People Innovation Excellence

Is fraud an ethical issue?

Studying human behaviour in the fraud domain is something of a mystery. It is difficult to predict fraud. Individuals perpetrating occupational fraud, in general, are law-abiding citizens. They do not intend necessarily to become fraudsters. They enter an organisation with the intention voluntarily to accept and comply with the regulations, protocols and codes of conduct of the organisation. They are ethically aware of a particular set or system of linked organisational cultures, customs and of a specified pattern of relating and behaving. Duh et al. (2010) opine it is imperative for organisations to create a moral environment for employees. As it provides behavioural cues for an employee’s ethical conduct and commitment to the goals of the organisation.

Research in the behavioural and psychological sciences has made clear that every individual tends to model the behaviour of others and becomes bound up with his/her group membership (Bandura, 1991). In a group setting, people typically take a stand based on a sense of who they are and where they belong. In many situations, employees often behave not only as an individual but also as a member of their group where they work. Research shows, however, the decisions about doing what they perceive “ethical” or “unethical” relies on the moral judgements they make in their conduct (Brunton and Eweje, 2010). In inner processes, moral judgement arises based on an emphasis on reasons or rationalisations. We, therefore, agree with Trevino and Brown (2004) suggesting that individual’s decisions to perform ethical or unethical behaviours depend much more on a standard of rationality, which is a product of conscious moral reasoning.

The more employees’ interests conform to the group’s interest, and the more likely they will cooperate with members of the group to engage in immoral purposes. Recent studies (Mesdaghinia et al., 2019; Wang et al., 2019) working on unethical pro-organisational behaviour provide evidence on the effects of the particular preferences of a group of people on individual’s perceptions about unethical acts. The study suggests that unethical leadership is found as the art of persuading a follower to go beyond any organisation’s code of proper conduct (Mesdaghinia et al., 2019). Subordinates with a robust psychological identity or connection are more likely to involve in unethical acts. Examples of subordinates’ rationalisation described by Mesdaghinia et al. (2019) are “falsifying numbers to make the leader look good, helping the leader cover up his or her mistakes, and violating organisational policies to enable the leader to meet the bottom-line results.” This view contributes to the understanding of the leadership’s impact as a corresponding behaviour on subordinates’ reasoning.

Within fraud studies, many scholars (Dorminey et al., 2010, 2012: Choo and Tan, 2007) overlook the fundamental distinction between violent and non-violent crimes. As such they characterise fraud as being similar to violent crimes. Violent crime, though, is always labelled as “a predatory crime” in which an offender or perpetrator always threatens the victim. This statement has been supported by Power (2013) mentioning that fraud should be categorised as non-violence crime, involving a complex illicit scheme, meant to confuse investigators if characterising fraud as violent crimes. From this perspective, we believe this has led to a false characterisation of causes of fraud and as such does not deal with the complexities of the management of fraud. The wrong assumption about causation leads to creation of inappropriate interventions. Lokanan (2018) widens the debate by arguing that fraud studies should explore situational factors affecting behaviour taking on account of micro-psychological aspects of individuals.

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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