The role of the audit committee and employee well-being in controlling employee fraud

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Abstract

Fraud is still a problem in the banking industry. Association of Certified Fraud Examiners (ACFE) reported that banks experienced the highest number of fraud cases compared to other types of businesses. This study aimed to demonstrate the effect of the audit committee’s size, gender, expertise, independence, and employee well-being on employee fraud. The study on fraud uses questionnaire data to identify employee fraud (Fathi, Ghani, Said, & Puspitasari, 2017; Nawawi & Salin, 2018). We complement the previous study by using the number of cases as an indicator of employee fraud. Using a sample of 14 Islamic banks, we find that audit committee members’ accounting expertise and employee well-being can influence employees’ willingness to commit fraud. After overcoming the problem of endogeneity and robustness tests, the results of our study were consistent. The number of audit committee members, gender, and independence have not impacted fraud control. The expertise of the audit committee and employee well-being can be an effective internal control system in reducing fraud. This study adds to previous studies that have explained fraud by using employee perceptions and financial ratio indicators to detect director fraud. This study uses the number of employee fraud cases reported by the bank.

Keywords: Employee Fraud, Employee Well-Being, Audit Committee Gender, Audit Committee Expertise

Authors’ individual contribution: Conceptualization — I.A. and I.J.; Methodology — I.A.; Validation — I.A., I.J., and Z.; Formal Analysis — I.A.; Investigation — I.A.; Resources — I.A.; Data Curation — I.A.; Writing — I.A., I.J., and Z.; Visualization — I.A.; Supervision — I.J. and Z.; Project Administration — I. A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G34, G32, M480

Received: 01.04.2022
Accepted: 05.10.2022
Published online: 07.10.2022

How to cite this paper: Anisykurlillah, I., Januarti, I., & Zulaikha. (2022). The role of the audit committee and employee well-being in controlling employee fraud. Journal of Governance & Regulation, 11(4), 168–178. https://doi.org/10.22495/jgrv11i4art16