Fraudulent Behavior Research Articles

Is It Okay As Long As You Make a Profit? – Further Evidence on a Spillover Effect in Negative Discretionary Bonus Adjustments

To prevent unethical behaviour by employees, many companies include compliance aspects in their compensation schemes. For example, ex-post bonus adjustments allow managers to retract parts of bonuses previously paid to employees in reaction to fraudulent behaviour. We propose that the level of ex-post adjustment due to an employee’s misconduct depends on the employee’s ex-ante objective performance. We further propose that this effect is reduced when the managers must justify their final bonus decision, in which they can adjust a preliminary determined bonus. We conduct two experiments and find evidence confirming our hypotheses. The participants’ subjective ex-post bonus reduction is lower (higher) when the employees’ ex-ante objective performance is higher (lower). Additionally, our data show that increasing participants’ accountability by asking participants to justify their final bonus decision reduces this effect. Further analyses show – in line with what the halo effect proposes – that participants’ perception of employee morality mediates the effect of objective performance on the ex-post bonus reduction. This mediation is moderated by the presence of justification. Our findings expand prior research and can help firms implement remuneration schemes that foster compliant employee behaviour.

Benford’s Law can detect malicious social bots

Social bots are a growing presence and problem on social media. There is a burgeoning body of work on bot detection, often based in machine learning with a variety of sophisticated features. In this paper, we present a simple technique to detect bots: adherence with Benford’s Law. Benford’s Law states that, in naturally occurring systems, the frequency of numbers first digits is not evenly distributed. Numbers beginning with a 1 occur roughly 30 percent of the time, and are six times more common than numbers beginning with a 9. In earlier work, we established that Benford’s Law holds for social connections across online social networks. In this paper, we show that this principle can be used to detect bots because they violate the expected distribution. In three studies — an analysis of a large Russian botnet we discovered, and studies of purchased retweets on Twitter and purchased likes on Facebook — we show that bots’ social patterns consistently violate Benford’s Law while legitimate users follow it closely. Our results offer a computationally efficient new tool for bot detection. There are also broader implications for understanding fraudulent online behavior. Benford’s Law is present in many aspects of online social interactions, and looking for violations of the distribution holds promise for a range of new applications.

Antecedents and consequences of staff-related fraud in the Ghanaian banking industry

PurposeThe purpose of this paper is to investigate the antecedents and consequences of employee fraud, focusing on the banking industry in Ghana.Design/methodology/approachA major bank was selected for the case study analysis. The researchers used qualitative data analysis for the study. Content analysis of investigation reports and interviews of employees from different functional areas were used as the main data collection tools.FindingsThis study found that loans contracted by bank employees with huge repayment amounts put financial pressure on them to commit fraud. The study also found that inadequate controls in some areas of the bank can fuel the commission of fraud. In addition, aggrieved employees have a high propensity of committing fraud. Huge punitive consequences were noted to exist for employees who perpetrate fraud, and shareholders are also affected by the fraudulent behaviour of employees.Research limitations/implicationsFindings shown in the study confirm the hypotheses of the fraud triangle theory on the causes of fraud despite its criticisms. The findings are also consistent with extant studies on the antecedents and consequences of fraud. The use of one bank for the case study analysis as well as the three-year analysis period impose a limitation on the study. Future studies can explore fraud using other different theoretical lenses. Gathering data from more than one bank and for a longer period of analysis may provide more accurate results.Practical implicationsThis study provides some recommendations for fraud prevention in the banking industry in Ghana. The major one is the need for the central bank to collaborate with financial institutions to set up an effective creditworthiness system that will aid the monitoring of activities of the banks. Banks should also ensure that systems of controls are reviewed regularly to identify and deal with fraud.Originality/valueThis study is original, as it focuses on an industry that is highly susceptible to fraud due to issues of confidentiality with data and with scanty literature on fraud.

