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by
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Liberty University
May 2018
Abstract
This study analyzed fraud detection and prevention techniques and analyzed if there was a
relationship between the techniques and the detection of fraud. The combined techniques were
fraud risk assessment, fraud risk register, code of conduct, fraud assessment training, whistle-
blower policy, fraud control plan, fraud control policy, and internal control review. Nonprofits
are vulnerable to fraud and costly for the organizations that rely heavily on donations to provide
needed services or goods to a community. Through analyzing 109 nonprofits surveyed in South
Carolina, the researcher found 59 reported fraud occurrences and 86 percent were using fraud
detection and prevention techniques. This study showed statistical significance in the
relationships between fraud prevention and detection techniques used in nonprofits and the
detection of fraud. In this study, the results indicated the NFPOs in South Carolina had fraud
detected and used the techniques which demonstrated a level of understanding prevention and
detection techniques. This study helps internal stakeholders understand the theories and aspects
by
May 2018
___________________________________________________
___________________________________________________
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My dedication is first and foremost to God for giving me the abilities and skills to
complete the doctorate program. Secondly, I am very thankful and proud of a wonderful chair,
Dr. Sullivan. I faced several challenges of losing my only son and father during this process.
Dr. Sullivan was supportive and through prayers, I was able to continue despite the horrific
events in my personal life. I am thankful to my husband, Steve Gibson, and daughter, Katherine
Robinson, who gave up many weekends so I could tirelessly work on the research. I lastly want
to dedicate this to my son, Matthew Robinson. He was gifted and talented and would have
surpassed my skills and knowledge in his life. This world will never know his potential but I do
Dr. Kummer was very helpful in providing information about his study in Australia and
New Zealand. Lisa Townsend PA to Chris Skelton was very helpful from the BDO in Australia
who conducted the larger survey in Australia prior to Dr. Kummer’s research study. All of them
gave me permission to use the materials from their research and studies.
Table of Contents
Hypothesis 1.............................................................................................................6
Hypothesis 2.............................................................................................................6
Hypothesis 3.............................................................................................................6
Definition of Terms......................................................................................................10
Assumptions...........................................................................................................11
Limitations .............................................................................................................12
Delimitations ..........................................................................................................12
ii
Purpose Statement ........................................................................................................64
Participants .............................................................................................................66
Instruments .............................................................................................................72
Fraud reporting.................................................................................................73
Reliability...............................................................................................................76
Validity ..................................................................................................................77
Variables ................................................................................................................81
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Testing of hypothesis .......................................................................................82
Hypothesis 1...........................................................................................................94
Hypothesis 2...........................................................................................................96
Hypothesis 3...........................................................................................................98
iv
Assessments and Reviews..........................................................................................110
Reflections .................................................................................................................112
References ........................................................................................................................117
v
List of Tables
vi
List of Figures
vii
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band organizations, 501(c)(3) organizations for health or other social organizations, some
hospitals, religious organizations, civic, and government pass-through organizations. NFPOs are
always hosting fundraising campaigns or asking for donations to fulfill their mission. The
NFPOs do not have a lot of reserve funds and they typically do not hire many core employees,
rather relying on volunteers. NFPOs typically have oversight board members, typically from the
community and on a volunteer basis. The volunteers are not typically accountants and have
limited financial management backgrounds. This study examined the relationship between the
stakeholder’s awareness of accounting fraud prevention and detection techniques and the level of
fraud detection.
NFPOs lost five percent of revenues to fraud and 115 cases of fraud were detected in NFPOs.
NFPOs faced the challenge of board governance where the focus was on logistics of cause-
related or political memberships (Considine, O'Sullivan, & Nguyen, 2014) rather than a
concentration on fraud prevention. Although the primary objective of NFPOs was the mission
achievement, researchers (Irvine & Ryan, 2012) described that boards and management reviewed
the financial stability of the NFPOs. Financial statements were tools for decision-making which
was difficult to do if the financial statements were incorrect. Fraudulent reporting of the
financial statements affected the entire organization and groups they served. Gamble and Beer
(2017) observed that NFPOs served disadvantaged and marginalized groups. If fraud
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occurred, this hindered the mission such as building homes in impoverished areas or even
Archambeaul et al. (2014) unraveled that NFPOs had limited funds and fraud cost the
NFPOs money such as investigation cost, the loss of donors because of the tarnished reputation,
and other costs. Since NFPOs were typically small and had limited resources, small losses
greatly impacted the organizations and the ability to fulfill the organization’s mission. Othman
and Ameer (2014) further explained that NFPOs suffered funding issues that affected the service
the organization offered to their community. Also, NFPOs were vulnerable to fraud because
some NFPOs relied on volunteers who were not of particularly reputable backgrounds. This was
problematic because fraud was more likely to occur and the stakeholders might not be aware of
the fraud.
Problem Statement
The internal stakeholders of NFPOs had a problem detecting and preventing fraud (Best,
Kummer, & Singh, 2015). The problem addressed in this study was the relationship between
fraud detection and prevention and the use of fraud detection techniques and effectiveness of
internal stakeholders in NFPOs to detect fraud in South Carolina. Best et al. (2015) reported
there was a gap in the understanding of fraud detection techniques. Udeh (2012) realized there
was lack of understanding fraud detection techniques for the stakeholders to detect and prevent
fraud. Internal stakeholders may not have had the education in detecting fraud or preventing
fraud. Best, Mula, and Singh (2013) revealed that accounting fraud was growing and that
organizations were ill-equipped to prevent and detect fraud. Klammer, Richtermeyer, Siegel,
and Sorensen (2010) elucidated there was a lack of understanding between fraud detection
education and practice and it was difficult to detect fraud and prevent fraud. The focus of the
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study was to gain insight into the problem of internal stakeholders preventing and detecting fraud
Purpose Statement
The purpose of this quantitative correlational study was to examine the effectiveness of
fraud detection and prevention techniques and internal stakeholders detecting and preventing
fraud in NFPOs in South Carolina. Free (2015) explained that fraud has the greatest economic
impact on society rather than any other crime. Yetman and Yetman (2011) reported that NFPOs
were vulnerable to fraudulent activities. This research furthered the study of the impact of fraud
detection and prevention techniques previously studied, Best et al. (2015), to see if the internal
Discussion of Method
The researcher used quantitative method to analyze the survey data for this study because
the analysis provided correlation to find the linear relationship between the independent variables
of fraud detection and prevention techniques and the dependent variable of fraud detection
(Goertzen, 2017; Onen, 2016). The quantitative research method helped the researcher
determine a commonly used (variable) fraud detection and prevention technique and the
effectiveness of detecting fraud (Goertzen, 2017; Creswell, 2014). The qualitative method might
have helped the researcher understand the stakeholder’s thoughts (experiences) on fraud
detection and prevention and if the stakeholders understood the techniques were effective (Cruz
& Tantia, 2017; Viadero, 2005). However, the fraud detection techniques were not observable
behaviors (Creswell, 2013) nor was this study looking at human perception (Stake, 2010). The
mixed methods study included quantitative and qualitative methods (McKim, 2015). This study
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did not need to study the qualitative aspects of observed behaviors (Bradt, Burns, & Creswell,
2013) as a mixed-methods method or qualitative method would not have explained the research
Discussion of Design
The researcher used correlational quantitative research design to gather insights into the
relationship between fraud detection and prevention techniques and fraud detection (Creswell,
2014). Comiskey, Curtis, and Dempsey (2016) clarified that correlational research could be used
relationship between variables could be established. The researcher selected this design over
and summarized the relationships (Neuendorf, 2016). This study was not describing the fraud
detection and prevention techniques rather analyzed the variables (fraud detection and prevention
techniques) and detection of fraud. Therefore, the descriptive design was not an appropriate
Experimental research design was used in studies to learn about systems or how
processes worked as part of the scientific process and to observe experiments using groups and
then applying inputs to those groups (control and experimental groups) to study changes
(Montgomery, 2017). The experimenter studied a group and provides intervention to test a
hypothesis (Creswell, 2014). This research did not conducting experiments with control groups
or experimental groups.
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tested effects on a group or process (Flaviu & Gregory, 2016). Reeves, Waddington, & Wells
(2017) explained that quasi-experimental design was similar to experimental design except the
groups were controlled (not random) and influenced by the researcher. This research study did
not have groups rather a study of NFPOs in South Carolina. The study was conducted to show a
relationship between fraud detection and prevention techniques and the detection of fraud, not to
Correlational quantitative design was the most appropriate design to study the research
questions. Correlational quantitative design was used to give more accurate estimates of the
relationships between variables (Atinc et al., 2016). The NFPOs in South Carolina were given a
survey that was statistically studied to look at the relationship between fraud detection and
prevention techniques to fraud detection. Moore (2016) conducted a study that used
correlational design to study the relationship between organizational size and occupational fraud.
Best et al. (2015) also used correlational design to explain the effectiveness of fraud detection
Research Questions
Research Question 1: Is there a relationship between the use of all of the fraud detection
and prevention techniques and the detection of fraud in NFPOs in South Carolina?
Research Question 2: Is there a relationship between the use of detection techniques with
Hypothesis 1
H01: There is no statistically significant relationship between the fraud detection and
HA1: There is a statistically significant relationship between the fraud detection and
Hypothesis 2
Hypothesis 3
Theoretical Framework
Discussion of Theory 1
First, Cressey (1953) created the theory of the Fraud Triangle when he interviewed white-
collar embezzlers and realized a common triangle of consistent trends. His data collected from
over 120 incarcerated ‘trust violators’ in US prisons composed an empirical basis for the Fraud
Triangle. The three pieces of the Fraud Triangle were (a) the perception of the need to fix the
problem or motivation (pressure and incentive), (b) an opportunity to commit fraud, and (c) the
rationalization or neutral attitude that the action was not criminal. Borba and Wuerges (2014)
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further explained the Fraud Theory. The manager felt a pressure to perform with high
revenues/sales. The manager could surpass internal controls and change data to make the
financial statements look better than they actually were. The manager had an internal
rationalization that they were committing fraud for the success of the company and avoided
layoffs. Carpenter, Jones, Riley, and Trompeter (2014) disclosed that SAS No. 99 outlined the
fraud triangle of pressure to commit fraud, opportunity, and rationalization (attitude). Free
(2015) explained the concept of the fraud triangle was embedded in professional auditing
standards (SAS No. 99 and ISA 240). The fraudster had a pressure to commit fraud (either
personal financial issues or organizational financial goals), opportunity (the fraudster might
know how to penetrate internal controls and work around weaknesses to commit fraud), and
rationale (attitude to do the fraud). The small organizations were more vulnerable to fraudulent
activities (Andon, Free, & Scard, 2015) and NFPOs were typically small (Gayle, Harrison, &
Thornton, 2017). The fraudster had more of an opportunity to commit fraud. The fraudster had
a pressure (maybe a few pressures). They were pressured to fulfill a mission. The NFPO may
not have paid the employees a good salary and they had external pressures to steal. The fraudster
also could have built up a rationalization that the fraud did not matter because they were not paid
Lowers (2013) also explained with the Fraud Triangle accounting theory the person
committing the fraud had some kind of pressure to achieve prestige or was motivated by the need
for money. The person who committed the fraud had the opportunity or open door of trust that
allowed them to commit fraud. The organization may have lacked good internal controls or an
absence of control activities. Also, the organization may have lacked controls such as inventory
counted on a regular basis, petty cash was not attended, no duel signatures or controls in place, or
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an excess of materials lying around. The person committing the fraud also had a rationalization
that the fraud was acceptable. They believed it was okay. Levi and Schuchter (2016) found that
companies realized the Fraud Triangle existed and based on the empirical study, fraud risk could
Discussion of relationships between theories and variables. The NFPO may not have
had a lot of internal controls or supervision which allowed the opportunity for the fraudulent
behavior. This study showed the need for further study on what fraud detection techniques were
most effective so stakeholders could be aware of it and put the safeguards in place to detect and
prevent fraud. If the person who has the motivation, rationalizes fraud, and has the opportunity
to commit fraud, he or she can commit fraud (Cressey, 1953; Borba & Wuerges, 2014). Fraud
triangle is a theory that supports the insight of the problem behind the fraud and the stakeholders
will learn more about the theoretical theory so they can prevent fraud or detect fraud. The fraud
triangle helped explain why fraud occurred and this supported this research study’s fraud risk in
practice. With this information, the readers can understand how fraud risk registers were
created, with the fraud triangle concept where an employee has the opportunity to commit the
fraud, the incentives or pressure to meet goal, and rationalization that fraud is not wrong.
Discussion of Theory 2
Another theory related to fraud and behaviors is (Connelly, Hoskisson, & Shi, 2017) the
Cognitive Evaluation Theory where an individual has an external pressure that motivates the
person to do certain actions. Individuals have innate needs for autonomy (self-determination
/choices) and competence (the belief the individual can influence outcomes). The external
control could be very coercive and the manager had a high likelihood to commit financial fraud.
intrinsic motivation to conduct ethically, the manager or individual would commit illegal acts.
The individual who deceived others commit fraud. The individual would lie about facts; fail to
disclose information, falsify documents, and other corruptive behaviors. The managers wanted
to appear to have improved performance. The cognitive evaluation theory suggests that
managers had different levels of motivation and if the manager had high levels of dedication to
perform, the manager was more prone to commit fraud. Mahmood, Pahnilia, and Siponen (2013)
revisited the Cognitive Evaluation Theory to study corporations in Finland to find if pressures
comply with policies and procedures outweighed rewards. The external pressure was most
persuasive to have the employees comply with the information. Chae, Choi, and Hur (2017)
found that when a buyer (person) exerted power on a supplier (another person) the supplier
would comply or even committed more to a buyer. Cognitive Evaluation Theory explained that
coercive or rewarding could mediate power. The empirical study showed that power influences
the motivation. In NFPOs, the workers feel like they deserve the services and deserve the money
going to the needy because they feel needy. They feel like they could fudge the numbers to meet
pressure to perform and had the opportunity to commit fraud, the manager only needed a
rationalization and motivation to do the fraud. Cognitive Evaluation Theory explains that
motivation can coerce a manager to commit fraud and power influence the motivation (Connelly
et al., 2017; Chae et al., 2017). This study gave insight into the effectiveness of internal
stakeholders detecting fraud and Levi and Schuchter (2016) reported that fraud could be lowered
with measures and company culture. The study of fraud prevention and detection techniques
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was important. Also, it was important to study to see what was effective in detecting or
preventing fraud.
Definition of Terms
Codes of conduct: Codes of Conduct are policies or guides for how professional should
treat one another and help set ethical culture in an organization (Hardy, 2016). This was a
prevention technique.
strengthen culture and help the organization be more resilient to the threat of fraud and
corruption (Brytting, Minogue, & Morino, 2011) and some organizations have formal training to
detect fraud and prevent deception from occurring (Carswell, Seay, Wilmarth, & Zimmerman,
2014). This was used as a prevention technique. Detection is after the training and reporting.
Fraud control plan: A fraud control plan is simply a plan to respond to fraud when it
Fraud Control Policies: Policies are organizational rules and procedures that prevent
fraud and abuse and are used to safeguard the assets (Park, Matkin, & Marlowe, 2017).
Fraud detection and prevention techniques: Fraud detection and prevention techniques
were fraud control policies, whistle-blower, fraud risk registers (Best et al., 2015), fraud
awareness training, codes of conduct, fraud control plan, internal control review, and risk
assessments.
Fraud risk registers: Fraud risk registers are levels of risk of the fraud triangle (risk of
incentives, opportunity, and rationalization to commit fraud), it is the awareness of the holistic
view of fraud potential in the organization (Mock, Srivastava, & Wright, 2017). The more risks
Risk assessments: Risk assessments is assessing the presence of the fraud triangle
Red Flags: Red flags are identifiable behaviors that are indicators that fraud is possible
and these indicators are proven from collected data as signs to locate fraudulent behavior to
fraud, illegal operations, or corrupt operations, in reporting the organization the person believes
that it is for the greater good of the public interest (Middlemiss, 2017). This was a fraud
detection technique.
The assumptions, limitations, and delimitations are discussed in this next section.
Assumptions
One assumption of this study was that the questionnaires would be honestly and correctly
answered. After Veldkamp, Nuijten, Dominguez-Alvarez, van Assen, and Wicherts’ (2014)
survey of over 600 authors of published statistical studies, they found that self-reporting
produced desirable responses. The researcher found the individuals who did not respond to the
survey were more inclined to give less reliable responses. The respondents that completed the
Another assumption was all the individuals surveyed would have a working knowledge
of fraud prevention and detection techniques. The researcher included examples in the survey of
what each technique looks like so there was a clear understanding of the techniques. For
example, some organizations may not call the technique ‘code of conduct’ but rather a code of
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ethics. The researcher was aware the organizational leaders needed clear understanding so there
was not a negative outcome of the study. If the questionnaire was not clear, this could give
incorrect statistical analysis. To mitigate this risk, the researcher made the questionnaire
questions clear and explained what the techniques might be called in the different organizations
Limitations
A limitation of the study was where individuals accurately and correctly submitted self-
report correct data. Veldkamp et al. (2014) explained this could cause some error in probability;
however, it was more likely that respondents self-report accurate data. The surveyed authors
who did not respond to this research were more likely to have inconsistencies. It must be
understood that certain organizations may be prone to fraud while other organizations experience
little to no fraud. This research was only to bring more insight into fraud detection and the use of
fraud prevention and detection techniques to see if there was need for further study.
Another limitation was studying only NFPOs in South Carolina. There may be more
instances of fraud detection in for-profit organizations or more fraud in different regions of the
country.
Delimitations
The researcher studied fraud prevention and detection techniques in relation to fraud
detection. The researcher did not include data mining (Sangal, 2016) or other computer related
fraud detection techniques, the fraud detection and prevention techniques included in this study
were code of conduct, fraud awareness training, whistle-blowing policy, fraud assessments, fraud
control plan, internal control review, fraud control policy, and fraud registers. The study
analyzed NFPOs use of fraud prevention and detection techniques to detect fraud in NFPs in
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South Carolina. The research study on NFPs was not conducted in other states in the United
States. The researcher only studied NFPOs in South Carolina rather than for-profit
organizations. This study looked at internal fraud rather than external fraud.
When fraud occurred in a NFPO, the initial losses, future loss of donors, and a ruined
reputation inhibited the organization from fulfilling its mission (Perols, 2011). This study will
bring insight into fraud detection issues that cost organizations money from donors. Hou, Zhang,
and King (2017) observed that return donors would evaluate the performance and expectations
based on level of trust or distrust for future giving. The level of charitable donations changed
over time and when a trust crisis happened. The NFPO had to work hard to rebuild that trust.
This study was significant because this helped the NFPOs realize how much fraud will hurt their
future funding. The fraud caused mistrust with donors and NFPOs rely on donors to fulfill the
mission and cover operational expenses (Madhavaram, McDonald, Sullivan Mort, &
Weerawardena, 2015). This study helped stakeholders realize fraud implications. Also, this
study will lead to more discoveries on what fraud prevention and detection techniques are most
effective for detecting or preventing fraud. Fraud cost NFPOs money and it is important for
important to understand the concepts behind fraud to gain understanding to lead to solutions or
preventions of fraud occurrences. Fraud hinders the progress of the organization. This study
was significant for NFPO’s success, fulfilling the mission, and giving inferences to what fraud
prevention and detection techniques work best for detecting or even preventing fraud.
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Reduction of Gaps
Rodriguez, Romero-Merina, & Voluntas, 2016; Clemenson & Sellers, 2013). In recent years,
Garbou, Halbouni, and Obeid (2016) noted that a trend of internal fraud prevention programs,
established policies and procedures, and communication about fraud awareness abounded,
however, there was a lack of extensive studies to prove what fraud prevention and detection
techniques were most effective. The focus of research shifted toward better understanding that
leaders, management, and board members or stakeholders, in general, were responsible for
financial situations of the organizations (Clemenson & Sellers, 2013). Organizations that do not
have clearly written policies struggle with understanding fraud prevention and detection
techniques.
