Fraud Diamond Research Articles

Fraud Factor Analysis Hexagon in Detecting Financial Report Fraud In Listed Companies in Indonesia: A Systematic Literature Approach

Financial reporting fraud is a significant challenge across industries, undermining stakeholder trust and the reliability of financial data. The Fraud Model Hexagon expands upon earlier models, like the Fraud Triangle and Fraud Diamond, by introducing six elements pressure, opportunity, rationalization, capability, ego, and collusion that offer a comprehensive view of the factors enabling fraud. This literature review systematically examines the model's effectiveness in detecting financial fraud within Indonesian corporations, especially those listed on the Indonesia Stock Exchange or connected to political and governmental entities. Ten studies from 2018 to 2024 were analyzed, focusing on each Fraud Hexagon element's role in fostering fraud. Findings highlight that pressure, opportunity, and collusion are primary drivers of fraud in politically connected sectors, with capability and rationalization further facilitating fraud, while ego emboldens managers to act without fear of repercussions. The Fraud Hexagon provides a nuanced framework for risk assessment, prompting recommendations for stronger internal controls and ethical standards. It also serves as a valuable diagnostic tool for auditors and regulators, particularly in politically sensitive sectors. This study contributes to understanding the social and psychological dimensions of financial fraud and offers a foundation for future cross-industry research.

Building the Foundation: Towards a Theoretical Framework for Forensic Accounting

This study proposed a forensic accounting theory after examining how the impact of certain variables and their interplay on forensic accounting practices can contribute to developing integrated and robust fraud prevention strategies, enhance organizational accountability, and strengthen the overall integrity of financial and internal control systems. In literature, most studies on forensic accounting and fraud prevention have primarily focused on broader aspects such as governance, ethics, and accountability and are largely predicated on theories such as fraud diamond theory and agency theory that seek to understand the causes of fraud, highlighting the importance of forensic accounting in fraud prevention and detection, without suggesting practical forensic accounting frameworks. Also, the forensic accounting theory developed by Peterson Ozil in 2020 examines how the investigator’s attitude or mindset at the time of decision-making influences the outcomes of a forensic investigation. While these studies provide valuable insights into the overall context of fraud prevention, there is a scarcity of research on the specific forensic accounting processes that should be implemented to enhance the effectiveness of fraud prevention measures. This is the significant difference between the current study and previous studies. Therefore, the proposed Vutumu Forensic Accounting Theory serves as the guiding philosophy that underpins the integrated approach of combining control system reliance, litigation support, whistleblower hotlines, sustainable governance systems, ethical philosophy, digital fraud review frequencies, accounting record to reporting quality, and the frequency of system reviews, thereby enabling organizations to establish a proactive framework that addresses various dimensions of fraud prevention and detection. The implementation of the theory emerges as a formidable and comprehensive anti-fraud strategy, seamlessly integrating multiple elements to create a robust defense against fraudulent activities, safeguarding financial integrity, ethical conduct, and accountability within organizations. Furthermore, it is the researcher’s desire that this study serve as a foundation for further research and practical implementation of forensic accounting frameworks in strengthening the ability to detect and prevent fraud.

Analysis of the Influence of Diamond Fraud, Integrity, and Religiosity on Academic Fraud Behavior

This study aims to determine the effect of pressure, opportunity, rationalization, capability, integrity, and religiosity on academic cheating behaviour in undergraduate accounting students from Islamic-based universities in Semarang. This research is included in the comparative causal research. The population of this study was undergraduate accounting students from Islamic-based universities in the city of Semarang, namely Universitas Islam Sultan Agung, Muhammadiyah University, Wahid Hasyim University, and UIN Walisongo Semarang. The sampling technique used was purposive sampling. The sample used in this study was 60 students. The data analysis techniques used are descriptive statistics, data quality test, classical assumption test, multiple linear regression analysis, model goodness test, and individual parameter significance test. Pressure has been proven to positively and significantly affect the academic cheating behaviour of accounting students from Islamic-based universities in Semarang. Pressure is proven to have a positive and significant effect. Opportunity is proven to have a positive and significant effect. Rationalization is proven to have a positive and significant effect. Ability is not proven to have a significant effect. Integrity has yet to be proven to have a significant effect. This means that high integrity does not influence students to suppress academic cheating behaviour. Religiosity has not been proven to significantly affect the academic cheating behaviour of accounting students at Islamic-based colleges in Semarang City. This means that high religiosity does not influence students to suppress academic cheating behaviour.

