Identifying Organisational Climate Elements that can be used to Detect and Prevent Management Fraud

Abstract

Management fraud is a global problem that has become more widespread than ever before. Current modes for detecting and preventing fraud, such as those based on demographic factors, have not been very successful. It is argued that organisational psychology—more specifically the study of organisational climate—provides excellent vantage points from which to understand management fraud. The purpose of this study was to identify organisational climate elements that increase the potential risk of management fraud within an organisation. The study has done this in order to employ these elements in detecting and preventing potential management fraud. A mixed research design was employed, encompassing two broad phases, namely: classification, whereby a framework was developed; and empirical validation, which made use of analytical induction as well as Lawshe’s content validity ratio. It was found that leadership style and managerial values are the elements that relate most to the detection and prevention of management fraud. It was also found that ethical leniency, poor example setting and hypocrisy were likely to create climates in which management fraud takes place. In terms of values, the study found that it is not simply the adoption or communication of values that is important in shaping a fraud-conducive climate, but rather whether or not any professed values are seen to be implemented or lived.