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Journal of Financial Crime

Mitigating asset misappropriation through integrity and fraud risk elements:


Evidence emerging economies
Haniza Hanim Mustafa Bakri, Norazida Mohamed, Jamaliah Said,
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Haniza Hanim Mustafa Bakri, Norazida Mohamed, Jamaliah Said, (2017) "Mitigating asset
misappropriation through integrity and fraud risk elements: Evidence emerging economies", Journal
of Financial Crime, Vol. 24 Issue: 2, pp.242-255, https://doi.org/10.1108/JFC-04-2016-0024
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JFC
24,2
Mitigating asset misappropriation
through integrity and fraud
risk elements
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242 Evidence emerging economies


Haniza Hanim Mustafa Bakri
Department of Accounting, Universiti Tunku Abdul Rahman,
Kajang, Malaysia
Norazida Mohamed
Department of Accountancy, Universiti Teknologi MARA,
Kota Bharu, Malaysia, and
Jamaliah Said
Accounting Research Institute, Universiti Teknologi MARA,
Shah Alam, 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). In addition, this research also examines whether
integrity moderates the relationship between fraud risk elements and asset misappropriation.
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. Out of 200 questionnaires distributed, only 189 were returned.
Findings – The findings indicate that the existence of fraud risk elements significantly affects the incident
of asset misappropriation. An interesting finding was made that integrity is negatively related to asset
misappropriation. This implies that integrity is an important value in minimising the occurrence of asset
misappropriation. The results also indicate that minimising fraud risk elements is crucial in reducing the
incident of asset misappropriation.
Originality/value – This present paper contributes to the literature by investigating a commonly
proposed but underexplored elements of integrity in mitigating fraud. 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.
Keywords Fraud triangle, Integrity, Asset misappropriation, Fraud risk elements
Paper type Research paper

1. Introduction
Fraud is believed to be among the most critical problems and challenges in the current
corporate environment (Smith et al., 2005). Either in the private or public sector, fraudulent
activities among employees still occur, regardless of the measures that have been put in place
by the government and professional bodies to minimise their occurrence (ACFE, 2012). A
Journal of Financial Crime KPMG survey in Australia and New Zealand in 2010 reported that the average number of
Vol. 24 No. 2, 2017
pp. 242-255 fraud occurrences in 2008 is 530 cases, while in 2010, that went up to 813 cases (KPMG, 2010).
© Emerald Publishing Limited
1359-0790
Similarly in Singapore, data revealed that the total estimated cost of fraud occurrence in 2011
DOI 10.1108/JFC-04-2016-0024 has increased to 6.5m, compared to 2008, which saw only 5.3m in losses (KPMG, 2011).
Fraudulent activity is also becoming a serious problem in Malaysia. 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, 2013).
Fraud can be defined as any action taken to deceive another party to gain benefit (ACFE,
2012). Since the occurrence of the huge corporate scandal cases that triggered the world in
recent years, such as those involving Enron, Satyam, Parmalat and other giant companies,
the issue of fraud has become a serious problem, and many researchers have dwelt on why
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and how this has come to be the case (Zahra et al., 2005; Conroy et al., 2006; Zakimi and 243
Hamid, 2013). Several studies have been conducted to identify why these fraudsters acted in
the way they did. Dellaportas (2013) and Kassem and Higson (2012) found that factors
contributing to fraudulent activities can be located within the fraud triangle theory. The
fraud triangle theory, introduced by Cressey (1950), states that there were three factors that
could result in fraudulent activity among individuals:
(1) that person has pressures or incentives or motives to commit fraud;
(2) that person has an opportunity such as weak control in the organisation that allows
the fraudster to act out such behaviour; and
(3) that person has rationalisation problems or the sort of attitude to commit fraud
(Daigle et al., 2014).

