Journal of Financial CrimeMitigating asset misappropriation through integrity and fraud risk elements: Evidence emerging economies Haniza Hanim Mustafa Bakri, Norazida Mohamed, Jamaliah Said, Article information: To cite this document: Haniza Hanim Mustafa Bakri, Norazida Mohamed, Jamaliah Said, (2017) "Mitigating asset misappropriation through integrity and fraud risk elements: Evidence emerging economies", Journal Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) of Financial Crime, Vol. 24 Issue: 2, pp.242-255, https://doi.org/10.1108/JFC-04-2016-0024 Permanent link to this document: https://doi.org/10.1108/JFC-04-2016-0024 Downloaded on: 04 September 2017, At: 22:04 (PT) References: this document contains references to 39 other documents. To copy this document:
[email protected] The fulltext of this document has been downloaded 251 times since 2017* Users who downloaded this article also downloaded: (2016),"The causes, impact and prevention of employee fraud: A case study of an automotive company", Journal of Financial Crime, Vol. 23 Iss 4 pp. 1012-1027 <a href="https://doi.org/10.1108/ JFC-04-2015-0020">https://doi.org/10.1108/JFC-04-2015-0020</a> (2017),"Predicting fraudulent financial reporting using artificial neural network", Journal of Financial Crime, Vol. 24 Iss 2 pp. 362-387 <a href="https://doi.org/10.1108/JFC-11-2015-0061">https:// doi.org/10.1108/JFC-11-2015-0061</a> Access to this document was granted through an Emerald subscription provided by emerald- srm:501757 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download. emeraldinsight. compared to 2008.. Malaysia Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) Norazida Mohamed Department of Accountancy. 2017 pp. Universiti Teknologi MARA. Out of 200 questionnaires distributed. In addition. Asset misappropriation. Malaysia Abstract Purpose – This paper aims to evaluate the effects of fraud risk elements and integrity on asset misappropriation in the Royal Malaysian Police (RMP). 2005). 242-255 fraud occurrences in 2008 is 530 cases. Kajang. regardless of the measures that have been put in place by the government and professional bodies to minimise their occurrence (ACFE. The results also indicate that minimising fraud risk elements is crucial in reducing the incident of asset misappropriation. Incorporating integrity and fraud risk elements simultaneously in a single framework in context of RMP would enhance the understanding and will be able to provide a framework for practitioners on how to mitigate the incident of fraud.5m. Originality/value – This present paper contributes to the literature by investigating a commonly proposed but underexplored elements of integrity in mitigating fraud. 2. Fraud risk elements Paper type Research paper 1. Universiti Tunku Abdul Rahman. Introduction Fraud is believed to be among the most critical problems and challenges in the current corporate environment (Smith et al.1108/JFC-04-2016-0024 has increased to 6. that went up to 813 cases (KPMG. This implies that integrity is an important value in minimising the occurrence of asset misappropriation. The current issue and full text archive of this journal is available on Emerald Insight at: www. Keywords Fraud triangle. 2011). 2012). and Jamaliah Said Accounting Research Institute. which saw only 5. only 189 were returned. Universiti Teknologi MARA. . data revealed that the total estimated cost of fraud occurrence in 2011 DOI 10. this research also examines whether integrity moderates the relationship between fraud risk elements and asset misappropriation.com/1359-0790. Shah Alam. An interesting finding was made that integrity is negatively related to asset misappropriation.2 Mitigating asset misappropriation through integrity and fraud risk elements 242 Evidence emerging economies Haniza Hanim Mustafa Bakri Department of Accounting. A Journal of Financial Crime KPMG survey in Australia and New Zealand in 2010 reported that the average number of Vol. Either in the private or public sector. fraudulent activities among employees still occur. 24 No.htm JFC 24. while in 2010.3m in losses (KPMG. Design/methodology/approach – Data are gathered from the responses of the questionnaires distributed to the RMP. A total of 200 questionnaires were distributed based on simple random selection from five RMP centres in the capital city. 2010). Findings – The findings indicate that the existence of fraud risk elements significantly affects the incident of asset misappropriation. Integrity. Malaysia. © Emerald Publishing Limited 1359-0790 Similarly in Singapore. Kota Bharu. there are several integrity programmes introduced by the government to enhance the level of integrity. 2013). The fraud triangle theory. which is resilient and embraces universally good values. Zakimi and 243 Hamid. Conroy et al. 2006. thus reducing the number of fraud occurrences in the public sector.. especially in the public sector. (2) that person has an opportunity such as weak control in the organisation that allows the fraudster to act out such behaviour. Lack of integrity among public officers contributes to the loss of public trust (KPMG. 2014). follow the rules and regulation and be accountable for their actions.. This shows that integrity in many organisations.. Fraud can be defined as any action taken to deceive another party to gain benefit (ACFE. . Integrity is also defined as an indicator for trust. there is no concurrence establishment for the word “integrity”. and (3) that person has rationalisation problems or the sort of attitude to commit fraud (Daigle et al. 2013). is essential for them to gain the confidence of the public by delivering their services ethically. Parmalat and other giant companies. accurate and integrity values. 2013. 2012). 2008). 2012). During the 2013 budget speech. which harped on transformation of the public sector services to enhance confidence from the public. Gbegi and Adebisi (2013) suggested a fraud triangle theory to include personal integrity as an additional factor. In the public sector. both at the individual and the corporate levels. Therefore. Dellaportas (2013) and Kassem and Higson (2012) found that factors contributing to fraudulent activities can be located within the fraud triangle theory. integrity is essential for every public servant to ensure that they could deliver their services to the public ethically. such as those involving Enron. several public sector reforms such as transformation of the accounting and budget system have been carried out to ensure that public sector agencies are more transparent in delivering their services to the public. 2013). Basically. In Malaysia. The studies generally agreed that integrity deterred the occurrence of fraudulent activities (Chen et al. Several studies have been conducted to identify why these fraudsters acted in the way they did. In many countries. A KPMG survey in 2013 Fraud risk found that 83 per cent of the respondents believe that fraud is a major problem of Malaysian elements companies (KPMG. many steps have been taken by the Malaysian Government to ensure that all its employees work with high integrity. the issue of fraud has become a serious problem. The same conception was mentioned in the 2014 budget speech. 