Tone at the Top and Occupational Fraud: A Latent Class Analysis of Individual Fraud Risk Factors and Organizational Ethical Leadership in the United States
Open AccessOccupational fraud, by definition, involves a betrayal of trust by an employee, which can cause significant stress and confusion for many. While the fraud triangle is a commonly accepted model of the risk factors increasing the likelihood of individual decisions to commit occupational fraud, this theory is based entirely on studies of convicted fraud perpetrators, leaving a gap in the understanding of these risk factors in non-perpetrators. Further, no research exists specifically exploring the relationship between ethical leadership and occupational fraud. Therefore, the purpose of this study was to explore the relationship between ethical leadership and occupational fraud by identifying the prevalence of individual fraud risk factors in the population of potential fraud perpetrators in accounting, under different conditions of top-level ethical leadership. This study used a survey methodology, collecting data from accountants on their personal experiences of the individual risks associated with the fraud triangle theory of occupational fraud (pressure, opportunity, and rationalization) and ethical leadership. The response patterns were analyzed using latent class analysis and multidimensional item response theory analysis to identify latent classes for individual fraud risk and determine whether class membership is predicted by the level of perceived top-level ethical leadership. This study found that there are distinct latent classes based on manifest indicators of individual fraud risk and that perceived top-level ethical leadership does impact class membership.
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