Another group of past studies tend to focus on the role of integrity in minimising fraud
occurrence. The studies generally agreed that integrity deterred the occurrence of fraudulent
activities (Chen et al., 2013; Mathenge, 2014). Gbegi and Adebisi (2013) suggested a fraud
triangle theory to include personal integrity as an additional factor. Basically, there is no
concurrence establishment for the word “integrity”, specifically in the meaning and practice
(Kucukuysal, 2008). For instance, integrity in public administration refers to employees’
“honesty” or “trustworthiness” in performing their official duties, avoiding “corruption” or
“the abuse of office” (Armstrong, 2005). Integrity is also defined as an indicator for trust,
competence, professionalism and confidence (Akir and Malie, 2012). Having the integrity
criteria in every person is important for the employees to maintain their discipline, follow the
rules and regulation and be accountable for their actions.
In the public sector, integrity is essential for every public servant to ensure that they could
deliver their services to the public ethically. Lack of integrity among public officers
contributes to the loss of public trust (KPMG, 2013). Therefore, many steps have been taken
by the Malaysian Government to ensure that all its employees work with high integrity, thus
reducing the number of fraud occurrences in the public sector. In many countries, 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.
In Malaysia, there are several integrity programmes introduced by the government to
enhance the level of integrity, both at the individual and the corporate levels. For instance,
the Malaysian Institute of Integrity was inaugurated in 2004 with the aim of developing a
nation of people with high integrity, which is resilient and embraces universally good values.
During the 2013 budget speech, the Prime Minister stressed on the working culture and the
need to uphold swift, accurate and integrity values. The same conception was mentioned in
the 2014 budget speech, which harped on transformation of the public sector services to
enhance confidence from the public, as well as maintenance of the image and credibility of
the public sector. This shows that integrity in many organisations, especially in the public
sector, is essential for them to gain the confidence of the public by delivering their services
ethically.
JFC The Malaysian Government has introduced some programmes in an effort to fight
24,2 corruption. One of the initiatives under this programme is the “Name and Shame” database,
which has the objective of listing all the offenders convicted on corruption-related charges.
Other than that, the government also created a compliance unit across government bodies, as
they believe that people will be less prone to corruption if there is “someone looking over their
shoulders”. The implementation of the Automated Enforcement System was also done to
244 reduce the level of corruption in the Road Transport Department.
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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. The survey used a sample of 170 senior
representatives of government and state-owned enterprises in 35 countries. This finding is
similar to the findings from the AIC for 2008/2009 with 39 per cent of respondents having
reported the same. The percentages are the highest as compared to publicly listed companies,
which is 31 and 28 per cent for the private sector. Similarly, the KPMG Integrity Survey 2013
provided a view of corporate fraud and misconduct as derived from the experiences and
perceptions of more than 3,500 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. The percentage is the second highest from the overall findings.
Therefore, 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. This situation
runs counter to the main role and function of the public sector. In addition, among the types
of fraudulent activities in the public sector, asset misappropriation takes the highest
percentage, compared to fraudulent financial reporting and corruption. This is consistent
with the PwC’s Government and Public Sector Analysis of 2011, Global Crime Survey, which
shows that asset misappropriation is the most global crime reported by the public sector in
all industries, which is more than 70 per cent of the overall results.
Similarly, Malaysia’s Auditor-General’s Report of 2012 also reported that assets worth
millions were reported missing for the period 2010-2012. 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, which resulted in loss to the
government. Several flaws have also been highlighted by the auditors, including inability of
the public officers to manage the grant given by the government. 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. Therefore, 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. Hence, this research aims to evaluate the effect of fraud risk factors and
integrity on asset misappropriation in the Royal Malaysian Police (RMP). In addition, the
research also examines whether integrity moderates the relationship between fraud risk
elements and asset misappropriation.