Detection of Fraudulent Behaviour in Water Consumption using Machine Learning Algorithms

Detection of Fraudulent Behaviour in Water Consumption using Machine Learning Algorithms

Manufacturer's product choice in the presence of environment-conscious consumers: brown product or green product

Nowadays, the brown products are losing market coverage to their green alternatives due to consumers' increasing environmental awareness. Confronted with this threat, many traditional manufacturers currently producing only brown product are contemplating the launch of green product. Base on this background, this paper explores the optimal product choice for the manufacturer. We first derive the optimal results for each product choice. Then we analyse the optimal product choice for the manufacturer. Next, we study how to induce the production of green product. Finally, the fraudulent behaviour on product's environmental attributes is addressed. Main findings are as follows. First, manufacturer's optimal product choice is to produce green product if the investment-to-value ratio and the unit production cost for green product are low and to produce brown product if the investment-to-value ratio and the unit production cost for green product are high. Second, the two-part tariff contract is applicable to stimulate the manufacturer to produce green product under certain conditions. While exterior intervention is necessary under other conditions. Third, when the manufacturer and the retailer diverge in product preference, the manufacturer has a strong incentive to behave fraudulently, and this type of manufacturer needs strict supervision.

Company Culture As An Alternative Solution To Prevent Fraud In Workplace

The company is one of the supporting factors for national economic and development, contributors to foreign exchange and taxes to the state and provides jobs and workplaces needed by many people to fulfill their daily needs, so that their presence in daily life cannot be ignored and has become a necessity which is non-negotiable. Along with the development of the corporation which is increasing its operational activities, opportunities arise to conduct unethical behavior carried out by some employees to obtain additional benefits illegally by utilizing their position and experience in the workplace (called The Trust Violator Officer). Many attempts were made to prevent and overcome fraudulent behavior, but the authors offer one more solution to prevent behavior fraud in the workplace, which focuses more on the root problem of the emergence of fraud behavior, namely by fixing the character of new employees by early instilling the company's noble culture that contains universal good norms, in which a commitment is also made to take actions based on business ethics and work ethics. With the development of this anti-fraud commitment early on when new employees are accepted and start work, it is hoped that it will cut the fraud learning chain which traditionally flows from senior to junior fraudsters.

Cheat or perish? A theory of scientific customs

Performance incentives have become increasingly important in academia. Evidence suggest that they increase not only researchers’ effort but also their cheating. We develop a principal–agent framework in which a research institution (principal) aims to reward scientific productivity considering the social benefit of research and the remuneration costs. Researchers (agents) take into account what others are doing. As a consequence, the introduction of performance incentives not only leads to fraudulent behavior in the short run, but may also deteriorate the scientific norm in the long run. In the face of these dynamics, the principal pursues two goals: to increase productivity (effort incentive policy) and to deal with fraud (anti-fraud policy). Several factors determine the optimal mix of policies: economic factors (researchers’ cost of providing high or low effort, the societal value of scientific knowledge and the societal costs of scientific misbehavior) and psychological factors (the evolution of norms over time). An important insight of our theory is that when research institutions seek to encourage the production of high quality research, they should also raise the salary for normal research to avoid misconduct.

PNS230 USING MACHINE LEARNING FOR SIGNAL DETECTION IN REALWORLD DATA FROM WRISTWORN WEARABLE DEVICES TO IDENTIFY FRAUDULENT BEHAVIOUR

Publicly available machine learning algorithms can be used to identify fraud in real world data from wearable devices. Data from adult volunteers was used to train a Machine Learning Algorithm to detect a change in the raw data from wrist-worn accelerometer as it occurs when the same device is worn by different patients. We analysed data sets from healthy adults who wore devices on their wrist during a 3-5 day period. Publicly available Machine Learning libraries were used to develop and train an algorithm to detect unique patterns in raw data from wrist-worn accelerometers. These patterns were unique for each patient. Only a very small sample was needed to train the algorithm and to detect patterns. The algorithm allowed us to show differences in the data between different patients when wearing the same device. This identified reliably a switch between patients wearing the same device as it would occur during fraudulent behaviour in a clinical trial. With the growing utilisation of wearable devices in clinical research and healthcare and the lack of any access control, we are now in a position to identify potential fraud early in the process. It is possible to improve data quality significantly during and after a clinical trial, if the raw data from the accelerometer is available.

