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Small Business Entrepreneurs: A Focus on Fraud Risk and Prevention
Abstract
Problem statement: Small businesses have unique problems in fighting fraud. Typically
there are limited resources devoted to anti-fraud efforts by small businesses. Employee fraud typically
results in monetary loss, often not recovered, investigation expenses and negative impact on employee
productivity and morale. Conclusion/Recommendations: This study provides information to assist
the small business entrepreneur in identifying potential fraud risks and to enhance their organizations
fraud prevention measures.
... Some previous studies have found that many companies focus more on commitment than deterrence and tend to arrange individual events (Bishop, 2004;Omar & Abu Bakar, 2012;KPMG, 2013). In addition, Laufer (2011) argues that counterfeiting is more economical than finding fraud. His findings further explained that it was stated that the difference between fraud and detection would lead to fraud in the target villages. ...
... Several methods of counterfeiting are used by institutions and companies to reduce the impact of fraud in their institutions and companies. Efforts are done including internal controls, procedures of recruitment of employees strictly, training and education of staff about fraud prevention, equipping employees with the reporting system of the prevention of fraud, etc. (Bierstaker et al., 2006;Daigle et al., 2014;Laufer, 2011;Shanmugam et al., 2012). Air landmark of planning and Control Anti-fraud management issued by the American Institute of Public Certified Accountants ((AICPA), 2002), the prevention of fraud, so prevention and tactics to avoid fraud made three sets of actions and in previous studies, and this study adds another set of actions based on the study of (Neff, 2006) so that they become four sets of actions as follows: 1) Developing and preserving honesty. ...
... For fraudsters to carry out their actions must be perceived opportunities, such as weak internal control, which allows them to commit unrestrained fraud (Girgenti & Hedley, 2011). As well, Laufer (2011) and Wells (2004) argue that the institutions were small and increasingly sensitive to deception because they find the tactics of anti-fraud less widely practiced when compared with the institution's great. According to Laufer (2011), the examination consists of: the order of the institution checks and balances are prepared to establish reportage financially credible, work processes on effectively and efficiently, protect assets against wiping and the use of unauthorized and discipline to the rules and regulations in force. ...
This review aims to sniff out potential fraud in controlling village funds and to find out effective mechanisms for preventing village fund fraud in Indonesia. However, apart from contributing institutions that were small, previous researchers have ignored the problem of fraud shortly threatening sustainability of institutions such as a small rural village in Indonesia. So, this study is intended to find out how a small village level institution can prevent fraud. This analysis uses a self-administered questionnaire and distributes 250 questionnaires to village heads, secretary of village heads, and financial treasurers in village institutions with 179 questionnaires for which data can be processed. To test the theoretical model, multiple regression is used. Outputs from multiple regression reveals that a habit of honesty and integrity have a positive effect and significant, process and control the internal and supervisory functions are good and behavioral religious has a positive effect but are less significant in the fraud preventive mechanism if implemented partially. This finding also provides a strong picture that if the four dimensions of fraud prevention mechanism must be implemented simultaneously to have high effectiveness and vice versa. On the whole, the research paper is advocating some tactics to prevent fraud which is effective to reduce the threat of fraud in the institution at the smallest village level in Indonesia and the countries of the developing others. The lack of studies empirically the impact of habits of honesty, internal control, and monitoring Duty proper religious behavior and attitudes in an effective study of fraud prevention in non-Western environments has answered the need for this research.
... As a result, SMEs are more exposed to fraudulent activities. This situation could result from the limitation of the resources of SMEs, which leads to low application of antifraud policies (Wells, 2004) as compared to large organizations or to the negligence of antifraud policies and procedures by SMEs owners and managers (ACFE, 2012;Laufer, 2011). ...
... The above finding is consistent with previous studies that fraud is no longer the concern of only large corporations but is a concern for SMEs as well (Laufer, 2011;Anonymous, 2003). Similarly, ACFE (2012) found that SMEs suffer more from fraudulent activities than large organizations. ...
... Finally, the finding regarding the implementation of fraud prevention measures is supported by that of ACFE (2012), Laufer (2011) and Wells (2004) that because of the limitation of the resources of the small businesses, they have implemented fewer fraud prevention measures or ineffective antifraud controls than large corporations; as a result, small businesses become more vulnerable to fraud. Indeed, ACFE (2012) revealed in its report that there was a great disparity in the implementation of fraud prevention measures between large and small businesses. ...
Purpose
The paper aims to provide an overview of fraud risk among Malaysian small- and medium-sized enterprises (SMEs). In particular, the authors investigate the understanding of SME owners and managers on fraud schemes and the usage of antifraud measures.
Design/methodology/approach
A sample of 126 Malaysian SMEs from different industries participated in this study.
Findings
The results suggest that Malaysian SMEs are exposed to a broad range of fraud schemes, yet few take actions to prevent these frauds.
Practical implications
The findings should be useful to academic researchers, entrepreneurs, regulators and others who are interested in understanding the fraud risk in small businesses.