2014). Mathenge. introduced by Cressey (1950). specifically in the meaning and practice (Kucukuysal. Satyam.. professionalism and confidence (Akir and Malie. integrity in public administration refers to employees’ “honesty” or “trustworthiness” in performing their official duties. Fraudulent activity is also becoming a serious problem in Malaysia. 2005. avoiding “corruption” or “the abuse of office” (Armstrong. Having the integrity criteria in every person is important for the employees to maintain their discipline. competence. For instance. as well as maintenance of the image and credibility of the public sector. the Malaysian Institute of Integrity was inaugurated in 2004 with the aim of developing a nation of people with high integrity. and many researchers have dwelt on why and how this has come to be the case (Zahra et al. For instance. states that there were three factors that Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) could result in fraudulent activity among individuals: (1) that person has pressures or incentives or motives to commit fraud. Since the occurrence of the huge corporate scandal cases that triggered the world in recent years. 2005). the Prime Minister stressed on the working culture and the need to uphold swift. Another group of past studies tend to focus on the role of integrity in minimising fraud occurrence. The percentage is the second highest from the overall findings. it appears that the public sector accounts for the major portion of fraudulent activities and lack of integrity worldwide as compared to the private sector. KPMG Fraud Survey (2011) suggested that there is a need for the government to promote a culture of compliance and the core value of integrity and honesty in any organisation to reduce the risk of fraud. The implementation of the Automated Enforcement System was also done to 244 reduce the level of corruption in the Road Transport Department. this research aims to evaluate the effect of fraud risk factors and integrity on asset misappropriation in the Royal Malaysian Police (RMP). the research also examines whether integrity moderates the relationship between fraud risk elements and asset misappropriation. which shows that asset misappropriation is the most global crime reported by the public sector in all industries. 2013). which resulted in loss to the government. detecting fraud is not an easy task and requires thorough knowledge about the nature of fraud. KPMG (2010) stated that the reason for fraud occurrences in most organisations resulted from the failure of the organisation to set a positive example of integrity in their departments. Similarly. Global Crime Survey. which is more than 70 per cent of the overall results. which is 31 and 28 per cent for the private sector.500 employees in the USA and found that 79 per cent of occurrences of misconduct is attributable to employees who work in government and the public sector. Several flaws have also been highlighted by the auditors. However. This finding is similar to the findings from the AIC for 2008/2009 with 39 per cent of respondents having Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) reported the same. it is necessary to understand why people commit fraud. One of the initiatives under this programme is the “Name and Shame” database. why it is committed and how it can be committed and concealed (Dellaportas. Literature review and hypotheses Napel (2013) considers that to reduce the number of fraud cases and to prevent the occurrence. over five months interviewed 250 criminals whose behaviour met two criteria where the person must have . as they believe that people will be less prone to corruption if there is “someone looking over their shoulders”. This situation runs counter to the main role and function of the public sector. In addition. which explains the factors contributing to fraudulent activities among individuals. The percentages are the highest as compared to publicly listed companies. These numbers show that asset misappropriation is the most common fraudulent activity that occurs in the public sector and the mismanagement of the asset takes a high number. Similarly. The survey used a sample of 170 senior representatives of government and state-owned enterprises in 35 countries. asset misappropriation takes the highest percentage. Cressey (1950) introduced the fraud triangle theory. 2. the KPMG Integrity Survey 2013 provided a view of corporate fraud and misconduct as derived from the experiences and perceptions of more than 3. who was a criminologist. This is consistent with the PwC’s Government and Public Sector Analysis of 2011. among the types of fraudulent activities in the public sector. In addition. Cressey (1950). Hence. compared to fraudulent financial reporting and corruption. Therefore. JFC The Malaysian Government has introduced some programmes in an effort to fight 24. Other than that.2 corruption. including inability of the public officers to manage the grant given by the government. the government also created a compliance unit across government bodies. Therefore. which has the objective of listing all the offenders convicted on corruption-related charges. PWC Global Economic Crime Survey indicates that more than one-third (37 per cent) of the respondents reported that their government or state-owned enterprises had experienced economic crime in the previous 12 months. Malaysia’s Auditor-General’s Report of 2012 also reported that assets worth millions were reported missing for the period 2010-2012. failed investment and non-financial motives such as anger towards the employer. 2005). Over the years. which means complete (Rosalina and Firmanto. cheerful and having a wide range of interest. elements which are pressure. Therefore. The researcher indicated that individuals with high integrity normally have a high intellectual capacity such as being calm. Based on the integrity book written by Stephen Carter. A study by Steven Dellaportas (2013) found that all of the elements of the fraud triangle are due to the fraudulent act committed by the inmates who participated in the study (Dellaportas. The word complete means that there is no fault and no cover. specifically on moral duty and obligation. 2013). he found that the inmates were influenced by financial pressures such as distressed business. In public administration. the finding from this study indicates that only enforcement has a significant influence on job conduct among the employees of the organisation. These motives coincided with the lack of proper business administration that created opportunities to commit fraud. and there are various concepts that have been conceptualised. Cressey’s theory has been well known as the “fraud triangle theory” (Kassem and Higson. Therefore. From the study. followed by a desire to seek revenge by stealing the company’s cash. Integrity is widely discussed nowadays. Integrity comes genuinely from a Latin word “integrate”. which are prevention. There are many studies agreeing that high level of integrity among the leaders would help the company to avoid any . Akir and Malie (2012) conceptualised integrity into three dimensions. 