Since NFPOs had problems detecting fraud, the stakeholders needed to understand the
effective ways to prevent fraud. As Cressey (1953) started research on the commonality trend of
fraudsters of the Fraud Triangle, the study’s awareness continues today to ‘reflect in recent
developments in fraud theory’ (Jeppesen & Leder, 2016) including cognitive behaviors.
According to Udeh (2012) and Klammer et al. (2010), stakeholders found it difficult to detect
fraud and did not know what fraud detection techniques were effective and helpful for NFP
organizational stakeholders. Through understanding the aspects that make up fraud, stakeholders
can understand what fraud detection and prevention techniques are most effective in detecting
fraud and learn how to prevent fraud. Best et al. (2015) looked at the relationships between the
existence of fraud detection and prevention techniques and actual detection of fraud. This study
narrowed the gap on understanding the significance of fraud prevention and detection techniques
Humans were called to be stewards for God’s creation. Van Duzer’s (2010) concept of
‘consequences of broken God-human relations for businesses’ explained that work needed to be
God centered. Humans should plan their future around God’s center. The humans focus was on
human centered activity rather than Godly activity. This lack of focus and disobedience led to
the sinful nature of mankind. In accounting fraud, the fraudster had a self-centered focus rather
than a Godly focus. The Bible clearly states that a person should not defraud. Fraud is a sin and
not acceptable in the eye of God. “You shall not have in your bag differing weights, a large and
a small. You shall have a full and just weight; you shall a full and just measure, that your days
may be prolonged…” Deuteronomy 25: 13 -16 ESV. “A false balance is an abomination to the
Lord, but a just weight is His delight” Proverbs 11:1 ESV. “Differing weights and differing
measures, both of them are abominable to the Lord” Proverbs 20:10 ESV. “Is there yet a man in
the wicked house, along with treasures of wickedness and a short measure that is cursed? Can I
justify wicked scales and a bag of deceptive weights?” Micah 6: 10-11 ESV. Clearly the Bible
gives direct proof that fraud is not acceptable. Altering financial reports would not be
The Bible is also clear that it is not acceptable to steal. “You are cursed with a curse, for
you are robbing Me, the whole nation of you. Bring the whole tithe into the storehouse, so that
there may be food in My house…” Malachi 3:9-10 ESV. “You are not to steal or lie or deal
falsely with your neighbor” Leviticus 19:11 ESV. "You are not to oppress your neighbor or rob
him. "The wages of a hired laborer are not to remain in your possession until morning””
Leviticus 19:13 ESV. “Instead, you yourselves practice doing wrong and cheating others, and
brothers at that”! I Corinthians 6:8 ESV. “You are not to steal” Exodus 20:15 ESV. “You are
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not to steal” Deuteronomy 5:19 ESV. “He who withholds grain, the people will curse him, but
blessing will be on the head of him who sells it” Proverbs 11:26 ESV. “The thief must no longer
steal but must work hard and do what is good with his own hands, so that he might earn
You are not to act unjustly in deciding a case or when measuring weight and quantity.
You are to maintain just balances and reliable standards for weights, dry volumes, and
liquid volumes. I am the LORD your God, who brought you out of the land of Egypt.
When a person lies and steals from others, they sin against God. The Bible clearly says
that humans should not steal, lie, or deceive one another. When a person intentionally commits
fraud, that person sinned and stakeholders should know how to identify fraud to protect the
Borba and Wuerges (2014) described that accounting fraud has three variables: pressure,
opportunity, and rationalization, which are known as the fraud triangle. The manager feels a
pressure to perform with high revenues/sales. The manager has the opportunity to surpass
internal controls and change data to make the financial statements look better than they actually
are. The manager has an internal rationalization that they are committing fraud for the success of
the company and avoid layoffs. The manager attempts to control the situation for personal gain
rather than following God’s will and showing accurate accounting of the financial reports. God
expects humans to be honest. “Give to everyone what you owe them: If you owe taxes, pay
taxes; if revenue, then revenue; if respect, then respect; if honor, then honor” Romans 13:7 NIV.
“For the love of money is a root of all kinds of evils. It is through this craving that some have
wandered away from the faith and pierced themselves with many pangs” Timothy 6:10 ESV.
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“They take bribes among you to shed blood. You've taken usury and exacted interest. You've
gained control over your neighbor through extortion. And you've forgotten me," declares the
Lord GOD” Ezekiel 22:12 ESV. “So, whoever knows the right thing to do and fails to do it, for
him it is sin” James 4:17 ESV. Humans are instructed to do the right thing and honestly conduct
business and accounting should reflect correct liabilities on financial reports. Humans should
learn to follow God’s will. Humans should follow God’s will in their future decisions rather
When someone commits fraud, they hinder the progress of something else. If they fraud
investors, the investors could lose money they invested and those investors could invest in some
other organization that could give them a return on investment. If they fraud the organization for
personal gain, the organization suffers and the organization might not be able to continue their
mission of helping others. If they commit fraud in general, the organization’s image is hurt and
the organization might lose future donors and not fulfill their mission. The Bible is very clear
not to lie. “If a man vows a vow to the Lord, or swears an oath to bind himself by a pledge, he
shall not break his word. He shall do according to all that proceeds out of his mouth” Numbers
30:2 ESV. “You know the commandments: ‘Never murder.' ‘Never commit adultery.' ‘Never
steal.' ‘Never give false testimony.' ‘Never cheat.' ‘Honor your father and mother.'” Mark 10:19
ESV.
Van Duzer (2010) unraveled that humans should learn to work together to help
communities flourish and grow. The organizations should provide creative and meaningful work
that brings value to the community. God had a purpose for humans from the beginning and
doing God’s business was to glorify God. Van Duzer (2010) said “Already we have seen that
this work is to be meaningful, engage our creativity, reflect our diversity, and grow out of and
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give back to the community” (p. 38). If the organization has fraud allegations, the organization
will suffer and could end up not giving back to the community. As Van Duzer (2010)
rationalized, work should focus on advancing God’s kingdom. Humans should do good work
bringing glory to God, “For we are his workmanship, created in Christ Jesus for good works,
which God prepared beforehand, that we should walk in them” Ephesians 2:10 ESV. God wants
humans to work and do good. Committing fraud can directly hinder God’s will to do good work
since the mission of most NFPOs is to help others with charity work. Fraud hinders the mission.
“The integrity of the upright guides them, but the unfaithful are destroyed by their duplicity”
Van Duzer (2010) revealed it is difficult for Christians in the business world. The
majority of the world does not have ethical standards as Christians. Enderle (2015) reported that
different parts of the world perceive ethics differently and Christian may not share the same
standards as non-Christians. Ethics laws help regulate some of the wrongs in the world;
however, many countries still have unethical practices that go against Christian law. There is a
struggle in the Bible about sinful nature: “For I know that good itself does not dwell in me, that
is, in my sinful nature. For I have the desire to do what is good, but I cannot carry it out. For I
do not do the good I want to do, but the evil I do not want to do – this I keep on doing” Romans
7:18,19 NIV. Krogerus and Tschäppeler (2012) continued to explain that people will do things
even though they know it is immoral and wrong, even though they know the decision will lead to
bad consequence based on the decision. The term cognitive dissonance describes a state of mind
where actions are not consistent with beliefs/thoughts. This model explained that people will
justify their wrong actions rather than ask for forgiveness (self-justification). The person will do
this to feel as if they have a clear conscious of doing what they know is wrong (free from self-
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doubt). The person will ignore the view (the correct view) which is the opposite of their
behavior. When a person commits fraud, they rationalize the act, as the fraud triangle explains.
In the past, humans fell into sinful natures and did not work together as a whole and evil
As surely as I live, declares the Sovereign LORD, because my flock lacks a shepherd and
so has been plundered and has become food for all the wild animals, and because my
shepherds did not search for my flock but cared for themselves rather than for my flock,
therefore, you shepherds, hear the word of the LORD: This is what the Sovereign LORD
says: I am against the shepherds and will hold them accountable for my flock. Ezekiel
34:8-10 NIV
The shepherds were eating the food and not taking care of God’s people. God took
charge of this unethical behavior and held the shepherds accountable for their actions. When
someone commits fraud, they are cheating and not being truthful about financial reports or
In the field of accounting, auditors have continually discovered fraud. Andon et al.
(2015) analyzed that fraud occurred in accounting, management, finance, and various areas of
organizations and that although, fraud had gained attention of practitioners, fraud still continued
to be an issue in the field (ACFE, 2014). Accounting professionals know the fraud triangle
commit fraud; perpetrators still committed fraud (Gupta & Gupta, 2015; Mui & Mailley, 2015).
The American Institute of Certified Accountants (AICPA) set AU §316.06 under ‘description
and characteristics of fraud’ explained the accounting audit practice of SAS No. 99 is the
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generally accepted accounting standards as fraud usually occurs when the opportunity,
rationalization, and attitude/character to commit fraud, which gave the framework for the Fraud
1729).
Luschi, & Munteanu, 2016). Hollow (2014) rationalized that individuals that committed fraud
had a motive to commit fraud. An individual may feel pressure to meet deadlines and commit
fraud to make the numbers look better than they are. An individual may have a personal reason
to steal like living beyond his or her means and stealing money to pay his or her personal bills.
Fraud leads to loss of a company’s money, tarnish organizational reputation, and stakeholders
suffer (e.g., recipients of the services could have delays in needed services and workers may lose
their jobs because of the fraud; Hollow, 2014; Bradley, 2015). In the early 2000s, organizational
fraud such as the fraud committed by Tyco leaders brought more awareness of fraud in the field
of accounting due to the extent that the leaders used company funds to purchase luxurious
personal items with the company money (Alex & Carrigan, 2015). Coman, Coman, and Horga
(2014) explained that fraud jeopardizes the reputation of the organization. Fraud can affect the
operations and existence of the organization. The clients, partners, and all stakeholders feel a
mishandling documents, often forging to misrepresent a truth. If the correct conditions are in
Giovino (2014) described that NFPOs were more vulnerable because they were more
trusting and individuals targeted NFPOs because they believe they can get away with fraud.
21
Nikolova (2014) disclosed the NFPOs often are funded by tax payers through governmentally
funded programs to serve a need of the community. If the organization is funded mainly through
taxpayer’s money, the taxpayer’s money is swindled and this affects everyone. The reason
NFPOs exists is to serve the public and provide a need. The service is to help the community
grow and give resources to help society be successful and flourish. Nikolova (2014) also
expounded that it is important to identify fraud detection techniques to prevent fraud, especially
in NFPOs. Internal stakeholders should understand the fraud detection techniques to be able to
identify fraud and prevent fraud from occurring in NFPOs. This literature review was divided
into eight sections: fraud triangle theory, behavior culturally influenced fraud theory, fraud
detection and prevention techniques, occupational and non-occupational fraud, stakeholder’s role
in fraud detection and prevention, fraud issues in practice, NFPO’s issues with detecting and
The fraud triangle was discovered when Cressey interviewed prison inmates on the
violation of financial trust who were convicted of embezzlement (Cressey, 1953). Cressey
(1953) discovered collective motives that the violators had perceived opportunity,
rationalization, and perceived pressure (non-shareable problem). The individuals that committed
fraud had positions of financial trust where they had the opportunity to commit fraud. The
individuals had adjusted their internal conceptions of users of the property as they wanted a
rationalization of the fraud. Some that committed fraud believed they were honest and the act
did not compromise their ethics. Cressey and other contributors coined the phrase: ‘Fraud
Triangle’ to describe the findings in Cressey’s interviews in 1953 (Cressey & Sutherland, 1970).
Dellaportas (2013) interviewed offenders and found the inmates had financial and non-financial
22
pressures to commit fraud. The financial pressure was due to failing investments and one
offender committed fraud to help his brother who was struggling financially. The other
offenders were struggling with pressures of performance goals. The non-financial pressures
were disgruntled employees, perceived victimization, and the remaining reason was due to
gambling issues. The offenders that were gambling believed they would win the money back
and were not too worried about consequences when it was happening. Dellaportas (2013)
continued to report that the offenders also explained they had the opportunity such as learning
the systems and processes to manipulate controls to avoid detection. The organizations had
weaknesses in their internal controls. The audit procedures were not adequately administered.
The offenders rationalized their behaviors and did not believe they had criminal intent. They
claimed they made poor decisions. They had denial of responsibility, injury, and victimization.
They believed they were corrupt due to circumstances. The fraud triangle was further affirmed
by this study. Parsons, Pryor, and Roberts (2017) observed that NFP organizational leaders feel
pressured to report efficiency ratios and pressured to make sure the numbers show good use of
their resources. This could result in the pressures to commit fraud explained in the fraud triangle
theory that cause individuals to fraudulently report the numbers for a favorable outcome. The
individual/manager would have had the sophistication (rationalization) to manipulate the ratios
and the individual/manager have had the opportunity through a dysfunctional accounting system
Other researchers studied the fraud triangle. Fraud theories of the fraud triangle and
behavior helped to explain the underlying reasoning for individuals to commit fraud in
organizations such as NFPOs. Andon et al. (2015) described that individuals engaged in
fraudulent behavior because of a relentless financial pressure or hardship. Hollow (2014) also
23
statistically analyzed the factors associated with the fraud triangle and found that over twenty
percent of fraud occurrence happened because of pressures. The individuals had various types of
and external financial pressures. The majority of fraud occurrences were because of financial
pressures. The different hierarchy of employees showed differences; however, all showed
pressures as a main reason to commit fraud. According to Hollow’s (2014) study, the lower
level employees had lower pay and committed fraud to pay off debts or support a habit/vice. The
mid-level management was motivated for financial gain. Senior level management was
al. (2015) continued to explain that an individual legitimized the behavior to meet his or her
financial goals. The individual had circumstances that influenced his or her behavior. There
were opportunity seekers who sought positions that they took advantage of the organization for
their personal gain or theft. Individuals with criminal histories were likely to engage in more
criminal acts when given the opportunity. In Andon et al.’s (2015) study, the researchers
disclosed that the State of Accounting Standards (SAS) No. 99 explained general concepts such
as an individual’s attitude gave insights to fraud risks. Based on Andon et al.’s (2015) study,
descriptive statistics showed that on average fraud went undetected for an average of thirty-two
months. Smaller organizations had more cases of fraud; close to 75 percent of 192 accounting
fraud cases studied in Australia were fraud cases in small organizations. The smaller
organizations had fewer resources for controls and less separation of duties. All of which led to
the fraud occurrences and reaffirmation of the fraud triangle. Sandhu (2016) unfolded that
interviewed fraud offenders discussed many aspects of their fraudulent behavior. The offenders
had strong ambitions and drive to be successful and rich. The offenders held grudges with
24
successful individuals. According to this study, the offenders also were not extroverts and did
not go to social events or parties. The offenders were dissatisfied with their jobs and believed
that they were underpaid and deserved a promotion. The offenders justified their behavior and
they had family or financial problems and had a pressure to commit fraud. The fraud triangle
was affirmed with this study. The offenders had the opportunity, the rationalization that they
were justified, and motivation because of financial needs. Cox, Kim, and Roden (2016) analyzed
103 firms to study the fraud triangle concept. They discovered fraud was more likely to happen
when the chief executive officer was also the chairperson, influx of insiders on the board, lack of
diversity, and long tenure. The stock options increased the occurrences of fraud as an incentive
to get a higher return on investing. When the chief executive director was also the chairperson,
this gave that person the opportunity to influence the board to lower the internal controls to
where they could commit fraud. When the internal chief executive director has this power, the
oversight of the board was compromised. Cox et al. (2016) continued to explain that the board
should be independent of all internal workers. This compromised oversight was compounded
when the chief executive officer had a number of years of tenure. The board was more likely to
trust the individual who has been there for an extended period of time. The pressure to commit
fraud was compounded when stock option compensations was offered, they wanted a positive
return on investment. The rationalization was increased when there was a lack of independence,
the fraudster was confident that he or she was not going to be caught. Steinmeier (2016)
determined when a manager felt pressured to show sustainability to continue a program, that
manager was more prone to commit fraud if the right circumstances were in place (the fraud
triangle). The sustainability management has a lot of pressure to manipulate the data to meet the
organizational goals. If there is a lack of proper control environment, the sustainability manager
25
will have the opportunity to commit fraud. The manager will rationalize that committing fraud
will not only meet required goals, but also will help the organization show profitability. The
fraud was driven by performance. The managers had a pressure to have a reputation to succeed
in sustaining the programs. The managers wanted to secure their jobs and advance their careers.
In some cases, the manager will have had bonuses based off their performance. This increased
their incentive and pressure to commit fraud. In these situations, there were opportunities to
commit fraud. The reporting systems were not reliable and could be modified. The oversight
Carver, Gistinger, and Klein (2015) reported that NFPOs used the knowledge of the fraud
triangle to deter and prevent fraud. When the NFP organizational leaders were aware of the
fraud triangle, they developed procedures to prevent and deter fraud. The leaders made sure that
cash collections were reconciled against the number of items/programs sold (such as a
fundraising event). The leaders must review and challenge discrepancies. The second part to the
fraud triangle was motivation. The leaders must make sure the workers do not have any motives
for stealing (e.g., if the worker was convicted of a drug felony, that worker should not handle
money). The third part of the fraud triangle was rationalization. The workers must never feel
like they could take money and then return it later. This should be means for dismissal. Workers
could never feel entitled to take items because they could not afford it, the leaders should pay the
workers what they are worth or find workers who are not in financial need to where they would
not steal. The idea was to understand what would cause the situation of a fraud triangle and
eliminate or reduce the likelihood of that situation in the organization. Also, Houdek (2017)
elucidated the fraud triangle was a tool to help decrease dishonest behavior. If organizations had
poor organization of the groups or fail to set standards of behavior or failed to enforce the
26
standards, there would be opportunity to commit fraud. The second part of the fraud triangle of
motivation should have been reduced. If employees are motivated by property, status, or
advantages, the assets should be attainable (pay employees what they are worth). If managers
were pressured to reach high performance or high financial indicators, they are more likely to do
unethical means attain the goals. The managers should not be paid or given a pay raise based on
goals too hard to obtain. The key was to reduce the motivations. The third part of the fraud
triangle of rationalization was where someone feels as if they are moral even if they commit
A few researchers expanded upon the fraud triangle to add other elements of fraud
behavior in addition to the fraud triangle. The other theories are linked behaviors and culture to
the fraud. Levi and Schuchter (2016) expanded upon the fraud triangle to include an inner voice
that becomes silent over time to where the individual does not have inhabitation to commit fraud.
The inner voice was influenced by the corporate culture of the organizations. The fraud triangle
was still prevalent in the fraudster’s situations. The opportunity was there to commit fraud,
pressures/incentives to commit fraud, and rationalizations that it was okay to commit fraud. The
extension of the fraud triangle was the capability to commit fraud. The fraudster has had the
know-how to commit fraud and other traits of a cognitive ability such as not having the fear of
being discovered and confidence/ego or even coercion to convince others to conceal crimes. The
fraudster will have had effective lying skills and be manipulative. The individual has had the
nerve to defraud and neutralize his or her moral sensibility and violate trust. The individual with
the behavioral tendencies to commit fraud would surpass the normal behavior of high ethics of
care possessed by those who did not commit fraud. Levi and Schuchter (2015) studied that fraud
27
opportunity was the binding component of all fraud cases. The interviews with offenders
showed that the offenders perceived a pressure to commit the fraud and the offenders had an
inner voice phenomenon of no behavioral inhibition to commit fraud rather than just an internal
rationalization (as the Fraud Triangle explains) to commit fraud. The inner voice that inhibits the
fraudulent behavior becomes quieter over time and he or she commits fraud. The longer he or
she was not caught; the individual had less of a guilty conscious. The environment or
organizational culture influenced fraud. Mackevicius and Giriunas (2013) unraveled that the
fraud triangle ignored the fraudster’s capability and skills. The three elements of opportunity,
motive, and realization created the favorable condition for fraud to occur. The employee has had
an internal motive or pressure to commit fraud. The individual may not have had the inclination
to commit the fraud. The individual may have had pressure to meet organizational goals, pay for
his or her lifestyle, or external pressure. This could be expended to add greed and debt to go
against the system (anarchy), and dissatisfaction with their wages. Another term for opportunity
was possibility. The fraudster also had the capability to commit fraud (an internal behavioral
aspect) and possessed the skills to commit fraud. The organization opened the possibilities of
low internal control, complex transactions, poor job division, or lack of audit for the fraudster to
use their skills to commit fraud. Burns and Roberts (2013) observed that behaviors influence
attitudes and norms. If a person was pressured from social forces the individual would be
influenced to act upon the pressure. Free and Murphy (2016) touched upon the fraud triangle.