Analysis Risk Management of Procurement System Goods/Services (Study Case in PT. Perusahaan Listrik Negara (PERSERO) of East Java Distribution, South Surabaya Service Area and Network

Procurement is expected to be carried out effectively and efficiently with the principles of fair competition, transparent ,opened and fair treatment for all parties, in accordance with Peraturan Presiden Nomor 54 Tahun 2010 on Government Procurement is an activity to obtain goods and services by the Ministry/Institutions/Regional Working Units/other Institutions starting from the planning process needs to be disclosed all activities to obtain goods and services. As the development of an increasingly modern era, the government infrastructure was varied to keep track of and adapted to the needs of the government. The procurement of goods and services financed by the budget of revenues and expenditures country / region. This study focuses on government procurement of goods and services made in the area of PT. Perusahaan Listrik Negara (PERSERO) of East Java Distribution, South Surabaya Service Area and Network (PT. PLN Disjatim) by using the historical approach, sociological approach, institutional approaches, legal and political approach to development based on risk management. The data in this study were obtained by physical or direct data approach with several parties and employees concerned with the procurement of goods and services within the state electricity distribution company of the Eastern Java. The results of this study include the procurement of goods and services in the state electricity company disjatim generally been in accordance with the systems and mechanisms that have been defined in the Peraturan Presiden 54 Tahun 2010 on Government Procurement. However, once studied and reviewed more deeply there are some constraints and the presence of fraudulent behavior committed by the procurement committee and procurement participants and parties involved in the procurement of goods and services.

The management of first party fraud in e-tailing: a qualitative study

Purpose First-party fraud in which retail consumers commit fraud against retailers is a growing problem. However, to date studies on retail crime have focused almost entirely on fraudulent consumer behaviours in physical stores. With the growth of e-commerce, the losses to retailers from this fraud are growing so there is strong need to research this problem from multiple perspectives. The paper aims to discuss this issue. Design/methodology/approach The authors conducted three case studies and a total of 24 semi-structured interviews with retail managers, and evaluated their existing prevention-related documentation. Fraud management lifecycle theory was used to organise and discuss the findings. Findings The authors found that many retailers are treating this problem as just a cost of doing business online and have no detailed plans for dealing with this problem or any reporting to law enforcement agencies. However, they have begun working with delivery companies for delivery accuracy. Use of convenience stores as collection points is also showing early improvements. Research limitations/implications The small number of cases and interviews used is a limitation of this study. However, the authors believe that the findings are useful for advancing knowledge in this emerging research area. Practical implications This study provides insight into existing management practices in this domain, and makes recommendations on how to improve the management of first-party fraud. The study also makes a case for increased managerial interest and involvement in reducing first-party fraud. The study also helps bridge a glaring gap in existing literature and provides useful leads for further research. Originality/value To the authors’ knowledge, this is the first study to evaluate the existing practices employed to manage first-party fraud in e-retail.

Detecting Examinees With Item Preknowledge in Large-Scale Testing Using Extreme Gradient Boosting (XGBoost).