2013). if the management of the company enforces a rule and regulation in the firm. 2013). acting on what you have discerned although at your personal cost and saying openly that you are practicing or acting on your understanding and belief of right from wrong (PWC. Based on the interviews with four small groups of male accountants who were serving custodial sentences Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) for committing fraud. Fraud risk Cressey finally concluded that three factors must be present for a person to violate trust. PWC defines integrity as adherence to moral and ethical principles such as soundness of moral character and maintaining honesty. Another work by Bird (2006) found that there would be some differences among the personality traits that resulted in integrity among employees. Job conduct in this study is illustrated by behaviour or action or what somebody does and how they conduct themselves. Pressure is the incentive for a person to commit fraud. accountability and enforcement. the behaviour of employees could be a sign used by the management to assess the level of integrity among the employees. integrity is commonly defined as honesty and trustworthiness during the discharge of official duties. while opportunity occurs when following through with the intention to commit fraud and rationalisation helps the fraudster to deal with cognitive dissonance correlated with the behaviour (Dellaportas. Kaptein (2007) defines integrity as the degree to which people or associations of people satisfy the legitimate belief and expectations of the world around them. serving without practicing corruption or abusing office facilities (Armstrong. 2009). However. been given a position of trust in good faith and then breached the trust. Having integrity among employees in an organisation is important for the company to prevent its employees from being involved in fraudulent actions. 2012). being engaged in personal fantasy and denying unpleasant thoughts. who is a law professor at Yale University. Many studies have been carried out to test this theory and whether it can be used as a risk 245 indicator for the organisation to anticipate or detect fraud. The offenders also rationalised their act with the perception that no one would be hurt and the belief that they would pay back the stolen money. integrity is laid out in three steps: discerning what is right and wrong. opportunity and rationalisation. while people with low integrity are reported as having unconventional thought processes. this will affect the job conduct among employees of the organisation. Therefore. The study used fraudulent activities by the managers to measure level of integrity among the companies. the integrity of public officials is said to be the key determinant factor of public trust in the government and a central concept in good governance (Nieuwenburg. Srivastava et al. could deter police officers from being involved in fraudulent behaviour. That is. Similarly. as there is high integrity among the managers. This is because personal integrity is easily observed. . The results of the study show that the CEO’s integrity is positively related to earnings quality. truthfulness and the accuracy of their actions. Fraud will not occur if they could make ethically sound decisions. the observation could help the evaluator to know whether that person could be involved in fraud. Thus. is the reward system that is based on the employee’s performance. Chen et al. Compensation system. by evaluating the individual’s decisions and his decision-making process. it can be assumed that integrity on the part of top management can deter fraudulent activity on the part of an individual. fraudulent action will not occur. Consistently. The study reveals that strong enforcement of regulations by the 246 organisation to uphold the integrity level among the police officers.2 integrity are hypothesised to have strong influences on the corruption cases within the Kenyan Police Agency. (2012) provides empirical evidence on the relationship between managerial integrity and earnings management. (2013) stated that lack of executive integrity in the public companies is positively related to the incidence of fraud. (2003) stated that the absence of management integrity is also among the red flags other than management incentives and opportunity that require the auditors to do rigorous audit to reduce audit risk. The study stated that the manager of the company manipulated their earnings to prevent themselves from being delisted. JFC unethical behaviour among their employees. on the other hand. ethics and 24. 2009). a study done in Indonesia by Rosalina and Firmanto (2009) found that integrity has no influence on unethical behaviour or fraud among the staff of financial and procurement divisions of a higher educational institution. Adversely. as having integrity is believed to be able to prevent fraud. 2007. the more likely the individual is to be able to rationalise the acceptability to be involved in fraud. In the public sector. OECD. that is. This is because having integrity among individuals could stop them from fraudulent acts due to the individual’s principles of honesty. Dikolli et al. The finding of the study supported the hypothesis that low level of ethics and integrity among police officers would expose them to act fraudulently and involve themselves in corruption. regardless of being under pressure to meet external expectations or the lack of adequate monitoring by the auditor. training and reviewing of the officers’ behaviour. as well as creating a high professionalism culture in the police department. The auditors believe that honest and high-integrity individuals could also be involved in fraud if the environment puts sufficient pressure on them or if they have a wide opportunity. The study supported the hypothesis and found that earnings management will not occur in the firms if the executive or managers of the companies have integrity. The greater the pressure and opportunity. Some studies also believe that managers involved in earnings manipulation have the objectives to show that they are doing well after the merger and acquisition (Louis. They measure chief executive officer (CEO) integrity Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) based on employee surveys and annual shareholder letters. which is beneficial to the organisation. Gbegi and Adebisi (2013) proposed to include personal integrity in the fraud triangle theory. 