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JFC
30,3 Financial C.R.I.M.Es in small
businesses: causes
and consequences
742 Radiah Othman, Fawzi Laswad and Matthew Berkahn
School of Accountancy, Massey University, Palmerston North, New Zealand

Abstract
Purpose – The purpose of this paper is to examine the causes and consequences of financial crimes
perpetrated against New Zealand small businesses.
Design/methodology/approach – A random sample of 200 court cases was selected from 2010 to 2017.
A total of 12 cases involving 14 small businesses were analysed.
Findings – The results reveal that financial crime is a systemic problem and involves people with diverse
demographics, and the victims are not restricted to any specific type of small business. The offenders are mostly
middle-level managers. The length of offence varied from 1 year to 12.5 years. Most of them funnelled the stolen
money into their personal accounts. The common motive is “keeping up appearance”. The management placed
immense trust in their employees and did not vet candidates before employment. The losses suffered by small
entities ranged from $6,000 to $590,000 and liquidated one business. The severity of the actual court cases
indicates the necessity of an employee screening as the first line of defence in these businesses.
Research limitations/implications – The small sample of court cases is a limitation, but the study
contributes to the fraud auditing literature by examining actual court cases involving small businesses. Small
businesses as victims of employee fraud and their lack of internal controls are known but under-researched to
promote thought about fraud risk severity in these businesses.
Originality/value – The C.R.I.M.E model has yet been tested on fraud cases involving small businesses.
Keywords Employee, Financial, Fraud, Internal control, New Zealand, Small businesses
Paper type Research paper

Key
NZHC = New Zealand High Court (unreported);
NZCA = New Zealand Court of Appeal (unreported);
NZERA = New Zealand Employment Relations Authority (unreported);
DC = District Court (unreported); and
DCR = District Court Reports, Wellington: LexisNexis New Zealand.

Journal of Financial Crime
Vol. 30 No. 3, 2023
pp. 742-758
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-03-2020-0032
Introduction
This study examines a sample of financial crime cases, which came before the New Zealand
(hereafter, NZ) courts. The financial crimes include all types of employee fraud offences
including corruption, in which the small entities [1] are the victims. Financial crime is not as
black and white, as fraud victims may not even be aware that a crime has been committed
(Bradshaw, 2006). Financial crime is often characterised as exploitation of trust and misuse of
authority (Arnold and Bonython, 2016). Trust brings with it, opportunities. Unfortunately, in
NZ, opportunities for financial crimes are the primary driver of economic crime (PWC, 2018).
In NZ, small businesses are essential to the economy. Ninety-seven per cent of its
enterprises are small enterprises (MBIE, 2015). They make up the bulk of the business
community, employ 29% of the private sector workforce and account for more than a C.R.I.M.Es in
quarter of the gross domestic product (NZ entrepreneur, 2017). This relationship suggests a small entities
significant risk posed by the workforce on the livelihood and sustainability of the business
community if they fall to fraud perpetrated by their employees. There is no one source of
information that can provide an accurate idea of the scale of employee fraud in NZ (Gubbins,
personal communication, 6 November 2018). The recorded crime statistics have been
criticised as not being accurate (Maguire, 2007). Many fraud cases are not detected, reported 743
or not being pursued through the court thus escaped from the statistics.
Globally, the PwC’s 2018 Global Economic Crime Survey reports a significant increase in
fraud occurrence with 49% of respondents’ organisations had been victims of fraud, up from
36% in 2016. A total of 51% of the NZ respondents were victimised in the past two years
(PWC, 2018). Employee fraud is still the most common type of occupational fraud,
accounting for 30% for Asia-Pacific region with a median loss of US$236,000 (ACFE, 2018).
Both surveys reported asset misappropriation as the most frequently reported frauds across
industries. It affected 42% of NZ organisations as compared with a global average of 29%.
Often, employees use their positions to take or divert assets belonging to their employers
(Albrecht et al., 2019). Pre-employment screening has been suggested as a preventive
measure. In fact, in NZ, the screening is a government-imposed mandatory protective
requirement, yet there were cases, such as Joanne Harrison (Ministry of Transport),
Mohamed Shakeel Siddiqui (Waikato District Health Board) and Dr. Roman Hasil
(Wanganui Hospital) which came to light. These fraudsters have inflicted not only financial
losses but also physical and emotional distress upon victims. Harrison, for instance, stole
over NZ$700,000 from the Ministry of Transport. Even when the Victoria Police Fraud and
Extortion unit contacted the Ministry indicating Harrison as a person of interest, nothing
was done (Newport, 2017). When numerous whistle-blowers reported her for failing to
comply with public service rules around contracts and invoices, Harrison made them
redundant by using restructuring excuses. Even the Auditor General disregarded the
complaints and shut down an on-going internal investigation. All this commotion could
have been prevented if pre-employment screening was undertaken. It will cost a lot less than
the candidate’s first day’s salary (Gubbins, 2017).
If those cases in an environment where preventive controls are mandatory, one cannot
help wondering what has been happening in small businesses, where employee screening is
optional. Considering the importance of small businesses to the economy, the research
questions are as follows:

RQ1. What are the causes and consequences of financial crimes in small businesses in
New Zealand?
RQ2. Would an employee screening be useful as the first line of defence?

Literature review
There is a considerable research that examines fraud and NZ in various context. Some
studies examine the national, institutional and regulatory attributes (Marriott and Sim, 2017;
Zirker, 2017; Gregory and Zirker, 2013; Van Peursem and Balme, 2010; Brooks, 2004;
Shameem, 1998; Hamlin and Watson, 1997). These factors are macro-contextual in nature,
not at small entities context. Occupational fraud studies are focussing mainly on corporate
fraud and failures (Bhuiyan and Roudaki, 2018; Jessep, Farrar and Watson, 2012; Button
et al., 2011). Bhuiyan and Roudaki (2018) found that almost half of the failed finance firms
JFC were engaged in fraud involving related party transactions. Failures of small businesses as
30,3 a consequent of fraud perpetrated by their employees have yet been the focus.
In terms of (potential) offenders, there is a growing body of literature that focuses on the
professional accountants, auditors and employees’ attitude towards and association with
fraud (Andon, Free and Scard, 2015; Kummer, Singh and Best, 2015; Dellaportas, 2013;
Smith, 2003; Watson, 2003). Most of these are at international level comparisons, reporting
744 findings from large organisations not about employees of small businesses who were
claimed to be the common perpetrators of theft and other forms of fraud (Jackson et al.,
2010). Andon et al.’s (2015) 10-year period analysis of occupational fraud in Australia reveals
that 75% of the cases, small-medium enterprises were the victim of the fraudulent conduct
(p. 21). Therefore, both scholarly and professional investigations into fraud have tended to
focus on antecedents, trends and consequences of corporate fraud. There has been a paucity
of work seeking to understand fraud perpetrated by those employed in small businesses and
its implication.
ACFE, 2018’s survey reports that small entities both experienced the highest
percentage of occupational fraud cases (28%) and suffered the most substantial median
loss (US$200,000). They suffered the largest median loss nearly double that of companies
with 100 or more employees (Drew, 2018). Being disadvantaged by financial resources
creates ample opportunity for motivated fraudsters to take advantage of small
businesses (Hess and Cottrell 2016). Therefore, by nature, they are inherently vulnerable
to employee fraud. Further, most of them are privately owned, subject to much less
regulation and reporting standards requirements (Jackson et al., 2010). Independent audit
is not a mandatory for most of small businesses which leverage fraud to remain
undetected for several years. Though organisational culture can play a crucial role in
influencing employees’ attitude towards fraud (Davis and Pesch, 2013), the owners are far
too busy with their business, experienced excessive stress and struggle with finance and
accounting (Shaw, 2019).
It is common that small businesses do not undertake regular fraud risk
measurement exercises (Brooks et al., 2009). Internal controls could be the
organisations’ last line of defence and vetting potential employees could make a
difference. Though hiring honest individuals by conducting background checks helps
(Jackson et al., 2010), some may fall prey to temptations (Kumar, Bhattacharya, and
Hicks, 2018). Entities unwillingness to undertake pre-employment vetting would only
increase the risk of being embezzled by a candidate. In fact, some convicted offenders
have survived the vetting process.
Often, personnel management issue is the contributing factor (Kennedy and Benson,
2016). They trust their employees completely (Hess and Cottrell 2016). Trust is a key feature
in financial crime, whether the crime is committed by a senior executive of a large
corporation or by a financial advisor operating in a small community (Bradshaw, 2006,
p. 283). Trust is all what a person needs as an opportunity to gain access to organisation’s
assets and information (Hight, 2015). New Zealanders are known to be a trusting
community. In a society where the majority of people are honest, trust remains an important
component (Bradshaw, 2006); but unfortunately, misplaced and betrayals of trust are far too
common. NZ employers like to think they are good judges of character and do not need to
undertake any checks (Gubbins, personal communication, 6 November 2018). Legitimate
business suffers when people, who to all intents and purposes look and act like all other
businesspeople, deliberately and cynically break such trust (Bradshaw, 2006, p. 283).
With over 20 years of pre-employment screening services, Gubbins (personal
communication, 6 November 2018), notes anecdotally that:
 [. . .] [People] wouldn’t dream of buying that second-hand car on Trade Me without spending $180 C.R.I.M.Es in
on an AA check, but they will go out and hire a new employee (the single greatest threat to their
business) without spending $150 on a criminal and financial check on the person to make sure
small entities
they are not a thief, or otherwise unsuitable.
The temptation to breach the trust and circumvent internal controls is far greater for those
who are pressured to “keep things together”, “keep up appearances”, or to “keep the party
going” (Arnold and Bonython, 2016, p. 177; see also Topalli, 2005). The psychological state 745
of the offenders could also be a factor, that is, the how and when they “decide” to defraud
their employers (Arnold and Bonython, 2016). Many of them started with small sums do not
plan to commit a crime and after that commit further crimes (Levi, 1999). As such, losses
suffered by small businesses due to systematic deficiency can be attributable to fault rather
than fraud (Kumar, Bhattacharya, and Hicks, 2018).
Button, et al. (2011, p. 68) emphasises that losses to fraud and error represent a significant,
damaging and, crucially, unnecessary business cost. As the true extent of fraud losses is not
probable, organisation typically hesitate to make a provision but if they accurately measure
or provide the costs of fraud and error on a regular basis, it would incentivise the business to
manage that cost like any other cost (Brooks et al., 2009). Being small and vulnerable, the
small businesses might not have the capacity to recover from fraud (ACFE, 2018). Being the
main contributor to NZ economy yet struggle to survive, they inherently deserve more pro-
active protection and incentives from the government. This study hopes to promote thought
on this issue by sharing small businesses’ experience of employee fraud in NZ.

