Fraud Risk Factors Research Articles

Study on the Motivation of Corporate Financial Fraud Based on Fraud Risk Factor Theory based on the Acquisition of Longxin Technology by Connie E&M

Financial fraud has always threatened the healthy development of the capital market. Financial malpractice in M&A can cause huge losses to the acquirer and even face the risk of delisting, jeopardizing the legitimate rights and interests of enterprise investors and creditors. Mergers and acquisitions as one of the important forms of enterprise development and expansion, and enterprises as an important pillar of economic growth are of great significance to the stable development of the capital market. The correct M&A of enterprises can form a synergistic effect and improve the competitiveness of enterprises in the fierce market competition. This paper, with the help of fraud risk factor theory, explores the causes of corporate financial fraud in mergers and acquisitions, how to establish an effective preventive mechanism for financial fraud in mergers and acquisitions, and how to reduce the current capital market to minimize corporate financial fraud and reduce its impact and other issues to put forward proposals.

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.

Recent Research on the Identification, Assessment, and Response to Fraud Risks: Implications for Audit Practice and Topics for Future Research

SYNOPSIS The financial statement auditor’s identification of fraud risk factors, their assessment of fraud risk, and their fraud risk responses are key to the auditor’s consideration of fraud and fraud detection. Given that the last review of research related to the search for fraud during the audit occurred nearly a decade ago, we provide a summary of recent academic research to update and inform practitioners, researchers, standard setters, regulators, and other stakeholders in the financial reporting process. We categorize and summarize findings from recent academic studies that focus on the auditor’s identification, assessment, and responses to fraud risks. Implications for practice are presented for each of these areas, along with topics and questions for future research. JEL Classifications: M40; M41; M42; M48.

INTERNET USERS’ PERCEPTION OF THE PREVALENCE OF ONLINE INVESTMENT FRAUD AND VICTIMISATION IN NIGERIA

This study investigated the prevalence of online investment fraud and victimisation among internet users in Nigeria, focusing on sociodemographic characteristics, investment behaviours, victimisation. experiences, and perceptions of fraud risk factors. The study employed a cross-sectional survey design, utilizing Google Forms for data collection and convenience sampling to recruit 164 participants from Ilorin, Kwara State. The study adopted the Routine Activities Theory (RAT) as theoretical framework. Findings reveal that a majority of respondents are young individuals with tertiary education, indicating their susceptibility to online investment fraud due to limited financial experience and a desire for quick financial gains. Notably, over half of the participants actively engage in online investments. In addition, family and friends' recommendations and the pursuit of financial freedom influencing investment decisions significantly. However, a substantial proportion of investors report falling victim to online investment fraud, predominantly through Ponzi/pyramid schemes, crypto currency scams, and forex trading scams. Financial losses vary among victims, with factors such as lack of regulation, poverty, unemployment, and insufficient training on fraud prevention contributing to vulnerability. Statistical analysis indicates a significant relationship between investment experience and the perception of high returns as a risk factor for fraud victimisation. These findings underscore the urgent need for regulatory measures, public awareness campaigns, and educational initiatives to mitigate the risks associated with online investment fraud in Nigeria.

Mendeteksi Faktor-faktor Pressure Terhadap Kecurangan Laporan Keuangan Menggunakan Artificial Neural Network

Fraudulent financial statements are the result of misstatements resulting from intentional acts or omissions, which could materially mislead readers of the financial statements. The focus in this research is to determine the most important pressure factors in detecting fraudulent financial statements. Pressure is one of the fraud risk factors in the fraud triangle. Pressure is a condition felt by management due to incentives to commit fraud, consisting of: financial stability by proxy (GPM, ACHANGE, SCHANGE, CATA, SALAR, SALTA, INVSAL), external pressure (LEV, FINANCE, FREEC), personal financial need (OSHIP), and financial target (ROA). Data collection method using secondary data on the manufacturing sector firms that are publicly listed on the Indonesia Stock Exchange in 2017-2021. The research method used is quantitative and the sampling method uses a purposive sampling technique, obtained 137 sample companies with 685 total data observed. Data were analyzed using an Artificial Neural Network. The findings indicated that the gross profit margin (GPM), cash flow from operating to total assets (CATA), demand for financing (FINANCE), leverage (LEV) and return on total assets (ROA) is the most important proxy in detecting fraudulent financial statement, while other proxies are not too important in detecting fraudulent financial statements.