2. Literature review and hypotheses


Napel (2013) considers that to reduce the number of fraud cases and to prevent the
occurrence, it is necessary to understand why people commit fraud. However, detecting
fraud is not an easy task and requires thorough knowledge about the nature of fraud, why it
is committed and how it can be committed and concealed (Dellaportas, 2013). Cressey (1950)
introduced the fraud triangle theory, which explains the factors contributing to fraudulent
activities among individuals. Cressey (1950), who was a criminologist, over five months
interviewed 250 criminals whose behaviour met two criteria where the person must have
been given a position of trust in good faith and then breached the trust. From the study, Fraud risk
Cressey finally concluded that three factors must be present for a person to violate trust, elements
which are pressure, opportunity and rationalisation. Pressure is the incentive for a person to
commit fraud, 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, 2013). Over the years, Cressey’s theory has been
well known as the “fraud triangle theory” (Kassem and Higson, 2012).
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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. 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, 2013). Based on the
interviews with four small groups of male accountants who were serving custodial sentences
for committing fraud, he found that the inmates were influenced by financial pressures such
as distressed business, failed investment and non-financial motives such as anger towards
the employer, followed by a desire to seek revenge by stealing the company’s cash. These
motives coincided with the lack of proper business administration that created opportunities
to commit 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 widely discussed nowadays, and there are various concepts that have been
conceptualised. Integrity comes genuinely from a Latin word “integrate”, which means
complete (Rosalina and Firmanto, 2009). The word complete means that there is no fault and
no cover. PWC defines integrity as adherence to moral and ethical principles such as
soundness of moral character and maintaining honesty. 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.
In public administration, integrity is commonly defined as honesty and trustworthiness
during the discharge of official duties, serving without practicing corruption or abusing
office facilities (Armstrong, 2005). Based on the integrity book written by Stephen Carter,
who is a law professor at Yale University, integrity is laid out in three steps: discerning what
is right and wrong, 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, 2013).
Akir and Malie (2012) conceptualised integrity into three dimensions, which are
prevention, accountability and enforcement. However, the finding from this study indicates
that only enforcement has a significant influence on job conduct among the employees of the
organisation. Therefore, if the management of the company enforces a rule and regulation in
the firm, this will affect the job conduct among employees of the organisation. Job conduct in
this study is illustrated by behaviour or action or what somebody does and how they conduct
themselves, specifically on moral duty and obligation.
Another work by Bird (2006) found that there would be some differences among the
personality traits that resulted in integrity among employees. The researcher indicated that
individuals with high integrity normally have a high intellectual capacity such as being
calm, cheerful and having a wide range of interest, while people with low integrity are
reported as having unconventional thought processes, being engaged in personal fantasy
and denying unpleasant thoughts. Therefore, the behaviour of employees could be a sign
used by the management to assess the level of integrity among the employees.
Having integrity among employees in an organisation is important for the company to
prevent its employees from being involved in fraudulent actions. There are many studies
agreeing that high level of integrity among the leaders would help the company to avoid any
JFC unethical behaviour among their employees. In the work by Mathenge (2014), ethics and
24,2 integrity are hypothesised to have strong influences on the corruption cases within the
Kenyan Police Agency. Self-administrated questionnaires were distributed to 150 police
officers in Kenya. 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. The study reveals that strong enforcement of regulations by the
246 organisation to uphold the integrity level among the police officers, such as providing ethics
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classes, training and reviewing of the officers’ behaviour, as well as creating a high
professionalism culture in the police department, could deter police officers from being
involved in fraudulent behaviour.
Dikolli et al. (2012) provides empirical evidence on the relationship between managerial
integrity and earnings management. They measure chief executive officer (CEO) integrity
based on employee surveys and annual shareholder letters. The results of the study show
that the CEO’s integrity is positively related to earnings quality. Thus, it can be assumed that
integrity on the part of top management can deter fraudulent activity on the part of an
individual, which is beneficial to the organisation. In the public sector, 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, 2007; OECD, 2009). Consistently, Chen
et al. (2013) stated that lack of executive integrity in the public companies is positively related
to the incidence of fraud. The study used fraudulent activities by the managers to measure
level of integrity among the companies. The study stated that the manager of the company
manipulated their earnings to prevent themselves from being delisted.
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, 2004).
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. That is, regardless of
being under pressure to meet external expectations or the lack of adequate monitoring by the
auditor, fraudulent action will not occur, as there is high integrity among the managers.
Gbegi and Adebisi (2013) proposed to include personal integrity in the fraud triangle theory.
This is because personal integrity is easily observed, that is, by evaluating the individual’s
decisions and his decision-making process. Fraud will not occur if they could make ethically
sound decisions. Therefore, the observation could help the evaluator to know whether that
person could be involved in fraud, as having integrity is believed to be able to prevent fraud.
Adversely, 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. The researcher hypothesised that
integrity and compensation systems influence unethical behaviour. This is because having
integrity among individuals could stop them from fraudulent acts due to the individual’s
principles of honesty, truthfulness and the accuracy of their actions. Compensation system,
on the other hand, is the reward system that is based on the employee’s performance. The
researcher believes that once the employees are rewarded and given recognition upon their
performance, it could lead them to act more ethically.
Similarly, Srivastava et al. (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 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 greater the pressure and
opportunity, the more likely the individual is to be able to rationalise the acceptability to be
involved in fraud.
Many research studies indicated that fraud triangle elements have influences on Fraud risk
fraudulent activities (Hernandez and Groot, 2007; Kassem and Higson, 2012; Dellaportas, elements
2013; Gbegi and Adebisi, 2013; Omar et al., 2016). These authors argued that if an individual
has either pressure, opportunity or rationalisation, the tendency to commit fraud exists.
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. Opportunity,
however, arises from weak internal control of the company; this enables the employees to do
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fraud, as the probability to be caught is low. Rationalisation, on the other hand, is due to the 247
work culture that will allow individuals to justify their behaviour with a good reason.
Similarly, Mohamed et al. (2014) observed that the root causes of asset misappropriation
in local authorities are the fraud triangle elements. The study supported the view that the
factors contributing to make local authority employees to be involved in asset
misappropriation were mostly due to financial problems, lack of physical control over assets
and the assumption that everyone else is doing it.
Hernandez and Groot (2007) in his study suggested that compensation pressure has a
positive influence on fraud, where the employees will misrepresent the financial statement
for them to get a bonus and salary increment. Weak control environments will present
opportunities for the employees to commit fraud, and the attitude of the manager to
rationalise their action has a positive influence on their preparedness to act fraudulently. A
study by Kula et al. (2011) proposed that the most important risk factor group to reduce
misstatements arising from misappropriation of assets is “attitudes/rationalisations”.
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. This shows that the culture of
the company enables the employees to be involved in fraud, as they believe that the
behaviour is acceptable.
Aghghaleh et al. (2014), however, believes that opportunities, such as an ineffective audit
committee, have a positive influence on fraud in many organisations, as there is a lack of
control by the audit committee members, thus enabling the employees to commit fraud.
Widianingsih (2013) suggested that when students come under pressure, such as time
pressure, to finish assignment, there is a tendency for them to commit academic fraud, such
as copying others’ work. Based on the survey done by PWC (2011), it is proposed that the
greatest risk of fraud is due to pressures, such as fear of losing one’s job, while opportunities,
such as less segregation of duties due to staff reduction, and rationalisation due to the work
culture are among the reasons public sectors employees are involved in fraudulent actions.
Therefore, it can be concluded that fraud triangle elements have a positive relationship with
fraud occurrence in an organisation. Hence, the following hypothesis is proposed:
H1. There is a positive relationship between fraud risk elements and asset
misappropriation.