Researchers frequently use machine-learning methods in many fields. In the area of detecting fraud in testing, there have been relatively few studies that have used these methods to identify potential testing fraud. In this study, a technical review of a recently developed state-of-the-art algorithm, Extreme Gradient Boosting (XGBoost), is provided and the utility of XGBoost in detecting examinees with potential item preknowledge is investigated using a real data set that includes examinees who engaged in fraudulent testing behavior, such as illegally obtaining live test content before the exam. Four different XGBoost models were trained using different sets of input features based on (a) only dichotomous item responses, (b) only nominal item responses, (c) both dichotomous item responses and response times, and (d) both nominal item responses and response times. The predictive performance of each model was evaluated using the area under the receiving operating characteristic curve and several classification measures such as the false-positive rate, true-positive rate, and precision. For comparison purposes, the results from two person-fit statistics on the same data set were also provided. The results indicated that XGBoost successfully classified the honest test takers and fraudulent test takers with item preknowledge. Particularly, the classification performance of XGBoost was reasonably good when the response time information and item responses were both taken into account.

Analysis of employee and management fraud in Tanzania

PurposeThe study aims to explore specific motivations, rationalizations and opportunities that are involved in the occurrences of both employee and management fraud in the context of an emerging African country, Tanzania. It builds and extends from the fraud triangle theory.Design/methodology/approachA survey was developed and administered to 114 participants who had witnessed, had examined or had been involved in fraud resolutions. The participants included fraud examiners, business managers and owners, victims, auditors, lawyers, and law enforcement agents. The data collected were analysed using descriptive analysis, principal component analysis and correlation analysis.FindingsThe results revealed six motivation factors that incentivize employees and managers to engage in fraudulent behaviours. These are business financial strain, social incentives and pressure, greed, operating problems, internal pressures and malevolent work environment. In addition, fraudsters rationalized their behaviour through five significant neutralization techniques identified as social weighting, transferring of blame, denial of injury, attitude and prior fraud history. Lastly, victim organisations were identified to have three main fraud opportunities: poor control environment, inadequate control activities and circumstances that allowed collusive behaviour among fraudsters.Research limitations/implicationsWhile the study attempted to explore the motivations, opportunities and rationalizations from the perspectives of the fraud-fighting professionals and witnesses, their views and suggestions might be different from the actual known fraudsters or incarcerated individuals.Practical implicationsBusiness organisations, fraud-fighting professionals and general community must understand the factors behind fraud occurrences, so proper measures may be taken to limit the frequency and amount of fraud losses.Social implicationsCreation of public awareness and dialogue necessary for the prevention, fighting and deterrence against all forms of fraud.Originality/valueDespite the occurrences of many scams in both public and private sectors, limited studies exist as to the triggers behind fraud occurrences in the context of the developing countries and whether these triggers are the same as in other contexts. This study is an attempt to fill this gap.

Fraud Management among Small and Medium Enterprises in Lagos, Nigeria

Fraud is a debilitating factor that affects business growth and a major problem for many organizations especially SMEs since they have smaller resources to both prevent and recover from a fraud. SMEs have fewer anti- fraud controls hence they are more vulnerable to fraud. In a bid to reduce fraud and manage the risks proactively, SMEs needs to identify factors leading to fraudulent behavior. The paper seeks to evaluate fraud management among SMEs. Data was collected from two hundred (200) SME owners using questionnaire, however only 197 questionnaires were viable. The questionnaire was formulated using a five-point Likert scale. It was observed that the major causes of fraud are the weakling of societal values and financial pressure while changes in lifestyles indicate that fraud is being perpetuated. The study concluded that for effective fraud management, SMEs should implement fraud prevention measures such as strengthening societal values (integrity) building strong internal control measures to block the loopholes within the system, training programmes for SMEs operators and stringent disciplinary actions against erring officers.

Corporate fraud, risk avoidance, and housing investment in China

This study investigates the impact of corporate fraud on household investment choices. We conjecture that by undermining trust in the financial and insurance market, corporate fraud behaviour would decrease households' investment in risky financial assets and increase investment in non-financial assets. Combining data on households' investment behaviour with information on fraudulent activities of listed companies in China, we find that households with more lifetime experience of corporate fraud invest less in stocks and are less likely to purchase private insurance. By contrast, fraud experience increases households' intention to invest in residential real estate. In addition, the impact of corporate fraud is stronger among individuals who pay more attention to economic information, among individuals who have more social interaction, and among individuals in better regulated regions. Furthermore, we find that different types of fraud have differentiated effects on household investment decisions. Our findings indicate that corporate misconduct could generate profound negative externalities on the whole financial system.