Originality/value
This study extends and contributes to prior literature by linking the state of fraud and SMEs in developing countries.
... KPMG (2013) found that nearly 50 per cent of fraud scandals reported in its survey occurred in small and medium size enterprises. This high incidence might be owing to low application of anti-fraud policies compared to large organisations or to the negligence of anti-fraud policies and procedures by SME owners and managers (Laufer, 2011;ACFE, 2012). In addition, the occurrence of fraud in SMEs could be because of less commitment given by the practitioners and researchers on fraud issues in SMEs. ...
... However, many researchers have found that most companies give more commitment to its deterrence rather than its prevention and prefer managing its occurrences on an individual basis (Bishop, 2004;Omar and Abu Bakar, 2012;KPMG, 2013). Moreover, Laufer (2011) argued that preventing fraud is cheaper than detecting fraud. He elaborated further, stating that the gap that exists between the occurrence of fraud and its detection will lead to the SME being the victim of fraud. ...
... Diverse fraud prevention measures were used by firms to mitigate the risk of fraud in their businesses. Those applied measures include internal control, employee background checks, employee training and education on fraud issues, equipping employees with a fraud anonymous reporting system, etc. (Bierstaker et al., 2006;Daigle et al., 2009;Laufer, 2011;Shanmugam et al., 2012). According to PWC (2003), the applied fraud preventive measures depend on a firm's experience with fraud. ...
Purpose
In Malaysia, as in most of the developing countries, small businesses play pivotal roles in the economy. Yet, despite the contribution of small businesses, previous researchers have overlooked the fraud issues that are threating the sustainability of those businesses and instead focus mainly on large and public listed companies. Therefore, the purpose of this study is to identify how small businesses can prevent fraudulent activities.
Design/methodology/approach
This study used self-administer questioners and distributed 126 questionnaires to general managers, financial managers and supervisors in Malaysian small and medium enterprises (SMEs). Multiple regression was used to test the theoretical model.
Findings
The output of multiple regressions showed that culture of honesty and high integrity, anti-fraud processes and controls and appropriate oversight functions has a positive and significant effective on fraud prevention mechanisms.
Practical implications
Overall, this study suggests effective fraud prevention measures to mitigate the fraud risk surrounding Malaysian SMEs and other SMEs in emerging countries.
Originality/value
There has been a dearth of empirical studies on the effect of culture of honesty, anti-fraud processes and appropriate oversight functions on effective fraud prevention in non-western context, and this study has fulfilled the need for this research.
... Button et al. (2015) menyatakan bahwa untuk dapat bertahan dan menjaga keberlangsungan usaha, setiap instansi/lembaga harus mendeteksi masalah ini dan mengatasinya dengan bijak. Laufer (2011) berpendapat bahwa mencegah fraud lebih mudah daripada mendeteksi fraud. Pencegahan fraud memberikan lingkungan di mana lebih sedikitnya kesempatan untuk terjadinya penipuan (Omar & Bakar, 2012). ...
... Variabel endogen dalam penelitian ini adalah pencegahan fraud (Y) yang menggambarkan langkah-langkah proaktif yang diprakarsai oleh organisasi untuk menghindari atau menghentikan terjadinya fraud (Laufer, 2011). Indikator yang digunakan untuk mengukur pencegahan fraud menggunakan indikator (Tuanakotta, 2010) yang terdiri dari Risk Analysis, Implementasi, Sanksi, dan Monitoring. ...
This study aims to investigate whether apparatus competence, whistleblowing system, and morality play a role in influencing fraud prevention. It is also intended to prove whether whistleblowing system has a mediating effect on the relationship among apparatus competence, morality and fraud prevention. The research subjects comprise of civil servants of Government Institutions of Central/Provinces/Regencies/Cities in Indonesia. The hypotheses were tested on 201 respondents who were selected using convenience sampling method. The data were collected using survey questionnaires sent via online using Google Form from January to February 2021. The data were analyzed using Structural Equation Modeling - Partial Least Square (SEM-PLS). The results of this study showed that whistleblowing system and morality influenced fraud prevention. Nevertheless, it appeared that apparatus competence did not influence fraud prevention. This study also proves that whistleblowing system has a mediating effect on the relationship among apparatus competence, morality and fraud prevention. Penelitian ini bertujuan untuk mengetahui pengaruh kompetensi aparatur, sistem whistleblowing, dan moralitas terhadap pencegahan fraud dengan peran mediasi sistem whistleblowing. Responden penelitian terdiri 201 Aparatur Sipil Negara (ASN) pada pemerintahan Pusat/Provinsi/Kabupaten/Kota di Indonesia. Pengumpulan data dilakukan dengan menggunakan kuesioner Google Form yang disebarkan secara online. Data dianalisis dengan menggunakan SEM-PLS (Structural Equation Modeling - Partial Least Square). Hasil penelitian menunjukkan bahwa sistem whistleblowing dan moralitas berpengaruh terhadap pencegahan fraud sedangkan kompetensi aparatur tidak memiliki pengaruh terhadap pencegahan fraud. Hasil pengujian juga menyatakan bahwa sistem whistleblowing memiliki efek mediasi terhadap masing-masing hubungan antara kompetensi aparatur dan moralitas dengan pencegahan fraud. Implikasi penelitian ini dapat dijadikan dasar pada kebijakan manajerial terhadap sistem whistleblowing yang perlu dikembangkan dalam organisasi.