Research approach
Criminal profiling can be forensic (Snook et al., 2008) or predictive (Ramamoorti et al., 2014).
This study takes the forensic approach following Snook et al. (2008), in retrospectively
identifying an offender after a crime has taken place. Similar to Bradshaw (2006), this study
uses the actual court cases. In Australia, Andon et al. (2015) court judgements involving
accountant fraud. Here in NZ, Bradshaw (2006) uses the victim impact statement of the court
cases to highlight the impact of white-collar crime on NZ society.
In this study, 25 relevant court judgments were randomly selected from WestLaw, an
online legal database, for each year for the eight-year periods, 2010–2017. This process
generated 200 court cases of which 12 cases involved 14 small businesses as victims (7%).
The 14 cases involved typical small business and entities in New Zealand:
(1) a medical practice business;
(2) a charity organisation;
(3) a veterinary practice;
(4) an army museum;
(5) a tyre service centre;
(6) an interior designer;
(7) an electrical business;
(8) a property management business;
(9) a religious trust; and
(10) engineering business;
(11) a car dealer;
(12) a wholesale agriculture stock food business;
JFC (13) a housing company; and
30,3 (14) a car servicing and repair franchise.

The entities were primarily located in smaller towns and cities. The data from the fraud
cases were categorised into the five interacting factors of cooks, recipes, incentives,
monitoring and end-results elements of fraud Rezaee’s (2005) C.R.I.M.E model as the
746 analysis framework.