2004). In the work by Mathenge (2014). such as providing ethics classes. The researcher believes that once the employees are rewarded and given recognition upon their performance. Self-administrated questionnaires were distributed to 150 police officers in Kenya. The researcher hypothesised that integrity and compensation systems influence unethical behaviour. it could lead them to act more ethically. There is a positive relationship between fraud risk elements and asset misappropriation. such as time pressure. Kassem and Higson. Rationalisation. the tendency to commit fraud exists. Mohamed et al. Dellaportas (2013) suggested that pressures such as financial and work pressure could lead someone to be involved in fraud to reduce the level of pressure or end it.1 Integrity and fraud occurrence Integrity has always been discussed together with ethical behaviour among the employees in the organisation. A study by Dikolli et al (2012) suggested that managerial integrity. Based on the survey done by PWC (2011). however. 2016). such as fear of losing one’s job. 2012. 2. there is a tendency for them to commit academic fraud. and the attitude of the manager to rationalise their action has a positive influence on their preparedness to act fraudulently. such as copying others’ work. to finish assignment. Many researchers found that integrity can deter fraudulent activity. The study supported the view that the factors contributing to make local authority employees to be involved in asset Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) misappropriation were mostly due to financial problems. it can be concluded that fraud triangle elements have a positive relationship with fraud occurrence in an organisation. as the probability to be caught is low. lack of physical control over assets and the assumption that everyone else is doing it. Integrity is about acting honestly and following the policies and procedures of the organisation (Rosalina and Firmanto. Widianingsih (2013) suggested that when students come under pressure. This shows that the culture of the company enables the employees to be involved in fraud. Gbegi and Adebisi. Many research studies indicated that fraud triangle elements have influences on Fraud risk fraudulent activities (Hernandez and Groot. arises from weak internal control of the company. such as the ability of the management and the CEO to foster policies and procedures based on law and regulations.. These authors argued that if an individual has either pressure. such as an ineffective audit committee. believes that opportunities. thus enabling the employees to commit fraud. When people have integrity. such as less segregation of duties due to staff reduction. A study by Kula et al. 2007. Aghghaleh et al. (2014). as they believe that the behaviour is acceptable. Dellaportas. . Hernandez and Groot (2007) in his study suggested that compensation pressure has a positive influence on fraud. as they believe that a particular behaviour is wrong and it will jeopardise their belief in acting honestly. Omar et al. (2014) observed that the root causes of asset misappropriation in local authorities are the fraud triangle elements. 2013. Similarly. Weak control environments will present opportunities for the employees to commit fraud. Tolerance of petty theft by employees is an example of rationalisation or the sort of attitude that is believed to result in misstatements of financial report. opportunity or rationalisation. this enables the employees to do fraud. Opportunity. the following hypothesis is proposed: H1. where the employees will misrepresent the financial statement for them to get a bonus and salary increment. Hence. (2011) proposed that the most important risk factor group to reduce misstatements arising from misappropriation of assets is “attitudes/rationalisations”. Therefore. while opportunities. such as asset misappropriation. is due to the 247 work culture that will allow individuals to justify their behaviour with a good reason. Having a strong integrity among employees could prevent them from being involved in unethical behaviour. have a positive influence on fraud in many organisations. it is proposed that the greatest risk of fraud is due to pressures. 2009). it will restrain them from acting fraudulently. and rationalisation due to the work culture are among the reasons public sectors employees are involved in fraudulent actions. elements 2013. as there is a lack of control by the audit committee members. on the other hand. however. the following hypothesis is proposed: Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) H2. (2003) suggested that even in an environment of high incentives and opportunities to do fraud. .2 Integrity as a moderating variable Cressey Donald believes that fraud would occur if an individual has pressures such as financial and work pressures. 2005). opportunities due to a weak control mechanism and the ability to justify wrong behaviour (Dellaportas. Similarly. it can be concluded that integrity has a negative relationship with fraud occurrence in an organisation. Ta et al. it will prohibit him from being involved in fraud. Lanyi and Azfar (2005) also supported the view that integrity means honesty. 2013). fraud triangle elements can influence fraud occurrence. fraud risk elements have no influence on fraud occurrence. 2. when there is integrity among employees. impartiality. and what is acceptable and is not. honesty and truthfulness. Turner et al. Armstrong (2005) suggested that integrity in public administration is probity. principles. Thus. regardless of the fact that he is facing any financial pressures. Chen et al (2013) proposed that managers who have high integrity tend to follow the company’s policies and procedures. Therefore. which govern an individual’s behaviour and choices. all of these qualities will stop them from being involved in a fraudulent activity. (2014) defined integrity as ethics. JFC will result in decreasing fraudulent activities. Moreover. professionalism and confidence.2 his own findings that executives who are lacking in integrity tend to ignore policies and procedures to pursue self-interests at a cost to other investors. Hence. As such. Chen et al. thus refraining from fraud in any circumstances. Ethics is a person’s value. Hence. Thus. morals. This is because police 248 officers who have integrity are believed to have trustworthiness. competence. Hence. However. High integrity and moral values are the elements of honesty or trustworthiness. he or she will not be involved in any fraudulent action. There is a negative relationship between integrity and fraud occurrence. if an individual is able to distinguish what is bad and wrong. but when there is no integrity among the employees. therefore. fairness. the individuals will always maintain these qualities in performing their job regardless of the situation (Armstrong. Mathenge (2014) suggested that a low level of ethics and integrity among Kenyan police officers would expose them to involvement in corrupt activities. unethical decisions and fraudulent behaviours are more likely to flourish among them. which