Determinan Faktor-Faktor Capability sebagai Perspektif Fraud Diamond terhadap Kecurangan Laporan Keuangan

Financial statement fraud is defined as deliberately not following the accepted accounting principles when reporting financial information, which leads to significant omissions or distortions of the facts. The purpose of this study is to determine the effect of capability in detecting fraudulent financial statements. Fraudulent financial statements can occur when a company intentionally violates accounting principles or ignores applicable financial reporting standards. Fraud diamond is one of fraud risk factor, one of which is capability. Many frauds, especially some of the multibillion-dollar ones, would not have occurred without the right person with the right capabilities in place. In this study, capabilities as measured by CEO prestige power, CEO education, CEO experience, CEO horizon, CEO founder, CEO expert power, CEO age similarity, and CEO number executive. The type of data used in this study is secondary data in manufacturing companies listed on the Indonesia Stock Exchange in 2017-2021. Sampling method by purposive sampling, obtained as many as 114 companies as samples. The data analysis method used logistics regression. The results of this study show that CEO age similarity and CEO number executive has a positive impact on fraudulent financial statements, meanwhile the other variables have no impact of fraudulent financial statements. 

Study of Financial Fraud in Guangzhou Longkey Based on Fraud Risk Factors

With the development of the economy and society, China's capital market has become more open and transparent. In recent years, listed companies have gone to great lengths to whitewash statements and convey false information in order to raise funds, improve performance and boost share prices, which has led to frequent instances of financial fraud such as Ruixing Coffee and Wanfushengke. Despite increased supervision by regulators, a series of punitive measures and regular training for executives and finance staff to improve their professional ethics, the huge benefits of financial fraud still drive practitioners to commit fraud on their own initiative. This paper analyses the causes of fraud at Guangzhou Longkey based on the more established fraud risk factor theory and proposes effective countermeasures to address the causes.

How Does the Alienation of Project Digital Responsibility Form? Perspectives from Fraud Risk Factor Theory and Information Asymmetry Theory

During the digital transformation of construction projects, the significant volume of project data raise a multitude of data responsibility issues. Project stakeholders, often motivated by financial interests and other considerations, frequently engage in data fraud, namely the alienation of project digital responsibility (APDR), which ultimately hinders the benefits released by the digital transformation of projects. However, the causes of APDR are still unclear. This study aims to bridge this knowledge gap by empirically investigating the factors influencing APDR and delineating their pathways. A model outlining the mechanism of APDR formation, rooted in fraud risk factor theory (FRFT) and information asymmetry theory (IAT), is proposed. To collect data from 276 Chinese construction project practitioners, a questionnaire was meticulously designed. Confirmatory factor analysis (CFA) was subsequently applied to assess the validity of the proposed model. Finally, the proposed model consisting of six variables was examined using structural equation modeling (SEM). The results showed that opportunity (OPP), motivation (MOT), and information asymmetry (INF) had a positive effect on APDR, while exposure probability (EXP), penalty strength (PEN), and ethics (ETH) had a negative effect on APDR. Through revealing the formation mechanism of APDR, the findings are beneficial for understanding why stakeholders adopt APDR at the risk of being penalized. This study aims at deepening the systematic understanding of APDR and enriches the relevant theories on project digital responsibility (PDR). Such knowledge would also contribute to project managers proposing effective interventions to inhibit APDR and promote PDR.