2.1 Integrity and fraud occurrence


Integrity has always been discussed together with ethical behaviour among the employees in
the organisation. Having a strong integrity among employees could prevent them from being
involved in unethical behaviour, such as asset misappropriation. Many researchers found
that integrity can deter fraudulent activity. Integrity is about acting honestly and following
the policies and procedures of the organisation (Rosalina and Firmanto, 2009). When people
have integrity, it will restrain them from acting fraudulently, as they believe that a particular
behaviour is wrong and it will jeopardise their belief in acting honestly.
A study by Dikolli et al (2012) suggested that managerial integrity, such as the ability of
the management and the CEO to foster policies and procedures based on law and regulations,
JFC will result in decreasing fraudulent activities. Chen et al. (2013) supported these findings with
24,2 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; therefore, unethical decisions
and fraudulent behaviours are more likely to flourish among them.
Mathenge (2014) suggested that a low level of ethics and integrity among Kenyan police
officers would expose them to involvement in corrupt activities. This is because police
248
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officers who have integrity are believed to have trustworthiness, competence,


professionalism and confidence. Thus, all of these qualities will stop them from being
involved in a fraudulent activity. Therefore, it can be concluded that integrity has a negative
relationship with fraud occurrence in an organisation. Hence, the following hypothesis is
proposed:
H2. There is a negative relationship between integrity and fraud occurrence.