could lead them to differentiate right from wrong and what should and should not be done. and acceptable or not acceptable. but may try to reduce the incentives. the following hypothesis is proposed: H3. This person is believed to ensure that all of his or her decisions are in line with the policies and procedures of the firm. opportunity or a non-ethical culture. (2013) supported these findings with 24. which leads them to act ethically and automatically avoid fraud activities. which will improve his or her behaviour and lead him or her to act ethically at all times and under any condition. the individual will exhibit a very high integrity and may not only fail to respond to such incentive. if the particular person has high moral values and integrity. individuals with high integrity will always ensure that they act honestly and truthfully in rendering services to the public. thus. discipline and methods that are consistent with the law. morals are standards of good and bad. Integrity moderates the relationship between fraud triangle elements and fraud occurrence. A seven-point Likert scale has been used in this part. while 42 (22. Based on the Cressey Donald’s fraud triangle theory. (2005). internal control of the organisation and how they rationalise their actions. In total. Respondents were required to express their opinion on the level of opportunity. There are eight ranking job positions in the RMP that the researcher . In the demographic part.5 per cent) and 36-40 years (4. The questions asked were about the individual pressures.60 per cent). which is the majority of the respondents. the questions consist of gender. such as taking company’s asset for personal use. falsification of the documents and record to gain personal benefits. followed by respondents aged 31-35 years (20. There are a few scenarios given. while 57 (30. All the questions were adopted with some modifications from Wolfe and Hermanson (2004). A total of 200 questionnaires were distributed to the staff of the RMP. RMP is one of the government agencies that are directly under the Ministry of Home Affairs. factors of fraud occurrence among individuals are pressure. there is only one person among the respondents aged below 20 years (0.10 per cent).30 per cent). For the first part.80 per cent). 12 questions were asked to assess respondents’ opinion on the level of asset misappropriation. which consist of pressure. are already married (68. Out of 200 questionnaires distributed. 4. with “1” indicating that the respondent had never been involved in the situation and “7” Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) indicating that the respondent is very frequently involved in the situation.20 per cent).15 per cent) of them are divorced.20 per cent) of them are still single. Ten ethical cases related to enforcement officers were put forward. 20-25 years (11. age. Dellaportas (2013) and Kassem and Higson (2012). specifically on their personal and working background.50 per cent). The questionnaire was adopted with some modifications from several studies which would reflect integrity as a police officer. The second part asked about their behaviour towards asset misappropriation at their workplace. In total. the respondents were asked to 249 answer the questions regarding their demographic information. (2000) and Gonzales et al. where “1” indicates that the respondent strongly disagrees with the statement and “7” indicates that the respondent strongly agrees with the statement. The questionnaire includes four parts. The third section under demographic questions required the respondents to provide information about their marital status. The questionnaires were distributed based on simple random selection from five RMP centres in Kuala Lumpur and Selangor. 147 (77. marital status. The third part asked the respondents’ opinion regarding the fraud triangle elements. Findings There were 189 responses received for this study out of the 200 questionnaires distributed to the RMP officers. average income. However. Methodology Fraud risk The main source is primary data that are gathered from the responses of the questionnaires elements distributed to the employees of the RMP. Subsequently.20 per cent) are female. pressure and rationalisation using the seven-point Likert scale. and respondents were required to rate the seriousness of the cases ranging from very serious (“1”) to not serious at all (“7”). opportunity and rationalisation. 41-50 years (9. majority of the respondents are aged between 26 and 30 years (41. Also. Part 4 of the questionnaire was to measure the ethical values of the respondents. The questions were adopted from Klockars et al. This measurement has been frequently adopted in ethical studies. Also. 51 years and above (12. only 189 were returned. the question asked about their job position in the RMP. opportunity and rationalisation (Dellaportas. job position.80 per cent) respondents involved in this study are male. 129.30 per cent). As for the age. 3. as well as taking or borrowing of office cash. years of service in the organisation and education level. Malaysia. three (1. 2013). 480. Normality test. Sergeant 24. Regression analysis findings Regression analysis was conducted to identify whether the dependent variable. the respondents were asked about their average monthly income.28 to 9. Before proceeding with the regression analysis.000. The last question for the demographic section was to enquire about the level of education among the respondents. Among the respondents. The results show that the value for skewness ranges from ⫺0. p ⫽ 0.656 to 1. diploma.30 per cent) are Corporal.30 per cent) of them have already worked in the RMP for between one and three years. respectively. There are also 16 (8. while 11 (5. In general.468. 5 (2. as both skewness and kurtosis values are within the acceptable range.000. reliability and factor analysis Prior to testing the data using regression. and 3 (1. Of the 189 total respondents. which are 23 (12. 24 (12. which is the majority of the respondents. Therefore.10 per cent) of them have a master’s degree or PhD. Skewness and kurtosis testing have been used to describe the normality of the data.001 and RM5. while 46 (24.70 per cent) of the respondents stated that they have already served their current organisation for between 6 and 10 years. Majority of the respondents have an SPM/ MCE/certificate. 18 (9. Thus.60 per cent) of them are Sergeant Major. followed by 42 (22. has a linear relationship with the independent variables. which are fraud triangle elements and integrity.5 per cent) of them have a diploma and 2 (1. the data are assumed to be normally distributed. The model is used to predict fraud occurrence when the result shows that there is a significant value at 5 per cent (F ⫽ 45. 40 (21. The rest Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) of the monthly average income of total respondents are between RM4. which is 67 (35. it .000.000) for Model 1.20) of them are Inspectors. and majority of the respondents.001 and RM4. Lance Corporal. The level of education can be categorised into four levels. 