Corporate Fraud, Risk Avoidance, and Housing Investment in China

This study investigates the impact of corporate fraud on household investment choices. We conjecture that by undermining trust in the financial and insurance market, corporate fraud behaviour would decrease households’ investment in risky financial assets and increase investment in non-financial assets. Combining data on households’ investment behaviour with information on fraudulent activities of listed companies in China, we find that households with more lifetime experience of corporate fraud invest less in stocks and are less likely to purchase private insurance. By contrast, fraud experience increases households’ intention to invest in residential real estate. In addition, the impact of corporate fraud is stronger among individuals who pay more attention to economic information, among individuals who have more social interaction, and among individuals in better regulated regions. Furthermore, we find that different types of fraud have differentiated effects on household investment decisions. Our findings indicate that corporate misconduct could generate profound negative externalities on the whole financial system.

I never thought that you would do this to me …: a breach of trust at Fortune Weddings Inc.

Learning outcomes Using this case, the students will be able to: understand the ethical issues such as “Management by Trust”, and having specific “Code of Conducts” in an organization; analyse the unethical behaviour that can occur inside the organization based on ethical theories such as egoism, utilitarian, deontology and virtue theory; discuss elements that promote fraudulent behaviour using the fraud triangle framework; explain how internal control contributes in deterring fraudulent employee behaviour; and analyse strategic approach to handle employee misconduct to reduce the risk of fraud. Case overview/synopsis The owner of Fortune Weddings, Anis, realized that his business was not as profitable as it used to be in the early years. He was suspicious of his employee Samera, for the sudden change of her luxurious lifestyle, but he did not inquire her as she was a hard working employee and customers were fond of her friendly attitude. Nissa, the wife of Anis, received message from customer to confirm the payment, but when she checked the bank account, the money was not there. Further investigation by Nissa revealed that it was Samera who was stealing money from the company. She used to give her personal bank account to customers to transfer their payment. Anis must decide the appropriate course of action to resolve the issues as soon as possible. Failing to do so will incur more incidences of stealing. Complexity academic level The intended audience for this case study are both undergraduate (BBA) and postgraduate students (MBA, MSc) who are taking the Business Ethics course. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code CSS 7: Management science.

The effects of cultural tightness and perceived unfairness on Japanese consumers’ attitude towards insurance fraud: the mediating effect of rationalization

The paper examines the effects of cultural tightness, rationalization, and perceived unfairness on Japanese consumers’ attitude towards insurance fraud. The results show a positive effect of perceived inequity/unfairness on acceptance of fraud and a partial mediation of rationalization on insurance fraud acceptance, whereas cultural tightness was found to weigh against the acceptance of fraud. This would suggest that, while the perception of being unfairly treated by an insurance company and reframing a fraudulent behaviour as non-condemnable conduct contribute to fraud acceptance, the strength of social norms and the degree of sanctioning would reduce fraud tolerance. From a managerial perspective, global insurance companies would take advantage from understanding the role of cultural tightness in fighting against fraud. Furthermore, the use of counter-neutralization techniques would be helpful to reduce the effect of rationalization on public tolerance for insurance fraud.

