Tackling practical issues in fraud control: a practice-based study
| DOI | https://doi.org/10.1108/JFC-07-2020-0150 |
| Published date | 26 October 2020 |
| Date | 26 October 2020 |
| Pages | 493-512 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Ach Maulidi,Jake Ansell |
Tackling practical issues in fraud
control: a practice-based study
Ach Maulidi
Business School, The University of Edinburgh, Edinburgh, UK and
Department of Accounting, BINUS Graduate Program,
Bina Nusantara University, Jakarta Barat, Indonesia, and
Jake Ansell
Business School, The University of Edinburgh, Edinburgh, UK
Abstract
Purpose –The purpose of this paper is to provide a warning sign for fraud studies in developing
occupationalfraud deterrent, and offer possible solutionto deal with it.
Design/methodology/approach –This study was conducted in one of regencies in Indonesia. The
authors interviewed nine top managers across local agencies and four senior local government internal
auditors. The people involved have formal and informal networks with a regentwho has been arrested by
Indonesia’s Corruption Eradication Commission, because of white-collar crime syndicates, when running
governmentalsystems.
Findings –While many approaches to fraud mitigation have been proposed, organisations in practice
particularly in the public sector find it hard to implement successful methods to understand, detect and prevent
fraud. In practice, this occursdue to simplified assumption on or multiplicity of overlapping fraud concepts. There
is also a lack of appreciation of impact of organisational dynamics which facilitates fraud. Behavioural and political
issues within an organisation need to be addressed when proposing fraud preventi on. The study emphasises that it
is too naïve to offer internal control as one-size-fits-all fraud prevention. For practitioners, corrupt behaviour tends to
be the most challenging part, compared to other fraud schemes such as asset misappropriation and financial
statement fraud. In this paper, the authors urge organisation to adapt a more systematic approach, involving across
governmental anti-corruption agencies and civil society actors. This may be facilitated throu gh communication
among those parties, including a sound whistleblowing system. Then, organisation also shou ld consider preventive
measures that go beyond from administrative or technical internal controls.
Originality/value –The resultsmay give new directions for designing fraud prevention.
Keywords Governmental sectors, Fraud mitigation, Internal control, Whistleblowing system
Paper type Research paper
Introduction
Fraud is costly for society and needs appropriatemitigation. A clear understanding of fraud
and the behaviour of the fraudsters is required. White-collar fraud, especially within the
public sector, isprevalent and has attracted considerable attentionfrom academics (Engdahl
and Larsson, 2016;Goossen et al.,2016;Locker and Godfrey, 2006), and professional
organisations (ACFE, 2018;PwC, 2018). These studies often seek to explore the reasoning
behind an individual’s decision to commit workplace fraud. For example, Goossen et al.
(2016) investigate the relationship between human values and three types of white-collar
crime: tax evasion, insurance fraud and bribery covering 14 European countries. Their
Ach Maulidi thanks Indonesia Endowment Fund for Education (LPDP) for financing his study in the
University of Edinburgh.
Practical
issues in fraud
control
493
Journalof Financial Crime
Vol.28 No. 2, 2021
pp. 493-512
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2020-0150
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
study shows, individual values, such as self-advancement, seeking control, individual
competence, status and prestige, challenge, excitement and independence, are positively
related to white-collar crime. In contrast, they also find values associated with broad
motivational goals of welfare, tolerance, social order and relational stability are negatively
related to the occurrences of white-collar crimes. Craig and Piquero (2016) analyse white-
collar offending (e.g. embezzlement) from personality traits of offenders. They conclude
individuals who experience “low self-control”are more likely to offend. As we can see, this
literature depicts how a number of individual value types or personality traits support the
likelihood of white-collar offending. Such work can help management to be more aware of
what behaviour is acceptable or unacceptable. It is also worth noting that such work will
allow us to point out psychological anomalies that may help management to conduct in-
depth analysis and gain deeper understanding of the likelihood of fraud being committed.
While those scholars are in near consensus about psychological triggers to defraud,
development of mitigationsremains infeasible without a clear sense of theoretical approach
to understand the fraud risklandscape (Anand et al.,2015). It means, it is not enough just to
look at the original stateof psychological triggers when dissecting fraudulentbehaviours.
Power (2013) argues, a large proportion of fraudprevention and detection, remains to be
seriously challenged. He indicated that it is difficult for anti-fraud professionals to design
good behavioural systems which can protect organisations (Power, 2013). Constant
vigilance is required (Davisand Pesch, 2013), leading Holtfreter et al. (2008) to be pessimistic
and hence sceptical about success, indicating that the United States Department of Justice
have given “low priority”to white collar crime compared to violent crime and threats to
national security, such as terrorist attacks. Surprisingly, to date the discussions about
preventive measures for causes of fraud quite often do not touch on the complexity of
situational and sociologicalconstructs within and outside organisation (Rodgers et al.,2015).
Rodgers et al. (2015) are optimistic that ethics and internal controls –accounting and
administrative controls –can be appropriate solutions. Equally this paper takes a positive
view of taking action to achieving fraud prevention by extending the evidence base on
which such measures are based.
Recognition of why fraudulent situations appear unmanageable or even unpreventable is a
step forward in designing better system. This study addresses the need for further empirical
work to reduce the different types of fraud (Anand et al.,2015) and the kinds of situations in
which fraud is more or less likely to occur (Akkeren and Buckby, 2017). The critical debate
about occupational fraud prevention processes goes beyond the challenges of determining the
mode of operation of fraud and the opportunistic conditions are allowing fraud to occur.
The rest of the paper proceeds according to the following format. We first present a
comprehensive review of conceptionsof fraud, and the dynamics of corrupt and non-corrupt
organisations. In this regard, we want to provide better understanding of factors that may
be ignored by prior studies in proposingfraud mitigation. Then, we discuss research design
that has been created to find answers to research questions. This is followed by analysis,
discussion and conclusion that show understanding of why, at certain conditions, the
organisational control has become more common and highly visible in many commercial
organisations, rather than public or governmental organisations, to prevent fraud, improve
risk management and minimise losses due to fraud. Then a holistic approach to collusive
financial crime preventionwas also explored within this current study.
Conceptualisation of fraud
Tackling an issue needs a clear understanding of the conceptualisation of the subject. This
is clear from reviews of the subject, see Soltani (2014) and Ang et al. (2016). These authors
JFC
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