38 (20. The last two questions provide information regarding the number of years that they have already worked in the RMP. including Constable. ANOVA Table I was used to identify the significance of the model in predicting fraud occurrence.20.2 Major and Inspector. Corporal.001 and RM3. which is 36 (19 per cent) of the respondents.20 per cent) out of 189 of them. Sergeant. which is 71 (37. indicating that all questionnaire items asked to measure the variables are valid.60 per cent) of them are Constable.5 per cent) Sergeants. This result indicates that all of the variables are considered to have slight skewness and kurtosis. as well as their level of education. In total.001 and above. Reliability test revealed that the Cronbach alpha ranges from 7. which is 54 (28. which is fraud occurrence.60 per cent) of them.80 per cent) of them are holding other positions such as Assistant Superintendent of Police.6 per cent) of them have worked in the RMP for less than one year. 5. The data are assumed to be normally distributed when the value of skewness is close to 0 and value of kurtosis does not exceed 3.000) for Model 2.80 per cent).60 per cent) of them. which is 127 (67. 6. and there is also a significant value at 5 per cent (F ⫽ 30. The second highest number of the respondents earned an average monthly income between RM2. Majority of the respondents earn an average monthly income between RM3. university degree and masters/PhD.0.000 and RM5.40 per cent) out of the 189 total respondents. Among all the respondents. p ⫽ 0. and the kurtosis values of all the variables are between ⫺0. have already worked in the RMP for more than 11 years. In total. 20 (10. which are SPM/MCE/certificate.000 and RM2.490 and 2. followed by the ranking of average monthly income between RM1. 250 In the sixth part.20 per cent) who had graduated with a university degree.626.287.10 per cent) of them are Lance Corporal and 61 (32. this shows that there is a linear regression between dependent variable with at least one independent variable. JFC targeted to be reached. the data were tested for normality.20 per cent) and 9 (4. 2005).065 ⫺3. elements. Regression result of a Note: Dependent variable: fraud occurrence asset misappropriation .796 Table II.003.322 0. This result is consistent with the finding by Mathenge (2014). which are financial pressure.012 0. where p ⬍ 0. this study proves that 251 asset misappropriation occurs if there is pressure among the employees. The second objective of the study is to identify the relationship between integrity and asset misappropriation.505 2.680 0.259 0. who stated that having integrity among police officers will reduce the number of fraud occurrences in the organisation. integrity. integrity. p ⫽ 0.506. because integrity consists of the elements of trustworthiness and honesty (Lanyi and Azfar. who Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) found that the reasons why all the inmates were involved in fraudulent action are pressure. which found that the root causes of asset misappropriation among local authority employees are the fraud risk elements. fraud triangle elements ⫻ integrity.025. fraud triangle Table I. where p ⬍ 0.000 IG ⫺0.506 0.65094 2 0.196. the coefficient for fraud triangle elements is 0.008 FT 0. bPredictors: (constant). Thus.353 0. H1 proposed that there is a positive relationship between fraud risk elements and asset misappropriation. H2 proposes that there is a negative relationship between integrity and asset misappropriation.048 ⫺0. Integrity could prevent the police officer from being involved in asset misappropriation.506) indicates that every 1 increment in the fraud triangle elements will lead to a fraud occurrence of 0. p ⫽ 0. elements The first objective of the study is to examine the relationship between fraud risk elements and asset misappropriation.196 0.65258 Notes: aPredictors: (constant). 2013). there will be a reduction of fraud occurrence by 0. t ⫽ 7. cVariable: fraud occurrence Model summary b Variables Coefficients Standard error t p-value (Constant) 1.196) indicates that for every 1 increment of integrity. This result has a similar finding with Dellaportas (2013). The coefficient for integrity is ⫺0. can be concluded that there is at least one independent variable in this study that affects the Fraud risk fraud occurrence variable.329 0.574 0. fraud risk elements. Therefore. opportunity and rationalisation. Similarly. Chen et al (2013) concluded that lack of integrity among the executives in many companies will result in fraudulent actions.318 0.067 7. supervision and monitoring that leads to much opportunity to commit fraud and rationalisation that enables them to justify their action. Based on Table II. (2014).025 0.05 indicates that this result supports H2.05 indicates that the result supports H1. whether it is financial or non-financial pressures.506. The result is also in agreement with the study done by Mohamed et al. The beta coefficient for fraud triangle elements (0.196.552. an individual who acts and works according to Model R R2 Adjusted R2 Standard error of the estimate a 1 0.329 0. t ⫽ ⫺3. It could also be related to the ability of an individual to follow the policies and procedures of the organisation (Chen et al.574b 0.552 0.000.003 FT ⫻ IG ⫺0. The beta coefficient for integrity (⫺0. lack of internal control system. low asset control that creates opportunities and the ability of the employees to justify their fraudulent actions. This result indicates that having integrity among RMP employees will not moderate the relationship between the fraud triangle elements and fraud occurrence. It is also a subjective belief that depends on an individual’s personal views. such as . where p ⬍ 0.259. coefficient for moderating variable is ⫺0. This is because regardless of the situation faced by an individual. She believes that integrity is a subjective element and is viewed differently by different people. opportunity and rationalisation have significant impact on fraud occurrence among RMP employees. asset misappropriation will still not occur. t ⫽ ⫺0. This study also seeks to identify whether integrity could moderate the relationship between the fraud triangle elements and fraud occurrence. have the opportunity and could rationalise his or her behaviour. such as their family. if he or she maintains honesty and trustworthiness is being able to follow the policies and procedures of the organisation. opportunity and rationalisations were found to be the reasons why the offenders were involved in white-collar crime. Discussion and conclusion This study consists of three objectives. Results from this study are similar with the work by Rosalina and Firmanto (2009). asset misappropriation will still occur among RMP employees if they are facing pressures. H3 proposed that integrity will moderate the relationship between the fraud triangle elements and fraud occurrence. this study proposed that the positive impact of fraud risk 252 elements on fraud occurrence will be mitigated by the presence of integrity among RMP employees. Based on the result in the Table II. as illustrated by Cressey (1950). where the fraud triangle elements that consist of pressures. Therefore. Pressure. other people believe that integrity is the accurate and the most appropriate action that will give benefit to the other party. on the other hand. Therefore.796. The third objective of the study is to identify whether integrity can moderate the relationship between the fraud triangle elements and fraud occurrence. is the incentive that could motivate an individual to be involved in fraud. the possibility that the individual will commit fraud exists. They believe that their action could benefit the other parties. 