The Question of Accountability: New Forms or a Democratic Deficit

This research examined the question of accountability; new forms or a democratic deficit. The study examined specially examines the relationship between transparency and accountability, relationship between technocratic decision making and accountability and finally the relationship between proper coordination and accountability. The study is an exploratory study that used mainly secondary sources of information obtained from journals, text books and from the internet. The findings from the review shows that public accountability is important because it provides a democratic means to monitor and control government conduct, prevent the development of concentrations of power, and enhance the learning capacity and effectiveness of public administration. This is because rulers can be investigated and held to account for actions that transgress the law or result in personal enrichment or violate common mores. These tenets are lacking in our public institutions and in broader perspective the government. The study concludes that large changes in politics, especially for the citizens of the European Union, with the latest enlargement in which brought the union to 27 member states and a half a billion people has been recorded, raising questions on issues such as democracy and the peoples options of accountability. It was recommended among others that it will be fair for all the operators to play the game of leadership according to the established rules and regulations to promote transparency. Also, the experts are to be given free hand to exercise their expertise to usher in accountability for the growth of the system. It was also recommended that it is advisable for all the operators to exhibit probity to eliminate fraudulent behavior.

Optimal Regulation of P2P Lending for Small and Medium-Sized Enterprises

Globally, the regulation of P2P lending has evolved significantly in recent years, with mostly beneficial effects on the diversification of funding for individuals and corporations. Regulatory responses have varied greatly between countries, and the characteristics of the markets that have emerged vary as a result. We describe and evaluate the range of P2P lending systems on offer to small and medium-sized enterprises (SMEs) in several countries, considering different regulatory regimes. In some countries, there are problematic incentives for platforms that rate credit and originate loans without holding the risk of these loans. In addition, when investor returns are guaranteed by platforms, investors have no incentive to distinguish among risk categories. In several countries, notably the People’s Republic of China, P2P platforms have engaged in fraudulent behavior and Ponzi-like schemes. On the other hand, stringent regulation in the United States has excessively impeded new entrants from providing competition to established platforms. Regulators should be mindful of these risks and others, while also seeking to capitalize on the benefits that the sector offers for providing new funding opportunities to SMEs. In our view, the United Kingdom can be suggested as an effective model to follow because of its tailor-made and flexible regulation.

Corporate fraud and information asymmetry in emerging markets

PurposeThe purpose of this study is to examine changes in firms’ level of information asymmetry in emerging market of Malaysia for the period of 2000-2016. Specifically, the study focuses on changes in the quoted spread and quoted depth following the fraud announcement.Design/methodology/approachThe study uses a unique set of fraud sample using enforcement action releases (EARs) identified from the Security Commission of Malaysia and Bursa Malaysia. To estimate the result, the authors use event study methodology, OLS regression and simultaneous model on a set of 67 fraudulent firms.FindingsThe results of event study, OLS regression and simultaneous equation models suggest that information asymmetry increases on fraud discovery. The authors also use the analysis on subsamples classified by the type of regulator (who issued the enforcement release) and type of fraud committed. However, the authors find no evidence of a difference in information asymmetry across these groups. Overall, the results support the reputational view of fraud that it damages the firms’ reputation and increases uncertainty in the capital market.Research limitations/implicationsThese findings provide valuable insights into understanding the information asymmetry around fraud announcements, especially for Malaysia, where the majority of the public-listed companies are family-controlled and under significant state control. The results of this study call for the active role that regulators can play to achieve a transparent and liquid capital market.Practical implicationsThe research has practical implications. Specifically, for Malaysia, fraud is the primary area for National Results Areas (NKRA) in the Government Transformation Program (GTP). Therefore, for regulators and policymakers to ensure a liquid and transparent capital market, identifying the factors that elicit the fraudulent behavior and improving the related governance mechanism are necessary steps to prevent the fraudulent practices.Social implicationsDue to increased information asymmetry on fraud announcements, the demand for equity decreases that may affect not only the fraudulent firms but also results in negative externality for non-fraudulent firms, thus impairing their ability to fund equity.Originality/valueA significant majority of studies have focused on corporate frauds in developed countries such as the USA that is characterized by dispersed ownership system and a strong capital market. One of the vocal critics of the agency theory is that it neglects the social and institutional framework within which companies operate. In emerging markets, such as Malaysia, the published academic papers on fraud and information asymmetry are very limited. As emerging markets practice different cultures, corporate governance mechanisms and market regulations, the study is significant to investigate the behavior of investors in such markets.