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A Model of Controlling Occupational Fraud in Virtual Organizations
Abstract
With organizations becoming more complex, dynamic, and global, and due to the availability of new telecommunications and computing technologies, especially the Internet, forming virtual organizations is becoming common as a modern organizational strategy. A virtual organization (VO) is primarily characterized as being a network of independent, geographically dispersed organizations with a partial mission overlap (Larsen and McInerney 2002). The VOs’ benefits have been well researched, including efficiency and cost savings, enhanced customer focus and market penetration, reduced competition, and knowledge sharing (Burgers, Hill et al. 1993), and there is a stream of literature enumerating the benefits and providing criteria and guidance for virtual organizations (Markus and Agres 2003). Yet despite their growing prevalence, the change in organizational form and context of work enabled by virtual organizations suggests hidden threats to the organization and may leave such organizations susceptible to economic loss. The introduction and maintenance of the VO is far from unproblematic. The same factors that yield the benefits exacerbate the motivations, opportunities, and rationalizations – the three-factor model - of occupational fraud (Albrecht, Wernz et al. 1995). More than a media fanfare and public curiosity, occupational fraud, e.g., asset misappropriations, corruption, and fraudulent financial reporting, is a widespread problem that affects practically every organization, regardless of size, location, or industry. The Association of Certified Fraud Examiners estimated that six percent of revenues would be lost in 2004 because of occupational fraud. Applied to the U.S. Gross Domestic Product, this translates to losses of approximately $600 billion. Thus, it is important to study occupational fraud in organizations. So far, little research has been done on the subject of occupational fraud as organizations shift to virtual-based forms. It is clear that there is a need to understand better the causal processes in the context of VOs and to facilitate the prevention, detection and correction of occupational fraud. This paper aims at developing a framework to understand the risk occupational fraud in virtual organizations.
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