2.2 Integrity as a moderating variable


Cressey Donald believes that fraud would occur if an individual has pressures such as
financial and work pressures, opportunities due to a weak control mechanism and the ability
to justify wrong behaviour (Dellaportas, 2013). However, if the particular person has high
moral values and integrity, he or she will not be involved in any fraudulent action. High
integrity and moral values are the elements of honesty or trustworthiness; thus, the
individuals will always maintain these qualities in performing their job regardless of the
situation (Armstrong, 2005).
Lanyi and Azfar (2005) also supported the view that integrity means honesty. Hence,
individuals with high integrity will always ensure that they act honestly and truthfully in
rendering services to the public, thus refraining from fraud in any circumstances. Moreover,
Armstrong (2005) suggested that integrity in public administration is probity, impartiality,
fairness, honesty and truthfulness.
Ta et al. (2014) defined integrity as ethics, morals, principles, discipline and methods that
are consistent with the law. Ethics is a person’s value, which could lead them to differentiate
right from wrong and what should and should not be done. Similarly, morals are standards
of good and bad, and acceptable or not acceptable, which govern an individual’s behaviour
and choices. Thus, if an individual is able to distinguish what is bad and wrong, and what is
acceptable and is not, it will prohibit him from being involved in fraud, regardless of the fact
that he is facing any financial pressures, opportunity or a non-ethical culture.
Chen et al (2013) proposed that managers who have high integrity tend to follow the
company’s policies and procedures, which leads them to act ethically and automatically
avoid fraud activities. This person is believed to ensure that all of his or her decisions are in
line with the policies and procedures of the firm, which will improve his or her behaviour and
lead him or her to act ethically at all times and under any condition. Turner et al. (2003)
suggested that even in an environment of high incentives and opportunities to do fraud, the
individual will exhibit a very high integrity and may not only fail to respond to such
incentive, but may try to reduce the incentives.
As such, when there is integrity among employees, fraud risk elements have no influence
on fraud occurrence, but when there is no integrity among the employees, fraud triangle
elements can influence fraud occurrence. Hence, the following hypothesis is proposed:
H3. Integrity moderates the relationship between fraud triangle elements and fraud
occurrence.
3. 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. A total of 200 questionnaires were distributed to the
staff of the RMP. The questionnaires were distributed based on simple random selection
from five RMP centres in Kuala Lumpur and Selangor. Out of 200 questionnaires distributed,
only 189 were returned. RMP is one of the government agencies that are directly under the
Ministry of Home Affairs, Malaysia.
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The questionnaire includes four parts. For the first part, the respondents were asked to 249
answer the questions regarding their demographic information, specifically on their
personal and working background. The second part asked about their behaviour towards
asset misappropriation at their workplace. A seven-point Likert scale has been used in this
part, with “1” indicating that the respondent had never been involved in the situation and “7”
indicating that the respondent is very frequently involved in the situation. Also, 12 questions
were asked to assess respondents’ opinion on the level of asset misappropriation. There are
a few scenarios given, such as taking company’s asset for personal use, falsification of the
documents and record to gain personal benefits, as well as taking or borrowing of office cash.
The third part asked the respondents’ opinion regarding the fraud triangle elements,
which consist of pressure, opportunity and rationalisation. Respondents were required to
express their opinion on the level of opportunity, pressure and rationalisation using the
seven-point Likert scale, where “1” indicates that the respondent strongly disagrees with the
statement and “7” indicates that the respondent strongly agrees with the statement. Based on
the Cressey Donald’s fraud triangle theory, factors of fraud occurrence among individuals
are pressure, opportunity and rationalisation (Dellaportas, 2013). The questions asked were
about the individual pressures, internal control of the organisation and how they rationalise
their actions. All the questions were adopted with some modifications from Wolfe and
Hermanson (2004), Dellaportas (2013) and Kassem and Higson (2012).
Part 4 of the questionnaire was to measure the ethical values of the respondents. The
questionnaire was adopted with some modifications from several studies which would
reflect integrity as a police officer. The questions were adopted from Klockars et al. (2000)
and Gonzales et al. (2005). Ten ethical cases related to enforcement officers were put forward,
and respondents were required to rate the seriousness of the cases ranging from very serious
(“1”) to not serious at all (“7”). This measurement has been frequently adopted in ethical
studies.

