When and why (honest) people commit fraudulent behaviours?. Extending the fraud triangle as a predictor of fraudulent behaviours
| Pages | 541-559 |
| DOI | https://doi.org/10.1108/JFC-05-2019-0058 |
| Published date | 28 January 2020 |
| Date | 28 January 2020 |
| Author | Ach Maulidi |
| Subject Matter | Financial crime,Accounting & Finance |
When and why (honest) people
commit fraudulent behaviours?
Extending the fraud triangle as a predictor of
fraudulent behaviours
Ach Maulidi
Business School, University of Edinburgh, Edinburgh, UK and
Bina Nusantara University, Jakarta, Indonesia
Abstract
Purpose –This study aims to provide theoretical and empirical insights concerning how macro-level
characteristics influence micro-psychological characteristics, in perpetrating fraudulent behaviours. This is
because many fraud studies have mainly been focussed on the solo psychological aspects of the offender,
rather than the social environments. This study also makes clear that fraudulent behaviours are different
from delinquencies.
Design/methodology/approach –This researchis focussed on the big bureaucratic scandals, occurring
in Indonesia.The authors chose Indonesia because it places one of the corruptcountries in The Association of
Southeast Asian Nations countries. To achieve the goals, the authors used the ethnographic approach by
conductingan exclusive interview with 30 elite executives fromthe Government of Indonesia.
Findings –This study finds a deeper understandingof the root causes of fraud committed by individuals
and co-offenders,in which micro-psychological, situational, sociologicaland criminological aspects are linked
together.
Originality/value –This study contains provocativefindings that can stimulate a critical understanding
of the psychologicalaetiology of an individual’s intentionto perpetrate partial fraud or to co-offend.
Keywords Interventions, Fraudulent behaviours, Macro- and micro-psychological characteristics
Paper type Research paper
Introduction
Cost of fraud
For several decades, both academicand professional literature has taken great interest in the
notion of fraud. It is because of the financial impact resulted.For example, in April 2018, the
Association of Certified Fraud Examiners (ACFE) –a professional organisation of fraud
examiners –released “the 2018Report to the Nations; Government Edition”, which provides
a global analysis of the costs and effects of occupational fraud in the public sector[1].
According to their recent study, of the three primary categories of occupational fraud, asset
misappropriations are by far the most common method used by occupational fraudsters.
The highlights 88 per cent of casesperpetrated against government organisations, which is
involved in the misappropriationof assets. However, they are, in effect, also the leastcostly,
causing a median loss of US$100,000.In contrast, schemes of fraudulent financial statement
account for 6 per centof government cases (the least common) and causea median loss of US
$315,000, while corruption schemesoccur in 47 per cent of cases and have a median loss of
This study is a part of research supported financially by the Ministry of Finance of the Republic of
Indonesia or LPDP, with grand number Ref: S-812/LPDP.3.
Fraudulent
behaviours
541
Journalof Financial Crime
Vol.27 No. 2, 2020
pp. 541-559
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-05-2019-0058
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
US$400,000. In relation to these two categories, they argue that both are the most frequent
schemes, which bringfinancially disastrous effects.
Separately, The Government Accountability Office (GAO) –a legislative branch
government agency that provides auditing, evaluation and investigative services for the US
Congress –continues to confront the ongoing problems of government-wide mismanagement,
fraud, waste and abuse in the US public sector. According to their recent report, which is
released in December 2018, it tells us that criminal conducts might be attributed to the “grey
area”; the site of criminal activities could be seen to thrive at the conjectures between the
legitimate and illegitimate transactions. What GAO found in examining the use of public funds,
indicates that violations of rules and laws have dynamically corresponded with the increased
potential for the improper payments[2]. GAO defines improper payments as overpayments,
underpayments, payments made to ineligible recipients or even payments that were not
properly documented. No doubt, even though improper payment does not directly associate
with fraudulent acts, it can be potentially a result of deliberate mismanagement, errors or fraud
and abuse. In the fiscal year 2017 alone, estimates of improper payments occurring totalled
almost $141bn government-wide, –composed of estimates for 90 programmes across 21
agencies. It seems the flow of erroneous and fraudulent payments exceedingly complicated,
particularly in light of recent major changes in the social context of such conduct. This point is
well driven by consideration of increased cases causing a median loss of US$1.4tn from the
fiscal year 2003 through the fiscal year 2017 (Government Accountability Office United States
(GAO), 2018).
Significance of research
Fraud is a unique phenomenon to be learned. Preventive measures put in place are not
effective to deter fraud (Anand et al.,2015, p. 752); it might be its characteristics. Fraud can
be perpetrated by individuals who are acting alone or in groups. However, within
bureaucracies or governmental sectors collective corrupt behaviours are much more
common to be seen (Zafarullah and Siddiquee, 2001). Brandt and Svendsen (2013), who
studying bureaucratic fraud that occurs in the EU system, argues that fraudulent
behaviours take place in a legal form (lobbying), as well as in an illegal form (corruption).
According to the latest studyof ACFE, frauds, which are perpetrated by collusion contribute
to the largest median loss and they are difficult to be detected (Association of Certified
Fraud Examiners (ACFE),2018). Without being doubt, it is problematic for any organisation
because the notion of why people engage in collusive acts have a little attention from prior
studies. Most of the fraud studies are focussedon the psychological aspect of the perpetrator
(Dellaportas, 2013;Schuchter and Levi,2015;Murphy, 2012). Indeed, organisations because
the extent of the fraud is usually unknown, have to work hard because there is no one-size-
fits-all fraud prevention (Davis and Pesch, 2013). Nowadays, a large body of research has
shown that theoretical lens on studying how organisational factors influence people to
commit fraud factors are increasingly needed (Anand et al.,2015;Lokanan, 2018). It is
expected to provide comprehensive insights for designing preventive measures (Anand
et al., 2015). The current study, in this position,fulfils this void and provides new theoretical
aspects for extendingthe fraud theory, especially fraud triangle (FT).
Then, we also acknowledge, there is misjudgement from prior studies in calculating the
fraud perpetrators’intention.In this paper, we would make clear that behaviouralintentions
to commit frauds or white-collar crimesand delinquency or street felonies must be assessed
in different ways because those are extremely different. For example, Piquero et al. (2010)
argue the genuine expression of a will for white-collar crimes thoroughly as incapable of
controlling personality traits. Similarly, Craig and Piquero (2016) conclude a commission of
JFC
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