Factors influencing asset misappropriation in financial institutions: The application of fraud diamond theory

Fraud cases in financial institutions have increased globally in recent years and Malaysia is no exception. Internal actors committed the most frauds, causing 69% of organisations to suffer from their actions, as compared to only 17% organisations dealing with frauds caused by external actors. Moving towards the future, a greatest concern of fraud in Malaysia revolves around asset misappropriations. It is necessary to understand why people commit fraud to reduce the number of asset misappropriation occurrences. Thus, the research aims to investigate factors influencing asset misappropriation in financial institutions. The research suggested elements in the Fraud Diamond Theory as influencing factors, namely pressure, opportunity, rationalization, and capability. Data for the research was obtained from a survey questionnaire that polled public attitudes with regards to the selected factors influencing asset misappropriation occurrences. 111 respondents participated in the survey, for which the findings showed that only pressure and capability had a significant relationship with asset misappropriation. Opportunity and rationalisation were found to have no significant relationship with asset misappropriation. This implies that personal integrity is a more critical issue, as compared to rationalisation. The research is hoped to help financial institutions by assisting banking and financial sectors, as well as policymakers in managing risks of fraud and developing policies to reduce operational risk.

The Role of Management Control System in Mitigating Corruption: The Levers of Control Perspective

A Management Control System (MCS) is a comprehensive mechanism organizations can use to ensure that their strategies and plans are effectively implemented to achieve their objectives. This concept paper explores the application of Management Control Systems (MCS), specifically concerning levers of control (LOC), for behavioral control. Based on the comprehensive literature review, it is expected that LOC will be able to provide a pathway to mitigate corruption not only from the perspective of fraud diamond theory but also from the perspective of agency theory. Agency theory highlights the inherent conflict of interest between agents, who have more information about their actions and intentions, and principals, who rely on agents to act in their best interest. This information asymmetry creates opportunities for agents to engage in corrupt practices, such as embezzlement, bribery, or fraud, including unethical behavior that may undermine organizational goals and trust. Effective control mechanisms are essential to mitigate these risks and ensure alignment between agents' actions and principals' objectives. Furthermore, organizations can apply the principles of fraud diamond theory when creating an effective control framework to deter corruption.

The Effect of Diamond Fraud on Academic Fraud Behavior

The study aims to address the impact of Pressure, Opportunity, Rationalization, and Capability on academic cheating behavior with academic integrity as moderated variables on scholarship students at Economic and Business Faculty, Djuanda University. The study was a descriptive quantitative study that used primary data with a number of 106 students obtained with saturated sampling techniques. The data analysis techniques performed in this study are either MRA or moderated regression analysis made using SPSS. Studies have concluded that Pressure, Rationalization, and Capability have an impact on academic cheating behavior, while Opportunity has no effect on academic cheating behavior. Furthermore, Rationalizing also has an effect on academic cheating behavior with academic integrity as moderate variables, while Pressure, Opportunity, and Capability have no effect on academic cheating behavior with academic integrity as a moderation variable.

Fraud Management Model and Forensic Accounting – A Systematic Literature Review

This study interprets the importance of critical thinking and concern for the triggers of fraudulent behavior and financial fraud. The purpose of the study is expanded by explaining the application of fraud management as corporate governance to prevent fraud, and the involvement of forensic accounting practices is necessary. This study, a systematic literature review (SLR) by adopting part of the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) method, to identify, and construct a fraud management and forensic accounting model. The findings, fraudulent behavior occurs because there is a triggering factor, and someone has difficulty ignoring it. Psychologically it has taken root and rationalized the truth of fraud on the basis of pressure, opportunity supported by capability, such as triggers for fraudulent behavior in the fraud triangle model and the diamond fraud model. Synthesis of findings, it is important for internal control in fraud management to be applied for early detection and investigation and it is necessary to involve forensic accounting practices to detect, investigate accounting and litigation to resolve financial fraud in the financial data-based justice system. The novelty of this research offers a fraud management and forensic accounting model to prevent fraud and the financial condition of the company.

