Internal controls and fraud – empirical evidence from oil and gas company

Khairul Mizan Zakaria · Anuar Nawawi · Ahmad Saiful Azlin Puteh Salin

141 citations0/0 files storedJournal of Financial Crime

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Corporate Governance and Financial Management Accounting and Financial Management Financial Literacy and Behavior

Abstract

Purpose The purpose of this study is to examine the type of internal control weaknesses and its impact that leads to fraud activities in an oil and gas company, which is rarely found in empirical research. Design/methodology/approach A case study approach was taken to investigate and analyse the fraud incidents to the deepest understanding. A mixed method of data collection, specifically document analysis and interviews, was used. Findings The study found that internal control weaknesses can be major contributing factors for fraud to be committed. Poor supervision and improper documentation process provide opportunity to misappropriate the assets, worst off if it includes several people that cooperate to conduct those illegal malpractices. Research limitations/implications The results provide further confirmation of the fraud triangle theory on the causes of the fraud, i.e. opportunity because of weak internal control. It also validates with many prior studies conducted by global professional firms such as KPMG, PricewaterhouseCoopers and Association of Certified Fraud Examiners on fraud and its related causes and implications. This study, however, was conducted on only one company with limited number of interviews. Practical implications This study provides some recommendations to improve weak internal control, which in turn will reduce opportunities of fraud committed in the company. Originality/value This study is original, as it focuses on a company that operates in the highly specialized industry, i.e. oil and gas, which is rare in fraud literature, particularly in developing markets such as Malaysia. It has examined various documents and reports of employee fraud that are generally difficult to be accessed by researchers to be finally published in an academic journal. The findings of this study are inferred from direct access of company documents that are private and confidential.

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References

1990Practical Research: Planning and Design 1993Applications of case study research 1994Marketing Research: An Applied Orientation 1994Collecting data using a semi‐structured interview: a discussion paper 2014Internal Control: Integrated Framework 2009How does internal control regulation affect financial reporting?2003The A-Z of Social Research 2012Internal control over financial reporting and managerial rent extraction: Evidence from the profitability of insider trading

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