However, they expanded the concept and included that a climate influenced fraud. The
perpetrator had a rationalization that he or she acted in a socially motive manner rather than just
an internal rationalization. The fraud triangle aspect of rationalization was the third angle on
fraud triangle and rationalization comes after incentives/pressure and opportunity to commit
28
fraud. If an individual rationalizes an action based off of cultural norms, the internal
rationalization was not the same as an ethically sensitive culture compared to a corrupt culture.
If the triangle was present in an organization, the fraud risk assessment was higher. Then,
certain people were driven to commit fraud to keep a good reputation. Certain people committed
fraud because the social atmosphere was in hostile work environments and the unethical
practices seemed normal. Behavioral reasoning behind fraud helped this researcher understand
Domino, Wingreen, and Blanton (2015) explained the organization’s ethical climate
affected behavior and increased fraud risks. When narcissism behavior exists, the fraud risk
rose. The combination of low integrity and narcissism created an environment of high risk for
fraudulent behavior. In contrast, the higher integrity showed the more ethical climate in the
attitudes. The idea was if an organization has a highly ethical climate the employees would be
more satisfied and there would be less incidences of accounting fraud. The behavior of
individuals was modified to a group-think type of ethical thought process when the organization
sets the tone for ethical practices. The organization retained quality management and morale
was higher. The opposite was also a called a social climate of corruption. If the social climate
was highly unethical, the behavior to commit fraud was higher. Eaton and Korach (2016)
analyzed that understanding behavioral aspects helped to prevent fraud. Specifically, the
behavioral aspects of personality characteristics, psychology, and sociology showed the aspects
involve in occupational fraud. The idea was to understand the motivation behind fraud to
prevent fraud from occurring. A criminal profile could be established to build a way to be aware
of the criminological and behavior aspects of the actions of the fraudster. The culture of the
29
offender could also contribute to the unethical practices. Certain characteristics could be
identified from this study. One trait was gaining authority. The fraudster would use their power
for personal gain. Although not all leaders in authority commit fraud, some have had integrity
and did not participate in the unethical acts. If leaders are elected from the same family and over
time would build a culture or tradition which could be founded on unethical practices and over
time, the corruption would just compound. The offenders showed high levels of cultural
hedonism. In the United States, individuals have had a need to have accumulated wealth and
indulge in lavish lifestyles. The offender felt pressured to meet the cultural standards and
commit fraud to meet his or her cultural expectations. Eaton and Korach (2016) continued to
explain over 44 percent of offenders were living beyond their means when they committed fraud.
Another type of leadership that could be a sign of trouble was a charismatic leader. The
charismatic leader would display a huge dynamitic of energy and seem to be very confident. An
individual could have tendencies to be great and lead to success or have an underlying evil
tendency to coerce others to follow his or her unethical practices. The offenders displayed
similar characteristics with narcissism feeling entitled, not empathetic, need for admiration, and
illusions of grandeur. The offender would also display low self-control. The offenders were
motivated, pressured, had vulnerable targets, and lacked the inner capacity to prevent the fraud.
This research study examined fraud detection and prevention techniques in NFPOs in South
Carolina.
Lokanan (2015) expounded that the fraud triangle existed with additional variants. The
to commit fraud. In some studies such as Lokanan (2015), the fraud triangle was not the only
concept/theory that explains the thought process of fraud. Some fraudsters have better
30
organizational skills and are more predatory rather than just certain circumstances as the fraud
triangle suggests (e.g., the person committing fruad intentionally commits fruad without
incentives or pressure). Previous studies explained the preceived pressure was a non-shareable
financial need. This description was scrutinized and was not the same for all individuals who
commit fraud. Not all fraud was financial fraud and it could be shareable. Sometimes collusive
behavior and superior orders would not explain the idea of non-shareable behavior rather it
would be a factor of circumstance. Some fraudsters would not have a rationalization to commit
fraud, they just did it. Sociologically, the individual may have had organizational circumstances
that affected their decisions to commit fraud. Social interactions could also influence fraudlent
behavior. Mihret (2014) found that national cultural aspects could increase fraud risks. In the
study of 66 countries, the author found cultural dimensions affected fraud occurrences and
corruption varied between cultures. Certain national cultures distinctively contributed to the
orientation of acceptable or unacceptable ethical practices in context to their area. The culture
context of fraud could help individuals understand fraud risks further. When the organization
was in a culturally corrupt location, the fraud was more internally rationalized in the individual
to where he or she believed that his or her fraudulent activity was justified. This also showed
that fraud schemes were more likely in social contexts where corruption was higher in the
culture. The individuals felt more of coercive power and this power influenced behaviors. Some
cultures were so strong that over a long period of time that the individuals did not deviate from
their norm, which could be a corrupt culture. The individuals in the grounded cultures were
more apt to give into pressures and incentives. Jeppesen and Leder (2016) analyzed that some
individuals had a precursor behavior of a corporate psychopath. The corporate psychopath was
very coercive and manipulate, usually promoting to the top of the organization. The psychopath
31
would have a lack of guilt, consciousness, no remorse for harming others, and no empathy. The
person with psychopathic tendencies craved money, power, or status. The psychopath would not
take responsibility for his or her actions. The individual would make short-term decisions to
make things seem successful. These researchers found that the Big Four accounting firms
affirmed that the corporate psychopath did not take responsibility for his or her actions,
deceitfulness, and lack of conscience. Kim, Kim, and Kim (2017) reported when there was a
socially responsible oriented organization that culture was highly ethical, there were not a lot of
internal weaknesses with financial reporting. Conversely, if the organization did not have a
socially responsible orientation, the organization was more likely to have internal control
weaknesses and they were highly likely to have fraudulent financial statements. The employee
turnover rate was higher with highly unethical management. The fraudsters had the social
function of thought process to commit fraud. The social attitudes set the behaviors for the
organization. Boyle, DeZoort, and Hermanson (2015) studied 95 auditors from the Big 4 public
accounting firms and studied the fraud triangle and additional component of capability.
Sometimes an executive director would have narcissistic tendencies and a capability to commit
fraud in addition to pressure, incentive, and opportunity to commit fraud. The fraudster would
have the capability to hide stress, persuasive ability to convince people the accounting records
are correct, and the person was very skilled in accounting and audit. The managers were
pressured to be profitable, compete with other organizations, meet performance goals, and meet
customer demands (among other pressures to succeed). The managers had opportunities when
the organization had weak internal controls, weak board and weak committees, turnover of other
management, and other weakened organizational situations. The manager would feel he or she
needs to achieve forecast goals, argue with audit, and rationalizing wrongdoing. The other
32
characteristic of fraud was capability which adds to the fraud triangle and was known as the
fraud diamond model and included individuals in the right position or function to commit fraud.
The individual had the confidence to avoid detection. The individual had the ability to coerce
others to commit or conceal the fraud. The individual would effectively lie and convince others
their reports were accurate. Behaviors of fraudsters were important to understand because the
characteristics helped understand the underlying reasons and helped with fraud detection
Spratt (2013) observed the occurrences of occupational fraud had elements of the fraud
triangle. According to this study, stakeholders were found to be the most effective way to
preventing fraud. The boards, partners, and internal stakeholders could help establish effective
internal controls that prevent fraud. The independent oversight committee (board) would make
sure the organization was using effective internal controls and identifying risks. The top
management needed to have high integrity and good ethical standards. The organizations should
have hired competent employees and had accurate accounting. The idea was to reduce
opportunities for fraud. The workers should have had segregated accounting functions. Revenue
functions should have been separated such as billing and accounts receivables. Disbursement
functions should have been segregated such as approving purchase orders and accounts payable.
Downsizing and growth would have increased opportunity risks. If they downsize, the workers
could have had less segregation of duties. If they grow, they needed to verify they had
competent employees to perform the duties. Spratt (2013) continued to explain if an employee
had to meet unrealistic performance goals or bonus targets, the employee would have had
incentives to commit fraud. If the employee had addictions or financial difficulties, the
employee was more prone to commit fraud. When the employees felt as if they were treated
33
unfairly, they could rationalize the fraud was justified. Those unjust practices could have been a
lack of equal opportunity hiring practice, uncompetitive wages, or unjust treatment of employees
in general. The culture and atmosphere of the organizations led to ethical or unethical outcomes.
Borry (2017) explained that NFPOs were significantly influenced by culture and climate to bend
the rules. The social aspects of a culture influenced the organizational culture to follow the
norm. Culture was one factor that influenced a person bending the rules. Another factor
discussed in this research was that an individual’s behavior influences the bending of the rules
(Borry, 2017).
Fraud detection and prevention techniques were used to detect or prevent fraud. Morales,
Gendron, and Guénin-Paracini (2014) revealed it was understood that organizations were
accountable for deterring the risk of fraud, or they would be negligent. Organizations that had
effective control structures were less likely to have occurrences of fraud. Verick (2013)
explained that fraud prevention was not easy for stakeholders to identify. Fraud caused NFPOs
to lose donors because of the tarnished image and hurt the organization’s competitive advantage.
The internal financial managers should have had procedures, guidelines, and templates to follow
so they could have had accurately kept the books and reported correctly to state and federal
agencies. Stakeholders should have been able to verify the financial managers were correctly
doing their job to detect or prevent fraud. The fraud detection and prevention techniques should
have been transparent so stakeholders could have a working knowledge of the techniques of
prevention or detection so the company could detect fraud more quickly or prevent fraud from
occurring.
34
Ethics Training
First, ethics training is a type of fraud prevention that brings awareness to ethical issues
and explains what fraud is in organizations. Godkin and Valentine (2016) found that ethics
training was good fraud prevention and brought awareness to stakeholders. With a 181
individuals studied, the researchers studied ethics training and socially responsible business
practices and found the workers who had the training learned how to recognize unethical
behavior and improved their decision-making. Training helped each worker improve his or her
own reasoning. The workers learned organizational expectations, laws, and regulations. The
workers learned proper ethical social standards. Workers learned how to find resources and
build support systems to where the employees could gather ethical and legal advice. Employees
felt empowered to seek more information on ethics and discuss situations they question. The
workers would reach out to gain legal advice and question risks when they had a working
knowledge of fraud. The training empowered the workers to make ethical decisions. Also, the
training showed that after the training, workers had a more socially responsible outlook.
Statistically proven, the workers had a more positive work attitude and their job satisfaction was
higher. The workers wanted to continue to work a long-time for the organization. Turnover was
reduced. Continuing with training, Kelly, Graycar, and Wal’s (2015) qualitative study of 36
organizations in Australia observed that anti-corruption (ethics) training helped decrease fraud
risks. They found fewer incidences of corruption when the workers had training. However, the
training program was limited to codes of conduct and not specifically related to corruption.
Initially, the workers were trained when they went through induction. Also, some organizations
had online learning programs to help the workers understand the codes of conduct. The
executives had more workshops on ethics and values, which set the tone at the top to have ethical
35
behavior and display ethical practices. They provided limited training on policies and
procedures with employees. One third of the 36 organizations studied did not provide any
educational training on ethics nor anti-corruption. Some of the organizations were less
concerned about integrity and more concerned about internal processes (basic work like
procedures/steps, not internal controls). Training brings awareness. This research analyzed if
NFPOs in South Carolina were using ethics training as a part of their fraud prevention and
Training also reaffirmed or helped set the tone for ethical practice. Gyoo Kang, Edum-
Fotwe, Price, and Thorpe’s (2014) qualitative study on construction engineers in connection with
PhDs specializing in ethics studies had customized ethics trainings and found those organizations
were more effective and efficient with the organizational objectives. The trainings helped the
participants with interpersonal relationships and built higher ethical traits. This study validated
the use of ethics training. Ethical training helped the organization reflect on ethical concepts to
bring a higher level of awareness. In a study in Nigeria of 91 researchers, Okonta and Rossouw
(2014) discovered that regular ethical training helped decrease misconduct in organizations. If
an organizational culture was allowing and condoning a particular misconduct, the rest of the
workers would believe that that conduct was okay. However, through training and educating
workers on moral and ethically acceptable business behaviors, the workers would be less likely
to engage in misconduct. Educating and training were important to understand the misbehaviors
and to explain ‘what is misconduct’ (some of the individuals did not know certain behaviors
were considered misconduct). Lowery, Duesing, and Beadles (2014) explained that spiritual
people were more ethically natured not to commit unethical acts. The employers provide
training in ethics to help change the perceptions to more acceptable behaviors in the
36
organization. Hope (2016) reported that anti-corruption training helped strengthen knowledge,
values, codes of conduct, and skills. The goal of such training was positive for ethics and
integrity, which influenced behaviors. The training exposed and informed participants of bad or
illegal behaviors. The training helped improve ethical decision-making and reduced corruption.
Although this research was focused on curbing police corruption, the basic foundation was to
build a moral compass and reaffirm human sense of right and wrong behaviors. With ethics,
individuals could build good virtues of justice, truth, responsibility, and respect, all of which
were needed to prevent the corruption or negative behaviors. Lail, Macgregor, Marcum, and
Stuebs (2017) reported motives and maintaining the social status (the individual’s identity) was
the root cause of fraud. Their analysis showed that education of professionalism and virtues
would be vital to preventing fraud for accounting professionals. Hamilton and Slatten (2013)
explained that NFP organizational members benefited from understanding ethical issues through
training. The training taught the members how to make ethical judgments under pressure.
A fraud risk register was another fraud prevention technique. The register could be
elaborate or simply a list of red flags that the committees put in place that was used as a check-
list of what to be aware of in preventing or detecting fraud. Brudney and Nezhina (2012)
reported that NFPOs also benefited from the Sarbanes-Oxley (SOX) Act of 2002 such as U.S.
Code amendments to Section 42 121(b) of Title 40 of the U.S. Code and U.S. Code Chapter 3,
Title 18. It was originally intended for for-profit organizations. However, the SOX act could
benefit NFPOs. The NFPOs would have better financial controls and aid in reducing the risk of
fraud. Some of the relevant SOX provisions were having a whistle-blowing protection policy,
independent board members, open access to financial and audit reports, basic financial training
37
for board members and executive directors, and external audits. Brudney and Nezhina (2012)
continued to explain that donors liked to know the money they donate was utilized in a proper
way and not misappropriated. The review of internal controls safeguarded the money and
detered workers from committing fraud. When the board had more interest in the NFPOs
finances, it gave another layer of financial protection against fraud. West (2014) reported the
Chartered Institute of Public Finance and Accountancy launched a study of Global Fraud Risk
Register for the general public. There was a need to identify and react to fraud threats. New
forms of fraud happened and there was an ongoing need to establish fraud risk registers.
Thomopoulas (2013) elucidated it was important to have tools to identify fraud risks.
Employee’s awareness of the fraud risk was important to helping identifying fraud. The
employees had a stake in the organization and the employees have a vested interest to prevent
fraud. However, employees may also have had alternative interests (to commit fraud) in
business interests of their employees to identify potential fraud risks. Organizations should have
codes of conduct that explain how gifts and sponsorships are given to employees. Carpenter et
al. (2014) studied 92 prisoners on risk behaviors. The prisoners had several similarities such as
numerous marriages, living in certain neighborhoods, academic aptitude, and personal assets to
liabilities mismatched, and had less than a five-year employment history. The employees’
environment affected the likelihood of committing fraud. Then, if the organization did not have
strong internal controls, the fraudster would have had more of an opportunity to commit fraud.
The prisoners rationalized their actions and a fraud risk register would have benefited the
Red Flags
Efrim-Boritz and Timoshenko (2014) defined that red flags were checklists. The red
flags gave clues to potential fraudulent behavior. Holtzlatt, Needles, and Tschakert (2016)
reported that red flags were fraud warning signs that displayed higher risk when the correct
situations were in place. The risk was often unique to the organization and the organization
could identify the risk and monitor the situations. The staff would work together to identify the
risk using flowcharts, brainstorming, questionnaires, or data analysis. Certain red flags were
identifiable such as an individual under a lot of financial pressure (especially a male providing
for a family), increased authority in the organization, and roughly a year after tenure. Other red
flags existed such as kickbacks, increasing prices, decreasing quality, favoritism in vendors, or
complaints from customers. A lavish lifestyle would be a red flag. The misuse of assets was an
aspect such as buying furniture using the organizational funds and delivering the furniture to a
personal home rather than using the furniture at the business location. The individual would
have conflicts of interest such as hiring family and bribe workers to conceal wrong-doing. Other
red flags included: financial difficulties, living beyond one’s means, unwilling to share duties,
shrewd behavior, irritability, addictions, not taking vacations, gambling, increased smoking, and
Mangala and Kumari’s (2015) paper examined fraud warning signs and red flags of
fraudulent behavior. Significant red flags were criminal backgrounds, aggressive attitudes,
unexpected profit targets, and high compensation for management. Other red flags were
working in adverse regulatory environments, high competition, and continuous change in the
industry. In the operation and finance, there were red flags of individuals creating complex
structure, third party transactions, close relations with suppliers and customers, and an
39
individual’s troubled finances. In the internal processes, there were red flags of poor segregation
of duties, inadequate recordkeeping, poor job screening, inefficient supervision, poor physical
control, and weak internal controls. Kramer (2015) unfolded that understanding red flags helped
to prevent or detect fraud. The red flags were indicators of potential fraud or indicators of risky
individuals upon hiring. The internal weaknesses were present and those weaknesses made fraud
more of a risk. Some organizations looked at specific fraud red flags such as mailing letters
without fold marks in the same area (suggesting it was not mailed), numbers out of sequence, all
even dollar amounts, missing checks, voided checks, or unexplained increase in expenses. Other
red flags included cues that individuals were living outside of their means, such as buying
designer clothing, jewelry, new cars, or vacations. The person committing fraud had a change in
behavior and was more irritable. Association of Certified Fraud Examiners (ACFE, 2016),
showed the red flags were: living beyond means, financial difficulty, unusually close association
complained about inadequate pay, no behavioral red flags, refusal to take vacations, excessive
pressure from within organization, past employment-related problems, social isolation, past legal
problems, excessive family/peer pressure for success, complained about lack of authority, and
instability in life circumstances (see figure 1). In 92 of the cases, the offenders exhibited at least
one of the red flags in the ACFE list. Understanding and being aware of these red flags helped to
Brazel, Jones, Thayer, and Warne (2015) surveyed 194 participants to look at fraud
frequency and the number of fraud risk assessments to determine what red flags were successful
in detecting or preventing fraud. It was summarized that red flags reduced losses due to fraud.
Holtzlatt et al. (2016) also expounded that recognizing red flags helped reduce risks. Red flags
were warning signs that fraud could occur. The most common type of fraud occurs was
fraudulent financial statements. Other red flags included illegal acts, corruption, and other types
of fraud. The financial statement fraud occurred when the statements were misstated or parts of
the statement were omitted (not disclosed). A main reason that financial statement fraud
employee was paid on his or her performance. Sometimes, financial fraud occurs when the
manager was trying to avoid bankruptcy so he or she continued to have a job. There were a
number of ways to check for red flags. One way to check for red flags was to compare previous
year’s financial reports to current year’s financial reports. The stakeholders also looked at the
budget to compare current budget to actual budget and previous year’s budget to current budget.
The stakeholders looked at the assets and income to see if it was realistic. Holtzlatt et al. (2016)
continued to explain that account balances were analyzed to other similar organizations and
looked if the financial reports were consistent. The stakeholders monitored expense activities to
see if there were unusual balances or unexpected charges. A few notable red flags were auditor
changes, rapid turnover of key employees, complex business and software, declining sales and
profits, insufficient liquidity, loss of market share, and problems with regulatory agencies.