Analysis framework
The fraud triangle of pressure (motivation), opportunity and rationalisation has been tested
and acknowledged among the academics and criminologists (Cressey, 1953, 1986; Albrecht
et al., 2019). Alternatively, Rezaee (2005) introduces five interactive factors: cooks; recipe;
incentives; monitoring and the end-results, an acronym of C.R.I.M.E to explain the causes
and effects of financial statement fraud but has yet to be used within employee fraud
context.
In this context, the element of “Cooks” represents the individuals, who with their
participation, encouragement, approval and knowledge may have allowed fraud to be
perpetrated. The element of “Recipes” highlights the method(s) used by the fraudster to
commit fraud. “Incentives” explains the common motivation of the cooks to perpetrate
fraud. Arnold and Bonython (2016, p. 177) propose three common motivations for fraud.
They state that some offenders had to “keep things together” (crime proceeds are used for
living expenses such as putting food on the table), but some aimed to “keep up appearances”
(the proceeds are spent in conspicuous consumption on expensive clothes, jewellery or other
status reinforcement) and some intended to “keep the party going” through purchase of
drugs (see also Topalli, 2005).
These three categories introduced by Arnold and Bonython (2016) are financially
motivated reasons. They do acknowledge that some financial criminals are not motivated
by money but by the activity which made them felt good (Arnold and Bonython, 2016,
p. 177; Crichton, 1959). Other offenders have spoken of the euphoria that comes from
achievement of subverting the authority. In line with this argument, this study introduces
another category that represent a psychological motive, “keep on going”.
To minimise the likelihood of fraud, the “Monitoring” element consists of direct
monitoring and supervision by the owner, leader or executive of the small businesses.
Indirect monitoring includes any other internal control procedure such as management’s
periodic review of accounts and monthly bank reconciliation or review or audit function by
an independent party such as an auditor or an audit firm. The “End-results” are
consequences associated with fraud. These include financial and non-financial losses to the
small businesses and sentencing ordered to the offenders. Little attention was paid about the
emotional impact to the victims (Kennedy and Benson, 2016). The emotional reactions may
influence how business owners make decisions in the future (Christopher, 2003). They may
experience strong adverse emotional reactions when defrauded by their own employees.

Findings: causes and consequences of employee fraud in small businesses

The fraud factors, including the causes and consequences of employee fraud analysed from
the 12 court judgements, are shown in Table 1.
The summary of the C.R.I.M.E aspect of the analysis framework is as follows:
Cooks: The financial offenders were female middle-level managers, and even though their
positions did not specifically indicate position with accounting responsibilities, most of the
“cooks” were also responsible for accounting records, documentation and payments to
Case 1 2 3 4 5 6 7 8 9 10 11 12

Cook (C)
Gender
Male * * * * *
Female * * * * * * *
Position
Owner *
Middle-level manager * * * * * * * * * *
Junior-level manager
Charity’s committee member *
Accounting-related position * * * *
Non-accounting position * * * * * * *
Recipes (R)
Document-related
Created fake invoice * *
Created fake vendor * * *
Create fictitious work/overstated amount using entity’s legit
invoice *
Created irregular accounting transactions * *
Falsified/manipulated accounting transactions * *
Forged cheque *
Online transactions-related
Direct transfer entity’s fund to own bank account * * *
Direct transfer entity’s fund to controlled 3rd party account
Used online system to pay faked invoice to credit own bank
account * * *
Used online system to pay personal expenses *
Altered own wage/salaries/commission *
Altered the payee’s bank details
Physical assets related (cash, inventory)
Stole entity’s physical assets *
Sold directly entity’s physical assets *
Stole cash * *
Cheque-related
Misappropriated entity’s cheque for personal expenses * * * *
Misappropriated entity’s cheque to own bank account * *
Misappropriated cheque to third-party bank account *
(continued)

