Conditions Associated with Increased Risk of Fraud: A Model for Publicly Traded Restaurant Companies

Abstract

Many restaurant industry examples provide evidence that as a firm's internal control structure weakens and deficiencies are found, the opportunity for fraud increases significantly. Thus, the central focus of this study is to understand the factors that contribute to increased risk of fraud to determine which conditions promote an increased risk of fraud for publicly traded restaurant companies. The main premise of the study tests the application of the fraud triangle framework constructs to publicly traded restaurant companies during the time period of 2002–2014, using proxy variables defined through literature. The proxy variables selected were company size, amount of debt, employee turnover, organizational structure, the Recession, inflation rate, interest rate, executive stock compensation, return on assets, and international sales growth. The study used a probit model, using the incidence of a reported internal control deficiency as the measurable dichotomous dependent variable.