Employee theft was identified by missing work tools, furniture, or equipment. In addition, the
shipments were delivered to non-work related sites. The journal entries were altered or deleted
to conceal theft. Other red flags analyzed were expenses exceeding the budget, multiple receipts
for the same vendor, expenses with no details, or travel expenses not reviewed. Further,
Holtzlatt et al. (2016) explained that flags included lack of segregation of duties (internal
controls may be lacking), the payroll clerk could commit fraud such as creating fake employees,
overpaying employees, or not paying payroll taxes. There were large quantities of orders, a
favorite vendor, or complaints from clients. A person who has full intentions of committing
fraud would want to learn all about the organization’s internal controls. The individual would
have a lot of stress such as high mortgage or children with high tuition. The individual would
have increasing authority in the organization and not be prepared for the stress and pressure of
performance goals.
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Whistle-Blowing Policy
Policies and procedures are a way that NFPO’s leaders can manage the internal controls to
prevent fraud and detect fraud. Young (2013) described that whistle-blowers were fearful that
they would face retaliation if they reported wrongdoing. The whistle-blowers also feared the
organization would suffer negative public relations if they reported the fraud. The internal
disclosure of fraud was an added policy where employees could anonymously report suspected
fraud. However, Young’s (2013) findings in the study of all federal agencies mandated to
complete a survey through the Office of Government Ethics showed the whistle-blowing policy
was inconclusive in the effectiveness of detecting fraud. Brink and Gao (2017) explained there
reporting suspected fraud was important to the validity of the claim of fraud (e.g., the individual
had a grudge against a co-worker and falsely report suspected fraud). Whistle-blowing is where
blowing policy was created after accounting scandals in 2001 to help give employees a way to
report suspected fraud to detect the incidences of fraud quicker. Morales et al. (2014) reported
that one of the keys to fraud detection was to have an anonymous whistle-blower hotline
investigated. Intervention of fraud was effective when using control techniques such as the
whistle-blower hotline to detect fraud. Redman and Caplan (2015) revealed that organizations
benefited from a whistle-blower policy because that helped to correct a wrong doing in the
organization. MacGregor and Stuebs (2013) clarified that whistle-blowing was a fraud detection
technique. However, stakeholders or witnesses may not recognize the fraudulent activity as such
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if they were not trained to understand the behavior as wrongdoing. The internal employees are
legally responsible for understanding illegal activity concepts and need to have a working
reporting suspected fraud and should use the whistle-blowing as a tool. Lee (2016) explained
organizations that had a whistle-blower policy and conflict of interest policy had strong due
diligence and were more aware of fraudulent behavior. The policies gave accountability to the
stakeholders. Policies showed good governance. This research study on NFPOs looked at
policies such as whistle-blowing to examine if this was effective in detecting fraud and if
Rothschild (2013) explained that whistle blowing means to speak freely and this concept
has grown in business organizations to mean that an individual can speak freely for the defense
of the organization where he or she works. The whistle-blower stands up and reports suspected
fraud for the best interest of the public. The worker should go to his or her manager first unless
he or she feels the management is involved. Then, the worker would report the incident to either
a whistle- blowing hotline, contact the board president, or in some cases, contact the local police
or investigative office (depending on the unethical act). In some cases, a whistle-blower will
report fraud because of vengeance and no unethical act was committed. However, this was only
evident in a few cases in Rothschild’s (2013) study of 400 whistle-blowers from all regions of
the US. Most of the time the worker will have a high level of integrity and not falsely report
alleged unethical acts. Rothschild (2013) continued to explain that around two-thirds of the
whistle-blowers had adverse work retaliation because they reported the unethical act. The
retaliation included: losing their jobs, negative evaluations, criticized by coworkers, and
blacklisted from jobs in their field. Over 90 percent of the whistle-blowers reported they would
44
still blow the whistle to reduce harm to society and ethically still do the right thing. Some
organizations created a grievance policy where the individual could contact representatives of the
Code of Conduct/Ethics
Another fraud prevention technique under policies is to have a code of conduct or code of
ethics policy. Giorgini et al. (2015) revealed that codes of conduct are ethical and professional
guides for ethical behaviors. The code of conduct/ethics policy helps workers avoid unethical
occurrences, promotes a healthy public image, and sets the tone for higher ethical standards. The
individual also could refer to the guidelines when he or she has specific situations to help
understand what he or she should do. The individuals were more aware of harm and results of
unethical behavior as a result of having a code of conduct/ethics policy. Godkin and Valentine
(2016) explained that codes of conduct/ethics policy were guides with the organization’s duties,
formal document that gives guidance to core beliefs of the organization, norms, and
values/morals. Moraga et al. (2017) reported it is common for professionals to create a code of
engineers and professionals discussed that codes of conduct reflected ethical culture and
promoted self-regulation. However, the codes of conduct should not be used alone to gauge
misconduct and prevent fraud. Bromley and Orchard (2016) determined that formal codes of
conducts or codes of ethics in the policies were important for NFPOs to help prevent fraud and
codes of conducts are created as an ethical guide to follow to reduce misconduct. Internal
workers and volunteers should have had accountability for the activities inside the NFPOs in an
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interval study of 45 NFPOs. Codes of conduct policies also helped improve transparency
preventing unethical practices and the codes helped foster a cultural atmosphere of ethical
practices. Andrade, Hamza, and Duarte (2017) observed that codes of ethics/conduct provided
workers with a formal idea of the behaviors that were expected. The codes provided standards of
how the employees should act within the community. In large corporations in Brazil and
Portugal, the workers in a study were given codes to keep the organization’s reputation strong
and foster ethical practices. The codes of conduct/ethics policy often reflected the organization’s
mission and priority. Chiu, Huang, Lin, and Yen (2015) described that a code of ethics policy
helps guide/govern ethical behaviors. The ethical code helped show the public the organization
had due diligence to set high ethical standards to be managed ethically and to fulfill the mission
of the organization. Morales et al. (2014) reported that effective fraud detection happened when
organizations had ethically strong cultures of codes of conduct policies because they were aware
of fraud in general. The ethically enriched culture counteracted negative influences that led to
fraud such as pressure to commit fraud to meet goals. The individuals had higher integrity and
limited thought process to rationalize fraudulent behaviors. The senior management was
responsible for building a strong ethical culture and maintaining the ethical standards in the
codes of conduct. Lee (2016) unfolded that NFPOs that have clearly written procedures have
better controls. Perhaps NFPOs having clear procedures and policies will further show validity
part of risk assessment. Kulikova and Satdarova (2016) determined that fraud detection
technique of internal controls was important to detect and prevent fraud. The internal control
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and monitoring. The accounting data should be reliable and accurate and presentable when
reviewed. Graycar and Lenz (2016) explained that internal control procedures are important to
detect fraud and organizations need to have internal audit or a committee on the board to oversee
the accounting. If a manager does not follow the internal procedures and does not allow
stakeholders to review the financials, then there is a high risk of fraudulent activity. Morales et
al. (2014) described that given the right set of circumstances, people in general were capable of
fraud. Accounting experts agreed the fraud triangle exists where the individual had the
when the organization had lost control of internal processes. The best way to prevent fraud was
to educate workers with the skills to detect the fraud and gain control of processes. Ferreiro
(2012) reported when the NFPO had a strong and accurate budget, it can monitor cash flow by
YTD budget analysis. Internal controls help prevent fraud. One of the internal controls that
helps prevent fraud is the segregation of duties. Internal control potentially helps prevent fraud
such as corruption (accepting bribes or conflicts of interest), fraudulent billing schemes (sending
money to a fake company that funnels into the personal account of the manager), skimming
(keeping a cash donation), or check tampering (writing a fraudulent check to self). Cali and
Marshall (2015) also found that internal controls helped prevent fraud. The organization sets up
an integrated framework of objectives, components, and principles to prevent fraud. In this case
study on SafeNet, Inc., not all stakeholders were aware of internal controls and how to manage
Blaskovic and Sijepcevic (2014) also found fraud could be prevented with good internal
controls. Udeh’s (2012) study showed companies had inadequate internal controls were at a
47
higher risk for fraud. This research also found organizations with no internal controls and
multiple fraud occurrences. Adetiloye, Olokoyo, and Taiwo (2016) reported that internal
controls such as separation of duties, monitoring, and analyzing profit were important in
preventing fraud. Some technology helped internal managers detect fraud. Internal controls
Lenghel (2013) explained that internal controls contributed to the prevention and
detection of fraud. Internal controls help find errors and inaccuracies in financial accounting
because this allows a dual set of eyes on the accounting and processes. Internal control is a
technique that internal stakeholders use to ensure accuracy and efficiency in the fulfillment of the
organization’s mission. The goal of internal controls is to reduce risks and bring awareness to
when there are deviations from the internal control policies and procedures. It is important to
have separation of duties so the same person who writes checks is not the same person who signs
the checks. Also, other separations of duties exist to double check the accounting functions. The
risks should be reduced in the controlled environment. Mutnuru (2016) studied 900 employees
in organizations with internal control systems and found strong internal control systems were
effective. The employees with defined internal controls felt they fully understood what their
work roles were and the employees were satisfied and invested in their work roles. The
employees were more focused on effectively and efficiently completing their objectives.
Maguire (2014) revealed when a NFPO clearly provided stakeholders proper policies and
procedures explaining the internal controls, the stakeholders were more effective in fulfilling the
organizational mission. Internal controls help support accountability and transparency in the
organization. Strong internal controls showed ethics of care and due diligence to donors to make
more informed decisions whether to donate money to the organization. Maguire (2014)
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continued to expound that a research conducted by advanced auditing class at Coastal Carolina in
South Carolina on NFPOs. The research showed that organizations with strong internal control
have less fraud and fulfill their mission more effectively. A good internal control framework
will include: control activities, risk assessment, information and communication, monitoring, and
environment. The executive director should set an ethical tone at the top to encourage ethical
practices in the organization. The organization leaders should also assess internal and external
risks. It is important to make sure all employees are following the duties assigned to safeguard
against fraud. This study examined NFPO’s use of internal controls review is an effective
Domanski (2016) explained that NFPOs used risk assessment to make changes to prevent
fraud. A committee of programmatic workers would review the programs and events to
brainstorm potential problems and action plans on how to prevent fraud and theft (i.e., fraud
detection plan). Some of the identified risks from the study were having adequate supervision,
stakeholder communication. Domanski’s (2016) study of 235 Polish NFPOs found that half of
the organizations had worked on identifying fraud risks. Risk assessments were more successful
if a committee of leaders discussed the fraud risks in the organizations. The leaders ranked the
importance and likelihood of risk. Identifying fraud risks improves efficiency in the
organization. The NFPOs that were committed to risk management assessment and improving
The fraud detection techniques can be combined to safeguard the organization from
fraud. Minogue (2013) unraveled that NFPOs should create a code of conduct, have good
internal controls, risk assessment such as employee screening, whistleblower policies, audit
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procedures, and creating a tone at the top with additional ethics education. The code of conduct
needs to be communicated to everyone in the organization. The organization should make sure
that codes of conduct are monitored for compliance and that all are committed to follow the
conduct. Internal control should have clear and effective segregation of duties (e.g., the same
There are different types of fraud. This literature review is going to touch upon
occupational and non-occupational fraud. ACFE (2014) determined that occupational fraud is
internal fraud. It is the misuse of the organization’s assets or resources. The employee commits
fraud against his or her employer. Non-occupational fraud is external fraud. To expand upon
Giovino’s (2014) study mentioned previously, NFPOs are particularly vulnerable to occupational
fraud. The average median loss from occupational fraud is $140,000. Occupational fraud occurs
when an employee feels like he or she is compensated enough. Another reason for occupational
fraud to occur is when the employee has an addiction problem and steals money to pay for the
addiction problem. The employees who struggle paying bills may steal money to pay bills with
the organization’s money and they justify their actions by believing they will repay it later. The
employees who are most likely to commit fraud will have bank signing rights on the accounts or
company credit cards where theft is easily accessible. The easiest time to commit fraud is
around a holiday or fundraising events where there is extra money flowing into the organization.
Other organizational fraud is embezzlement. Minogue (2013) reported NFPOs were vulnerable
to embezzlement schemes such as paying personal expenses with charity funds or creating
fraudulent invoices with fake vendors. The fraudster will skim money or create fake tax
deductions on his or her tax returns (e.g., sending a donation and then requesting a refund of that
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donation). Fraudsters have been known to also write counterfeit checks to their own account or
use a donor’s credit card for personal purchases. Some fraudsters accept bribes from vendors to
get kickbacks or expect special treatment from vendors, all for personal use. Goldstein (2015)
unraveled a case study to explain occupational fraud. The human resource manager and
accounting manager can falsify wages and benefits, commit larceny, and make personal
purchases with company money (fraudulent billing). The smaller organizations have less
internal controls which make it easier to commit fraud. In the case study, Goldstein (2015)
explained that the stakeholders trusted the management to do the day-to-day operations honestly.
Three types of occupational fraud are discussed: corruption, asset misappropriation, and
fraudulent financial statements. The employees were not screened properly. When hiring an
accounting manager, the search committee should also check his or her credit, education,
employment, residence, driving record, and other licenses on the candidate. The
stakeholders/search committee should have due diligence to fully research a candidate for
accounting. Goldstein (2015) continued to explain the organization had no good internal control
procedure for checking payroll taxes. The accountant that committed fraud had no second signer
on the checking account and the bank statements and canceled checks were not reviewed. The
organization was audited by a local auditing firm; however, the auditors did not discover the
discrepancies. The manager who committed fraud was knowledgeable on all accounting
reporting and audit and that manager was able to manipulate the books to conceal the fraud.
Occupational fraud can be reduced by surveillance, recording, and monitoring accounting with
checks and balances. Rendon and Rendon (2016) found that procurement fraud is where an
individual alters contracts to his or her own special interests or to an organization that benefits
his or her own interest. The study found the United States government had to be careful to have
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proper internal controls to prevent procurement fraud. The Department of Defense (DoD)
awarded over $285 billion in 2014 for supplies and services. The DoD had to hire contract
management because of the fraud, waste, and abuse/mismanagement. Sometimes the leaders fall
to bribes and kickbacks. The main procurement fraud was in contracting processes and internal
controls of processes to comply with regulations. The incidences ranged from abuse of power to
travel reimbursement violations. The contracts are specified and certain deliveries are expected
from the procurement/purchases. In one finding, an air base manager wrote a proposal for
funding and received the grant. The problem was the air base was his own company and he took
the money for personal gain. He was charged and pled guilty of a misdemeanor violation. He
example of non-occupational fraud is insurance fraud. Chang, Ishida, and Taylor (2016) found
that insurance fraud can include property or casualty insurance claims according to Coalition
against Insurance Fraud report in 2012 in the United States and property and casualty insurance
claims cost $80 billion per year. The insurance industry claims that over ten percent of claims
are fraudulent. NFPOs can have fraudulent insurance claims with the general liability insurance.
Aleem, Brooks, and Button (2016) revealed there are different types of fraud. Insurance fraud is
one fraud where individuals turn in insurance claims on fraudulent automobile accidents to
collect cash. Individuals exaggerated claims or claimed personal injury to collect money.
Sometimes these individuals will cause accidents to collect claims. Sometimes a fake accident is
created to collect on claims. The individual that creates the claim will collect on damage to his
or her vehicle, injuries such as whiplash, loss of earnings/work, rental cars, fees for storing the
vehicle, fees for doctors, and other fees that he or she can create. The profile for these fraudsters
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was typically a part of organized crime. The individual was supplementing his or her other
criminal activities. NFPOs may have employees who claim fraudulent insurance claims on
accidents. However, the deceitfulness of committing insurance fraud should raise fraud alerts
The explanation of the fraud triangle was theorized to show the individuals had thought
out the fraud (had a pressure, opportunity, and rationalized it). For this study, the concentration
was on occupational fraud (internal fraud) in NFPOs where individuals were involved in fraud.
However, some non-occupational fraud may be evident if collusion of internal management and
external vendors are working together to commit fraud in NFPOs in South Carolina.
Fraud has been an issue in practice. Bradley (2015) reported that NFPOs needed
employees to take an active role in preventing and detecting fraud. The workers shape the
behavior of the culture in the organization. If the workers take responsibility to look for fraud
risks and have an aptitude for ethical behavior, they will foster an organization for deterring
fraud and wrongdoings. Employees may be able to provide insight into making procedures more
efficient. The employees can give insight to design, implement, and foster anti-fraud procedures
and strategies. The employees are empowered to prevent fraud and keep their peers from
wrongdoings. Bradley (2015) determined the severity of some of the fraud instances: $5 million
stolen from Association of American Medical Colleges, $400 million stolen from a Venture
nonprofit, and over $500,000 from a charity in Ohio. The organization’s stakeholders were
responsible for their own watch guarding against fraud. A fraud prevention program was
necessary for the organizations to safeguard their assets. Brudney and Nezhina (2012) conducted
a quantitative study and a qualitative study. The quantitative study was conducted by a survey of
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top executives. The survey was not what they were looking for so they conducted a stratified
random sample of 2,000 public charities from the National Center for Charitable Statistics
(NCCS) at the Urban Institute. They looked at the 990 or 990ez tax forms of 501(c)(3) NFPOs.
The researcher wanted a qualitative study also to review the attitudes, perceptions, and behaviors
Brudney and Nezhina’s (2012) research showed NFPOs had different views of the financial
safeguards against fraud. Some organizations wanted more risk provisions and some did not
understand the risk provisions. Over 50 percent of the NFPOs did not adopt any provision of
fraud prevention and 30 percent only adopted a small amount of prevention. The researchers
Bernstein, Hamilton, and Slatten (2015) reported stakeholders should protect the reputation of
NFPOs because the stakeholders are stewards of donor’s contributions and fulfill the mission of
the organization. Often, there are scandals and unethical practices to where the wishes of the
Some organizations try to conceal the fraud or commit fraud to cover up. Baca (2013)
determined that over 60 percent of NFPs in Ventura, California did not report fundraising
expenses. There was a lack of understanding of the reporting of fundraising expenses and the
processes of accounting for the funds. The NFPOs relied on the internal stakeholders to insure
public trust and accountability to fulfill the mission. Thirteen percent of NFPs had revoked
status because of their failure to report taxes. The organizational leaders did not understand
accounting and could not detect fraud or had misstatements on tax reports. Salceanu (2014)
revealed that fraud occurs in several ways. In reference to NFPs, the management will alter the
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other income categories (overstating income). Managers will reduce losses or place erroneous
amounts on assets valuations. They will postpone losses. Managers will change insurance
values and forge prepaid insurance amounts to show a stronger balance sheet. Caneghem,
Reheul, and Verbreggen (2012) studied NFPOs in Belgium and found that NFPOs lagged in
reporting or disclosing bad news in their financial reports. In this study in Belgium, around one
fifth of the NFPOs sampled did not file financial statements within the time span legally allotted.
Capelleveen, Hillegersberg, Mueller, Poel, and Thornton (2016) determined that around $700
billion results from fraud in the US healthcare system. Some health-care systems are NFPOs and
not only commit fraud, but also do not pay taxes on their revenues because they are NFPOs.
These types of fraud have collusion in which a group of individuals work together to cheat the
government and individuals. Arshad, Asyiquin, Bakar, and Razali (2015) disclosed that abuse
and fraud cases are on the rise especially in NFPOs. The fraudsters use NFPOs to embezzle or
Totty (2013) reported that fraud hurts an organization even though the organization itself
was not necessarily responsible for the theft. The image of the organization is tarnished with
scandals regardless of intent. The organization hurts financially due to the fraud or perceived
fraud. The organization would have to pay for any damages the employee caused such as
refunding money and even legal fees for arbitration if sued. The employer has to train a new
employee and employees for damage control and retraining. Online transactions at credit unions
have fraud control policies that require encrypted data on specific devices to deter fraudulent
transactions on public devices. Rochat (2016) explained that NFPOs compete with other
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NFPOs. If one NFP has fraudulent activities detected, the donors will go to another NFPO to
donate money. If the NFPO does not receive money from donors, they cannot fulfill their
mission in many cases. The NFPO would not be able to feed hungry children, workers go
without pay and their families suffer, and society suffers. Roughly one third of NFPOs would
not survive funding after four months. Another third of all NFPOs could not survive funding for
one to three months and five percent would not last one month without funding.