... It is critical for business owners to have awareness and knowledge of how to prevent employee fraud in their organizations. Earlier writings in the literature have focused on textbook preventive strategies and were not driven from real life cases that take into consideration the small business context (e.g., Laufer, 2011;Jackson et al., 2010;Alstete, 2006;Cant et al., 2013). They were also analyzed at the aggregate level and might not represent a complete picture on how devastating employee fraud is in small businesses (Kennedy, 2018;Kramer, 2015). ...
... Although only four fraudsters in our sample had prior convictions, a background check that cost as little as the first day's salary-simply asking previous employers whether they would rehire the applicants-could have saved the companies an average of $139,758.62 (Gubbins, 2017(Gubbins, , 2018Brody et al., 2015;Shao, 2016;Laufer, 2011;Kramer, 2015). Fraud risk is heightened when people with previous fraud convictions are employed (ACFE, 2018(ACFE, , 2020. ...
This paper examines how and why employees used online computer access to commit fraud in New Zealand small businesses. Drawing on data from 18 court documents between 2006 and 2020, we use document analysis to examine the pressure, opportunity, rationalization, and capability elements using the fraud diamond framework. We provide three major findings. First, the employee frauds were motivated by vice and family circumstances. The combination of opportunity and capability had a devastating effect on the length of the fraud and the amount of financial loss. Second, the frauds were mostly perpetrated by middle-aged women in both managerial and nonmanagerial positions who displayed unusual behaviour but had no prior convictions. Third, small businesses are vulnerable to fraud in their billing, accounts payable, and payroll systems; thus, relevant prevention strategies are recommended. Overall, we conclude that the tendency for fraud is heightened in small businesses where trusted employees: have multiple responsibilities; have an occupational position that provides them with opportunity; are capable of manipulating online access; and have external pressures of addictions or adverse family circumstances. Our multiple cases approach facilitates a better understanding of the employee fraud contexts, including the motivation and the methods employed to commit such fraud in New Zealand.
... Pencegahan fraud melibatkan berbagai strategi serius yang diterapkan oleh organisasi untuk mencegah atau menangani aktivitas fraud (Hamid & Nasih, 2021). Dikatakan bahwa pencegahan lebih efektif dari segi biaya dibandingkan dengan mendeteksi fraud (Laufer, 2011). ...
Penelitian ini bertujuan untuk menganalisis pengaruh sistem pengendalian internal dan sistem whistleblowing terhadap upaya pencegahan kecurangan, serta untuk menguji peran moralitas individu sebagai moderator dalam hubungan antara kedua variabel independen tersebut. Sampel yang digunakan dalam penelitian ini melibatkan 160 Aparatur Desa di Provinsi Kalimantan Selatan yang ditetapkan menggunakan metode
simple random sampling. Analisis data yaitu teknik regresi Partial Least Squares (PLS) dengan menggunakan SmartPLS. Temuan dari penelitian ini mengindikasikan bahwa sistem pengendalian internal memiliki pengaruh terhadap pencegahan kecurangan,
sementara whistleblowing system tidak menunjukkan pengaruh dalam mencegah kecurangan. Moralitas individu terbukti memperkuat hubungan antara sistem pengendalian internal dan pencegahan kecurangan, tetapi tidak berfungsi sebagai
moderator dalam hubungan antara sistem whistleblowing dan pencegahan kecurangan. Temuan ini memberikan beberapa implikasi penting bagi pengelolaan keuangan desa dan kebijakan pengawasan. Penguatan sistem pengendalian internal,
pengembangan sistem whistleblowing, serta pembinaan etika dan moralitas aparatur desa diperlukan untuk meningkatkan efektivitas pencegahan kecurangan.
... Fraud prevention is an effort to eliminate and reduce the factors that cause fraud by building and preserving a culture of honesty, assessing fraud risks and creating appropriate supervisory processes. Prevention is believed to be the most cost-effective way to overcome financial losses due to fraud compared to detecting fraud (Adams et al., 2006;(Laufer, 2011). Seeing the increase in village fund corruption cases that occur every year, prevention efforts are needed to reduce corruption cases in village fund management (Atmadja et al., 2019). ...
