The Effect of Fraud Diamond Capability Measures on Fraud Occurrence

Abstract

An organization can lose up to 5 percent of its revenue to fraud (ACFE 2020) making the ability to effectively prevent and detect accounting fraud essential to many stakeholders. Auditors typically use the fraud triangle framework consisting of pressure, opportunity and rationalization to understand fraud risks factors. The fraud diamond extends the fraud triangle to include an additional risk factor, capability (Wolfe and Hermanson 2004). This study uses an experimental task to analyze the effect of individual fraud diamond components of capability on the likelihood of committing fraud. The results show that capability components of ego, intelligence, and ability to cope with stress significantly influence the likelihood of committing fraud. Results also show including fraud diamond capability components improve the ability to predict the likelihood of fraud. Data Availability: The data that support the findings of this study are available from the first author upon request.