IDEAS home Printed from https://ideas.repec.org/a/spr/jmgtco/v33y2022i2d10.1007_s00187-022-00335-w.html
   My bibliography  Save this article

In employees we Trust: Employee fraud in small businesses

Author

Listed:
  • Radiah Othman

    (School of Accountancy, Massey Business School)

  • Rashid Ameer

    (School of Global Studies)

Abstract

This paper examines how and why employees used online computer access to commit fraud in New Zealand small businesses. Drawing on data from 18 court documents between 2006 and 2020, we use document analysis to examine the pressure, opportunity, rationalization, and capability elements using the fraud diamond framework. We provide three major findings. First, the employee frauds were motivated by vice and family circumstances. The combination of opportunity and capability had a devastating effect on the length of the fraud and the amount of financial loss. Second, the frauds were mostly perpetrated by middle-aged women in both managerial and nonmanagerial positions who displayed unusual behaviour but had no prior convictions. Third, small businesses are vulnerable to fraud in their billing, accounts payable, and payroll systems; thus, relevant prevention strategies are recommended. Overall, we conclude that the tendency for fraud is heightened in small businesses where trusted employees: have multiple responsibilities; have an occupational position that provides them with opportunity; are capable of manipulating online access; and have external pressures of addictions or adverse family circumstances. Our multiple cases approach facilitates a better understanding of the employee fraud contexts, including the motivation and the methods employed to commit such fraud in New Zealand.

