Why Fraud Risk Does Not Necessarily Lead to Fraud: Moral Justification as the Missing Cognitive Mechanism in Public Organizations

Irfan Zamzam; Suriana Ar AR Mahdi

doi:10.32535/ijafap.v9i3.4830

Why Fraud Risk Does Not Necessarily Lead to Fraud: Moral Justification as the Missing Cognitive Mechanism in Public Organizations

Irfan Zamzam, Suriana Ar AR Mahdi

Abstract

Fraud remains a persistent governance challenge in public organizations, indicating that exposure to fraud-risk conditions does not necessarily translate directly into fraudulent intentions. This study examines moral justification as a cognitive mechanism linking fraud-risk factors to fraud intention among financial-management officials of Regional Government-Owned Enterprises (BUMDs) in North Maluku, Indonesia. Using a quantitative explanatory design and cross-sectional survey, data from 369 BUMD officials were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results show that pressure (b = 0.197, p < 0.001), opportunity (b = 0.197, p < 0.001), and arrogance (b = 0.215, p = 0.032) significantly and positively influence moral justification, while capability is not significant (b = 0.071, p = 0.382) and rationalization is marginally significant (b = 0.248, p = 0.084). Moral justification strongly predicts fraud intention (b = 0.848, p < 0.001). It also significantly mediates the relationships between opportunity and fraud intention (b = 0.163, p < 0.001) and between arrogance and fraud intention (b = 0.181, p = 0.032), while the mediation effects of pressure and rationalization are marginal and capability is not significant. The findings highlight the importance of addressing the cognitive processes through which organizational fraud risks are morally legitimized.

Keywords

Fraud Intention; Fraud Pentagon Theory; Moral Disengagement; Moral Justification; Public Organizations

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DOI: https://doi.org/10.32535/ijafap.v9i3.4830