4. Findings
There were 189 responses received for this study out of the 200 questionnaires distributed to
the RMP officers. In the demographic part, the questions consist of gender, age, marital
status, job position, average income, years of service in the organisation and education level.
In total, 147 (77.80 per cent) respondents involved in this study are male, while 42 (22.20
per cent) are female. As for the age, majority of the respondents are aged between 26 and 30
years (41.30 per cent), followed by respondents aged 31-35 years (20.10 per cent), 51 years and
above (12.20 per cent), 20-25 years (11.60 per cent), 41-50 years (9.5 per cent) and 36-40 years
(4.80 per cent). However, there is only one person among the respondents aged below 20 years
(0.50 per cent).
The third section under demographic questions required the respondents to provide
information about their marital status. In total, 129, which is the majority of the respondents,
are already married (68.30 per cent), while 57 (30.20 per cent) of them are still single. Also,
three (1.15 per cent) of them are divorced. Subsequently, the question asked about their job
position in the RMP. There are eight ranking job positions in the RMP that the researcher
JFC targeted to be reached, including Constable, Lance Corporal, Corporal, Sergeant, Sergeant
24,2 Major and Inspector. Of the 189 total respondents, 20 (10.60 per cent) of them are Constable,
38 (20.10 per cent) of them are Lance Corporal and 61 (32.30 per cent) are Corporal. There are
also 16 (8.5 per cent) Sergeants, and 3 (1.60 per cent) of them are Sergeant Major. In total, 40
(21.20) of them are Inspectors, which is the majority of the respondents, while 11 (5.80
per cent) of them are holding other positions such as Assistant Superintendent of Police.
250 In the sixth part, the respondents were asked about their average monthly income.
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Majority of the respondents earn an average monthly income between RM3,001 and
RM4,000, which is 67 (35.40 per cent) out of the 189 total respondents. The second highest
number of the respondents earned an average monthly income between RM2,001 and
RM3,000, which is 54 (28.60 per cent) of them, followed by the ranking of average monthly
income between RM1,000 and RM2,000, which is 36 (19 per cent) of the respondents. The rest
of the monthly average income of total respondents are between RM4,001 and RM5,000 and
RM5,001 and above, which are 23 (12.20 per cent) and 9 (4.80 per cent), respectively.
The last two questions provide information regarding the number of years that they have
already worked in the RMP, as well as their level of education. Among the respondents, 5 (2.6
per cent) of them have worked in the RMP for less than one year, while 46 (24.30 per cent) of
them have already worked in the RMP for between one and three years. In total, 24 (12.70
per cent) of the respondents stated that they have already served their current organisation
for between 6 and 10 years, and majority of the respondents, which is 71 (37.60 per cent) of
them, have already worked in the RMP for more than 11 years. The last question for the
demographic section was to enquire about the level of education among the respondents. The
level of education can be categorised into four levels, which are SPM/MCE/certificate,
diploma, university degree and masters/PhD. Majority of the respondents have an SPM/
MCE/certificate, which is 127 (67.20 per cent) out of 189 of them, followed by 42 (22.20
per cent) who had graduated with a university degree. Among all the respondents, 18 (9.5
per cent) of them have a diploma and 2 (1.10 per cent) of them have a master’s degree or PhD.

5. Normality test, reliability and factor analysis


Prior to testing the data using regression, the data were tested for normality. Skewness and
kurtosis testing have been used to describe the normality of the data. The data are assumed
to be normally distributed when the value of skewness is close to 0 and value of kurtosis does
not exceed 3.0. The results show that the value for skewness ranges from ⫺0.656 to 1.480,
and the kurtosis values of all the variables are between ⫺0.490 and 2.468. This result
indicates that all of the variables are considered to have slight skewness and kurtosis, as both
skewness and kurtosis values are within the acceptable range. Therefore, the data are
assumed to be normally distributed. Reliability test revealed that the Cronbach alpha ranges
from 7.28 to 9.20, indicating that all questionnaire items asked to measure the variables are
valid.