financial C.R.I.M.E in
consequences of

small businesses
Table 1.
C.R.I.M.Es in

Matrix of causes and

747
small entities
 JFC
30,3

748

Table 1.
Case 1 2 3 4 5 6 7 8 9 10 11 12

Lapping – deposited cheques received from clients to own bank

account *
Credit card-related
Personal expenses * * *
Use of entity’s fuel card for personal use *
Kickback *
Corruption *
Incentives (I)
Keeping up appearance * * * * * *
Keep things together * *
Keep the party going *
Keep on going * * *
Monitoring (M) ^
Direct (by superior) *
Indirect (e.g. bank reconciliation) * *
No monitoring * * * * * * * *
End-result (E)
Fraud losses/impact
Less than $10,000 *
$10,000 to $99,999 * * * *
$100,000 to $949,999 * * * * * *
More than $500,000 *
Jail time/home detention
Less than 1 year * *# & *#
1–5 years * * * * *
6–10 years * *
More than 10 years *
Investigation cost borne by employer/entity * *
Fraud length
Less than 1 year * *
1–2 years * * * *
3–4 years *
5–6 years * *
More than 6 years * *
Ratio of fraud losses/month $16,390:1 $5,310:1 $442:1 $21,074:1 $539:1 $9,026:1 $982:1 $749:1 $8,786:1 $32,651:1 $1,723:1 $27,600:1

Notes: *Relevant fraud factor; reparation order to pay back fraud losses; ^fraud committed by business owner; #home detention
suppliers. This raises questions on whether they were suitable and qualified to handle C.R.I.M.Es in
accounting matters of the business. Even though it is known that small business owners are small entities
struggled to deal with accounting and finance aspect of their businesses (Shaw, 2019), this is
not a good excuse for having the employees to take charge. Gubbins (2017) warns that NZ
businesses running the risk of hiring a person with an unsuitable record, false qualifications
or some other issue that makes a job applicant unqualified, dangerous or unfit for the
position. Trust was not the solution. In other cases where presumably qualified persons
were recruited, they too circumvent technologies and internal controls to enable them to 749
create fictitious invoices, and other documents. They even altered their salaries.
In three cases, the small businesses skipped the employee vetting process, risking their
businesses and hired previously convicted criminals who later defrauded them. As
explained by Shaw (2019), they were pressured to have someone that could be trusted to
handle their financial affairs. These cases also indicate that previous sentences had not
deterred an offender from reoffending. Employee screening could have saved the entities, in
total $995, 470 including $30,000 of investigation cost. This accounts for more than 40% of
all losses suffered by victims in 14 cases. The cost of vetting is $150 is much lower and a lot
less than the first-day salary of these offenders (Gubbins, 2017).
Recipes: As can be seen from Table 1, most of the offenders used various techniques in
commissioning their fraud, depending on their job responsibilities. The opportunities made
available to them were also used to conceal fraud (Albrecht et al., 2019). One striking
similarity is that they were able to channel the embezzled money into their accounts or paid
their personal expenses by manipulating the online system and cheques. Some of them had
deliberately overstated and created fake invoices, and even vendors for more than five years.
In the corruption case (Case 12), the instigator (victimised trust’s employee) and perpetrator
went to a lengthy effort by creating a dummy company to continue defrauding the trust.
Incentives: In terms of motivation, not all cases revealed how the stolen money was spent.
Only two cases were motivated by the need of “keeping things together”, whereas the
majority of the cases highlighted extravagant lifestyles and spending, “keeping up
appearances” (Arnold and Bonython, 2016; Topalli, 2005). The fraudster in Case 10 had
gambling addiction. Three fraudsters had no clear indication of what made them did it
(“keep on going”). Gubbins (personal communication, 6 November 2018) asserts that in NZ
the proceeds of all employee theft are spent on luxuries, never on putting food on the table.
Even though the perpetrators were not “binary proletariat” (Arnold and Bonython, 2016,
p. 177), the cases overwhelmingly showcased greed rather than need as the primary
pressure point.
Monitoring: Only three entities had a monitoring mechanism, but only in one case, the
offender was directly monitored by his manager (Case 5). That manager confronted the
offender on different occasions when he transferred the company’s money into his personal
bank account. It happened four times. The manager’s reluctance to take action motivated
him to repeat further. The manager must also take immediate actions when discrepancies
and irregularities were discovered. An audit would be useful too as mentioned in two cases
in which one of it was a live audit as part of the forensic investigation. Although the audit is
not mandatory for small businesses, there is also an option for review by the audit firm.
These two options are indeed cheaper as compared to a forensic investigation which
ultimately had to pay $15,000 and $30,000 in two of the cases (Cases 4 and 7).
In another two cases, indirect monitoring in the form of reconciliation was undertaken.
Even though the managers checked the reconciliations, the offender was too quick to steal
cash and adjusted the accounts after that. It was apparent that lack of monitoring had
enabled fraud to continue for a very long time as the length of fraud varied from 8 months to
JFC 12.5 years. ACFE (2018) report to the nations suggests that frauds that last over 60 months
30,3 are more than 20 times as costly as those that caught in the first six months (ACFE, 2018).
As can be seen from the calculated ratio in Table 1, the fraud losses range from $442 to $32,
651 per month, with an average of $2,073 losses per month.