Fathoming fraud: unveiling theories, investigating pathways and combating fraud

PurposeAlthough corporations exert considerable efforts to uphold ethical standards in their business operations, fraud instances persist as an enduring and formidable challenge within organisations, defying their utmost efforts. The presence of fraud poses a substantial and recurring threat to corporations, leading to significant financial losses on an annual basis. This emphasises the crucial need for a comprehensive understanding of the factors contributing to fraudulent activities and the intricate nature of fraud risk factors inherent in business operations. Therefore, this paper aims to enhance the efficacy of fraud detection and prevention measures through critical analysis and refinement of established fraud theories, drawing upon the existing literature on this subject matter.Design/methodology/approachThis paper offers a comprehensive qualitative analysis of the existing literature, thoroughly reviewing prominent models that aim to elucidate the underlying motivations behind fraudulent behaviour. Moreover, drawing upon the existing theoretical foundation, this study conceptualises a model that enhances the understanding of the crucial factors contributing to fraudulent behaviour.FindingsThe study presents new theoretical insights concerning the role of personal integrity in fraudulent decision-making, presenting refined interventions that enhance comprehension of the underlying drivers of fraud occurrences and strategies for prevention. Furthermore, the study reveals a comprehensive three-part approach to improving organisational health through strengthening compliance mechanisms and cultivating an ethical-values-based culture.Originality/valueThe study introduces a novel conceptual framework, the personal ethic-based fraud motivation model, which offers a deeper understanding of the factors and conditions influencing individuals’ propensity to engage in fraudulent activities. Furthermore, this study presents a three Cs strategy that effectively delineates the influential forces that drive individuals to surmount fraud risks.

Understanding and Mitigating Fraud Risk in Professional Football

ABSTRACT Evidence of football fraud and how it can be addressed is fragmented in the literature, lacking a holistic view. This paper provides a holistic understanding of fraud in professional football through a comprehensive framework that encompasses (i) the typologies and methods of perpetrating fraud in football, (ii) the enablers of football fraud, and (iii) how to mitigate fraud risk in professional football. Additionally, it highlights literature gaps and suggests new directions for future research to open up academic debates on this significant topic. The findings show no evidence of external fraud reported in the literature. However, insider fraud, particularly corruption in all its forms, is well documented. There is minimal evidence of other insider fraud types, such as asset misappropriation and financial fraud, and even fewer studies discussing fraud against football players and fans. The analysis highlights various fraud risk factors in football, ranging from financial and sporting performance, competitive balance, and financial regulation issues to the lack of accountability, anti-fraud controls, governance mechanisms, and weak integrity culture in FIFA and football clubs. The paper summarizes various other motives and opportunities enabling football fraud and proposes a holistic framework for mitigating fraud risk in football.

Fraud Triangle as an Audit Tool

The objective of this study is to assess the usefulness of the fraud triangle in fraud detection and to make use of the results to critically examine the Indian Standard on Auditing that describes the responsibilities of auditors related to frauds (SA 240). Based on content analysis and quantitative assessment of publicly documented evidence in the form of press articles covering 19 emblematic Indian cases of fraud that went public between 1992 and 2018, this study establishes the validity of the fraud triangle and recommends that auditors evaluate potential frauds based on the components of the fraud triangle. The study also identifies fraud risk factors not covered in SA 240 and suggests that these risk factors be added to SA 240 to aid the fraud detection efforts of auditors. Further, the behavioural nature of the fraud risk factors missing from SA 240 suggests that the behaviour of prospective fraud perpetrators has not received due consideration in SA 240. The value of this study lies in its ability to demonstrate the usefulness of the fraud triangle as an audit tool and underscore the room for improvement in the Indian auditing standard related to frauds (SA 240).

Factors That Influence Financial Statement Fraud Using The Fraud Diamond Model

This study aims to obtain an empirical evidence about detection of the financial statement fraud accordance with the fraud diamond theory perspective that developed by Wolfe and Hermanson (2004). Proxy of independent variable that is the fraud diamond theory with four fraud risk factor is the factor of pressure proxied by leverage ratio, while the factor of opportunity was proxied by asset composition ratio, the factor of rationalization was proxied by audit quality, and the factor of capability proxied by percentage of director with accounting and finance education background, respectively. The samples that used in this study were 534 manufacturing companies that were listed in Indonesia Stock Exchange (IDX) in the period of 2013 until 2017. Secondary data were used in the form of annual reports of every companies. Hypothesis testing in this study was conducted by using logistic regression analyses with SPSS 20 software. The results of this study showed that variables such as pressure (proxied by leverage ratio), opportunity (proxied by asset composition ratio), and rationalization (proxied by audit quality) could be used to predict the financial statement fraud.