Purpose: This study aims to empirically prove the effect of that whistleblowing system, internal control system, village apparatus competence on the prevention of village fund fraud. Methodology/approach: This study is a quantitative research with primary data sources obtained from distributing questionnaires to respondents. The sampling technique used was purposive sampling technique. The sample of this study consisted of 118 village apparatuses in Jiken District, Blora Regency. The analysis technique used was Structural Equation Modeling-Partial Least Square (SEM-PLS) and Smart Partial Least Squares (SmartPLS) for data processing. Findings: The results showed that whistleblowing system, internal control system, village apparatus competence had a positive effect on the prevention of village fund fraud. Practical and Theoretical Contribution/Originality: The results of this study are expected to contribute to provide consideration or input to the government in making policies related to evaluating the application of fraud prevention in village fund fraud and also useful as a source of reference for other similar studies. Research Limitation: There has been no research involving the Village Supervisory Agency which carries out the supervisory function of the village government. As a result, the potential disclosure of fraud in the management of village funds is only viewed from the perspective of village officials.
... In an ideal financial management system, different individuals should be responsible for these tasks to ensure proper checks and balances. This separation is crucial as it helps prevent fraudulent activities by introducing a system of accountability where another independently verifies one individual's work (Laufer, 2011;Dashkevich et al., 2024). ...
An information system integrates people, hardware, software, and data networks that continuously interact to store, collect, process, and distribute information to achieve organizational goals. An accounting information system is designed to collect, record, store, and process data from routine accounting transactions. The object of this research is Victory Education Center, which operates as a non-formal education service provider. This research aims to understand the accounting information system for cash receipts and disbursements applied by Victory Education Center, to determine whether the system is implemented according to procedures, and to identify methods to prevent cash fraud and embezzlement at Victory Education Center. In this study, the author uses a descriptive analysis method. The data sources include both primary and secondary data. The results show that the accounting information system for cash receipts and disbursements still relies on Microsoft Excel, which affects the accuracy of financial data and increases the time required to prepare financial reports for Victory Education Center. Additionally, no cash receipts and disbursement plans are in place, making it impossible to predict the annual cash inflows and outflows. Human resources are not optimally utilized, as some staff are working outside their areas of expertise, there is no segregation of duties between those receiving cash and those recording transactions, and financial reports are not audited because no specific department is assigned to perform such audits.
... Uygulanan bu önlemler iç kontrol, iç denetim, bağımsız denetim, çalışanların özgeçmişleri, çalışanların eğitimi, raporlama vb. sistemler şeklinde sıralanabilir (Bierstaker ve diğerleri, 2006) (; (Daigle ve diğerleri, 2009); (Laufer, 2011); (Shanmugam ve diğerleri, 2012). Söz konusu durum, dünya çapında son yıllarda hile ve suistimallere yönelik denetim hizmetlerine olan talebi artırmıştır (Westhausen, 2017). ...
... It involves the efforts of management and staff aimed at fulfilling an organization's objectives, and includes policies and procedures designed to ensure that the organization meets the objectives set by its board of directors and executive officers [6]. In essence, internal control refers to an organization's system of checks and balances [40]. ...
The aim of this study was to examine the relationship between internal control, financial accountability, and financial performance in the private healthcare sector in the Kingdom of Saudi Arabia (KSA) through a questionnaire survey of 78 private hospitals. Drawing on agency theory, the study utilized structural equation modelling with partial least-squares technique to test multiple hypotheses. Results indicate a significant positive relationship between internal control and financial performance, with financial accountability acting as a mediator. Additionally, financial accountability was found to have a direct positive effect on financial performance. These findings provide new evidence for improving financial performance in private hospitals in the KSA through the implementation of internal control and financial accountability measures. Further research could examine additional factors that may impact financial performance in the healthcare sector.
... Despite the fact that South African SMMEs are regarded as the driving forces to economic growth in the country, research shows that these business entities have among the worst sustainability rates in the world (Wiese, 2014). Probable reasons for the latter dispensation include that these business entities operate in a harsh economic environment; making them susceptible to risks such as occupational fraud risk (Laufer, 2011;Bruwer & Van Den Berg, 2017). Among the most prevailing occupational fraud risk found in South African SMMEs, according to literature (Hosken, 2014;Kassem, 2014) include money laundering, corruption, procurement fraud and asset misappropriation. ...
Purpose: To ascertain whether there are relationships among occupational fraud risk evident in fast-moving-consumer-goods South African SMMEs, these business entities’ economic sustainability and the key characteristics of employees. Methodology: Empirical and exploratory research, complemented by survey research. A quantitative research methodology was used to collect and analyse data from 120 members of management of South African SMMEs who had to adhere to relevant delineation criteria. Findings: Statistically significant relationships were found to exist between the economic sustainability of SMMEs and key employee characteristics; between occupational fraud risks. In addition, some variables were found to predict others. Originality/Value: The study provides new perspectives on phenomena which can be tested through empirical research.