End-results
750 Victims: Victim impact statements have now become a regular part of the sentencing
process in New Zealand. They provide a reality check on the impact of financial crime and a
reminder that frauds are not victimless crimes (Bradshaw, 2006). The statements indicate
that the victims suffered both, as individuals and as business owners. As business owners,
the victims suffered financially. In total, the losses to the businesses are $2,478,451.05,
ranging from nearly $6,000 to more than $590,000, with an average loss of $275, 383.45. In
Case 4, the business failed to survive and in Case 1, the donors withdrew their involvement
with the charity when the case came to light. When trust is betrayed, mistrust blossoms. As
individuals, they had to endure emotional and psychological experiences. In Case 3, the
victims lost precious belongings to their ancestors died during wars, the only things that
connected them to their loved ones. The belongings were entrusted to the museum for
safekeeping only to be copied, exported and sold. Often, victims attempt to understand why
they have been victimised by someone they trusted (Gromet, 2012). In quite a number of the
frauds investigated by the Serious Fraud Office in NZ, the victims are often the last person
to accept that the person in whom they have put their trust may in fact be a criminal and
have defrauded them. Their money or property will have been taken by stealth rather than
by physical force (Bradshaw, 2006, p. 285).
Offender: The offenders being sentenced mostly on imprisonments which ranged from
10 months to 11 years. In two cases, Case 9 and Case 12, they have sentenced to 11 months
and six months home detention, respectively. The reality is that a fraudster is the exact
opposite of the traditional image of a criminal (Bradshaw, 2006, p. 285). In many cases,
fraudsters will have established themselves as members of the community and will already
be well known to their victims (Bradshaw, 2006, p. 285).

Where to from now?