An empirical analysis of asset misappropriation fraud during the COVID-19 crisis

The objective of this paper is to examine asset misappropriation fraud during the COVID-19 pandemic. The study examines the impact of four elements of fraud risk factors and Islamic religiosity on the propensity for fraud among employees who manage assets in government organizations. Data collection involved a questionnaire distributed to 210 employees responsible for asset management within the government organization in Indonesia. Partial least squares-structural equation modeling (PLS-SEM) was utilized as a statistical method. The test results show that the theoretical model is supported by empirical data. The study revealed that pressure, opportunity, rationalization, and capability positively influence asset misappropriation with a coefficient of 0.250, 0.134, 0.211, and 0.288, respectively. These results indicate that the higher the four fraud risks, the higher the possibility of asset misappropriation in the organization. On the other hand, Islamic religiosity exhibits a negative association with asset misappropriation with a coefficient of –0.113. These results indicate that religiosity plays an important role as a preventive factor in reducing the occurrence of asset misappropriation by employees. This study contributes to limited literature exploring factors influencing occupational fraud, specifically asset misappropriation during the COVID-19 crisis. The study recommends managerial strategies to mitigate asset misappropriation within the framework of the fraud diamond model.

The Role of Fraud Diamond in Detecting Fraudulent Financial Statements

The Role of Fraud Diamond in Detecting Fraudulent Financial Statements

Village fund corruption mode: an anti-corruption perspective in Indonesia

Purpose This paper aims to highlight the corruption mode of village funds in Indonesia and provide recommendations to reduce such crime. Design/methodology/approach This paper uses Diamond Fraud theory to explain why the mode of corruption continues, using secondary data from journal articles, research reports and websites. Findings Corruption mode is carried out through fund misuse, cover-up, fictional reports, fictitious activities and projects and budget markup. Practical implications Prevention and detection of fraud can be more effective when considering pressure, opportunities, rationalization and individual abilities. Originality/value The novelty of this paper is to provide a more comprehensive view of the factors that can lead to fraud or corruption using the Fraud Diamond Theory.

Plagiarism among accounting and business postgraduate students: a fraud diamond framework moderated by understanding of artificial intelligence

Plagiarism among accounting and business postgraduate students: a fraud diamond framework moderated by understanding of artificial intelligence

“It Is No Big Deal!”: Fraud Diamond Theory as an Explanatory Model for Understanding Students’ Academic Fraudulent Behavior

The Fraud Diamond theory (rationalization, opportunity, motivation and perceived capability) has been widely used as a framework to explain criminal behavior. However, little is known about its application in an academic context. Research on the relationship between the prevalence of academic fraud (e.g., cheating on exams, plagiarizing essays) and students’ perceptions of the severity of such behaviors is also lacking. We surveyed 1,032 university students and asked them whether they engaged in fraudulent behaviors and how severe they thought these behaviors were. The results showed that motivation, rationalization, and perceived capability dimensions of the Fraud Diamond theory are important factors in predicting the prevalence of students’ academic fraudulent behavior, but not opportunity. We also found that the more students reported that they engaged in fraudulent academic behaviors, the less severe they perceived those behaviors to be. However, only rationalization emerged as a predictor of perceived severity. The results suggest that the more students are able to find justifications for their fraudulent behavior, the less severe they perceive those behaviors to be. Rationalization seems to explain, therefore, the tendency to disassociate moral values from dishonest behavior. Taken together, the study shows a vicious cycle between engaging in fraudulent academic behavior and the ability to justify these acts. Implications for Higher Education Institutions (HEIs) are discussed.

Fraud and Performance of Listed Deposit Money Banks in Nigeria: Exploring the Combined Effects of Fraud Triangle and Fraud Diamond Theories

The rate of increase in fraud cases and the attendant decline in performance of the Deposit Money Banks listed in Nigeria demand urgent examination into the phenomena. In order to appreciate the probable nexus between fraud and performance of Deposit Money Bank in Nigeria, this scholarly work demonstrated the influence of fraud on the performance Deposit Money Bank in Nigeria. In doing this, the study used correlational and expo facto research design, utilizing secondary data pooled out from the Nigerian Deposit Insurance Commission (NDIC) and published financial reporting of the DMBs. The study targeted all the 29 DMBs (comprising of, 5 Merchant Banks and 2 Non-Interest Banks and 22 Commercial Banks) as at 2019 as published by NDIC for ten years period of (2010-2019). Multiple regression methods was deployed to calculate approximately the model of the work. Results from the study demonstrated that fraud triangle and diamond theories (measured by expected loss from loss from fraud, number of fraud cases and staff participation in deception scheme) have negative and significant effect on performance (measured by ROA) of DMBs in Nigeria. Flowing from the result, this scholarly work has suggested that DMBs have a duty to put in place effective and efficient internal control procedures and establishment of workable fraud unit or department that is saddled with the responsibility of detecting and scrutinizing operational activities that may possibly be prone to fraud. In this way, bank assets would be safe-guarded and, consequently enhanced performance.

