Perception on Shariah Governance Attributes and Information Technology towards Fraud Prevention and Detection Activities in Malaysian Islamic Banks

Abstract

Nowadays, fraud in the financial sector is common and a global issue. The Islamic Financial Institution (IFI) in Malaysia faces the issue despite Shariah-compliance. Fraud and riba’ in Islam are forbidden due to being non-Shariah compliant matters. Thus, the study examines the attributes of Shariah governance as an agent for fraud prevention and detection. Data were collected from 16 Islamic Banks with internal auditors and risk analysts as the respondents. The correlation and regression analysis revealed that effective Shariah committee did not impact fraud prevention and detection activities. Conversely, effective internal audit, virtuous senior management, and information technology use positively influenced fraud prevention and detection activities in Islamic Banks in Malaysia. Future research should consider extending the study to other segments of IFIs such as licensed Takaful operators, licensed investment banks or prescribed development financial institutions approved to conduct Islamic financial business. Future research also should consider to incorporate moderating variables such as working experience years of the respondents. Future research can also specifically analyse the use of blockchain technology in fraud prevention and detection activities.