In summary, the literature showed that fraud detection and prevention was important for
further study in NFP and for-profit organizations. In addition, fraud detection techniques will be
explored for prevention of fraud. These techniques will help NFP stakeholders understand how
to detect fraud, what techniques work, and which ones need to be applied to their organization.
The hope is to prevent fraud by awareness. This researcher wants to discover that techniques are
more effective in detecting fraud and decrease fraud. Ghosh (2015) reported the business world
is plagued with scandals and unethical practices, corruption, and decline of moral values.
Individuals should be socially responsible and care for the future generations. The stakeholders
should be actively interested in their charitable cause and verify that the causes are doing the
service that they say they are doing. The stakeholders should understand legal and professional
standards and if the organization is being responsible with the funds. The study of NFPO’s
climate and leadership has been under researched. Sabine (2016) revealed that fraud is on the
NFPOs have an issue detecting fraud. Bierstaker, Brody, and Pacini’s (2006) study
related to fraud detection and prevention. Fifty-two of the 96 accountants surveyed expected
fraud to increase. They tested to see what fraud detection techniques were used most frequently.
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The most frequently used fraud detection techniques were fraud procedures, internal control
reviews, and improvements (assessments). The smaller organizations could not afford some of
the techniques such as forensic accounts or data mining. However, a cost benefit analysis was
not conducted to look at the cost versus benefit of utilizing certain fraud detection techniques.
Mohd-Sanusi et al. (2015) stated there was a gap in stakeholders understanding of external fraud.
NFPs studies did not know how to look for fraud red flags and how to do risk assessment on
external vendors/fundraisers. The data had conflicting fraud prevention outcomes for the
techniques.
ensure and guarantee true depiction of the financial reports (assets, liabilities, and equity). The
management was responsible for proper regulations, legal provisions, and mismatches in
accounting transaction were prevented and detected. Fraud occurred when the internal controls
had inefficiencies. The management and internal stakeholders needed to understand when they
misstatements of financial statements. Workers needed to know when values or information was
misinterpretation of events or transactions. Workers need to know when assets were stolen,
abuses of expense accounts, payroll fraud, fraudulent financial reporting, or theft. Madhavaram
et al. (2015) found that NFPOs fill all kinds of services for the community: police, hospitals,
education, churches, and other supportive organizations such as human health services. The
government funds many of these organizations and individuals donate money to fulfill the
missions. The mission provides value to the society in which they serve. The organizations
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assume stewardship of the money and the missions. The NFPOs are competitive for donations,
grants, and contracts to keep an adequate operational cash flow. When a NFPO suffers from
fraud, the fraud affects the donor relations, hinders the mission and hurts the communities they
serve, and the tax payer’s money would have been swindled. Felix, Gaynor, Pevzner, and
Williams (2017) determined that NFPOs managers have a higher level of trust with funds and
accounting. When an opportunistic manager finds a way to work for a NFPO, he or she can
build up a level of societal trust to where it is easy for the manager to commit fraud.
Greiling, Harris, and Stanley (2016) unraveled that NFPOs have limited resources. The
NFP stakeholders are responsible to ensure the resources are used efficiently and effectively.
The NFPOs also have to show accountability for the resources and show transparency.
Gentenaar and Solomon’s (2015) article expounded that NFPOs have limited resources and are
vulnerable to accounting fraud. The workers should have good stewardship and care about
sure third parties were also conducting proper accounting functions. The employees and even
board members should be properly trained in detecting fraud. They should identify suspicious
behavior known as red flags. They should understand the consequences of failing to follow
processes and how fraud behavior reflects on all stakeholders. NFPOs often rely on volunteers
with little knowledge about accounting. Bang, Reio, and Ross (2013) reported that committed
volunteers help the organization with day to day activities. Ives, Patton, and Patton (2013)
discovered that registered 501(c)(3) NFPOs rely heavily on volunteers. Most of the time the
volunteers lack formal training and there is no consistent procedures on how to manage the funds
nor how to audit. If the treasurer does not catch on to the accounting of expenses, the director
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can get out of control with spending. The director should know how much money he or she has
in the different budget categories when purchasing. Cash flow analysis can show the changes in
spending for the board to analyze. Espina and Viader (2014) reported NFP organizational boards
Dolnicar, Leisch, and Randle (2013) unraveled the need for volunteers is great because of
the large amount of non-profits serving the public with limited funds and resources. Euwema
and Smith (2015) found that accounting standards boards were working on improving existing
NFP financial reporting. Stakeholders need quality information to make investment decisions (to
donate) and the literature suggests there is a lack of education for volunteers in NFPOs to
accurately give financial information for decision-making. Ferreiro (2012) observed that fraud
cases occur in NFPOs because of their vulnerability. Adena (2016) reported that NFPs had
serious problems with fraud and scandals. On occasions, NFPOs did not fulfill their mission.
The stakeholders maximized profits and stole the money. Grimmer and Lippman (2016)
elucidated that NFPOs exists as a steward of donations and bequests. The organization has a
mission to accomplish a goal. If the goals are not met, the organization suffers potential loss of
future donors. Anderson (2007) observed there were limited training programs for NFPOs.
Training would help improve organizational stability. Organization training was studied with
for-profit organizations but not as much study on NFPOs. There is need for defining criteria for
management, funders, and others to measure financial investments. Adetiloye et al. (2016)
determined although internal controls were effective, the staff lacked the education in accounting
software to understand if they were following the correct internal control. Some staff ware not
committed to follow the controls. The NFP staff was lower paid employees with limited
education and could not understand the technology. If the organization hired quality staff with
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good pay, this could help deter fraud. The employees would be educated to use the software and
follow internal controls and they would be satisfied in their jobs. As a consequence, the fraud
would not be as prevalent. Irvine and Ryan (2012) reported that NFPOs have had a lot of trouble
with fraud and inefficiency. The board needed to understand financial analysis to detect fraud.
Hamilton and Slatten (2013) reported NFPOs were not using fraud detection techniques
meetings were not focused on financial reports nor did they discuss employee conduct. The staff
and stakeholders were faced with difficult choices if they did not follow ethical standards daily.
The internal stakeholders should have had training for ethical decision-making, including the
board members. The internal stakeholders should also have had an understanding of the laws
and ethics. They were responsible for making sure the funds were spent on what they were
obligated to spend it on and the mission was being fulfilled. This study examined the
effectiveness of stakeholders to detect fraud in NFPOs in South Carolina so the mission can be
In this research study, the dependent variable is fraud detection. Fraud can occur in any
organization. Ewelt-Knauer, Knauer, and Lachmann (2015) conducted a study on fraud and
characteristics and the correlation showed what was effective in detecting fraud. Brewington
(2013) conducted a quantitative study on fraud and the determination of fraud detection and
fraud techniques showed correlations of the fraud and effectiveness of the technique used. In
North Carolina over 30 percent of 48 surveyed in NFP governmental agencies had fraud detected
after ethics training and awareness. This research study also analyzed the dependent variable of
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fraud detection and prevention in South Carolina NFPOs and correlated that to the independent
An independent variable of all the fraud detection and prevention techniques could be
combined and analyzed in NFPOs in South Carolina. Kelly et al.’s (2015) qualitative study of 36
organizations in Australia not only trained the employees on fraud detection and prevention, but
taught them on their policies, codes of conduct, and various fraud detection and prevention
techniques combined. Zamzami, Nusa, and Timur’s (2016) research study of 100 internal audit
offices in Indonesia explained that codes of conduct build an ethical awareness that helps to
prevent fraud and understanding to detect fraud. Brazel et al. (2015) studied 194 investors to
learn the use of risk assessments increased the ability to prevent and detect fraud. Fortvingler
and Szívós’ (2016) case study in Hungary of 61 audit planners showed risk assessments
improved the ability to identify fraud cues. This research analyzed all eight fraud detection and
prevention techniques to see if there was a correlation in the detection of fraud and if the
fraud risk assessment, fraud awareness training, fraud control plan, fraud control policy, and
fraud risk register and the use in NFPOs in South Carolina. If fraud prevention techniques have
a correlation with the detection of fraud, the fraud prevention techniques could be effective in
preventing fraud. In a doctorate study, Peters (2015) found fraud risk registers would be
beneficial for religious organizations because fraudsters sometimes intentionally seek out the
religious organizations to commit fraud. The religious leaders could have a fraud risk register to
red flag potential individuals who could be high risk for committing fraud and prevent the fraud.
Peltier-Rivest and Lanoue (2015) reaffirmed that fraud prevention techniques such as internal
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control policies/procedures and preventive fraud programs such as training in ethics (codes of
conduct) and risk assessments help minimize losses in a study conducted in Canada. Carswell et
al. (2014) found there is limited awareness of fraud and some organization have formal training
to prevent fraud from occurring. A fraud control plan is a systematic and strategic plan to deal
with the fraud such as an action plan (Domanski, 2016). This study also analyzed if fraud
prevention techniques were used in NFPOs in South Carolina and if there was a correlation with
fraud detection. If there was a correlation, this could be an effective group of fraud prevention
techniques.
Also, the independent variable of fraud detection techniques of whistle-blower policy and
internal control review will be analyzed in NFPOs in South Carolina. Zamzami et al. (2016)
found that internal control procedures were one of the highest effective techniques for fraud
detection in Indonesia. Multiple researchers found that internal control reviews were important
for organizations to detect fraud (Graycar & Lenz, 2016; Kulikova & Satdarova, 2016). Whistle-
blowing policy is known as one of the fraud detection techniques often used by organizations
(MacGregor & Stuebs, 2013). This study analyzed the use of whistle-blowing and internal
control review used in NFPOs in South Carolina to see if there was a correlation to detected
fraud. If there was a correlation, then this would be a good set of fraud detection techniques.
Similar fraud detection and prevention techniques were also used as independent
variables and dependent variable (Best et al., 2015; Brewington, 2013). This research analyzed
the independent variables of the use of codes of conduct, fraud risk registers, fraud policies,
fraud awareness training, whistle-blower policy, fraud control plan, internal control reviews, and
fraud assessments to study if there is a correlation between the dependent variable of detecting
detecting or preventing fraud, this could indicate effectiveness in detecting fraud and would be
The literature review explained the theoretical framework concepts of Fraud Triangle and
Behavior/Social concepts that explain the reasoning behind the fraudster’s mind and reasoning.
The concepts have been studied since the 1950s and found that pressure, opportunity, and
rationalization are behaviors associated with the occurrence of fraud in addition to social aspects
that affect behavior. Also, fraud detection techniques such as ethics training, fraud risk registers,
red flags, whistle-blowing policy, code of conduct/ethics, fraud awareness training, whistle-
blower policy, fraud control plan, internal control review, and internal control and risk
assessments are techniques used to detect and prevent fraud. Ethics training brings awareness
about fraud and internal stakeholders benefit from understating the ethical issues associated with
fraud. Certain similarities exist among individuals who commit fraud and fraud risk registers
help organizations identify fraud risks. Also, red flags can identify several indicators of fraud
suspected fraudulent behavior for the best interest of the public. Codes of conduct are guides for
ethical behaviors for organizations and fraud control policies help guide employees for fraud
awareness and prevention. The fraud detection technique of strong internal control reviews, and
prevention techniques of fraud control plans, policies and procedures, and risk assessments
identify risks contribute to the prevention and detection of fraud. The result of this study will
help provide NFPOs more informed understanding of the effectiveness of fraud prevention and
detection techniques. The researcher used techniques used in previous studies to analyze what
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was most effective. Also, the literature review explained that internal fraud is occupational fraud
and non-occupational fraud is external fraud. This study concentrated on internal fraud.
The literature review helped to explain that stakeholders are stewards of donor’s
contributions and were responsible for fulfilling the organizational mission. It was further shown
the issues of fraud in organizations. Also, the fraud issues in practice, such as NFPOs comprise a
large portion of the economy in the United States and NFPOs have a greater risk of fraud due to
weak fraud detection techniques used and volunteers often lacked the understanding and skills to
prevent fraud. Fraud has increased in frequency and severity in organizations over the last
decade. The literature review explained that fraud affects future donations and tarnishes the
image. NFPOs and smaller organizations suffer greatly from fraud and fraud damages
organizational reputation and the NFPOs rely on the reputation because NFPOs depend on
raising revenue from donations (managing the donations in good faith of fulfilling mission).
Lastly, the literature review explained that NFPOs have limited resources and rely on relatively
The methodology will be discussed in Section 2. Section 2 will discuss the design of the
study, the data collection techniques, and methods to analyze data collected. The researcher will
This research analyzed NFPOs in South Carolina to determine what fraud detection and
prevention techniques that internal stakeholders could use to be effective in detecting and
preventing fraud. The NFPOs have a duty to the donors and public to provide the service to the
community that will help their community flourish and help the neediest (Jindra & Jindra, 2016).
However, fraud hinders the service to the community and hurts the mission and ultimately hurts
all the stakeholders. It is important to study fraud and fraud detection to prevent or deter fraud
Some believe fraud detection and prevention techniques will help internal stakeholders
detect fraud quicker and more efficiently than not having any safeguards in place (Garbou et al.,
2016). However, the current studies have been inconclusive concerning which fraud detection
and prevention techniques are most effective (Best et al., 2015; Klammer et al., 2010). The
researcher designed this study to address the research questions and hypothesis regarding fraud
The researcher designed the study to help contribute to the current research concerning
following sections will include: (a) purpose statement, (b) role of the researcher, (c) participants,
(d) research method and design, (e) population and sampling, (f) data collection (techniques,
collection technique, data organization techniques), (g) data analysis technique, and (h)
Purpose Statement
The purpose of this quantitative correlational study was to examine the effectiveness of
fraud detection and prevention techniques and internal stakeholders detecting or preventing fraud
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in NFPOs in South Carolina. Free (2015) explained that fraud has the greatest economic impact
on society rather than any other crime. Yetman and Yetman (2011) reported that NFP
organizations are vulnerable to fraudulent activities. This research studied the impact of fraud
detection and prevention techniques previously studied by Best et al. (2015) to see if the internal
The participants were identified through NFP listing on the South Carolina Secretary of
State: Charities & Non-Profits (2018) website under Public Charities and charities. After
identifying the participants (NFPOs) online, the researcher contacted the participants from their
listed contact information through email or phone call (only to gain the email address). Then, the
researcher verified the participants could complete the survey using their computers or electronic
devices through email and social media correspondence. The researcher also emailed or
included a consent form for participation in the research. Stritch (2017) reported the role of the
researchers is to provide the research technique. The researcher provided the survey for online
distribution. Sanchez (2016) found that websites and Internet have played a large role in
research in the current century. After providing the Survey Monkey link to the participant, the
researcher received the submissions from the participants after completion. The data were
collected automatically from the Survey Monkey software application. After the data were
collected, the researcher maintained the data in Microsoft Excel. The data were sorted by
submission order, and then identified any duplication, in which duplications were deleted.
Participants
The first step in gaining access to the participants, the researcher searched online for the
listed NFPOs in South Carolina from the state website: South Carolina Secretary of State:
Charities & Non-Profits that lists registered nonprofits. Newhart and Patten (2017) confirmed
the researcher’s participants will need to show the application of the local setting. The list of
NFPOs was entered into an Excel spreadsheet and Microsoft Word listing emails of the NFPOs.
The information was cross referenced by using Google browser to verify the organization was
valid and active. After establishing the organizations were active, the researcher either emailed
the leaders of the organizations or send informed consent letter explaining the study to the emails
gathered. The organizations would have a working knowledge of previous fraud detection and
To establish as working relationship with the participants, the researcher explained the
research study was to gain insight into what fraud detection or prevention techniques were more
effective and this research will help NFPOs understanding of fraud to detect and prevent future
fraud. The researcher did not directly interact with the participants during the completing of the
surveys. There was not a direct relationship with the participants, employees, volunteers, or
interns for completion of the survey. The communication was professional and informative.
Morse (2016) confirmed the participants must have knowledge of what is being sampled.
Questions were answered if contacted on the informed consent information and validating the
The researcher ethically protected the participants for confidentiality and anonymity. The
leadership of the organizations was assured their participation was confidential and no
However, that identification was deleted for the statistical research. Once the survey was
completed online, the data were sent to Survey Monkey application. Then, the data were pulled
and grouped for statistical analysis. The organizations and any identifying information were
removed for the statistical analysis. The participants completed the survey link and the raw data
were available upon request of the researcher; particularly identifying organization data that were
The researcher used the quantitative method and correlational research design. More
details regarding the research method and design employed in this project will be discussed in
Discussion of Method
As mentioned in the nature of the study, the researcher selected the quantitative method
to study fraud in NFPOs in South Carolina. The researcher analyzed the dependent variable of
the detection of fraud in correlation to independent variables of fraud detection and prevention
techniques. The researcher was looking for commonly used fraud detection and prevention
techniques and their correlation in detecting and preventing fraud. Creswell (2014) reported that
the quantitative method is one way to analyze a relationship between measurable data. Purda
and Skillicorn (2015) also used the quantitative method in their study comparing fraud detection
tools and effectiveness in firms. This research study examined fraud detection and prevention
techniques and the effectiveness of those techniques in detecting fraud. Bernauer and O'Dwyer
(2013) found quantitative research helps simplify complexity and strives to discover new
knowledge. The quantitative method is often used with large samples and random selection of
the population to be generalized for study. Bernauer and O'Dwyer (2013) explained problem
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finding is an important aspect of the method and overall study. The quantitative method helped
the researcher determine if the fraud detection and prevention techniques were used in the
sample surveyed to discover what was effective in the use of the techniques.
The researcher used correlational design to study the relationships between fraud
detection and prevention techniques and fraud detection. Mertens (2014) explicated that
correlational research design will help look for strengths and directions of relationships between
variables. The researcher conducted several steps using the correlational research design.
Mertens (2014) detailed the researcher must first identify a problem, then identified variables,
identified participants, collected quantifiable data, and then analyzed data and interpreted the
results. The problem of fraud detection and prevention techniques in NFPOs in South Carolina
was identified. The independent variables of the use of internal control review, whistle-blower
policy, codes of conduct, fraud awareness training, fraud control plan, fraud control policy, fraud
risk registers, fraud policies, and fraud risk assessments were used to examine if there was a
correlation between the independent variables and the dependent variable of detecting fraud in
NFPOs in South Carolina. The research collected the quantifiable data from the NFPOs in South
The survey data were analyzed. Comiskey et al. (2016) reported that a relationship or
researcher selected this design because the researcher will determine if fraud detection and
prevention techniques and fraud are correlated. Orcher (2016) confirmed that a correlation of 1.0
for a relationship and 0.00 for absence of a relationship. Correlational design was the most
appropriate design to study the relationships between dependent and independent variables.
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Thapliyal and Thakre (2017) reported that correlation between two or more variables show the
strength of the relationship. Correlational design is used to show the strength between dependent
variable and the independent variables which will give accurate estimates of the relationships
Summary of research method and design. Conclusively, the researcher examined what
fraud prevention and detection techniques show a relation to the detecting of fraud. Peltier-
Rivest and Lanoue (2015) reaffirmed that fraud detection or prevention techniques such as
internal control policies/procedures and preventive fraud programs such as training in ethics
(codes of conduct) and hotlines such as whistle-blowing lines, and risk assessments help
minimize losses in a study conducted in Canada. The fraud detection and prevention techniques
evaluated in this study are the use of codes of conduct, fraud risk registers, fraud policies or
plans, and risk assessments used in nonprofits in South Carolina. This study will gain insight
between the instances of fraud in NFP organization registered in South Carolina and the
The researcher’s population was NFPOs in South Carolina. The sample was drawn from
the population. The population was generated from state registration of nonprofits, South
Carolina Secretary of State: Charities & Non-Profits and charities. All nonprofits in South
Carolina are required to register and submit financial reports to the state office and cross-
referenced in charity websites. There are approximately ten thousand charitable organizations
registered since 2015, however, only 3,000 charitable organizations are in good-standing and in
operation in South Carolina. Some of the organizations have several registrations within the
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state but are the same nonprofit, which makes roughly 1,000 individual nonprofits in South
Carolina.