... A limitation of modern fraud control discourse is its reliance on the use of a 'one size fits all' crime prevention approach across strikingly diverse settings. Generic modes of fraud prevention thinking advocate for increasing surveillance and fraud awareness training (Omar, Nawawi, Saiful, & Salin, 2016); fraud prevention policies and increased legal penalties (Prabowo, 2012); employee screening and audit committees (Schnatterly, 2003); and the tone and attitude of business leaders, to name a few (Laufer, 2011). Benjamin Franklin once proclaimed, 'an ounce of prevention is better than a pound of cure'; 284 years on that adage remains highly relevant to the control of fraud (Butler & Raiborn, 2015;Chaikin, 2009;Franklin, 1736;Walsh, 2012). ...
This thesis contributes to understanding of the tradecraft of fraudsters who commit complex financial crimes. It takes up the challenge laid down by Levi (1984) and Braithwaite (1985) to give greater attention to how fraudsters commit their crimes. It provides insight into the diversity of tradecraft regularly applied by fraudsters in pursuit of their objectives. The underlying hypothesis of this thesis is that a fraudster's status as either an insider or an outsider of a target financial system influences how they deploy their tradecraft. This thesis proposes the presence of three interlinked activity domains common to all complex financial crimes. It found the access, learning and planning domains, when combined, produce a process model that enables the testing of the hypothesis driving this research. The data, primarily transcripts of interviews with detectives and criminal case management files, are divided into insider and outsider cases. These cases are thematically analysed to identify key similarities and differences in the methods, resources and tradecraft used by fraudsters. This process identifies key stages in the commission of financial crime including accessing the financial target; learning about the target's strengths and weaknesses; planning to overcome financial crime controls; and fraud implementation. The thesis proposed and tested the ALPi Model and identified variations between insider and outsider's deployment of tradecraft. Outsiders demonstrate greater levels of task intensity linked to access, learning and planning earlier in their fraud event timeline. Insiders demonstrate similar intensity, but later in their fraud event timeline; this suggests insiders and outsiders have different offending trajectories. Consequently, this finding led to a revision of the Time-allocation Model of Criminal Planning to reflect the post-crime activities of insider fraudsters (Allen, 2011). The thesis found outsiders deploy a greater variety of tradecraft than insiders who benefit from knowledge and access derived from occupational positions. Tradecraft aligned to access, learning and planning is classified and includes secondary systems and organisational interface point access; learning through subversion and stigmergic processes; and the deployment of planned backstopping and operational security strategies. The thesis defined three distinct learning periods common to all fraud event timelines. Pre-crime learning was generic, often linked to what was referred to as base line knowledge and access. Pre-crime and crime phase learning was targeted and deliberate, focussing on satisfying specific information deficiencies. Post-crime learning was reactive, disjointed, and focussed on the nature of actual or perceived threats. The thesis also identified the need to reframe routine activity theory's 'absence of capable guardianship' to a position that recognises a criminal's 'capability to overcome guardianship'. This acknowledges the role of individual agency in circumventing fraud controls by bringing the deployment of financial crime tradecraft into the fraud control narrative. Finally, the thesis contended that until the complexity that is evident within the data is more fully understood, meaningful fraud prevention efforts remain bereft of their most important asset; that is, a detailed understanding of how fraudsters set about overcoming the controls that organisations seek to implement.
... Seeing DIY entrepreneurs violating the ethicality of their enterprise and major policies could provide others with a reason to justify their fraudulent behaviour using the 'social good' argument (Laufer, 2011). In accordance with the deontological ethical decision-making pathway, investors and partners should make sure that ethical policies are clear and well known to prevent DIY entrepreneurs from creating their own sets of rules. ...
This conceptual paper provides a decision-making framework that enhances our understanding of how Do-It-Yourself (DIY) laboratory entrepreneurs execute ethical standards by dismissing fraud. Although our theory assumes that most DIY entrepreneurs are by nature 'ethical', we discuss how the unique nature of DIY laboratory entrepreneurship provides risks for fraud. Drawing on three ethical theoretical lenses, utilitarianism, deontology and egoism, our paper proposes different potential causes of fraud and motivates further analysis about why DIY laboratory entrepreneurship is an important context for the study of fraud. We contribute to theory and government policy by providing a conceptual framework that explains how entrepreneurial choices lead to three main types of fraud based on the dominant decision pathways. Further research and practical implications are discussed.
... Seeing DIY entrepreneurs violating the ethicality of their enterprise and major policies could provide others with a reason to justify their fraudulent behaviour using the 'social good' argument (Laufer, 2011). In accordance with the deontological ethical decision-making pathway, investors and partners should make sure that ethical policies are clear and well known to prevent DIY entrepreneurs from creating their own sets of rules. ...
Cybercrime continues to cause increasing threat to business processes, eroding stakeholders’ trust in internet technologies. In this research paper, we explore how six dominant algorithmic trust positions facilitate cognitive processing, which, in turn, can influence an organisation’s productivity and align its values and support structures for combating cybercrimes. This conceptual paper uses a cognitive perspective described as a Throughput Model. This modeling perspective captures several dominant algorithmic trust positions for organisations, providing a new and powerful approach which seeks to enhance our understanding of the cognitive representation of decision-making processes. These trust positions are (1) rational-based trust, (2) rule-based trust, (3) category-based trust, (4) third-party based trust, (5) role-based trust, and (6) knowledge-based trust. Finally, we provide conclusions and implications for future research.
