thirties (Allison et al.,2004). Research by Holtfreter (2005,2008a) has provided some
JFC
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