The international fraud triangle
DOI | https://doi.org/10.1108/JMLC-09-2021-0103 |
Published date | 01 December 2021 |
Date | 01 December 2021 |
Pages | 106-132 |
Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Author | Anastasia Cheliatsidou,Nikolaos Sariannidis,Alexandros Garefalakis,Jamel Azibi,Paschalis Kagias |
The international fraud triangle
Anastasia Cheliatsidou
Department of Business Administration, University of Western Macedonia,
Kozani, Greece
Nikolaos Sariannidis
Department of Accounting and Finance, University of Western Macedonia,
Kozani, Greece
Alexandros Garefalakis
Hellenic Mediterranean University, Heraklion, Greece
Jamel Azibi
Faculté des Sciences Juridiques, Economiques et de Gestion de Jendouba,
Université de Jendouba, Jendouba, Tunisia, and
Paschalis Kagias
Department of Accounting and Finance, University of Western Macedonia,
Kozani, Greece
Abstract
Purpose –Fraud omnipresentin the media, the corporateworld and the academic literature has attracted a
great deal of research interest.Fraud and its various types and forms have been characterizedas significant
contributing factors to the development of severe financial crises. Recurrent financial crimes in both the
private and the public sectorsremind us that fraud and its negative consequences paralyze economic entities
all over the world. Understanding the multidimensional nature of fraud is key to prevent and detect it. This
paper aims to examine the dominant fraud triangle model framework and its variants developed in the
accountingliterature to provide the etiology of fraud.
Design/methodology/approach –Having identified the fraud theory developed so far, we provide a
theoreticalframework for international fraud triangle.
Findings –Understanding the multidimensionalnature of fraud is key to prevent and detect it. This paper
examines the dominant fraud triangle model framework and its variants developed in the accounting
literature to provide the etiology of fraud. Drawingon theoretical insights and useful criticism of the fraud
triangle, this paper proposes an international fraud triangle model framework to help auditors, managers,
regulators and academics in understanding fraud holistically in the private and public sector in a global
context.The authors finally provide an overview of fraud in the GreekContext.
Originality/value –This paper proposesan international fraud triangle model framework.
Keywords Fraud, Corruption, Fraud triangle
Paper type Research paper
Introduction
Fraud and its various types have been characterized as significant contributing factors to the
development of severe financial crises. Recurrent financial crimes in both the private and the
public sector remind us that Fraud and its negative consequences paralyze economic entities all
over the world. Unpredicted corporate collapses, bank failures and a series of financial scandals
since the early 2000s have posed fundamental questions about auditing (role, value and
JMLC
26,1
106
Journalof Money Laundering
Control
Vol.26 No. 1, 2023
pp. 106-132
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-09-2021-0103
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
independence of audit) (Apostolou and Crumbley, 2008)(Rezaee, 2005) and the accounting
profession (Dellaportas, 2013)(Sikka,20 10)(Albrecht et al., 2008). Public mistrust and a climate
of suspicion toward the accounting/auditing profession have been raised significantly since the
litany of financial scandals reveals weaknesses, such as possible lack of expertise, objectivity
and independence of auditors to name a few, thus challenging the role and value of auditing
(Sikka, 2010;Lokanan, 2015). No economic entity can escape fraud either profitornon-profit
such as sport and other charitable organizations (Ohalehi, 2019) also susceptible and vulnerable
to fraud and corruption worldwide (Kihl, 2018;Kihl et al., 2018;Kihl et al., 2017;Kihl et al., 2020;
Archambeault et al., 2015). Public mistrust is a logical outcome, as fraudulent activities, political
scandals, government corruption and other fraud-related issues impact the legitimacy of such
entities and institutions (Cooper et al., 2013).
Academic scholars (Albrecht and Albrecht, 2004), professional associations,
organizations [Center for Audit Quality (CAQ), 2010] and governmental officials in the
aftermath of the global financial crisisof the early 2000s showed great interest in the notion
of Fraud, especially in its detection and prevention methods (Asare and Wright, 2004).
According to the ACFE 2020 Report [1] to the Nations, businessesmay lose as much as 5%
of revenue every year to fraud –approximately equating to US$4.5tn globally. The 2020
study found 2,504 instances of occupational fraud, across 125 countries, with Asset
Misappropriation, Corruptionand Financial statement fraud as the three highest categories
of occupational fraud. Asset misappropriation is the stealing of a company’s asset for
personal use at the company’s expense or misuse of a company’s resources (Kassem, 2014).
Corruption is defined “as the misuseof authority for personal, subunit and/or organizational
gain”(cf. Sherman, 1980as cited in (Ashforth and Anand, 2003) Financial statement fraud is
“a deliberate attempt by corporations to deceive or mislead users of published financial
statements, especially investors and creditors, by preparing and disseminating materially
misstated financial statements”(Rezaee, 2005).
Due to its multinational, multidimensional (Huber, 2017), secretive (Kihl et al.,2020),
pervasive, heterogeneous, recursive and eclectic (Lokanan, 2015) nature fraud has been
examined by various academic disciplines, such as sociology, criminology, psychology and
accounting/auditing. Evidently, an interdisciplinary review of fraud (Cooper et al.,2013;
Power, 2013) is a prerequisite to understand this complex socio-economic phenomenon.
Fraud-related research in the accounting/auditing field-based and formed on previous
research in the criminology field (Benson, 2009)(Morales et al.,2014). Fraud is not a new
phenomenon, as historically it seems to have been associated with the emergence of
systematic recordkeepingactivities of early trade (Basu and Waymire, 2006).
Defining fraud is an “intellectual nightmare”(Lokanan, 2015;Geis and Meier, 1977;
Berger, 2011). The multidimensional nature of fraud makes it even more difficult to
determine its boundaries and find a single universal definition that captures the whole
essence of the term.
The Oxford Dictionary defines fraud as “the crime of cheatingsomebody in order to get
money or goods illegally.”Black’s (1979) Law Dictionary gives an extended definition of
fraud as follows:
[...] all multifarious means which human ingenuity can devise and which are resorted to by one
individual to get an advantage over another by false suggestions or suppression of the truth. It
includes all surprises, tricks, cunning or dissembling and any unfair way which another is cheated [2].
From a legal perspectivefraud is a broad term and is defined as follows:
[...] an intentional perversion of truth for the purpose of inducing another in reliance upon it to
part with some valuable thing belonging to him or her or to surrender a legal right, but in its
International
fraud triangle
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