EVALUATING GOVERNANCE PRACTICES AND BUSINESS OPERATIONS IN NIGERIA: ATTENDANT RESPONSE TO FRAUD PREVENTION AND RISK MANAGEMENT IN THE COVID-19 PANDEMIC ERA

Despite the outcome of the COVID-19 pandemic onslaught on global economies that has negatively undermined the financial prowess of major markets in United States of America, United Kingdom, Germany, France, Austria, Canada, Spain, Italy, Nigeria, South Africa, Ghana et cetera, leading to loss of trillions of US Dollars, the need to uphold responsive financial sustainability among nations and businesses has been largely impaired by the prevalence of fraud, cyber crimes, mismanagement of scarce finance resources and external loan funds, bad leadership and poor oversight. Amid unprecedented increase in job layoffs, salary cuts, expenses cuts, robotic technologies embrace, bonuses suspension, promotions postponements, remote working embrace, price hikes, high inflation rate et cetera which have all culminated into heightened fraud occurrences and consequent fraud losses, fraud risk appear not to be proactively considered a top priority by the government and management of businesses in critical challenging COVID-19 pandemic economic downturn period as this. Deploying a descriptive approach, the study expressly evaluates the threat of COVID-19 pandemic upsurge on public governance and businesses with extant emphasis laid literally on attendant responses to fraud prevention and fraud risk management in Nigeria. Conceptualized schematic frameworks and widely recognized current statistics were utilised and evaluated to maximally envisage reliable response measures to fraud risk factors in the contemporary COVID-19 pandemic business environment in Nigeria. The study concludes by proposing possible actions (way forward) for policies development towards rescuing Nigeria and its business environment from the prevailing unfavourable situations..

Analysis of the Influence of Fraud Risk Factors According to Fraud Diamond on Fraud Financial Statements in Manufacturing Companies Listed on the Indonesia Stock Exchange

This study aims to examine the influence of external pressure, financial target, ineffective monitoring, rationalization, and capability on financial statement fraud. Financial Statement Fraud is measured by earnings management using discretionary accruals. This study uses secondary data were taken from the manufacturing companies which are listed in Indonesian Stock Exchange. Sample selection is done by purposive sampling method and sample obtained from this research were 45 of a total 135 companies. Method of analysis used multiple linear regression analysis. The result show that simultanoeusly of external pressure, financial target, ineffective monitoring, rationalization, and capability have a significant influence on financial statement fraud. Partially, external pressure, financial target, rationalization, and have no significant influence on financial statement fraud. Ineffective monitoring partially has a significant influence on financial statement fraud.

Examining the fraud diamond theory through ethical culture variables: A study of regional development banks in Indonesia

Previous literature which examined relationship between fraud risk factors and occupational frauds occurrence is limited to the setting of a single developed country. This study aims to bridge this gap by examining the moderating role of ethical culture in affecting the relationship between fraud risks and occupational fraud using the sample of regional development banks (RDB) in one of the major developing countries, Indonesia. Our study employs Indonesian RDBs due to their economic significance and their exposure to a higher risk of occupational fraud. Primary data was collected using a survey method involving 355 employees from the 15 largest RDBs in Indonesia. The collected data was analyzed using the Partial Least Square-Structural Equation Modelling (PLS-SEM). We find that occupational fraud in RDBs is associated with opportunity and pressure. A strong ethical culture can weaken the positive relationship between these two fraud risks and occupational fraud. The findings of our paper imply that organizations that face a significant risk of fraud, such as RDBs, should invest in strengthening the organizations’ ethical culture as it could mitigate two out of four fraud risk factors. This study contributes towards development of the fraud diamond theory by examining the effect of ethical culture in mitigating fraud risk in the banking industry which is growing rapidly in a developing economy. This study focuses on a context that has still only been analyzed by previous research to a limited degree, namely RDBs which are known as the “second sector” of the banking industry in Indonesia.