Suggested Citation

  • Radiah Othman & Rashid Ameer, 2022. "In employees we Trust: Employee fraud in small businesses," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 33(2), pages 189-213, June.
    • Handle: RePEc:spr:jmgtco:v:33:y:2022:i:2:d:10.1007_s00187-022-00335-w
    DOI: 10.1007/s00187-022-00335-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00187-022-00335-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00187-022-00335-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Clinton Free & Pamela R. Murphy, 2015. "The Ties that Bind: The Decision to Co†Offend in Fraud," Contemporary Accounting Research, John Wiley & Sons, vol. 32(1), pages 18-54, March.
    2. Doug Laufer, 2011. "Small Business Entrepreneurs: A Focus on Fraud Risk and Prevention," American Journal of Economics and Business Administration, Science Publications, vol. 3(2), pages 401-404, June.
    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    4. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    5. Gary G Johnson & Charryl L. Rudesill, 2001. "An investigation into fraud prevention and detection of small businesses in the United States: responsibilities of auditors, managers, and business owners," Accounting Forum, Taylor & Francis Journals, vol. 25(1), pages 56-78, March.
    6. Carl Deschamps, 2019. "Stages of management control in a large public organization: from top to frontline managers," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 30(2), pages 153-184, July.
    7. Ewelina Zarzycka & Justyna Dobroszek & Lauri Lepistö & Sinikka Moilanen, 2019. "Coexistence of innovation and standardization: evidence from the lean environment of business process outsourcing," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 30(3), pages 251-286, October.
    8. Mark J. Nigrini, 2019. "The patterns of the numbers used in occupational fraud schemes," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 34(5), pages 606-626, May.
    9. Michael T. Schaper & Paul Weber, 2012. "Understanding Small Business Scams," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 333-356.
    10. Robert Stone, 2016. "Fraud, security, and Controls in Small Businesses: A Proposed Research Agenda," Journal of Business, LAR Center Press, vol. 1(3), pages 15-21, July.
    11. Paul Andon & Clinton Free & Benjamin Scard, 2015. "Pathways to accountant fraud: Australian evidence and analysis," Accounting Research Journal, Emerald Group Publishing Limited, vol. 28(1), pages 10-44, July.
    12. Caulley, Darrel N., 1983. "Document analysis in program evaluation," Evaluation and Program Planning, Elsevier, vol. 6(1), pages 19-29, January.
    13. Holtfreter, Kristy, 2005. "Is occupational fraud "typical" white-collar crime? A comparison of individual and organizational characteristics," Journal of Criminal Justice, Elsevier, vol. 33(4), pages 353-365.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barbara Su, 2023. "Banking practices and borrowing firms’ financial reporting quality: evidence from bank cross-selling," Review of Accounting Studies, Springer, vol. 28(1), pages 201-236, March.
    2. Shaikh, Ibrahim A. & O'Brien, Jonathan Paul & Peters, Lois, 2018. "Inside directors and the underinvestment of financial slack towards R&D-intensity in high-technology firms," Journal of Business Research, Elsevier, vol. 82(C), pages 192-201.
    3. Mikel Bedayo & Gabriel Jiménez & José-Luis Peydró & Raquel Vegas, 2020. "Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures," Working Papers 1215, Barcelona School of Economics.
    4. Ruey-Ching Hwang, 2013. "Forecasting credit ratings with the varying-coefficient model," Quantitative Finance, Taylor & Francis Journals, vol. 13(12), pages 1947-1965, December.
    5. Antonio Davila & George Foster & Xiaobin He & Carlos Shimizu, 2015. "The rise and fall of startups: Creation and destruction of revenue and jobs by young companies," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 6-35, February.
    6. Masahiro Enomoto, 2018. "Effects of Corporate Governance on the Relationship between Accounting Quality and Trade Credit: Evidence from Japan," Discussion Paper Series DP2018-12, Research Institute for Economics & Business Administration, Kobe University, revised Dec 2023.
    7. Chen, Peimin & Wu, Chunchi, 2014. "Default prediction with dynamic sectoral and macroeconomic frailties," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 211-226.
    8. Knyazeva, Anzhela & Knyazeva, Diana, 2012. "Does being your bank’s neighbor matter?," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1194-1209.
    9. Giordani, Paolo & Jacobson, Tor & Schedvin, Erik von & Villani, Mattias, 2014. "Taking the Twists into Account: Predicting Firm Bankruptcy Risk with Splines of Financial Ratios," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(4), pages 1071-1099, August.
    10. Li, Chunyu & Lou, Chenxin & Luo, Dan & Xing, Kai, 2021. "Chinese corporate distress prediction using LASSO: The role of earnings management," International Review of Financial Analysis, Elsevier, vol. 76(C).
    11. Suzan Hol, 2006. "The influence of the business cycle on bankruptcy probability," Discussion Papers 466, Statistics Norway, Research Department.
    12. Gropp, R. & Grundl, C. & Guttler, A., 2012. "Does Discretion in Lending Increase Bank Risk? Borrower Self-Selection and Loan Officer Capture Effects," Other publications TiSEM bfec5360-2a2b-47e4-ba3f-d, Tilburg University, School of Economics and Management.
    13. Pavol Durana & Lucia Michalkova & Andrej Privara & Josef Marousek & Milos Tumpach, 2021. "Does the life cycle affect earnings management and bankruptcy?," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 425-461, June.
    14. Dinh, K. & Kleimeier, S., 2006. "Credit scoring for Vietnam's retail banking market : implementation and implications for transactional versus relationship lending," Research Memorandum 012, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    15. Park, Moon Deok & Han, Seung Hun, 2023. "Pay dispersion and CSR," Finance Research Letters, Elsevier, vol. 51(C).
    16. Simon Cornée, 2014. "Soft Information and Default Prediction in Cooperative and Social Banks," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 89-103, June.
    17. Elizaveta Danilova & Evgeny Rumyantsev & Ivan Shevchuk, 2018. "Review of the Bank of Russia – IMF Workshop 'Recent Developments in Macroprudential Stress Testing'," Russian Journal of Money and Finance, Bank of Russia, vol. 77(4), pages 60-83, December.
    18. Alderson, Michael J. & Betker, Brian L. & Halford, Joseph T., 2021. "Fictitious dividend cuts in the CRSP data," Journal of Corporate Finance, Elsevier, vol. 71(C).
    19. Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
    20. Zhou, Fanyin & Fu, Lijun & Li, Zhiyong & Xu, Jiawei, 2022. "The recurrence of financial distress: A survival analysis," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1100-1115.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jmgtco:v:33:y:2022:i:2:d:10.1007_s00187-022-00335-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.