... Several aspects may play a role. Smaller businesses may have less strict procedures and less advanced administrations, which makes them more vulnerable to ghost invoices and fraudulent contracts (Smith 2013;Laufer 2011). Also, smaller amounts of money probably raise less suspicion, which in turn does not incite employees to carry out checks and controls. ...
(Published by BMC Crime Science - 9th July 2020)
This study analyses 300 cases of fraudulent activities against Dutch businesses, 100 from each of the following three categories: CEO-fraud, fraudulent contract, and ghost invoice. We examine crime scripts, key characteristics of targeted businesses, and the relationship between input criminal effort and output financial benefit. Results indicate that whilst all CEO-frauds are conducted online, most of the fraudulent contracts and ghost invoices are undertaken via offline means. Both Routine Activity Theory and Rational Choice Model are evidenced – fraudsters clearly take business size and seasonality into account, and the input criminal effort and output criminal benefit are positively correlated. Having vigilant employees is evidenced as the most effective way of fraud prevention, both online and offline.
... Internal control can be defined as the process designed and affected by those charged with management, governance, and other personnel to provide reasonable assurance about the attainment of entity's objectives aboutefficiency and effectiveness of operations; compliance with applicable laws and regulations; the reliability of financial reporting (Gamage et al., 2014).According to Laufer (2011), internal controls consist of "an organization's system of checks and balances designed to ensure reliable financial reporting, effective and efficient operations, safeguarding assets against theft and unauthorized use, and compliance with applicable laws and regulations. The COSO definition of internal control extends to all objectives of an entity from financial reporting to proficiency and effectiveness of operations and compliance with applicable laws and regulations (COSO, 2013). ...
The globalization process, the complexity of banking transactions and the increase in fraudulent activities have recently prompted scholars and experts, and authorities to divert their attention to internal control systems in the banking sector. The objective of this study is to find the effect of internal control systems on the performance of commercial banks in Nigeria. A survey method was employed and the study used stratified random sampling, in which a total of 382 questionnaires were administered to either staff of operations, marketing, or security department in the Nigerian commercial banks. The questionnaire is a 5 point Likert-scale while the data collected was analyzed using Statistical Package for the Social Sciences (SPSS) version 23 (v23) and Smart PLS 3. The findings of the study revealed that there is a positive and significant relationship between the four components of internal control (control environment, control activities, monitoring and risk assessment) and bank performance. While information and communication were found to have an insignificant positive relationship with bank performance. The study recommended that future research should add other additional variables like risk culture, corporate governance. Likewise, control variable (s) such as bank size, bank age, etc. can also be considered by future researchers.
... Internal control can be defined as the process designed and affected by those charged with management, governance, and other personnel to provide reasonable assurance about the attainment of entity's objectives aboutefficiency and effectiveness of operations; compliance with applicable laws and regulations; the reliability of financial reporting (Gamage et al., 2014).According to Laufer (2011), internal controls consist of "an organization's system of checks and balances designed to ensure reliable financial reporting, effective and efficient operations, safeguarding assets against theft and unauthorized use, and compliance with applicable laws and regulations. The COSO definition of internal control extends to all objectives of an entity from financial reporting to proficiency and effectiveness of operations and compliance with applicable laws and regulations (COSO, 2013). ...
... While the above statistics are reported for all the organizations, for the focus here we turn to fraud in small businesses. Much of the attention regarding fraud reported in the popular press has examined fraud in large organizations, yet small businesses face their own distinct, unique fraud threats (Jackson, Holland, Albrecht, and Woolstenhulme, 2010;Laufer, 2011). There are a variety of definitions for small verses large businesses. ...
p> Fraud and security issues are significant problems faced by businesses. Based on a survey of certified fraud examiners reported in the 2016 ACFE Report to the Nations, total annual loses of all businesses exceeded six billion dollars with an average per case loss just under three million dollars. Small businesses, defined as those with less than 100 employees, reported median fraud losses that were virtually identical to the losses of large businesses. However, given the relative magnitude of assets for these two sizes of businesses, the fraud losses for small businesses have a much bigger impact on small businesses than on large ones. Given the importance of fraud loses to small businesses, fraud, security, and compliance issues are discussed within this context at a conceptual level along with a proposed research agenda.
The presented discussion is framed within the special problems, issues, and potential solutions to fraud and compliance in small businesses. We begin with security and compliance issues faced by all businesses. The essence is that the security and compliance solutions (e.g., software) suitable for large businesses are often inappropriate for small businesses. Based on these results, recommendations for small business controls are offered. These recommendations are structured into three sections, understanding the small business control environment, developing internal controls, and security and compliance software for small businesses. In each of these sections, techniques specific to small businesses are presented. After discussing the need to perform additional research in this area, a research agenda is proposed. The specific topics of identifying the target population, methods of fully understanding the target population, data collection and analysis, and potential manuscripts are presented. A brief summary of the paper is then provided. </p
... The local automotive suppliers, being small medium enterprises (SMEs), therefore bear greater burdens and are at greater risks of fraud occurrence as compared to larger competitors (Laufer, 2011). Most of the companies have limited resources, thus forcing the management to focus mostly on operational matters rather than other added value activities like the internal audit. ...