The cases show that the victims and their businesses have suffered financial and emotional
cost when trust is abused (Bradshaw, 2006). Hess and Cottrell (2016) suggest for small
businesses to take the initiative and ask about potential problems rather than waiting for the
bad news to find them. They should set aside time to take stock of fraud risks and develop a
fraud risk management plan and view it as an essential investment in the business’s future.
When managers are more aware of the various business risks facing their organisation, they
are more likely to ensure that risk management training is actively undertaken by staff
members (Rae and Subramaniam, 2008).
The cases as summarised in Table 1 indicate that small businesses in NZ need to
seriously consider their vulnerability to financial crime committed by their own employees.
The small business owners need to assess his or her business’s vulnerability to fraud by
considering these five interactive elements together. In this way, appropriate internal
controls would have to be deliberated in consideration of the potential “cooks”, those who
have the opportunities through their responsibility and position in the entity. Different
responsibilities would provide different exposures and threats to the small businesses
especially if these “cooks” are incentivised by their needs and greed to “keep things going”,
to “keep up appearance” and to “keep the party going”. If they were not financially
motivated, then they might be psychologically motivated, feeling good of doing it, “keep on
going”. The end-results would require the business owner to quantity the negative C.R.I.M.Es in
consequences that fraud could bring, at both, financial and emotional costs. small entities
Nonetheless, concern about theft by employees must be expressed without creating an
atmosphere of distrust and paranoia. Any effort made to reduce employee embezzlement
without reducing its underlying causes (e.g. employee dissatisfaction) would lead to a
“hydraulic effect” (Kranacher et al., 2011, p. 75), that is, tightening controls over genuinely
deviant behaviour may push up goldbricking as a result. Small businesses should their
smaller size to advantage by enjoying more clarity in their messaging and values, 751
rethinking how best to leverage the advantages of being small when it comes to preventing
and detecting fraud (Hess and Cottrell, 2016).
Distinct lack of segregation of duties, independent checks and proper documentation and
records are evident in the cases examined. In entities where separation of duties may not be
feasible, Albrecht et al. (2019) propose three simple procedures that small businesses’ leaders
should do personally. Firstly, they should always open the bank statement themselves and,
if possible, reconcile the bank statement. Secondly, they should pay everything by cheque or
with a specific credit card so there is a record, or they should be the only person able to make
electronic bank transfers and, if they use cheques, they should sign every cheque themselves
and not delegate the signing to anyone else. These simple procedures, if done on a timely
basis, will prevent many frauds (Albrecht et al., 2019, p. 1).
Rae and Subramaniam (2008) suggest that risk management strategies relating to
employee fraud will need to pay greater attention to organisational factors that affect
perceptions of justice at the workplace, including fostering a more ethical and equitable
work environment. Organisational justice is a psychological concept, that is “concerned with
the ways in which employees determine if they have been treated fairly in their jobs and the
ways in which those determinations influence other work-related variables” (Moorman,
1991, p. 845). The expectation of ethical behaviour could be included in the company policy
as a preventive control. Jackson et al. (2010) also suggest the establishment of a code of
ethics that suits the nature and size of the entity and proposes the owners themselves are
examples of honesty and integrity.
Watson (2003) suggests for business executives is to establish, emphasise and maintain a
well-formulated awareness programme designed to teach employees how to deal with
ethical dilemmas. A focused awareness programme should increase the employees’
knowledge base about ethics and fraud. This should result in greater recognition of deviant
conduct, thereby decreasing the potential for undesirable behaviour. Attitudes can be
ameliorated through awareness. Hess and Cottrell (2016) also suggest employees’
mandatory vacation requirement on an annual basis. Only in one case, the entity was held
responsible for the failure of its internal control system. Nonetheless, it acknowledged that
in the case of corruption, any form of internal controls would become ineffective especially if
the fraud is committed by the business owner and in collusion with another party working
for the victim organisation.

