Why people commit public procurement fraud? The fraud diamond view
| Published date | 04 November 2019 |
| Pages | 345-362 |
| Date | 04 November 2019 |
| DOI | https://doi.org/10.1108/JOPP-02-2019-0012 |
| Author | Ni Wayan Rustiarini,Sutrisno T.,Nurkholis Nurkholis,Wuryan Andayani |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public finance/economics,Taxation/public revenue |
Why people commit public
procurement fraud? The fraud
diamond view
Ni Wayan Rustiarini
Department of Accounting, Universitas Mahasaraswati Denpasar,
Denpasar, Indonesia and Department of Accounting,
Universitas Brawijaya Fakultas Ekonomi dan Bisnis,
Malang, Indonesia, and
Sutrisno T.,Nurkholis Nurkholis and Wuryan Andayani
Department of Accounting, Universitas Brawijaya, Malang, Indonesia
Abstract
Purpose –This paper aims to discuss the factors that cause individuals to commit fraud, especially in
the public procurement context. All this time, an empirical review of public procurement fraud has only
focused on the macro and micro level, as well as its losses on the country’seconomy.Thispaper
highlights individuals’fraudulent behavior from the four elements of the fraud diamond theory, namely,
pressure, opportunity, rationalization and capability.
Design/methodology/approach –This paper is a literature review that discusses the
fraudulent behavior of bureaucrat as a procurement official in the context of public procurement.
This review uses fraud diamond theory as its theoretical framework to explain the attributes to
do fraud.
Findings –Public procurement is a high-risk area for fraud (corruption), particularly in the government
institution. It cannot be denied that the situation factor (pressure and opportunity) will interact with
psychological aspects (rationalization) and individual capability to direct the individuals to commit fraud.
This study discusseshow existing pressure (motivation) and opportunities are usedby individuals who have
the capabilityto rationalizetheir actions. This literature review also endeavors to shed light on the strategyto
prevent,detect and control the causes of fraud.
Practical implications –This paper provides an understanding of regulators, auditors and other
employees in recognizing the characteristics and nature of fraud antecedents. This understanding can help
prevent various forms of procurementfraud that occur within their organizations. This paper also can be a
guideline to assistpublic sector organizations in designing effective internalcontrol systems to prevent fraud
in the process and practiceof public procurement.
Social implications –Public procurement has a central rolethat enables the government to allocate the
budget effectively and efficiently. Compliance in implementing procurement rules and procedures will
improve thequality of public services.
Originality/value –There exists relatively little study outlining the factors underlying of
bureaucrats’(procurement official) opportunistic behavior on procurement activities. The authors
focused on bureaucrats’behavior because they have unique positions of power and responsibility of the
procurement process. On the one hand, they have a crucial role in serving the public and safeguarding
public assets. On the other hand, they have the ability to collaborate with politicians and business actors
in corrupt procurement practices. Therefore, the discussion on this topic is very relevant and
interesting.
Keywords Fraud, Procurement, Capability, Bureaucrat
Paper type General review
Public
procurement
fraud
345
Received8 February 2019
Revised13 April 2019
23May 2019
Accepted15 July 2019
Journalof Public Procurement
Vol.19 No. 4, 2019
pp. 345-362
© Emerald Publishing Limited
1535-0118
DOI 10.1108/JOPP-02-2019-0012
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1535-0118.htm
1. Introduction
Public procurement is mostvulnerable to corruption. Vulnerability, not only the institutions
as organizers, individuals employees who have authority in public procurement activities
are also being vulnerable to allegations of fraud or corruption (Murray, 2014). The volume
and complexity of procurement activities, ambiguity of market value for special items, the
spaces for government political discretion, and interdependence among political,
bureaucratic, and business actors make public procurement as a key site for corruption
(Hawkins et al.,2011;Rose-Ackerman and Palifka, 2016). Public procurementprocesses also
have a greater risk of corruption because of lack of monitoring and controlling mechanism,
lack of transparency and accountability, and weak professionalization of the bureaucracy
(Kolstad and Wiig, 2009;Neupane et al.,2012). It is not surprising that the procurement
function has alwaysbeen the target area of the perpetrators of fraud (Plavsic, 2004).
Academics from various disciplines have tried to explore public procurement from
various perspectives. Economic researchers focus on macro determinants (Jones, 2009;
Kattel and Lember, 2010), and their effects on the system of production, distribution, and
consumption (Kim et al., 2006). Other researchers identified social, economic and political
factors (Basheka, 2011;Esteves and Barclay, 2011;Tang and Chen, 2008), law (Yukins,
2010), and environmental issues (Geng and Doberstein, 2008;Palmujoki et al., 2010). The
political researcher observes the role of political power (Hessami, 2014;Mironov and
Zhuravskaya, 2016), and individual social structures (Ntayi et al.,2010). While numerous
studies have examined related theaspects of public procurement, the academic literature is
almost silent on procurement fraud (Murray, 2014). Procurement literature is rarely to
identifies the risks of bribery, fraud, and corruption as a constraint (Murray, 2014;Tanaka
and Hayashi, 2016), particularly on bureaucracy behavior as public procurement officials.
The search results in a number of scientific publications show only one paper conductedby
Blackburn et al. (2011) that specifically discusses bureaucrats’corrupt behavior in public
procurement activities,particular about the macroeconomics of misgovernance.
Bureaucrats as one of are “interested”participants within procurement systems, and
they often have reasons to block, diminish and divert inspection traces (Della Porta and
Vannucci, 2007). The bureaucrats’position or function withinthe organization may furnish
the ability to create or exploit an opportunity for fraud (Dorminey et al., 2010) for personal
gain (Campbell, 2017;Neupane et al., 2012). Bureaucrats also work within a setting where
the ‘act at the discretion’of their bosses (Neu et al., 2013). This fact helps us to understand
why bureaucrats oftentimes collaborate with politicians and business actors in corrupt
procurement practices (Johnston, 2005). Unfortunately, there exists relatively little paper
outlining the factors underlying the opportunistic actions of civil servants, or bureaucrats
which hold unique positions of power and responsibility of the procurement process. For
this reason, it is important to review the antecedents of their indulging in illegal or
unauthorized activities,or this is known as bureaucrat fraudulent behavior.
This paper is a literaturereview that discusses the fraudulent behavior of bureaucratas a
procurement official in the context of public procurement.This review uses fraud diamond
theory as its theoretical framework to explain the attributes to do fraud. The Fraud
Diamond concept is an extension of The Fraud Trianglewhich is the initial framework that
explains the determinants of individual’s fraudulent behavior in organizations.
Nevertheless, The Fraud Triangle is considered inadequate to explain the fraudulent
behavior occur (Lokanan, 2015). Further empirical research extends The Fraud Triangle
concept to The Fraud Diamond (Wolfe and Hermanson, 2004). The Fraud Diamond adds
“capability”as the fourth element to complement the other three elements, including
pressure (incentive), opportunity,and rationalization. However, an individual must have the
JOPP
19,4
346
To continue reading
Request your trial