Fraudulent financial statements (FFS) are now placed under greater public scrutiny following an
increase in the number of collapses among companies due to management fraud with losses on
average at 5% of revenue (ACFE, 2014). There is consensus that management fraud is an ongoing
reality and no single organization is immune from the damage caused by the fraudsters
(KPMG Malaysia, 2009). Small and medium sized businesses are also threatened by fraudulent
activities and statistics showed organizations with fewer than 100 employees experienced more
fraud cases than larger corporations (ACFE, 2008). Most of the companies in the automotive
industry in Malaysia are small and medium scaled; hence these companies bear a greater burden
and face higher risks of fraud. Precautionary measures in preventing fraud are crucial; however,
with limited resources, effective detection may be severely curtailed. This paper assesses the
possibility of FFS in a small medium automotive company in Malaysia using three statistical
analyses namely the Beneish model, Altman Z-Score and Financial Ratio. The findings show that
there are riskier zones that need to be further investigated by the management. It is suggested for
the company to establish an internal audit unit to provide assurance on the company’s operations,
financial reporting accuracy and adherence to the regulations.
... The operation of these small medium organisations is focused on producing a range of relatively low-technology accessories and peripheral items such as plastic injection molded parts, wire harnesses, wipers, lamps, radio cassettes, air conditioners, and metal stamped and pressed parts [19]. Having little to cover their business with, small and medium companies bear more burdens and are at greater risk of fraud occurrence as compared to larger competitors [20]. However, these businesses should start worrying because statistically, organisations with fewer than 100 employees are experiencing more fraud cases than larger corporations, where the median loss per fraud case to these small businesses was US$200,000 in 2008 [21]. ...
Fraud risk has becoming intrinsic to any entity. Both internal and external fraud present a substantial cost to the economy. KPMG Malaysia fraud survey in 2009 reported that corporate fraud is an on-going reality and most organisations are not free from the destruction caused by the fraudsters. The most affected organisations are commonly the small and medium sized entities. Thus, creating a demand to detect and mitigate the risk in order to reduce the financial and non-financial burden to these organisations. Despite intense effort carried out by relevant bodies and individuals in combating fraud, it appears that fraud in its various forms is a problem that is increasing in frequency and severity. This paper therefore aims to propose an internal control mechanism framework in detecting fraud especially for the small medium automotive industry (SMAI). The framework focuses on purchasing department which is identified as the department most prevalent to fraudulent activities. The framework will be further enhanced to cater to the needs of larger entities and other processes.
A state of unemployment links with human rights at some point in life. Some human rights can
only be met when there is an employed breadwinner in the family. Unemployment can also be a
crime generator. The South African government noted this challenge and developed the National
Development Plan 2030 to curb unemployment growth through the establishment of State-Owned
Companies such as the Small Enterprise Financial Agency (SEFA) to help create jobs and prevent
crime motivated by unemployment. This was meant to encourage a specific group of people who
are self-employed and with an interest in job creation by establishing a small business through
financial assistance. However, criminals also observed such opportunities. Financial institutions
such as SEFA are likely to be a target of crime, which goes against their mandate to create jobs.
The South African government therefore created laws to assist in regulatory compliance to
minimise and combat corporate fraud.
The aim of this research was to evaluate corporate fraud at SEFA in South Africa. The assessment
was guided by the following three main research questions – What does corporate fraud entail in
the SEFA direct lending product?, What are the traits and Modus Operandi of corporate fraud
targeted at SEFA direct lending? and What are the best and doable practices available to mitigate
corporate fraud at SEFA direct lending? This study adopted a mixed method approach. The sample
consisted of SEFA staff dealing with the direct lending product.
The beneficiaries of this research include potential victims of corporate fraud, such as SEFA;
entrepreneurs; Small, Medium and Micro Enterprises; the South African Criminal Justice System
entities such as the South African Police Service, the courts and the correctional services, regulatory
authorities; and the South African government. The findings make a valuable contribution as a
practical, new framework which could be used to speed up the economic growth process through
job creation without the extreme threat of corporate fraud. This would be possible if the South
African historical factors, demographics, and acknowledgement of new talent for job creation are
considered for economic growth and the prevention of corporate fraud.
Purpose
This paper aims to investigate the perceptions of financial accountants and both internal and external auditors regarding the impact of corporate governance (CG) and information technology (IT) on the detection and prevention of fraud within organizations.
Design/methodology/approach
Primary data were collected from 250 financial accountants, internal auditors and external auditors through questionnaires. The non-probability snowball sampling technique was used for data collection, with the sample t -test, one-way ANOVA and paired sample t -test applied for analysis.