7. p ⫽ 0. Therefore. he or she will act ethically and prevent himself or herself from acting fraudulently. when she found that integrity has no influence on unethical behaviour or fraud among employees. as he or she is maintaining Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) honesty and trustworthiness and will not violate the policies and procedures of the organisation. JFC policies and procedures will automatically work with ethical values and maintain his 24.2 honesty. even though they have integrity within themselves. because the view of integrity is different between people. More specifically. such as personal pressure or work related pressure. The pressure could result from personal problems. the different views could lead to different actions. some people who have integrity still get involved in fraud if they face pressure. The findings of the study supported the hypothesis. has the opportunity and could justify his or her action. Some people will perceive that integrity is the action of being honest. which somehow will result in unethical behaviour by the individuals. in which pressures.012. They have their own reasons why they are involved in asset misappropriation. This finding is similar with the findings of Dellaportas (2013). This means that if a person is under pressure. Thus. have opportunity or are able to rationalise their action. where the hypothesis proposed that there is a positive relationship between the fraud triangle elements and fraud occurrence. The first objective is to identify the relationship between the fraud triangle elements and fraud occurrence. which are to identify the relationship between the fraud triangle elements and integrity with the fraud occurrence in the public sector. if he or she is facing pressure.05 indicates that this result does not support H3. which will prevent him from getting involved in fraudulent actions. this research measured the fraud triangle elements and integrity as factors contributing to the . which will stop them from misappropriating the organisation’s asset. or has some space to do fraud. However. Second. The result of the study is aligned with the results from the study of Mathenge (2014). including capability (the fraud diamond theory). Future research could include the capability elements as a factor contributing to the occurrence of fraud among public sector employees. such as misappropriation of the organisation’s asset. When an individual is facing pressure. while lack of integrity among police officers in Kenya will lead to a high number of corruption cases among the police officers. results from the weak internal control that could give space to an individual elements to act fraudulently. inadequate documentation of transactions. lack of segregation of duties. that particular person is believed to have integrity values. or from the work environment. it ensures that they will act honestly and according to company’s rules and regulations. Integrity is honesty and trustworthiness. if the people have integrity. Therefore. The third or the last objective of the study is to identify the relationship between the fraud triangle elements and fraud occurrence with the moderating effect of integrity. on Fraud risk the other hand. It is also the ability of an individual to follow the policies and procedures of the organisation. Opportunity. it could stop them from being involved in fraudulent actions. thus 253 leading him or her to be involved in fraud with the belief that he or she is doing that for good. this study proves that when pressure or opportunity or rationalisation exists among RMP employees. the sample of the study is RMP employees representing the public officials in Malaysia. Third. weak internal control such as improper authorisation processes. Based on the analysis that has been conducted and discussed in the previous chapter. when a person perceives that there is a serious problem if the police officer does not act honestly and violates the code of conduct as a police officer. it will lead him to act fraudulently. financial pressures or addiction pressures. as illustrated by Cressey Donald. Therefore. is the ability or attitude of an individual that enables him or her to justify his or her wrong behaviour. respondents were asked to rate the scores on a seven-point Likert scale for all the variables which can lead them to give their personal judgment with bias and a lack of accuracy. who found that having integrity among police officers in Kenya will reduce the occurrence of corruption. when individuals have integrity. which will prevent him from getting involved in fraudulent actions. there are other government agencies and departments that could represent the public sector. or is able to justify his behaviour. this study only did its analysis based on the fraud triangle elements and did not take into account the extension elements of the fraud triangle theory. As such. the hypothesis is supported where integrity has a negative influence on fraud occurrence among RMP employees. However. The first limitation of this study is the personal bias and possible judgmental error. future research could select other government agencies as their sample to measure the relationship of the fraud triangle. this study identifies the relationship between integrity and fraud Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) occurrence in which the hypothesis suggests that there is a negative relationship between integrity and fraud occurrence. as they are acting with full honesty and following the rules stated by the organisation. weak physical controls over assets and records and lack of independent internal checks will leave the space for any individual in the organisation to misappropriate the company’s asset. In this study. Rationalisation. it will lead them to act fraudulently. integrity and fraud occurrence in the public sector. For the second objective. Fourth. Based on the Commission (2012). Based on the questionnaire. However. there are some limitations of this study. The hypothesis that has been proposed in this study is whether integrity moderates the relationship between the fraud triangle elements and fraud occurrence. Regional and International Developments and Emerging Issues. Bribery and Corruption Survey.. 