PENGARUH FAKTOR – FAKTOR DALAM PERSPEKTIF FRAUD TRIANGLE TERHADAP KECURANGAN PELAPORAN KEUANGAN (Studi Empiris pada Perusahaan yang Terdaftar di Bursa Efek Indonesia Tahun 2016 – 2019)

This study empirically examines the effectiveness of Cressey’s (1953) fraud risk factor framework adopted in SAS No. 99 in detection of financial statement fraud. According to Cressey’s theory pressure, opportunity and rationalization are always present in fraud situations. The variables of the fraud triangle used is pressure proxied by ACHANGE, FREEC, and FINANCE, opportunity proxied by BDOUT, TRN, and CEO_TRN, rationalization proxied by AUDSWITCH. This population of study was company listed on the Stock Exchange, and then the samples were taken by purposive sampling criteria the company’s corporate criteria sanctioned from Otoritas Jasa Keuangan. The total sample of 106 companies that the company is comprised of 49 companies that commit fraud financial reporting and 57 companies that are not financial reporting fraud by the similarity of firms in the industry, the year and the amount of total assets of the company. This study uses logistic regression statistical. The results of this study indicate that the opportunities proxied by TRN and CEO_TRN, rationalization proxied by AUDSWITCH effect on financial statement fraud and pressure are proxied by ACHANGE, FREEC, FINANCE and opportunities proxied by BDOUT no effect on financial statement fraud.

Developing a Survey Instrument to Study Asset Misappropriation in the Malaysian Public Sector

This article discusses the development of a survey instrument used to study asset misappropriation (AM) in the Malaysian public sector. The paper provides a detailed explanation of the procedures involved in performing the Exploratory Factor Analysis (EFA) to the survey questionnaire for the purpose of confirming the validity and reliability of the instrument. The research differs from prior studies in that it employs Enterprise Risk Management (ERM) as a moderator in assessing the relationship between fraud risk factors and AM. A cross-sectional study was utilised and data was collected using a proportional stratified sampling. A total of 104 questionnaires were distributed to public sector employees of the Accountant General's Department of Malaysia. The respondents represent the top management, professional and managers of the department. Each construct is represented by six to ten items, chosen from related studies. Cronbach’s Alpha was calculated to verify the internal validity and reliability of the instrument. The results confirm that the survey questionnaire was appropriate for the intended purpose. The findings of this study benefit future research related to asset misappropriation in the public sector.

Financial Prominence and Financial Conditions: Risk Factors for 21st Century Corporate Financial Securities Fraud in the United States

Following the global financial crisis wrought by fraudulent activities of prominent US companies and considering the field’s lack of understanding about precursors to such vast corporate illegalities, this study measured firm prominence and financial conditions to identify corporate-organizational factors related to twenty-first century corporate financial fraud. We compiled data on 250+ US public companies involved in corporate securities frauds identified in 1,000+ Securities and Exchange Commission filings over 2005–2013; we randomly selected a comparable control group of 500+ US public companies from Compustat. Based on logistic multivariate regression analyses, marginal profitability, a strong growth imperative, and firm prominence were significant fraud risk factors. Prominent Fortune 500 firms were more susceptible to marginal profitability and/or strong growth-opportunities as risk factors. Findings were robust to various empirical measures and additional controls for undetected fraud. Anomic growth pressures and profit constraints, especially among America’s most prestigious firms, were linked to corporate securities fraud.

Case study of luckin coffee financial fraud based on theory of fraud risk factors

Since the formation of the capital market, financial fraud events centering on listed companies occur frequently. The credit mechanism of the capital market is seriously frustrated, and investors have suffered huge economic losses. In this paper, luckin coffee as an example, from the five aspects of theory of fraud risk factors, through the representation of luckin coffee financial fraud, analyzes the internal causes of its fraud. Through the case study, it is found that the occurrence of financial fraud in luckin coffee is the result of internal and external factors. On the one hand, it has sounded the alarm for the standardized operation of new retail enterprises in China, and on the other hand, it has provided enlightenment for the country to improve relevant laws and regulations and strengthen the cost of fraud punishment.

Bitcoin and Beyond: Crypto Asset Considerations for Auditors

Given the relative nascency of digital assets, we provide auditing faculty, students, and practitioners with a holistic overview of digital assets. We first place digital assets within the context of money and describe the microstructure of a transaction using crypto-assets. We then focus on the considerations that digital assets present provide an explanation of auditor considerations associated with digital assets for auditors. We address the current accounting treatment of digital assets and explain the challenges posed by digital assets for auditors regarding the management assertions. We identify the fraud risk factors that auditors should be aware of, and describe potential innovations in the digital currency markets that could be the basis of discussions in the accounting and auditing classrooms in the future.