Discussion of Sampling
Creswell (2014) explained that a sample size is based on a fraction of the population,
such as 10% of the population. The sample size was 60 up to 286 with a 95% confidence level
of the one-thousand of the population and 5% margin of error, National Statistical Service
(2018).
• The size of the population for each stratum (N1, N2, N3)
Sim and Wright (2005) confirmed that a sample size calculation should detect statistical
significance with a desired confidence interval. The calculated sample size is consistent with the
The sample was gathered from willing participants in NFPOs in South Carolina which
will occur naturally. Bryman, Futing Liao, and Lewis-Beck (2004) discussed that multistage
sampling is where populations are hierarchically arranged and the sample is selected in stages.
For this study, the researcher selected multiple groups of participants from small to large
organizations and small annual budgets to large annual budgets. As Bryman et al. (2004)
reported, all units were included at the latter stage as was in this study. However, the group was
clustered into a group of fraud detected to analyze what specific fraud detection or prevention
techniques were used, so then cluster sampling was used for that section. Elam, Lewis, and
Ritchie (2013) explained that sample framing is selecting the appropriate information sources in
which participants are to be selected. The sample frame in general is registered NFPOs in South
Carolina and the organizational contacts were contacted as the source to provide the data for the
survey.
Further describing the sample size determination, as Clark, Harrington, Miller, and Wolf
(2013) clarified, investigators need to observe adequate sample size to properly find relationships
in the data. The probability of not making a Type II error and rejecting the null hypothesis when
it is false is using the statistical power given the correct number of samples and using alpha level
at typically .05. This research will used alpha .05. Clark et al. (2013) also explained that
confidence intervals are typically 95% and that percentage will be used in this research. The
sample size percentage was correct because as Perugini and Schönbrodt (2013) reported that a
researcher needs a corridor of stability point which is obtained from the correct level of
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confidence intervals such as the 95% chosen and formula at the optimal deviations .05. This
research was able to analyze the data with a correct sample size to statistically show the fraud
participants is individuals who are Not-for-Profit leaders from registered South Carolina
Secretary of State: Charities & Non-profits and charities. The leaders (specifically chief
executive officer and the organization’s websites lists board/executive directors) will be
identified to fill out the survey online and completed the survey when possible. The researcher
rationale for this population was the NFPOs in South Carolina are easily accessed through the
state website.
Data Collection
Data collection is important for properly analyzing the fraud detection techniques used in
NFPOs in South Carolina. This section summarizes the research instruments, data collection
Instruments
The data were collected using an electronic survey instrument hosted by Survey Monkey.
The survey instrument was linked to the participant’s email or social media and contained the
survey with eight total questions. The survey sent to the NFPO’s leaders is listed in Appendix A.
Selection of the measurement instrument. In 2015, the BDO (Binder Dijker Otte) of
Australia and New Zealand (2015) conducted a huge not-for-profit fraud survey to study the
impact of fraud in the industry, Not-For-Profit Fraud Survey (2014). The survey measures
indicators show that without fraud prevention there is a higher average value of fraud in NFPOs.
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The BDO survey intent is to help NFPOs understand how susceptible they are to fraud and
educate the stakeholders on methods to protect the organization from future fraud. Other
organizations such as Deloitte conducted fraud surveys such as Deloitte India Fraud Survey
Edition 1 (2014) to which fraud detection techniques were analyzed for effectiveness in detecting
fraud. As a result, several research studies have concentrated on fraud detection techniques and
how effective those techniques are in detecting fraud (Best et al., 2015; Peters, 2015; Lee, 2017)
consequently the researchers found the study of fraud detection and prevention techniques to
The survey of Best et al. (2015) was replicated in this research study and their survey
used several of the BDO survey questions. Lee (2017) found that when a fraud detection or
prevention technique is in place and the stakeholders are aware that this technique lowers the
probability of fraud. Another confirmation of aptness, Peters (2015) found that with proper fraud
detection or prevention techniques such as good internal control are effective fraud prevention
Demographic information. The first set of questions of the survey instrument were
basic questions the organizational leaders self-reported, including four demographical questions.
The demographic questions included if the organization was a NFPO, number of employees,
annual budgeted income, and type of NFPO (such as health, education, foundation, religious,
social, civic, agricultural, or other NFP). The participant then answered the rest of the survey
Fraud reporting. The next section of the survey includes four fraud survey questions.
The replicated study of Best et al. (2015) presented 16 possible fraud types which were used in
this research’s survey. The next question asked if they used any fraud detection and prevention
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techniques listed when the NFPO had detected fraud. The next question asked was, what is the
estimated value of fraud. The last question asked if the organization has any of the fraud
detection or prevention techniques listed currently in use in the organization. The study
conducted by Best et al. (2015) is a subset of the larger BDO Not-for-Profit Survey of 2014. For
the participant survey, the survey of the replicated study was not edited from the original survey.
Fraud detection techniques. The participants disclosed if fraud was detected and if so,
if they had fraud risk assessment, fraud risk register, codes of conduct, fraud awareness training,
whistle-blower policy, fraud control plan, fraud control policy, internal control review, or no
For question number six in the survey, if the fraud detection was indicated, this was
labeled as F (to mean fraud was detected in the organization). If no fraud was indicated, this was
labeled NF (to mean no fraud was detected in the organization). The coded information from
question number six in the survey were displayed in a 2X2 contingency table. Best et al. (2015)
used a contingency table (2X2) with fraud detection technique on the right side and fraud
detected on the left side, also using yes and no with the appropriate labels. If the organization
used a fraud detection technique, this was indicated using the letter T (meaning technique was
used), and if not, this was labeled NT (meaning no technique was used).
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Table 1
Contingency Table
Fraud Fraud Discovered No Fraud Discovered
Prevention and Yes = F No = NF
Detection Instrument
Fraud Fraud detection and Fraud detection and
Prevention and prevention technique is used and prevention technique is used and
Detection Technique fraud was discovered within the fraud was not discovered within
Yes = T last five years. the last five years.
No Fraud Fraud detection and Fraud detection and
Prevention and prevention technique is not used prevention technique is not used
Detection Technique and fraud was discovered within and fraud was not discovered
No= NT the last five years. within the last five years.
Demographic Section:
Carolina?
5. Has your organization suffered any of the following in the past five years (reported or not
6. If you currently or previously had occurrences of fraud in your organization, did you have
any of the following fraud prevention and detection measures in place when the fraud
7. What is your estimate of the total value of all frauds suffered by your organization in the
8. Which of the following fraud prevention and detection measures does your organization
Levy and Lemeshow (2013) detailed that framing involves listing selections. However,
the frame does not have to list all the elements in the population. The data were framed
enumerate such as yes or no fraud detected. Once a fraud detection or prevention technique was
scored with an incidence of fraud detected, the scoring would then continue to evaluate each
technique upon which technique was used and if fraud was detected which using the technique.
The raw data from this survey were not attached to the research paper; however, it is available
upon request. Summary of the raw data was included in Appendix B and in the contingency
tables.
Reliability
Clarnette et al. (2015) stated when an instrument consistently has the same result in the
same situation in repeated instances; it is an instrument that has reliability. Creswell (2014)
reported that reliability is where scores on an instrument are internally consistent (consistent
across constructs), stable over time (test-retest correlations), and whether there was consistency
in test administration and scoring (p. 247). Creswell (2014) also stated that significance testing
will show a pattern other than chance (unlikely by chance to have occurred, null hypothesis of
‘no effect’ can be rejected). Also, a confident interval of 95% will be observed (meaning 95 of
100 times observed will be in the range of value). Dahiru (2008) reported that 95% confidence
intervals (CIs) with p-value scores means that 95 of 100 the times the study is repeated the true
findings are reliably true, p < 0.05. The CI provides reliability or precision of the results. In the
study of Best et al. (2015), the reliability scores were determined to have internal consistency
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reliability. Multiple tests were run on the data in that study. Fisher’s exact test was used for the
calculation of the p-value and the Pearson chi-square is an additional measure that can be used to
determine internal consistency (p. 444). Gill (2011) reported the Fisher’s test showed significant
thresholds at 0.01 and 0.05. The Fisher’s exact test showed p-values for fraud risk registers
below 0.01, which is very significant. The Fisher’s exact test showed p-values for whistle-
blower policy, fraud control policy, and no measures for detection below 0.05, which is also
significant (Bland, 2015). The rest of the fraud detection techniques were not significant enough
to be free of error to state significance. Also, the Pearson chi-square showed these same four
fraud detection techniques an acceptable level of below 0.05. These four fraud detection
techniques had a continuity correction of less than 0.05, acceptable limit of 0.1 and 0.01 (Bland,
2015). Kenny (2015) wrote that chi-squared test is a reasonable measure of fit. In the replicated
study, the consistency of the correlation of fraud detection techniques and fraud detection or
prevention fell within the limits of 1.0 to -1.0 (Bland, 2015) and no level showed 0.0; although,
Validity
quantitative study to what is claimed to be measured. Best et al. (2015) used a subset of the
questions from the Not-For-Profit Fraud Survey (2014) conducted by the BDO accounting firm.
Although the BDO only provided descriptive statistics, Best et al. (2015) conducted statistical
study using the selected survey questions. The focus of the study was to bring insight into what
fraud detection and prevention techniques are most effective in detecting fraud which analyzing
the relationships show content validity. The techniques were all included in the survey and data
were compiled (BDO, 2014; Best et al., 2015). Additionally, the survey selected for this
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research provided construct validity through the truthfulness of the statistical results (Bland,
2015) shown by showing relationships between the hypothesis and the research questions. Fraud
risk registers, whistle-blower policy, fraud control policy, and no measures for detection
positively correlated with the detection of fraud construct and chi-squared test levels were within
valid limit of <0.05. These instruments show validity for the overall data as measured and
unmodified.
Best et al. (2015) reported that threats to validity are minimal. LoBiondo-Wood and
Haber (2014) reported that a threat to internal validity or bias is minimized by randomness of the
study. One threat to external validity was assuming the leadership of the NFPO was completely
honest. Nardi (2015) reported that self-reporting questionnaires are appropriate for some setting
if behaviors are not necessarily a part of the observation. The researcher reached out to the
organizations listed on their organizational registration and websites. Gast and Ledford (2014)
confirmed that randomness decreases bias which contributes to better internal validity. There are
The researcher used the free online access of to collect the Survey Monkey research data.
The researcher chose Survey Monkey for the quick return of the answered survey, low cost,
familiarity of the application, and easy to use. The form is customizable and user friendly for the
researcher to set up the questions and answers. Also, Survey Monkey is very secure, only the
researcher has the password to access the form results. The ability to download the data to a
spreadsheet is flawless.
The researcher imputed the questions in the Survey Monkey and prepared a draft. The
researcher tested the survey link to make sure that everything was properly working. The
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researcher also tested the link on a separate computer at work to verify the link was working
properly. After testing the link, the researcher saved the link for future deployment.
The researcher gathered the emails listed on the NFPOs websites with the listed leader on
the state website of nonprofits to prepare a list of participants (the population). The researcher
compiled the informed consent section of the email and link to the survey for deployment in an
email and media outlets for the NFPs. The participants were given information related to the
information that was pertinent to the participants. Once the participants read the email and
content, they had the option to click on the survey as acknowledging consent to participate in the
survey.
The survey link remained active until the researcher was ready to start analyzing the data.
If the participants had not responded nor filled out the survey, the researcher sent out a follow-up
email to remind the participant to fill out the survey. Once the sample size was met, the
The survey instrument can be found in Appendix A. All questions are listed as well as
permission to use the instrument by researchers. Once the survey was completed, the data were
compiled in Microsoft Excel. The raw data were kept securely on a password protected Survey
Monkey website. Then, the data were transferred to and stored on a password protected laptop to
run statistics. After the statistics are completed, the data will be saved on the secure laptop.
Data Analysis
The researcher reviewed the demographic information to remove any participants who
were not NFPOs and incomplete data and summarized the demographic information to describe
the population. The demographic information was evaluated using descriptive analysis. Byrne
(2017) conveyed the uses of descriptive statistics such as frequencies count the number of cases
have a value, median (equal number of cases with larger/smaller values), average (total and
averaging numbers), mean (a middle set of data), and spread (similar or varied set of observed
values for a particular value). The researcher used descriptive analysis to discuss average
estimate value of losses due to fraud in NFPOs. The researcher discussed what was the
percentage difference in the number of employees. The researcher discussed the levels of annual
budget for the NFPOs and what type of NFPO organizations were represented.
The fraud detection data were analyzed with statistical functions using Microsoft Excel.
Fraud risk assessment, fraud risk register, codes of conduct, fraud awareness training, whistle-
blower policy, fraud control plan, fraud control policy, internal control review, or no measure in
place when the fraud was detected will be analyzed for correlations. The results of the survey
were placed in a contingency table and a table listing all statistics as mentioned earlier in section
two, as well as the coding. In this study, the chi-square, critical value, and p-value were
(2015) reported that chi-square is a measure of statistical significance. After setting up the rows
and columns (2X2 contingency table in this study), the researcher recorded observed cell
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frequencies (fx). Then, the researcher calculated the expected value by multiplying E(X) = (row
observed fx - E(X). Marchant-Shapiro (2015) continued to explain the researcher squared the
difference [fx - E(X)]2 divided the squared difference [fx -E(X)]2/E(X), and then calculated chi-
square χ2 = ∑[fx - E(X)]2/E(X). The researcher checked for significance and reliability by
checking for critical value and if the chi-square was larger, then there was a relationship between
the variables were significant and the null hypothesis was rejected.
Variables
The independent variables are fraud risk assessment, fraud risk register, codes of conduct,
fraud awareness training, whistle-blower policy, fraud control plan, fraud control policy, internal
control review, or no measure in place when the dependent variable of fraud was detected. Also,
independent variables were group by prevention techniques of fraud risk assessment, fraud risk
register, codes of conduct, fraud awareness training, fraud control plan, and fraud control policy;
and detection techniques of whistle-blower policy and internal control review. This will be
discussed in the next few paragraphs starting with the hypothesis discussion. Salkind (2010)
reported that dichotomous variables are variables that is existing or not existing for instance,
fraud exists or fraud does not exist. The fraud detection or prevention technique exists or does
not exist in the organization. This further explains the independent and dependent variables are
dichotomous variables.
Moderating variables will be discussed in the descriptive statistics and indicate any
indication of similarities that could explain the fraud. Allen (2017) expressed how mediation
variables link the independent and dependent variables which explains the relationship between
the other two variables. If the mitigating questions in the demographic section indicate a similar
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impact on the independent variable, then this would need further study because there could be a
relationship which would help explain the fraud occurrence for example if NFPOs with fewer
employers have higher instances of fraud, then this would need further study to see if this is a
weakness in the NFPOs in general. If there is relevant descriptive statistics (high frequency,
central tendencies), then further statistics such as multiple regression analysis could give more
insight in future studies (Allen, 2017). The moderating variables were grouped by size of
organization (small number of employees and large number of employees), revenue (low or high
budgeted income), and type of organization (Health Care, Education, Foundations, Religious,
Testing of hypothesis. This research used the dependent variable of the detection of
fraud and three independent variables of grouped together fraud risk assessment, fraud risk
register, codes of conduct, fraud awareness training, whistle-blower policy, fraud control plan,
fraud control policy, internal control review, and grouped by prevention techniques and detection
techniques and the detection of fraud. The Fisher p-value will show an effect between the
independent and dependent variables if significant levels (Anderson & Whitcomb, 2016; Fisher,
1925). All three independent variables will be tested in correlation with the dependent variable
with the p-value to reject the null hypothesis is the p-value calculated a value of statistically
significance of p<0.05. The researcher test p-values for all eight independent variables to
determine if any values are p>0.05 and will accept the null hypothesis. Microsoft Excel formula
CHIDIST will show p-value (significant f) and will show under the p-value, if p<0.05
(alpha=.05) then this is significant correlation between the independent variable and the
The hypotheses will also be tested with critical values and chi-squared. The three
independent variables of fraud prevention and detection techniques be checked for associations
with fraud detection. Schumacker (2015) reported that chi-square value will show associations
between variables and independent variable. The cells should have frequencies below 0.5 before
After the survey instrument was completed by the participant, the researcher eliminated
incomplete surveys. The data were placed into two sections, one section for descriptive statistics
and one section for quantitative analysis. The researcher will use descriptive statistics to
organize and summarize ordinal data/ranking order data (Holcomb, 2016). The participants were
asked ‘how many employees (excluding volunteers) does your organizations have’ (ranked from
low to high numbers) and the researcher ranked the responses from small number of employees
to large number of employees. This was compared to the occurrences of fraud and monetary
amount of loss due to fraud, question ‘what is your estimated of the total value of all frauds
suffered by your organization in the past five years’ which will be ranked/ordinal data (ranked
low to high). Byrne (2017) reported that descriptive statistics can summarize data in many ways
such as frequencies (counting the number of cases which have a value), median (equal number of
larger or smaller values), or spreads (how similar or varied set of values are). The researcher
also surveyed the participants, ‘what is the annual budgeted income’ which was used to separate
and rank the NFPOs as large and small budgeted organization (ordinal data). The last
demographic question was ‘what type of NFP organization applies’ which categorized the type
of organizations into different industries for potential future study targeting a segment of NFPOs
which is more nominal than ordinal. This was analyzed with the detection of fraud in the types
of organizations. If there was a higher instance of fraud, then that organization would be further
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studied for frequencies to indicate why this type of organization had more fraud compared to
other types of organizations. Then, the researcher took the remaining survey questions and
analyzed the correlations between the dependent variables and independent variable summarized
Null Hypotheses
H01: There is no statistically significant relationship between the use fraud detection and
The researcher asked ‘how many frauds have your organization suffered in the last five
years’ and corresponding question was ‘did your organization have fraud prevention or detection
measures in place when the fraud was detected,’ all yes or no type questions. One of the
selections was none. The researcher then used the data in a contingency table and progressively
calculated a chi-square. The chi-square was compared to the critical value. If the chi-square was
higher than the critical value, then the null hypothesis was rejected. If the chi-square was lower
than the critical value, then the alternative hypothesis was rejected and null hypothesis was
accepted. The p-value was also calculated to show further statistical significance of the chi-
square testing.
Hypotheses 1:
HA1: There is a statistically significant relationship between the fraud detection and
The researcher asked ‘how many frauds have your organization suffered in the last five
years’ and corresponding question was ‘did your organization have fraud prevention or detection
measures in place when the fraud was detected,’ all yes or no type questions. The participants
chose the techniques. The researcher can then use the data in a contingency table and
progressively calculate a chi-square. The chi-square was compared to the critical value. If the
chi-square was higher than the critical value, then the null hypothesis was rejected. If the chi-
square was lower than the critical value, then the alternative hypothesis was rejected and null
hypothesis was accepted. The p-value was also calculated to show further statistical significance
Hypotheses 2:
The researcher asked ‘how many frauds has your organization suffered in the last five
years’ and corresponding question was ‘did your organization have fraud prevention or detection
measures in place when the fraud was detected,’ all yes or no type questions. The participants
chose the techniques. The researcher specifically looked at whistle-blower policy and internal
control review for this hypothesis. The researcher then used the data in a contingency table and
progressively calculate a chi-square. The chi-square was compared to the critical value. If the
chi-square was higher than the critical value, then the null hypothesis was rejected. If the chi-
square was lower than the critical value, then the alternative hypothesis was rejected and null
hypothesis was accepted. The p-value was also calculated to show further statistical significance
Hypotheses 3:
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The researcher asked ‘how many frauds has your organization suffered in the last five
years’ and corresponding question was ‘did your organization have fraud prevention or detection
measures in place when the fraud was detected,’ all yes or no type questions. The participants
chose the techniques, the researcher specifically looked at the code of conduct, fraud risk
assessment, fraud awareness training, fraud control plan, fraud control policy, and fraud risk
register. The researcher then used the data in a contingency table and progressively calculated a
chi-square. The chi-square was compared to the critical value. If the chi-square was higher than
the critical value, then the null hypothesis was rejected. If the chi-square was lower than the
critical value, then the alternative hypothesis was rejected and null hypothesis was accepted. The
p-value was also calculated to show further statistical significance of the chi-square testing.