Conclusion
This study examines the causes and consequences of financial crimes perpetrated against
New Zealand small entities and proposes a fraud dashboard for small businesses to assess
their vulnerability to fraud. The examination of the selected cases concludes that financial
crime is a systemic problem involving people with diverse demographics. The selected cases
consistent with the notion that fraud is not restricted to the poor, large or small businesses
and organisations, government or private entities or people of a particular gender, faith,
ethnicity, sexual affinity or level of education (Arnold and Bonython, 2016, p. 174). The
JFC offenders are middle-level managers, the length of fraud varied from one year to 11 years,
30,3 causing losses ranging from $6,000 to $590,000. The offenders used various techniques,
funnelled the stolen money into their accounts or paid their expenses, indicating a common
motive of “keeping up appearance” and financially motivated.
Levi (1999) argued that financial criminals do not suffer from “inadequate impulse
control” and are deterred from offences by calculating punishments. However, what could
752 have started as impulse could naturally become a sustained behaviour indicated by the
financial offenders’ attempts to conceal their misdeeds. On whether a financial crime is an
act of impulse or pre-meditated, it seems that the New Zealand courts have yet to accept that
the crime is a symptom of illness (Arnold and Bonython, 2016) even though in some cases
the offenders had been ordered to attend therapy sessions.
In their seminal paper, Sykes and Matza (1957) maintained that offenders are aware of
conventional values, understand that their offending is wrong and anticipating shame and
guilt for violating the societal norms. This notion is supported by Slovic (1987) who posits
that by nature, humans do weigh the risk and the repercussion of their actions. In some
cases, the offenders could not resist the opportunities of having both, the complete trust and
access to entities’ accounts, records and documentation. This exampled the risk-taking
nature of the employees.
The study is limited to a very small sample size but even that, the repercussion of the fraud
was severe and undeniable. Future studies should include more cases that victimised small
entities. Substantive evidence is necessary to lobby for a protection mechanism for the entities,
that is, critical to the economy. A large-scale study in the future could look into aspect, such as
whether a financial crime is a gender issue? For example, Bonny, Goode and Lacey (2015)
examine employee fraud in Australian and NZ large firms. They found that as compared to
male, female offenders were as well represented, young, motivated by financial hardship,
sudden financial pressures and gambling. Women are more likely to engage in petty “front
office” embezzlement (Daly, 1989; Zaplin, 2007; Zeitz, 1981; Dodge, 2013). Could it be because
they are underrepresented in the board room and thus their offending is not reported in records
of financial statement fraud? Similarly, it was reported that employment in the New Zealand
non-profit sector is heavily weighted towards women; hence, future research needs to explore
whether more women than men have been found to defraud non-profit employers.
Other issues include, is there a fundamental difference in the psychological attributes of
petty financial offenders and someone who consciously steals a billion dollars or who
criminally conceals a billion-dollar loss attributable to misjudgement? (Arnold and
Bonython, 2016, p. 170). Arnold and Bonython suggest that the answers are potentially
useful in building compliance mechanisms and more ambitiously in making recruitment
decisions. The cases were chosen at random from the Westlaw database which means not all
cases involving small businesses were selected. The initial research supports that there are
about 25 cases per year in the database that involved small entities, but this is not confirmed
with certainty as such the cases might not reflect the average percentage as of total cases
appeared in the court during the period studied.
The success of a fraudulent and criminal activity perpetrated by a financial offender
largely depends on the interaction and involvement of other actors, such as the victims and
the government regulators, signifying the need to understand the social but also the
institutional and the technological context of the cases. Larger-scale research that focuses on
this interaction would provide a universal understanding of the contexts, causes,
consequences and deterrence of financial crime.
Future research should also be undertaken to examine whether the economic conditions
financial crimes. Gubbins (2018) asserts that potentially during economic recessions,
companies are more vigilant and, as such, more frauds are uncovered would require C.R.I.M.Es in
longitudinal research to capture various political and economic conditions. Research that small entities
focuses on the victims also needs further work. For instance, applied research should be
undertaken by learning institutions that offer their students the opportunity to research and
explore local small businesses’ internal controls and then suggest affordable measures that
suit their nature of the business.
On the psychological aspect, the results show that two financial criminals were
motivated other than need and greed but the compulsion to continue doing it. Some cases 753
reaffirm Levi (1999)’s findings that financial offenders did suffer impulse control and were
irrational, but then continued their fraudulent activities which do not necessarily indicate
pre-meditation. Would this be a symptom of mental illness? Should a financial crime be
treated as a symptom of a medical condition? During pleadings in the court, the offenders’
arguments turned, however, to their psychological states by highlighting their mental
instability rather than well-planned execution his was true even in cases that clearly shows
that the fraudulent activities were carried on for a good number of years before being
discovered (Arnold and Bonython, 2016; Levi, 2006; Lampe, 1991). According to Bradshaw
(2006), most serious financial crimes are neither spur of the moment actions nor do they tend
to be just one-off incidents (Bradshaw, 2006, pp. 285–286). There is evidence that the
financial crimes are premeditated and often occur over a lengthy period of time as the
fraudster seeks and then abuses the trust of the victims, but NZ courts have yet to accept
that the crime is directly attributable to a psychological disorder most appropriately
addressed by therapy.
On the other side of the coin, perhaps it is useful to understand what influences the
victims, that is, what would be the psychological state of the businesses’ leaders when
allowing non-pre-vetted individuals accessed to all their resources when the internal
controls, checks balances were not adequate? This topic has never been studied and would
perhaps provide some understanding of financial crime’s victimisations. The emotional
costs of employee theft victimisation have mainly been ignored in the literature (Kennedy
and Benson, 2016). The cumulative effect of financial crime on our society may ultimately be
much more serious in terms of damaging personal and business relationships, than the
actual financial losses incurred (Bradshaw, 2006, p. 291).

Note
1. Small entities and small businesses are used interchangeably.

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758
Corresponding author
Radiah Othman can be contacted at: r.othman@massey.ac.nz

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