The Influence of Diamond Fraud, Audit Committee and Leverage on Financial Report Fraud

This research aims to explain the influence of fraud diamonds, audit committees and leverage on fraudulent financial reports in financial companies listed on the Indonesia Stock Exchange during the 2019-2022 period. This research uses 144 companies as samples which have been selected using purposive sampling techniques. The data used is secondary data obtained from financial reports. The data obtained was processed using logistic regression analysis techniques with the help of the EViews 10 software application. The results of this research show that fraud diamonds have no effect on financial report fraud, while audit committees have a negative effect and leverage has a positive effect on the practice of financial report fraud in Indonesia. The results of this research indicate that an optimal audit committee will minimize the occurrence of fraud in the company's financial reports.

Exploring the Impact of Financial Statement Manipulations on Stakeholders

This article delves into the multifaceted effects of financial statement manipulations on various stakeholders including shareholders, investors, employees, creditors, and regulatory bodies. The research is driven by the growing concern over the credibility of financial reporting and its cascading effects on stakeholder trust and decision-making processes. This comprehensive study synthesizes findings from recent scholarly articles, focusing on diverse sectors and geographical regions to provide a global perspective on the issue. The purpose of this article is to critically evaluate how financial manipulations impact different stakeholder groups, with a particular emphasis on the trust dynamics and financial decision-making processes. It aims to bridge the gap in existing literature by offering a holistic view of the consequences of financial statement manipulations, drawing on empirical data and theoretical frameworks such as the fraud diamond theory and activity-based accounting. The content of the article is organized into several key sections. Initially, it provides a detailed literature review, highlighting historical and current perspectives on financial statement manipulations. Subsequent sections delve into the methodology employed for data collection and analysis, followed by a comprehensive discussion on the effects of these manipulations on each stakeholder group. The article employs a mix of qualitative and quantitative research methods, analyzing data from various case studies and empirical research to draw its conclusions. Finally, this article reveals that financial statement manipulations significantly impact stakeholder trust and decision-making, albeit with varying degrees depending on stakeholder sophistication and regulatory frameworks. It offers insights into the roles of corporate governance and auditor vigilance in mitigating these impacts. The article concludes with recommendations for enhancing transparency and stakeholder confidence in financial reporting, alongside suggestions for future research directions in this domain. Keywords: Financial Statement Manipulation, Stakeholder Trust, Corporate Governance, Audit Vigilance, Decision-Making Processes, Earnings Management, Regulatory Frameworks.

The Influence of Diamond Fraud, Audit Committee and Leverage on Financial Report Fraud

The Influence of Diamond Fraud, Audit Committee and Leverage on Financial Report Fraud

Hubungan Fraud Terhadap Financial Statement di Indonesia (Studi Empiris pada Perusahaan Sektor Energi yang Terdaftar di Bursa Efek Indonesia Tahun 2018-2022)

This study uses a quantitative approach that aims to examine and analyze the relationship between fraud and financial statements by using the fraud diamond theory as measured by fraud scores in energy sector companies. The data used in this study comes from secondary data, which is obtained by accessing financial reports on the IDX website. Data analysis techniques are applied to the logistic regression analysis by operating SPSS 26 software. The findings of this study indicate that the nature of industry has an effect on financial statement fraud. However, personal financial need, auditor firm size, and change of auditor have no effect on financial statement fraud.