After three hypotheses were tested, the data were summarized and presented in a chart in
Appendix B. The summary included a narrative of proven hypothesis and any null hypotheses.
All data reflected the theoretical framework and founded findings of the study.
This section explained the reliability and validity of the research study. LoBiondo-Wood
and Haber (2014) reiterated that a study should have validity and reliability to be a valid and
LoBiondo-Wood and Haber (2014) also reported that reliability consistently and
repeatedly measure the attributes with error-free outcomes. The research in this study consisted
of demographic questions and fraud detection questions. The demographic questions were
proper questions with multiple choice answers to eliminate errors. The fraud detection and
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prevention questions were also multiple choice/multiple answer for the participant to answer all
appropriate selections.
External reliability coincides with the reliability of the instrument. The researcher
conducted test and retest analysis of the research. Polit (2014) diverged that research should be
expanded and new outcomes should be studies with new participants to gain further insights as
external reliability. The test should include test and retest reliability assessments. Best et al.
(2015) successfully conducted a similar study which is going to be replicated in South Carolina.
Allik, De Vries, and Realo (2016) detailed that internal reliability is internal consistency.
Consistent with the same reliability testing done with the instrument reassurance of reliability
explained earlier in Section 2, the researcher also had Pearson Chi-Squared test conducted and
continuity correction to show the study itself as a reliable study through the statistical analysis of
the data.
As Aspinwall, Brown, and Tabery (2016) reported, validity of the study is how well the
data represents the area of study in the research. The research should show what the researcher
is questioning and testing in the study. The data should show if the hypotheses is null or
positively significant. The study should show if there is a correlation and evidence to warrant
Lakshmi and Mohideen (2013) stated that external validity is where the study could be
transferable to other groups or populations. The research was conducted in different groups in
Lakshmi and Mohideen (2013) detailed that internal validity must exist before external.
Zohrabi (2013) article stated that internal validity is similar to the findings with the reality. The
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internal validity is how close the research measures what is supposed to be measured. This is
evident in the research questions are answered and correlated to the research questions.
The researcher reached out in a professional manner to the NFPO participants in South
Carolina to send a survey to gather data to analyze. The researcher used the quantitative method
to study fraud in NFPOs in South Carolina. The research questions were fully analyzed through
the method and each variable (independent, dependent, and moderating) was analyzed.
The researcher utilized correlational design to study the relationships between fraud
detection and prevention techniques and fraud detection. The survey instrument gathered the
data of a minimum of 60 to 286 participants which was an adequate sample size for desired
As a further reference, the researcher replicated a study conducted by Best et al. (2015),
which also studied the fraud detection techniques in correlation to fraud detection. The
instrument used in the study proved reliability and validity. The data analysis technique was
typical for such research study. Each hypothesis was tested and the data were analyzed. The
analysis was fully explained after the completion of the field study in Section 3. Section Three
presented the findings through conclusions of all of the research questions and hypothesis.
Quantitative data analysis section detailed the tests performed and linked the hypothesis back to
the research question, theoretical framework, and literature. Section 3 explained the application
to the professional practice and recommendations for actions (including who may be impacted
by the study). Section 3 also included recommendations for further study and reflections.
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This section will summarize the analytical results of the study by presenting the findings
of the study on prevention and detection of fraud in NFPOs. The researcher will discuss the
practical implications to the practice of accounting and help NFPOs understand the most useful
prevention and detection techniques to use. The use of these fraud prevention and detection
techniques may ultimately lead to quicker detection of fraud and increase the prevention of
fraud. The prevention of fraud will lead to less monetary losses due to fraud and theft. The
The quantitative correlational study examined fraud detection and prevention techniques
and internal stakeholders detecting fraud in NFPOs in South Carolina. Fraud has a great
economic impact and NFPOs are vulnerable to fraud. This research studied the techniques and if
The researcher conducted a field study through surveying NFPOs in South Carolina and
then pulled and exported the raw data to Microsoft Excel. The researcher gathered information
through the survey from participants specifically gathered if fraud was detected and if the
organization had fraud prevention and detection techniques in place when the fraud was detected.
This was the basis for the research study with the research questions being analyzed using the
data.
There are three main research questions: Is there a relationship between the use of all of
the fraud detection and prevention techniques and the detection of fraud in NFPOs in South
Carolina? Is there a relationship between the use of detection techniques with the detection of
fraud in NFPs in South Carolina? Is there a relationship between the use of prevention
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techniques with the detection of fraud in NFPs in South Carolina? The questions indicate if the
NFPOs had an association between the use of fraud prevention and detection techniques and the
detection of fraud while using the techniques in South Carolina. If there is an association
/relationship, this will show what could be effective in the detection of fraud with the premise
that both fraud was detected while the techniques were used.
The analysis indicated that there is a statistically significant relationship between the use
of all the techniques and the detection of fraud in NFPOs in South Carolina. The relationship
means that when the NFPOs used the fraud techniques that fraud was detected and this could
further indicate these techniques are effective in detecting fraud. The analysis also indicated that
fraud prevention techniques of fraud risk assessment, fraud risk register, code of conduct, fraud
assessment training, fraud control plan, and fraud control policy also showed a statistically
significant relationship between the use of those techniques and fraud detection. The analysis
also showed that fraud detection techniques of whistle-blower policy and internal control review
did show a statistically significant relationship between the use of those techniques and fraud
detection. With fraud detection techniques, such as the whistle-blower policy, there may be
adequate anonymity.
The findings were revealed through statistically analyzing all hypotheses. After
statistically analyzing all of the hypotheses, the researcher addressed all of the research
questions. The researcher also showed the application to professional practice of accounting and
provide recommendations for actions. The researcher concluded with recommendations for
further study and reflection with a summary/conclusion. Section 3 will include all data bound by
the evidence collected. The researcher related the analysis to the literature on fraud in the
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practice of accounting. The researcher addressed any outliers and discrepancies found in the
data.
The combined fraud prevention and detection techniques include fraud risk assessment,
fraud risk register, code of conduct, fraud assessment training, fraud control plan, whistle-blower
policy, internal control review, and fraud control policy. The combined detection techniques
included whistle-blower policy and internal control review. The combined prevention
techniques included fraud risk assessment, fraud risk register, code of conduct, fraud assessment
Survey Participants
After the researcher gathered participants from the NFPOs listed on South Carolina’s
state registered NFPOs, the researcher cross-referenced each organization’s website to gather
emails and means to communicate. Most of the websites did not have emails listed, some had
social media links, and the remaining had emails listed on their websites. The researcher sent
1,373 emails and 13 social media requests for participants to complete the survey with 21 emails
invalid. The survey included detailed criteria which included the required informed consent
form. The survey was open for 16 days with minimal responses. The researcher reopened the
A total of 167 responses were collected. However, only 109 of those surveyed were
complete. This number exceeded the minimum of 60 responses needed in the data analysis for
desired confidence intervals (Sim & Wright, 2005). Mohd-Sanusi et al. (2015) conducted a
study on fraud prevention techniques and sent 150 surveys with one and two responses in which
Sekaran and Bougie (2010) stated a sample size less than 500 and more than 30 is appropriate for
The survey asked participants to self-report the demographic information, first and
foremost to report if they were NFPOs, all organizations reporting as other than NFPs were
removed. Even though the survey was sent to NFPOs specifically, the researcher wanted to
make sure by asking this question. Perhaps, some of the NFPOs closed and reopened as for-
profits and this survey no longer applied, about five surveyed indicated they were not NFPOs
and were eliminated. The other demographic information included number of employees, annual
budgeted income, and the type of organization. This information is included in Table 1, 2, and 3
and included in Appendix B. Added together, 73 percent of surveyed had under 25 employees,
27 had between 26 and 1,000 employees, and one surveyed had over 1,000 employees, excluding
volunteers. Surprisingly, 34 percent surveyed had budgeted incomes of less than $100,000, 29
had between $100,000 and $500,000, 21 percent had $500,000 to $1,000,000, and 23 percent had
over $1,000,000 annually budgeted income. The largest percentage were smaller organizations
with fewer employees. The replicated study found that smaller organizations had fewer fraud
detection techniques in place and were more frequently victimized (Best et al., 2015).
Other important questions asked were the types of theft/fraud and amount of loss due to
fraud/theft. This information is included in Table 4 and 5 and included in Appendix B. The
largest types of fraud found were inventory/asset theft (23 percent), cash theft (18 percent), credit
card and database/intellectual property theft/fraud (12 percent), payroll fraud and identity
theft/fraud (nine percent), expense account fraud (seven percent), bribery/kickbacks, check
forgery, financial statement fraud, and online payment fraud (four percent), and none of the types
of fraud were under three percent. Some of the organizations had multiple types of fraud.
Comparatively, the BDO (2014) fraud survey conducted in Australia and New Zealand found
that cash theft was the highest and in South Carolina this was second highest. Although in South
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Carolina, inventory/asset theft was the highest, which was noted, theft of medicine and
equipment in South Carolina’s study is part of the inventory/asset theft. The BDO’s (2014)
second and third highest type of fraud was payroll and credit card fraud, which were also
significant in South Carolina. Payroll fraud is intentional organizational fraud (Giovino, 2014).
Credit card fraud can be intentional such as a key employee making personal purchases
(Minogue, 2013) or credit card scam (e.g., someone stealing the credit card information and
making purchases). BDO’s (2014) lowest was database/intellectual property and financial
statement fraud. In South Carolina, database/intellectual property fraud was higher on the
percentages than the BDO. The misuse of resources (ACFE, 2014) such as database or
intellectual property is one of the noncash fraud and perhaps one of the ways that indirectly
affect NFPOs, when the donor’s information is compromised by database breaches, the donor’s
trust is broken and NFPOs rely on donors to monetarily pay for overhead (Perols, 2011).
The cash value of fraud was categorized at $1 to $100 (42 percent), $101 to $1,000 (34
percent), $1,001 to $10,000 (nine percent), and over $10,000 (five percent). Since 59
organizations reported fraud, this can be calculated further. If taking the minimum loss per
percentage times 59, the average loss is $1,034.32 per organization, at the maximum (assuming
the five organization had a loss of $100,000) is an average loss of $10,381.36 per organization.
If you take the minimum and maximum and average the two, the average loss is $5,707.84 per
organization. Giovino’s (2014) reported that the average median loss from occupational fraud is
$140,000.
Hypotheses Testing
The researcher tested each hypothesis by creating a contingency table and then solved for
chi-square. The researcher then solved for the critical value and p-value (Allen, 2017). The
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researcher tested the detection of fraud and the use of fraud prevention and detection techniques
to study if there is a relationship or no relationship and if the p-value is significant to gain insight
Hypothesis 1
Null Hypothesis: H01: There is no statistically significant relationship between the fraud
detection and prevention techniques and fraud detection in NFPs in South Carolina.
The researcher ran a chi-square test to evaluate the null hypothesis. If the chi-square is
more than the critical value, we reject the null hypothesis. The chi-square alone does not expose
the relationship. It is assumed with null hypothesis there is no relationship between the variables
and that the variables are independent. However, if chi-square exceeds the critical value and it
did in this test, it can be assumed there is a relationship between the two variables. The
alternative hypothesis is accepted and the variables are dependent. No relationship between the
Table 1 Contingency table 2X2 of fraud detected, and no fraud detected compared to
Table 2
A 2X2 Contingency table, as Jacobs and Evans (2017) reported has a degree of freedom
of 1. The table of critical values shows with a degree of freedom of 1 at significance level of .05,
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that the critical value is 3.84. Since the test value of chi-square is 18.63 and is more than the
table value (critical value) then the null hypothesis is rejected. The P-value of .00002 indicates
that this result is statistically significant. The null hypothesis is rejected, therefore there is an
association between the use of fraud detection and prevention techniques and the detection of
fraud. This finding addresses Research Question 1: Is there a relationship between the use of all
of the fraud detection and prevention techniques and the detection of fraud in NFPOs in South
Carolina?
In the study Bierstaker et al. (2006), prevention and detection techniques were studied
with 56 surveyed admitted to the detection of fraud. It was found that both fraud prevention and
detection techniques are effective in fraud prevention and detection. However, their research did
suggest that the most effective methods are not used. Thomopoulas (2013) reported the
importance of having tools to identify fraud risks and that the employees should have a vested
interest to also prevent fraud. Theoretical study showed that if a person has the motivation,
rationalizes the fraud, and has the opportunity, the individual will commit fraud (Cressey, 1953,
Borba & Wuerges, 2014). The holistic way to decrease the chances of fraud is to prevent the
opportunity to commit fraud. Prevention techniques of code of conduct/code of ethics, fraud risk
assessments, fraud awareness training, fraud control plans and policies, and having fraud risk
registers can minimize the rationalization of committing fraud and help educate individuals
against committing fraud. Most of the prevention techniques are through training or instilling
policies/plans in the organization to understand fraud and prevent fraud by education. Then,
detection techniques are intermingled to expose the opportunity that was detected. When the
board or committees review the controls internally, they can discover inadequacy or
inconsistencies and discover fraud. The employees or volunteers should be able to report fraud
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through a whistle-blower policy. Morales et al. (2014) reported that one of the keys to fraud
to report suspected fraud so that the allegation could be investigated. The prevention and
detection techniques uniquely contribute to a combination of the techniques that are effective in
Hypothesis 2
Null Hypothesis: H02: There is no statistically significant relationship between the fraud
The researcher ran a chi-square test to evaluate the null hypothesis. If the chi-square is
more than the critical value, we reject the null hypothesis. The chi-square alone does not expose
the relationship. It is assumed that with null hypothesis there is no relationship between the
variables and that the variables are independent. However, if chi-square exceeds the critical
value and it did in this test, it can be assumed that there is a relationship between the two
variables. The alternative hypothesis is accepted and the variables are dependent. No
Table 1 Contingency table 2X2 of fraud detection, and no fraud detection compared to
Table 3
.05, that the critical value is 3.84. Since the test value of chi-square is 4.32 and is more than the
table value (critical value) then the null hypothesis is rejected. The P-value of .038 indicates that
this result is statistically significant. The null hypothesis is rejected, therefore there is an
association between the use of fraud detection and prevention techniques and the detection of
fraud. This finding addresses Research Question 2: Is there a relationship between the use of
The researcher found the detection techniques alone were significant that there is
significant relationship between the detection of fraud and detection techniques. Fraud detection
was dependent upon the use of the fraud detection techniques. Interestingly, 59 participants
reported fraud detection and 53 of those participants had a fraud detection or prevention
participants had no fraud detection or prevention in place. If more detection techniques were in
In a similar study, Lee (2017) found the use of whistleblowing policy reduced the
accounting fraud when the detection technique was used than when firms/organizations did not
have the detection technique. This also showed a reduction of five percent of auditing fees due
to the whistleblowing controls to detect fraud in place and further gives insight to effectiveness
of whistleblowing (detection) policy. In North Carolina, Brewington (2013) found that internal
audit or internal control review was not statistically significant as well as an anonymous tip
hotline (whistle-blower hotline) was not statistically significant. It was suggested that the
organizations should be made more aware of the techniques and perhaps training the workers to
understand those techniques. Copcinschi et al. (2016) reported that fraud occurred when the
internal controls had inefficiencies. Adetiloye et al. (2016) determined the employees were not
following internal controls correctly and did not understand the technology. Internal controls are
perhaps misunderstood and using prevention techniques such as training will help the employees
understand the internal controls better because the internal controls need to be reviewed for
inefficiencies to know if there is fraud. If the organization does not have techniques, they do not
have a good indication if fraud is occurring or not. Fraud detection techniques should not be
discredited, however with this study, those techniques were statistically significant to show a
relationship between the use of the technique and the detection of fraud.
Hypothesis 3
The researcher ran a chi-square test to evaluate the null hypothesis. If the chi-square is
more than the critical value, we reject the null hypothesis. The chi-square alone does not expose
the relationship. It is assumed that with null hypothesis there is no relationship between the
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variables and that the variables are independent. However, if chi-square exceeds the critical
value and it did in this test, it can be assumed there is a relationship between the two variables.
The alternative hypothesis is accepted and the variables are dependent. No relationship between
Table 1 Contingency table 2X2 of fraud detected, and no fraud detected compared to
Table 4
The table of critical values shows with a degree of freedom of 1 at significance level of
.05, that the critical value is 3.84. Since the test value of chi-square is 16.35 and is more than the
table value (critical value) then the null hypothesis is rejected. The p-value of .0001 indicates
this result is statistically significant. The null hypothesis is rejected, therefore there is an
association between the use of fraud detection and prevention techniques and the detection of
fraud. This finding addresses Research Question 3: Is there a relationship between the use of
When separating the detection techniques from the prevention techniques, the researcher
found the prevention techniques alone were significant and there is a relationship between the
detection of fraud and prevention techniques. The prevention techniques’ chi-square of 8.59 was
higher than the critical value of 3.84. The p-value was .003 which means 99.97% of the time
that prevention techniques showed a relationship between the detection of fraud and the use of
this technique. In the theoretical framework, Lowers (2013) explained the person committing
the fraud has the open door (opportunity) of trust to commit fraud and with the absence of
policies that the perpetrator would commit fraud. The person rationalizes a personal need and
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ignores ethics to commit fraud. When the organization has taught new employees about the
organizations stand on code of conduct, it sets the tone for higher ethical behavior (Giorgini et
al., 2015). Domanski (2016) reported that risk assessments are used to make changes to prevent
fraud, committee reviews fraud plans and fraud policies to make changes for prevention of fraud.
The best way to prevent something is to bring awareness through training and education as
discovered in North Carolina governmental agencies (Brewington, 2013), fraud training helps
with the detection of fraud once awareness is evident. Fraud prevention techniques are
statistically significant to show a relationship between the detection of fraud and those
techniques.
Through surveying 109 NFPOs in South Carolina, the researcher gained insight into
fraud prevention and detection techniques used in the NFPOs. The survey data were useful in
answering the research questions on fraud detection and the use of fraud techniques through
statistical analysis.
The first research question was to gain insight if there is a relationship between the use of
all of the fraud detection and prevention techniques and the detection of fraud in NFPOs in South
significant relationship between the use of all of the techniques and the detection of fraud. When
fraud was detected, the NFPOs had techniques in place. The use of fraud techniques potential
increases the chances of preventing or quickly detecting fraud rather than having no techniques
in place.
The second research question was to gain insight if there is a relationship between the use
of detection techniques with the detection of fraud in NFPs in South Carolina. Detection
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techniques combined did show a statistically significant relationship between the use of those
techniques and the detection of fraud. There was enough statistical significance to show a
relationship that when fraud was detected fraud detection techniques alone were effective in the
The last research question was to gain insight if there is a relationship between the use of
prevention techniques with the detection of fraud in NFPs in South Carolina. Fraud prevention
techniques combined showed a statistically significant relationship between the use of those
techniques and the detection of fraud. Fraud prevention techniques were in place when fraud
was detected.
This study helps internal stakeholders in NFPOs realize that fraud prevention and
detection techniques combined show a statistically significant relationship with fraud detection.