6. Regression analysis findings


Regression analysis was conducted to identify whether the dependent variable, which is
fraud occurrence, has a linear relationship with the independent variables, which are fraud
triangle elements and integrity. Before proceeding with the regression analysis, ANOVA
Table I was used to identify the significance of the model in predicting fraud occurrence. The
model is used to predict fraud occurrence when the result shows that there is a significant
value at 5 per cent (F ⫽ 45.626, p ⫽ 0.000) for Model 1, and there is also a significant value at
5 per cent (F ⫽ 30.287, p ⫽ 0.000) for Model 2. Thus, this shows that there is a linear
regression between dependent variable with at least one independent variable. In general, it
can be concluded that there is at least one independent variable in this study that affects the Fraud risk
fraud occurrence variable. elements
The first objective of the study is to examine the relationship between fraud risk elements
and asset misappropriation. H1 proposed that there is a positive relationship between fraud
risk elements and asset misappropriation. Based on Table II, the coefficient for fraud triangle
elements is 0.506, t ⫽ 7.552, p ⫽ 0.000, where p ⬍ 0.05 indicates that the result supports H1.
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The beta coefficient for fraud triangle elements (0.506) indicates that every 1 increment in the
fraud triangle elements will lead to a fraud occurrence of 0.506. Thus, this study proves that
251
asset misappropriation occurs if there is pressure among the employees, whether it is
financial or non-financial pressures, lack of internal control system, supervision and
monitoring that leads to much opportunity to commit fraud and rationalisation that enables
them to justify their action. This result has a similar finding with Dellaportas (2013), who
found that the reasons why all the inmates were involved in fraudulent action are pressure,
opportunity and rationalisation.
The result is also in agreement with the study done by Mohamed et al. (2014), which found
that the root causes of asset misappropriation among local authority employees are the fraud
risk elements, which are financial pressure, low asset control that creates opportunities and
the ability of the employees to justify their fraudulent actions.
The second objective of the study is to identify the relationship between integrity and
asset misappropriation. H2 proposes that there is a negative relationship between integrity
and asset misappropriation. The coefficient for integrity is ⫺0.196, t ⫽ ⫺3.025, p ⫽ 0.003,
where p ⬍ 0.05 indicates that this result supports H2. The beta coefficient for integrity
(⫺0.196) indicates that for every 1 increment of integrity, there will be a reduction of fraud
occurrence by 0.196. This result is consistent with the finding by Mathenge (2014), who
stated that having integrity among police officers will reduce the number of fraud
occurrences in the organisation. Similarly, Chen et al (2013) concluded that lack of integrity
among the executives in many companies will result in fraudulent actions. Integrity could
prevent the police officer from being involved in asset misappropriation, because integrity
consists of the elements of trustworthiness and honesty (Lanyi and Azfar, 2005). It could also
be related to the ability of an individual to follow the policies and procedures of the
organisation (Chen et al, 2013). Therefore, an individual who acts and works according to

Model R R2 Adjusted R2 Standard error of the estimate


a
1 0.574 0.329 0.322 0.65094
2 0.574b 0.329 0.318 0.65258

Notes: aPredictors: (constant), fraud risk elements, integrity; bPredictors: (constant), fraud triangle Table I.
elements, integrity, fraud triangle elements ⫻ integrity; cVariable: fraud occurrence Model summary b

Variables Coefficients Standard error t p-value

(Constant) 1.353 0.505 2.680 0.008


FT 0.506 0.067 7.552 0.000
IG ⫺0.196 0.065 ⫺3.025 0.003
FT ⫻ IG ⫺0.012 0.048 ⫺0.259 0.796 Table II.
Regression result of
a
Note: Dependent variable: fraud occurrence asset misappropriation
JFC policies and procedures will automatically work with ethical values and maintain his
24,2 honesty, which will prevent him from getting involved in fraudulent actions.
The third objective of the study is to identify whether integrity can moderate the
relationship between the fraud triangle elements and fraud occurrence. H3 proposed that
integrity will moderate the relationship between the fraud triangle elements and fraud
occurrence. More specifically, 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
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employees. This is because regardless of the situation faced by an individual, if he or she


maintains honesty and trustworthiness is being able to follow the policies and procedures of
the organisation, he or she will act ethically and prevent himself or herself from acting
fraudulently. Therefore, if he or she is facing pressure, has the opportunity and could justify
his or her action, asset misappropriation will still not occur, as he or she is maintaining
honesty and trustworthiness and will not violate the policies and procedures of the
organisation.
Based on the result in the Table II, coefficient for moderating variable is ⫺0.012, t ⫽
⫺0.259, p ⫽ 0.796, where p ⬍ 0.05 indicates that this result does not support H3. This result
indicates that having integrity among RMP employees will not moderate the relationship
between the fraud triangle elements and fraud occurrence. Therefore, asset misappropriation
will still occur among RMP employees if they are facing pressures, have opportunity or are
able to rationalise their action, even though they have integrity within themselves.
Results from this study are similar with the work by Rosalina and Firmanto (2009), when
she found that integrity has no influence on unethical behaviour or fraud among employees.
She believes that integrity is a subjective element and is viewed differently by different
people. It is also a subjective belief that depends on an individual’s personal views. Thus, the
different views could lead to different actions, which somehow will result in unethical
behaviour by the individuals. Some people will perceive that integrity is the action of being
honest; on the other hand, other people believe that integrity is the accurate and the most
appropriate action that will give benefit to the other party. Therefore, some people who have
integrity still get involved in fraud if they face pressure. They believe that their action could
benefit the other parties, such as their family. They have their own reasons why they are
involved in asset misappropriation, because the view of integrity is different between people.