Findings
The results indicate that robust CG practices and IT techniques significantly aid in detecting and reducing fraudulent activities by minimizing opportunities, rationalizations, pressures and capabilities of potential employees to commit fraud. Internal controls also play a significant role in reducing instances of fraud. Notably, ethical officers and ethical training were not perceived as significantly effective in preventing and detecting fraud, leading to a perception that fraudulent practices are prevalent and increasing the risk of future fraudulent activities.
Research limitations/implications
This study recommends the adoption of strong CG practices to identify potential fraud within an organization. Moreover, IT techniques should be tailored to specific needs for effective utilization. Furthermore, the government should increase awareness regarding data provision by departments, organizations and other related personnel. Future research could use secondary data from various regions to expand the literature in this field.
Originality/value
This research uniquely combines three significant factors: CG, IT and forensic accounting in fraud detection and prevention. It contributes to the enhancement of literature about fraud and its preventive and detective measures. The results of this study set the seed for future research, government policymaking and enhanced organizational practices.
هدفت الدراسة إلى دراسة أثر استخدام تكنولوجيا المعلومات على فاعليـة نظام الرقـابـة الداخليـة فـي المصارف التجاريـة في مدينة سرت الليبية وذلك من خلال دراسة المتغيرات التالية (البرمجيات المستخدمة و الخـدمـات المصرفيـة عـبـر الانترنت و الاتصالات المستخدمة على فاعلية نظام الرقابة الداخلية فـي المصارف التجاريـة )، اعتمدت الدراسة على المنهج الوصفي التحليلي من خلال تصميم استبانة تم توزيعها على عينة الدراسة التي تمثلت في جميع الموظفين العاملين بمختلف المسميات الوظيفية في المصارف التجارية في مدينة سرت . وتم استخدام عدد من الأساليب الإحصائية أهمها المتوسطات الحسابية والانحرافات المعيارية والوزن النسبي ودرجة الاهمية، واختبار ألفاكرونباخ لاختبار درجة مصداقية البيانات. و معامل ارتباط بيرسون، ومعامل الانحدار المتعدد التدريجي، وأن أهم النتائج التي توصلت الدراسة إليها:وجود تأثير ذي دلاله معنوية للبرمجيات المستخدمة والخدمات المصرفية عبر الانترنت في المصارف التجارية على فاعلية نظام الرقابة الداخلية
الكلمات المفتاحية : تكنولوجيا - المعلومات - فاعلية- الرقابة الداخلية- المصارف
Impact of The use of Information Technology on the Effectiveness of the Internal Control System in
Libyan Commercial Banks
Abstract
This study aims to know the impact of the use of information technology on the effectiveness of the internal control system in commercial banks in the Libyan city of Sirte by studying the following variables (software used, online banking and communications used), the study relied on the Descriptive Analytics method through the design of a questionnaire distributed to the sample of the study where included all employees working in commercial banks in the city of Sirte. A number of statistical methods were used, the most important of which were (arithmetic mean, standard deviations, relative weight, degree of importance), Also the Cronbach's alpha to test the credibility of the data, Multiple Regression coefficient And Pearson's correlation coefficient, The most important findings of the study: The existence of a significant moral impact of software used and online banking services on the effectiveness of the internal control system in commercial banks.
Keywords: Technology - Information - Effectiveness - Internal Control – Banks
The practical relevance of entrepreneurial fraud has stimulated a wide array of research occurring in disciplinary silos. We take stock of the current state of the entrepreneurial fraud literature by conducting a multidisciplinary systematic literature review and synthesize the findings into a unified framework. Taking an inductive approach, our framework depicts the antecedents, inner workings, and ramifications of entrepreneurial fraud. Doing so, we reveal nuances in the inner workings of entrepreneurial fraud, such as variation in the focus and magnitude of deception used to obtain valuable resources from stakeholders and that fraud can service authentic entrepreneurial activities or nonentrepreneurial personal uses. Accounting for these distinctions reveals that fraud can result in a mixture of positive and negative consequences for perpetrators, victims, and societies.
The aim of this paper is to examine the influence of enterprise characteristics on the degree of application of fraud prevention measures. In addition, this paper is supposed to show whether respondents' characteristics affecttheir opinion about the effectiveness of different fraud prevention measures, as well as if there is a difference between the degree of their implementation and respondents' opinion on their effectiveness. The research was conducted in November 2018 and the data were collected using a questionnaire which was taken overto a great extent from N'Guilla Sow, Basiruddin, Mohammad and Zaleha Abdul Rasid [17, pp. 514-517]. Although the non-parametric statistical techniques used showed that there is (1) no influence of enterprise characteristics on the existence of fraud prevention measures and (2) no influence of respondents' characteristics on their opinion about the effectiveness of fraud prevention measures, the median analysis showed that there is some influence. We have also found that there is some difference between the level of existence of the said measures and respondents' opinion about their effectiveness.
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