When the techniques were in place, the fraud was detected. When a NFPO has the techniques in
place this will help prevent fraud and quickly detect current fraud. Fraud prevention and
detection techniques can improve business practices through understanding, awareness, training,
When the techniques are in place, this study significantly shows that fraud is detected. If
no techniques are in place, the organizations risk fraud occurring and remaining undetected
which leads to monetary loss and could ruin their reputation (Archambeault et al., 2014). Fraud
also costs NFPOs loss of future donors because of the fraud allegations which inhibit the NFPO
from fulfilling the mission to help the unprivileged or hinder the ability to provide a service to
the needy (Perols, 2011). Since fraud continues to be an issue in the NFPOs, it is important to
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further study fraud and the techniques to prevent or detect fraud. As reported in 2014 (ACFE,
2014), typically organizations lose five percent of revenues due to fraud. As a result of this
study, the use of fraud prevention and detection techniques are important for NFPOs to detect
Through awareness of the fraud prevention and detection techniques, NFPOs can begin to
become aware of how powerful the techniques can be for their organizations. Internal control
and having clear lines of duties with policy and procedures make a difference according to
leaders in PricewaterhouseCoopers, Hopgood Group, and other colleague CEO leaders (Lumb,
2017). This study also reiterates the importance of having a no-retaliation whistleblowing policy
and is important for NFPOs in South Carolina. McCarthy (2017) wrote about how important
fraud control policies are in health-care organizations (there were 11% NFP health organization
listed in the NFPOs surveyed in South Carolina). In this case (McCarthy, 2017), US law
enforcement charged 412 individuals in 30 US states for healthcare fraud involving over $1.3
billion. Policies show good governance and due diligence in bringing awareness to fraudulent
behavior (Lee, 2016). Prevention techniques such as fraud policies to educate and bring
awareness or detection technique such as whistle-blower policy both empower the employees to
The lack of internal controls is one of the loopholes that enables fraudsters to avoid fraud
detection (Dellaportas, 2013; Mackevicius & Giriunas, 2013) and as a consequence internal
control is a topic that is widely studied. Whistle-blowing policy is helping to correct a wrong-
doing in an organization through reporting suspected fraud or theft (Redman & Caplan, 2015).
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As Morales et al. (2014) reported, effective fraud detection happened when the organizational
culture had code of conduct policies and the workers were aware of fraud as negative and
unacceptable behaviors. The pressure to commit fraud was lower, the integrity was higher and
lower rational to commit fraud. A combination of code of conduct, whistle-blower policies, and
in general fraud control policies should be combined to effectively prevent fraud (Moraga et al.,
2017; Minogue, 2013). When the policies are clear on fraud and ethics, the workers understand
what is expected. They also gain understanding with policies and codes of ethics to know what
is right and what is wrong. With this knowledge, the workers can spot wrong-doing and report
suspected fraud.
The place for NFPOs to start the process of utilizing fraud prevention and detection
techniques is through training. De Armond and Zack (2017) found it is important for NFPO
leadership and boards to take action by creating ethical environments and educating employees
and volunteers awareness of fraud through training. The stakeholders should combat fraud with
governance. The NFPOs should have training for internal stakeholders to understand fraud and
fraud risks to help with the elimination of the risks of fraud. De Armond and Zack (2017)
reiterated that NFPOs have to weigh the cost of fraud prevention and detection measures to
money spent on training. Employees can engage in workshop trainings on fraud and ethics to
bring more awareness. NFPOs build a reputation for helping the community and should engage
in education and learning to be due diligent as good stewards of donor’s donations. Training
helps the organization be more resilient to the threat of fraud and corruption and helps build
strong ethical organizations cultures (Brytting et al., 2011). Godkin and Valentine (2016) found
that ethics training helped individuals learn how to recognize unethical behavior and improved
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his/her own reasoning. Employees are trained when inducted into the organizations or had
online learning programs to help workers understand (Kelly et al., 2015) as well as the leadership
If fraud prevention and detection techniques were implemented, the organizations would
have strong safeguards and plans to prevent fraud and quickly detect fraud. It is important to
study the reasoning behind fraud. Cressey (1953) found there is a common thread to fraud called
the Fraud Triangle. In theory, the fraudster had a motivation (pressure and incentive), an
opportunity to commit fraud, and a rationalization or neutral attitude that the action was not
criminal. The individual would circumvent the internal controls and commit fraud. Cognitive
Evaluation theory explains that an individual can have a social or external influence that can
contribute to their behavior and will contribute to that individual committing fraud (i.e., making
numbers look better than they are for personal reasons rather than just an ulterior motivation;
Connelly et al., 2017). With both theories and maybe a combination, the stakeholders need
guidance in prevention and detection of fraud. The stakeholders need to discover motivations,
eliminate opportunities, and educate the employees against rationalizing wrong-doing, and even
discovering individuals prone to commit fraud. Since theories exists, so does safeguard
techniques to prevent or detect fraud. Fraud risk registers exist to show what checklists or red
flags exist to prevent fraud through identifying key areas to reduce the likelihood of fraud
(Efrim-Boritz & Timoshenko, 2014). The hiring manager can use the check-lists of flags to
determine if the candidate is a risk. West (2014) reported a global fraud risk register for the
general public and this may not be widely known in South Carolina at this time. However, the
Association of Certified Fraud Examiners (ACFE, 2016) updates the online publicly reported list
106
of red flags annually showing the red flags such as: living beyond means, financial difficulty,
defensiveness), addition problems, complained about inadequate pay, no behavioral red flags,
refusal to take vacations, excessive pressure from within organization, past employment-related
problems, social isolation, past legal problems, excessive family/peer pressure for success,
Employers should also have fraud plans to prevent and detect fraud available for internal
stakeholders to review such as code of conducts that sets the tone for what behaviors the
employer wants to exhibit. Godkin and Valentine (2016) explored the prevention technique of
the use of codes of conduct/ethics policies that guides the organization’s duties, overall
principles, and expectations of ethical/appropriate behaviors. The code of conduct sets the
organization, norms, and values/morals. The use of code of conduct reduces misconduct and
improves transparency in preventing unethical practices (Bromley & Orchard, 2016). Setting the
standards and guidelines for the organization seem to show much significance in the ethical tone
and prevention of fraud. Through having a plan, this shows due diligence that ethics have been
thought out and fraud is not acceptable in the organization. When the organization shows a no-
tolerance for unethical behaviors, this helps to show the public the organization had the public’s
When the internal stakeholders gain understanding and training on fraud, the internal
stakeholders need to have policies that reinforce the fraud prevention and detection techniques.
Fraud control policy can encompass several ideas for NFPOs. If the proper policies are in place,
107
the internal controls were stronger and it was clearer to understanding the overall organizational
mission (Maguire, 2014). Fraud risk assessment is a tool that committees or managers can use to
review programs and events to brainstorm potential fraud risks to lead to policies (Domanski,
2016). Policies such as whistle-blower policy help allow an internal stakeholder to correct a
wrong-doing in an organization by reporting the fraud (Redman & Caplan, 2015). The
organizational culture can set the tone for ethical or unethical behavior. The donors give money
to help the NFPO supply the need or provide the service to the community. The NFPO should
have a code of conduct and ethics that is very clear to the donor that the organizational stand is
for the stewardship of their donation and helping the community flourish by providing the
service or need.
Biblical Applications
Humans should be stewards of God’s creation. However, individuals are by nature sinful
and are disobedient to God’s will (Van Duzer, 2010). In Deuteronomy, the Bible explains that
defrauding is wrong. “You shall not have in your bag differing weights, a large and a small.
You shall have a full and just weight; you shall a full and just measure, that your days may be
prolonged…” Deuteronomy 25: 13 -16 ESV. “A false balance is an abomination to the Lord, but
a just weight is His delight” Proverbs 11:1 ESV. “Differing weights and differing measures,
both of them are abominable to the Lord” Proverbs 20:10 ESV. “Is there yet a man in the
wicked house, along with treasures of wickedness and a short measure that is cursed? Can I
justify wicked scales and a bag of deceptive weights?” Micah 6: 10-11 ESV. Clearly the Bible
fraud detection. All internal stakeholders of NFPOs will be impacted as a result of this study.
The employees and volunteers will be directly impacted and will need awareness and training.
The board and committees will be impacted and should have awareness and training. The public
will be impacted because this will help organizational leaders be good stewards of their
donations. The communities and people the organization serve will be positively impacted
because the organization will continue to provide the goods or service to the community.
The first recommendation is that internal stakeholders should start with awareness and
training. The internal stakeholders may not be aware of what and how fraud occurs. The NFPO
should develop a training and awareness program for internal stakeholders. Kelly et al.’s (2015)
observed that anti-corruption (ethics) training helped decrease fraud risks. They found fewer
incidences of corruption when the workers had training. Even the executives had more
workshops on ethics and values, which set the tone at the top to have ethical behavior and
display ethical practices, and influenced internal stakeholders. Carswell et al. (2014) reported
that some organization hire professionals to conduct formal training. This can also be
implemented when the employee, board members, or volunteers start working for the NFPO,
they should have a training manual or even a video of the organization’s mission. As Lumb
(2017) interviewed leaders, the training manuals should be tailored to the specific business and
Since NFPOs are created to serve the public with a need or service to help the
community, the NFPO should also have high integrity. The training video can include basic
training on fraud/theft awareness such as cash theft, asset/inventory theft, and fraudulent
activities specific to the industry such as insurance claims for Medicaid in the health industry for
internal stakeholders to understand (Salceanu, 2014; Lowers, 2013). Also, the internal
stakeholders should have fraud awareness workshops where the leader/director or board member
can show videos on fraud and have discussion on the types of fraud and how fraud can occur.
Another recommendation is to have strong policies and procedures in place. When the
workers know what to expect, they will also know what to notice if something is wrong (Okonta
& Rossouw, 2014). The policies should help make clear that they require an ethical climate. If
there are clear policies, the workers will know when something is not correct and the workers
will potentially know if there is wrong-doing. The procedures show processes and steps on what
should be happening in the organization and as Lee (2016) unfolded NFPOs that have clearly
written procedures have better controls over fraud. The NFPO need to develop good policies and
procedures for the internal stakeholders. This can be implemented by drafting the policies
through the governing board and verified either by an accountant or human resource professional
and this was the responsibility of the leadership (Copcinschi et al., 2016). The policies should
clearly state code of conduct to set the ethical tone for the organization. The policies should
express no tolerance for unethical practices. The procedures would be drafted by the internal
staff who can give a step by step of day-to-day processes in the office from who checks the mail,
who processes the mail and makes deposits, to who goes to the bank and deposits the funds, and
returning the deposit remittal to the accounting office because the stakeholders should have an
110
active role in helping safeguard the NFPO (Bradley, 2015). The internal procedures will be
reviewed by the board for any inconsistencies or weaknesses in the internal controls (Copcinschi
et al., 2016). The policies should be provided to new workers and procedures given with the job
descriptions. Supervisors, manager, human resources, internal stakeholders and board members
Another recommendation is to have fraud risk assessments and internal reviews. The
potential risks need addressed and reduce the chances of fraud and prevent fraud. The NFPO
need to develop a risk assessment control for internal stakeholders. This can be implemented
when the workers meet to review the procedures, this would be a good time to assess the fraud
risk and weaknesses in the internal controls. The assessments can be done by internal or external
audit or committees (Brazel et al., 2015). When reducing the errors and eliminating fraud, the
workers who do the day-to-day work need to work through the processes of the day to identify
risk areas (Bradley, 2015). The identified risks should be presented and the workers should be
empowered to give suggestions to reduce this fraud risk. The workers will brainstorm the
processes and discuss as a team. If the risks are identified then, the group needs to decide if
policy should be analyzed. The board would take the identified risks and implement changes to
A last recommendation is to develop a fraud control plan to deal with situations as they
happen (Domanski, 2016). This can be implemented when developing a whistle-blower policy
and fraud control plan clearly understood by internal stakeholders. A whistle-blower policy is
important for workers to know that if they suspect fraud that the workers can call a board
111
member with the concern and that the worker’s report is anonymous (Morales et al., 2014). The
board president information should be available as part of the employee’s contact information
given. When fraud was detected, the organization should have a fraud control plan (Lord,
Miller, & Mclaughlin, 2015). The plan would tier upon the severity of the fraud or theft. For
example, if a case of water is missing, the report should be internal and the managers should
review the records and note the incident. However, if there is payroll fraud, this should be
reported to the board president and reported to the authorities. The plan will be how to handle
this fraud and maintaining the reputation of the organization. If the incident is small, the
publicity would be low. However, if the incident is huge, then the organization will want to
present all the safe-guards that were given through fraud training, policies that prohibited
One recommendation for further study is to target a segmented industry of NFPOs. This
research showed eight different industries. Other research can study just health NFPOs or only
social or education organizations. Certain nonprofit was not included in this study such as
international foreign affairs. Also, the type of fraud can be analyzed such as Capelleveen et al.’s
(2016) study of US health care and collusion with around $700 billion dollars results from fraud.
Studying segmented types of NFPOs would be important to find out if other types of NFPOs
used fraud prevention and detection techniques and if those types of NFPs would have fraud
detected while using the techniques to add more insight into what techniques are most effective
in detecting fraud. Perhaps, there will be some insight into gaps in the different industries and
the detection of fraud. Perhaps, there will be a certain type of fraud that will need further study
112
into why that’s a fraud issue in those industries. Even the results of the study will be different in
Similar studies were conducted in Australia and New Zealand. Other US states or regions
can be studied to compare the results to see if prevention or detection techniques are more
prevalent. Other areas may show no fraud prevention and detection techniques were statistically
significant with the detection of fraud. Other areas may find specific fraud techniques
statistically significant and lead to further insight into the issue of fraud in NFPOs. If the study
can be conducted in other areas, this may lead to more awareness and more insights into the
study of fraud. Other area may have a larger concentration of NFPOs that are willing to do
multiple studies over several years to gather further insight into the issue of fraud and the
Reflections
The researcher found it was difficult to get surveys completed and returned in a timely
manner. The researcher also found the state of South Carolina does not list email addresses of
NFPOs, which took a lot of time to search for the leader’s email addresses online. The state does
provide mailing addresses for regions in South Carolina for a fee, although mailing would have
been a slower response time rather than digital. However, mailing would have been more formal
The researcher had a preconception that organizations would not report fraud detection.
Since this was anonymous, the organizations felt more comfortable to accurately report fraud. It
was helpful for the organizations to report accurately, so this could lead to further research on
The results did surprise the researcher on how low the p-values were. This shows strong
significance in the relationship between the use of the fraud prevention and detection techniques
and the detection of fraud. The researcher expected it to be significant with levels close to 0.05
Humans should do good work bringing glory to God, “For we are his workmanship,
created in Christ Jesus for good works, which God prepared beforehand, that we should walk in
them” Ephesians 2:10 ESV. Committing fraud can directly hinder God’s will to do good work
since the mission of most NFPOs is to help others with charity work. Fraud hinders the mission.
“The integrity of the upright guides them, but the unfaithful are destroyed by their duplicity”
The fraud prevention and detection techniques were examined in three groups. The
combined fraud prevention and detection techniques group include fraud risk assessment, fraud
risk register, code of conduct, fraud assessment training, fraud control plan, whistle-blower
policy, internal control review, and fraud control policy. The combined detection techniques
group included whistle-blower policy and internal control review. The combined prevention
techniques group included fraud risk assessment, fraud risk register, code of conduct, fraud
assessment training, fraud control plan, and fraud control policy. This researcher found that the
relationship between the use of all of the prevention and detection techniques and fraud detection
were statistically significant in NFPOs in South Carolina. When fraud was detected, the NFPOs
had techniques in place. The use of fraud techniques potential increases the chances of
preventing or quickly detecting fraud rather than having no techniques in place. Also, the
researcher found the relationship between prevention techniques as a group and fraud detection
114
was statistically significant in NFPOs in South Carolina. Fraud prevention techniques were in
place when fraud was detected. Also, the researcher found there was a statistically significant
relationship between the use of detection techniques as a group and the detection of fraud. There
was enough statistical significance to show a relationship that when fraud was detected that fraud
detection techniques were effective in the prevention and quicker detection of fraud. In
summary of the findings, fraud prevention and detection techniques combined show strong
statistical significant as well as fraud prevention or fraud detection techniques. Those techniques
indicate there is a relationship with the all of the techniques and are effective in the detection of
fraud.
Previous studies indicated internal stakeholders in NFPOs did not understand fraud
prevention and detection techniques and lacked the education to detect fraud (Best et al., 2015:
Udeh, 2012). In this study, the results indicated the NFPOs in South Carolina had fraud detected
used the techniques which demonstrates a level of understanding prevention and detection
techniques. Fifty-two percent of the South Carolina NFPOs in this study who had no reported
fraud also indicated they did not use any fraud detection techniques. This could be problematic
since roughly 86 percent of NFPOs with detected fraud were using fraud detection techniques.
This may indicate there is potential of undetected frauds in some NFPOs included in the study
because they are not using any of the fraud prevention or detection techniques.
would hinder the mission such as building home in impoverished areas or combating a health
crisis (Gamble & Beer, 2017). NFPOs also have limited funds and rely on donors and fraud
would tarnish the reputation and the NFPOs would lose donors and greatly impact the
organization’s ability to fulfill the mission (Archambeault et al., 2014). The initial focus of this
115
study was to gain insight into the problem of internal stakeholders preventing or detecting fraud
in NFPOs in South Carolina. The purpose of this study did show that using the quantitative
correlational study that internal stakeholders in NFPOs in South Carolina effectively use fraud
NFPOs are particularly vulnerable to fraud and the average loss in 2014 was over
$100,000 on average (Giovino, 2014). In 2015, Bradley, 2015 reported millions of dollars were
stolen from American Medical Colleges and thousands of dollars from a charity in Ohio their
study. In this study in South Carolina, the average loss was over $1,000 minimum and average
maximum loss was over $5,000. So, the take away from this is that fraud losses are high and the
NFPOs suffer from these losses. Further research in this area is needed to combat the issue of
fraud in NFPOs.
If fraud prevention and detection techniques were implemented, the organizations would
have strong safeguards and plans to prevent fraud and quickly detect fraud. It is important to
study the reasoning behind fraud. The Fraud Triangle, Cressey (1953) found that there is a
common thread to fraud. The person commits the fraud has a motivation (pressure and
incentive), an opportunity to commit fraud, and a rationalization or neutral attitude that the action
was not criminal. The individual would circumvent the internal controls and commit fraud.
Strong internal controls are very important as well as the other fraud prevention and detection
techniques to safeguard the donor’s contributions to the mission (Borba & Wuerges, 2014).
The stakeholders need guidance in prevention and detection of fraud. The stakeholders need to
discover motivations, eliminate opportunities, and educate the employees against rationalizing
Clemenson & Sellers, 2013). The focus of research has shifted toward better understanding that
leaders, management, and board members or stakeholders in general were responsible for
financial situations of the organizations (Clemenson & Sellers, 2013). This study showed that
clearly written policies help organizations with preventing and detecting fraud. This study
helped internal stakeholders understand the holistic aspects of fraud. If the techniques are used,
the culture can be swayed toward ethical practices and the training/awareness of fraud help to
reduce the opportunities because the safeguards are in place. The use of the fraud prevention and
detection techniques can lead to fraud prevent and lead to quicker detection of fraud through
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Demographic Section:
Carolina? Yes/No_____
2. How many employees (excluding volunteers) does your organization have? _____
0-10
11-25
26-1000
1000+
Under $100,000
100,001 – 500,000
500,001 – 1 million
Health Care
Education
Foundations
Religious
Social Welfare
Civic
Agricultural
Other
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5. Has your has your organization suffered any of the following in the past five years
Cash Theft
Payroll Fraud
Kickbacks/Bribery
Theft of Inventory/Assets
Database Fraud
Check Forgery
None
Other
6. If you currently or previously had occurrences of fraud in your organization, did you have
any of the following fraud prevention and detection measures in place when the fraud
Codes of Conduct
144
Whistle-blower policy
No measures
7. What is your estimate of the total value of all frauds suffered by your organization in the
$1 – 100
$101 - $1,000
$1,001 – 10,000
Over $10,000
None
8. Which of the following fraud prevention and detection measures does your organization
Codes of Conduct
Whistle-blower policy
No measures
Table 1
Table 2
Table 3
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Table 4
Table 5