People Innovation Excellence

Is fraud an exceptional case?

Research shows there is a fundamental misconception concerning the way people define the term fraud. Rossouw (2000) argues the words fraud and corruption are always used interchangeably to describe the phenomenon of unlawful financial acts. Fundamentally the words fraud and corruption are different, for example in terms of the necessity of third-party involvements in fraud (Rossouw, 2000). Yet most of research neglect this element.

Moreover, to commit fraud or embezzlement is not as simple as it looks (Cressey, 1950). The offenders in advance must be a trusted person. “Without trust” they do not have any access to organisational resources. Cressey (1950) argues the more the employee trusted the higher financial losses suffered by the organisation (p. 739). In his study, Cressey highlights persons who engage in the violation of financial trust are predominantly come from loyal employees. The violators use the closeness of relationships. Cressey’s (1950) study suggests that a large proportion of the cases which are related to criminal behaviours are closely related to the interactionist relationship. This means, people with trust relationships, such as love and friendship, feel safer to abuse their occupations for personal financial gain.

In addition, as Cressey explained, if people who are acting as subordinates do not have any intention to commit fraud, it does not mean they cannot be encouraged to get involved in such acts. In the Cressey’s study interventions are seen to be an effective form to change people’ intention and behaviour. Interventions from people who have power prescribe changes for subordinates in a style that may be perceived as being told what to do. Much of which happens due to the influences of favourable stimuli (typically under highly controlled conditions). Cressey’s (1950) argues that stimuli, for example, offering a private solution to the personal problem which is categorised as a non-shareable problem, plays a vital role in how an employee feels and behaves.

Even though Cressey does not mention and explain the interaction between moral judgment and violation of financial trust, his discussion suggests that people are strongly motivated to use of practical reasoning about what morally they ought to do. It emphasises the interplay between the quality of cognitive reasoning and the structure of the environment. Both notions fundamental help people to decide what they have to do. How they reason about what they have to do is determined by the existence of opportunities in the organisation and the quality of stimuli that reinforce people to do what they have to do.

Based on this background, it implies that the variation of individuals’ capability to exercise impulses and emotions accounts for individual differences for engaging in fraudulent activities. In other words, whether their fraudulent activity is categorised as a misdemeanour, it centres on the self-regulation in terms of causal moral reasoning and propensity to take advantage of criminal opportunities. The more people learn about criminal opportunities, and the more they are rationally convinced, the more likely it would be they commit fraud.

This note is extracted from article by Maulidi, A. and Ansell, J. (2021), “The conception of organisational fraud: the need for rejuvenation of fraud theory”, Journal of Financial Crime, Vol. 28 No. 3, pp. 784-796.


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