171-180. Aghghaleh. Emerging Markets Review. 167-174. Information Management and Business Review. and Emerson. 37 No. Vol. opportunity and the fraud triangle”. “Integrity. (2011). T.. pp. (2006). 29-39. Research Memorandum ARCA-RM. future 24. Washington. Hernandez. Ivkovich. J. 15. (2013). Research for Practice.M. S. and fraud in Chinese listed firm”..R. Vol. 191-195. “Integrity dimensions and religious orientation in aspect of employees job conduct: an exploratory model building”.J. Iskandar. and Lee. Determinants of Turkish Police Officers’ Perception of Integrity: Impact of Organizational Culture. Conroy. International Journal of Business and Social Science. Enhanching Police Integrity. “Honoring one’s word: CEO integrity and accruals quality”.. Last. W. Hayes. M. E.C. Working Paper. 1. There are many other factors that contribute to fraud.how can it help forensic accountants in fraud investigation in Nigeria?”. other limitations in this study are time and cost constraints. pp. KPMG (2011). “Executive integrity.B.. and Schmitt. 23. (2014). (2008). 1-7.L. Daigle. R. 2 No. S. Journal of Emerging Trends in Economics and Management Sciences. audit opinion. 6 No. 3. “Conversations with inmate accountants: Motivation. Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) pp. “Managerial assessment of employee fraud risk factors relating to misstatements arising from misappropriation of assets: a survey of ISE companies”. and Morris. “British University in Egypt School of business and economics. and Groot. Vol. 1. 72-91. available at: http://ssrn..S. 62. Mayew. Harver. W. Schofield.B. A. S. Fullerton. B. Office of Justice Programe.. JFC occurrence of fraud.F. D. A. Fraud and Misconduct Survey 2010.M. Hou. California State University. Kula. KPMG (2010). 31.ist. (2006).R. R. Gonzales. S. Z. Chen. Yilmaz. 129-138. and Adebisi. Report to the Nations 2012 Global Fraud Study Association of Certified Fraud Examiners. Armstrong. G. A.J. Integrity in the Workplace: An Analysis of Personality. W. Akir. Cumming. Kucukuysal. R. S. Dikolli. 32 No. Diego. 3 No. (2012). 4. Vol. T. (2012). C. CA. (2005). European Journal of Accounting Auditing and Finance Research. pp. “KPMG Malaysia fraud (2013)”. E.jsessionid Bird. and Mohamed.R. Integrity and Occupation..D. and Haberfeld. T.R. P. J. and Kaymaz. D. National Institute of Justice.W. 2. and Malie.E. B. K. The Measurement of Police Integrity. (2012).. “The new fraud diamond model . KPMG (2013). Journal of Accounting Education. “Dr Phil and Montel help AIS students ‘get real’ with the fraud triangle”. Kaynar. Vol.psu. 87 No. “Fraud risk factors of fraud triangle and the likelihood of fraud occurrence: evidence from Malaysia”. (2000). Accounting Forum. pp. Loughborough University. and Steffen.com/abstract⫽2131476 Gbegi.edu/viewdoc/download.. . Procedia – Social and Behavioral Sciences. pp. 146-159. Vol. pp. (2014). V. D. Klockars. J. O. “Corporate fraud: preventive controls which lower fraud risk”. and Higson. T. 1 No. hence. (2013). Social Science Quarterly. C. S. Vol. 2. References 254 ACFE (2012). (2005). Kassem. “Changing ethical attitudes: the case of the Enron and ImClone Scandals”. Vol. available at: http:// citeseerx. Vol.K. National Institute of Justice.F. S.J. Singapore Fraud Survey Report 2011.R. DC.N. (2013). corresponding author: Rasha Kassem”. pp. (2007)..2 studies should identify and examine these other factors. Vol. transparency and accountability in public administration: recent trends”. Dellaportas. 252-260. (2013). 2.. R. 5-14. please visit our website: www. “The integrity paradox”. J. “Cooking the books: the case of Malaysian listed companies”. A. K. A. Management Fraud. K. and Johari. Mock. Public Integrity. M. 213-224.edu. 2 No. Z. D. 13. 1. P. R. (2012). pp. A. “Through the ethics looking glass: another view of the world of auditors and ethics”. 31 No. 803.. I. Journal Ekonomi Dan Keuangan. 1-18. Preim. Ta. 9 No. 420-432. Vol. Jomitin. Downloaded by DIPONEGORO UNIVERSITY At 22:04 04 September 2017 (PT) OECD (2009).T. “An analysis of the fraud triangle”. Public Policy and Administration Research. Srivastava. “The fraud diamond: considering the four elements of fraud”. L. H. 23 No. Guide on Fighting Abusive Related Party Transactions in Asia. Zakimi. incentives. 2. D. Business and Information Management Auditing Research Workshop. (2014). (2007). pp. Bakar. 70 No. N. Report to the Nations on Occupational Fraud and Abuse 2014 Global Fraud Study. 2.P. Idris.com/licensing/reprints. (2004).my For instructions on how to order reprints of this article. Turner. O. (2004). Zahra. elements Louis. S. Widianingsih. (2016). 4 No. N. International Journal of Business and Social Science.D.R. B. pp. OH. 6. and Hermanson. Mock. Shahbani. June.P.com . “Students cheating behaviors: the influence of fraud triangle”. Tools for Assessing Corruption & Integrity in Institutions Tools for Fraud risk Assessing Corruption & Integrity in Institutions. Vol. Hashim..A.. and Rasheed. A. opportunity. Australian National university. 255 Napel. Mohamed.J. D. p. International Journal of Computer and Information Technology. 2. F. G. Martin. and Radzi. The University of Memphis Working Paper. 4 No. “Corporate crimes in Malaysia: a profile analysis”. 1. Journal of Financial Crime. Smith.. 3. “Risk factors of occupational fraud: a study of member institutions of the national association of independent colleges and universities”. T. “Integrity modeling – a study among Malaysian academic management officers”.T. Vol. and Hamid. and Baharuddin. (2005).P. 3 No. (2013). pp. (2003). and Turner.. 20 No. (2007). 1. (2003). Mathenge. R.A. “Application of fraud triangle in determining fraud risk: a case”. and tendency of fraud”.M.A. Vol. Omar. “Earnings management and the market performance of acquiring firms”. and Firmanto. J. Journal of Financial Economics. “Auditors’ perception of fraud risk indicators Malaysian evidence”. Omar.uitm..S. Lanyi. Wolfe. “Integrity.F. Omar. pp. Rosalina. Vol. Vol. mitigating factors and forensic audit procedures on fraud risk”. T.. (2005). “The antecedents and consequences of top management fraud”. (2005). Nieuwenburg.J. International Conference on Management. Journal of Management. 179-186. 4th. Further reading ACFE (2014). R. (2013). pp. pp. August. K. Vol. Iskandar. 110. and Srivastava. 73-85. Y. N. Vol.L.. Vol. 16 No. Vol. Journal of Business Ethics. “The effects of integrity. (2014). Managerial Auditing Journal. Z. Said. pp. unethical behavior.emeraldgrouppublishing. M. 2. Vol. 121-148.R. A. 67-79. pp. “An empirical study to measuring corruption and integrity in Kenyan police agency: an ethical perspective”. pp. Vol.L. and Haron.L. N. Review Integrity Business Economics Research. 74. Corresponding author Jamaliah Said can be contacted at: jamaliah533@salam. R.. 170-176. (2014).htm Or contact us for further details: permissions@emeraldinsight. S.. and Azfar. L.