Fraud Prevention in Flux: Are Traditional Methods Holding Their Ground in the Digital Age? Evidence From an Emerging Economy

Abstract

Manuscript type: Research paper
Research aims: This study investigates the perceived level of fraud
occurrence and the utilisation of traditional and technological fraud
deterrence tools in listed companies (LCs) in Sri Lanka, while exploring
differences in such perceptions between LC employees and external
auditors, given the limited empirical evidence in emerging economies.
Design/Methodology/Approach: Guided by a postpositivist paradigm,
a self-administered structured survey was conducted targeting top-level
and middle-management-level employees in LCs and external auditors
in Sri Lanka using a random sample. A total of 229 usable responses,
including 127 LC employees and 102 external auditors, were analysed
using non-parametric statistical techniques.
Research findings: Findings confirm the prevalence of fraud in LCs,
acknowledged by both LC employees and external auditors, with no
significant perceptual differences. Both respondent groups perceive
traditional tools to be more widely utilised than technological tools in
deterring fraud in LCs. However, in terms of perceptual differences,
LC employees perceive a higher usage of traditional tools than external
auditors, while no significant difference exists in technological tools usage.
Widely utilised traditional tools include bank reconciliations, internal audits, and inventory observations, whereas forensic accountants, fraud
departments and whistleblowing policies were among the least utilised
traditional tools. Basic technological tools like password protection,
firewalls, and virus protection were commonly utilised, whereas
advanced technological tools like Bayesian networks, Benford’s Law,
neural networks and digital forensic tools were rarely utilised, signalling
a significant technological lag in addressing the complex nature of modern
fraud.
Originality: As a pioneering empirical study in an emerging economy
context, this study offers new insights into a wide array of traditional
and technological fraud deterrence techniques through a comparative
professional lens, particularly amid regional governance challenges. The
study contributes to the fraud deterrence literature by providing empirical
insights into fraud deterrence practices in an emerging economy,
highlighting the growing importance of technology-driven techniques
for real-time fraud deterrence, despite continued reliance on traditional
mechanisms. Moreover, the findings offer policymakers practical guidance
for strengthening fraud deterrence and enhancing transparency in
financial reporting through the lenses of Cognitive Dissonance and Social
Identity theories.