Identification of fraudulent financial statements through a multi‐label classification approach

SummaryAlthough the financial audit controls in companies have advanced over the years, the number of corporate fraud instances is growing, thus raising the need for investigating the factors that can be used as early warning signals and developing effective systems for identifying financial fraud. In this paper, financial statements from 133 Greek companies listed in the Athens Stock Exchange over the period 2014 to 2019 are investigated, based on the fraud diamond theory. Financial data and corporate governance variables are used as inputs to data mining techniques to develop models that can identify patterns of irregularities in a company's financial reports. To this end, popular machine learning classification algorithms are employed in a novel multi‐label classification setting that not only identifies fraudulent cases but also considers the nature of the auditors' comments. The results indicate that the proposed multi‐label approach provides enhanced results compared to binary classification algorithms, avoiding inconsistent outputs with respect to the existence of different forms of manipulation of financial statements.

Academic integrity in the information age: insights from health sciences students at a South African University

PurposeAcademic integrity is vital to the success and sustainability of the academic project and particularly critical in the training of ethical and informed health professionals. Yet studies have found that cheating in online exams was commonplace during the COVID-19 pandemic. With the increased use of online and blended learning post-COVID-19, an understanding of student cheating dynamics is essential for developing effective strategies to combat academic dishonesty in the rapidly changing educational landscape.Design/methodology/approachThis study explored academic integrity and reasons for dishonesty from the perspective of health sciences students at a South African University of Technology (UOT) via the Fraud Diamond. To gain an in-depth understanding of the topic, a qualitative method was employed, and data were collected via focus group discussions with nine student class representatives. These data were analysed thematically using the Clarke and Braun approach.FindingsCheating during online assessment was common and innovative, with students manipulating others and exploiting friendships to facilitate dishonest practices. Student motivations for dishonesty included a lack of consequences and pressure due to a lack of time management, engagement and preparation.Practical implicationsThis study underscores the need for institutions to adopt an adaptable, multi-faceted approach that addresses student cheating opportunity, motivation and normalisation of dishonest practices whilst strengthening academic integrity policies and enforcement thereof.Originality/valueThe findings contribute valuable insights into the ongoing academic integrity crisis in higher education in the South African context.

Moderation of Corporate Governance in Financial Statement Fraud Investigation with the Sccore Model

Objective: The purpose of this study was to determine the effect of stimulus, capability, collusion, opportunity, rationalization, and ego on financial statement fraud moderated by the effectiveness of the board of commissioners which essential of corporate governance structure. This study also seeks to develop recommendations based on the analysis of financial statement fraud detection and empirically demonstrate the effectiveness of appropriate supervision in preventing financial statement fraud. Theoretical Framework: Management fraud in the context of the misstatement of financial information that can harm other parties for the sake of certain personal or group interests is referred to as a financial statement fraud. In recent years, the theory of financial statement fraud has developed, starting with the fraud triangle, fraud diamond, fraud pentagon, and fraud hexagon. The fraud hexagon theory expanded the previous theory by including the components of stimulus, capability, collusion, opportunity, rationalization, and ego. Furthermore, the model derived from the hexagon theory is known as the SCCORE model. Method: Quantitative research was developed to test the hypothesis in this study. The data observed is secondary data derived from the annual reports of publicly listed companies in the non-financial sector industry on the Indonesia Stock Exchange, which is the target population of the study. The sample was determined using the total sampling technique, and based on this, the observed data amounted to 529. The data were analyzed using multiple linear regression methods and moderated regression analysis methods processed with the SPSS program. Results and Discussion: The findings suggested that corporate governance could moderate the relationship among the SCCORE model and financial statement fraud. Additionally, according to the research findings, stimulus, collusion, opportunity, and ego affect financial statement fraud, even though capability and rationalization accomplish not. Research Implications: The theoretical implication of this research is to provide additional empirical evidence of fraud theory development into hexagon fraud, whereby collusion, which is proposed as an addition to the pentagon fraud theory, is proven to have an effect on financial statement fraud. The other theoretical implication is to empirically verify the relevance of agency theory to the oversight mitigation of the corporate governance structure. The practical implication of this research is to broaden the insights of practitioners in the accounting and finance fields in order to detect the likelihood of financial statement fraud based on historical financial data, which ultimately can assist in the financial decision-making process. Originality/Value: This study advanced to the state of knowledge on financial statement fraud through an inquiry into the interaction between the fraud hexagon theory's elements and corporate governance moderation, particularly the effectiveness of its oversight. The effectiveness of corporate governance in preventing financial statement fraud through appropriate oversight illustrates the study's relevance and value.