7. Discussion and conclusion


This study consists of three objectives, which are to identify the relationship between the
fraud triangle elements and integrity with the fraud occurrence in the public sector. This
study also seeks to identify whether integrity could moderate the 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, where the hypothesis proposed that there is a positive relationship
between the fraud triangle elements and fraud occurrence. This means that if a person is
under pressure, such as personal pressure or work related pressure, have the opportunity
and could rationalise his or her behaviour; the possibility that the individual will commit
fraud exists. The findings of the study supported the hypothesis, where the fraud triangle
elements that consist of pressures, opportunity and rationalisation have significant impact
on fraud occurrence among RMP employees. This finding is similar with the findings of
Dellaportas (2013), in which pressures, opportunity and rationalisations were found to be the
reasons why the offenders were involved in white-collar crime.
Pressure, as illustrated by Cressey (1950), is the incentive that could motivate an
individual to be involved in fraud. The pressure could result from personal problems, such as
financial pressures or addiction pressures, or from the work environment. Opportunity, on Fraud risk
the other hand, results from the weak internal control that could give space to an individual elements
to act fraudulently. Based on the Commission (2012), weak internal control such as improper
authorisation processes, lack of segregation of duties, inadequate documentation of
transactions, 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. Rationalisation, as illustrated by Cressey Donald, is the ability or
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attitude of an individual that enables him or her to justify his or her wrong behaviour, thus
253
leading him or her to be involved in fraud with the belief that he or she is doing that for good.
As such, this study proves that when pressure or opportunity or rationalisation exists among
RMP employees, it will lead them to act fraudulently.
For the second objective, this study identifies the relationship between integrity and fraud
occurrence in which the hypothesis suggests that there is a negative relationship between
integrity and fraud occurrence. Based on the analysis that has been conducted and discussed
in the previous chapter, the hypothesis is supported where integrity has a negative influence
on fraud occurrence among RMP employees. Integrity is honesty and trustworthiness. It is
also the ability of an individual to follow the policies and procedures of the organisation.
Therefore, when individuals have integrity, it could stop them from being involved in
fraudulent actions, as they are acting with full honesty and following the rules stated by the
organisation. In this study, 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, that
particular person is believed to have integrity values, which will prevent him from getting
involved in fraudulent actions, such as misappropriation of the organisation’s asset. The
result of the study is aligned with the results from the study of Mathenge (2014), who found
that having integrity among police officers in Kenya will reduce the occurrence of corruption,
while lack of integrity among police officers in Kenya will lead to a high number of
corruption cases among the police officers.
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. The
hypothesis that has been proposed in this study is whether integrity moderates the
relationship between the fraud triangle elements and fraud occurrence. When an individual
is facing pressure, or has some space to do fraud, or is able to justify his behaviour, it will lead
him to act fraudulently. However, if the people have integrity, it ensures that they will act
honestly and according to company’s rules and regulations, which will stop them from
misappropriating the organisation’s asset.
However, there are some limitations of this study. The first limitation of this study is
the personal bias and possible judgmental error. Based on the questionnaire,
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. Second, 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,
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. Third, the sample of the study is RMP employees representing the
public officials in Malaysia. However, there are other government agencies and
departments that could represent the public sector. Therefore, future research could
select other government agencies as their sample to measure the relationship of the fraud
triangle, integrity and fraud occurrence in the public sector. Fourth, this research
measured the fraud triangle elements and integrity as factors contributing to the
JFC occurrence of fraud. There are many other factors that contribute to fraud; hence, future
24,2 studies should identify and examine these other factors. Last, other limitations in this
study are time and cost constraints.

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Corresponding author
Jamaliah Said can be contacted at: jamaliah533@salam.uitm.edu.my

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