Assessment of Microfinance Fraud Cases: A Philippines Study

Abstract

This research provides an in-depth overview of ASA Philippines' fraud cases. Researchers were able to better understand the factors that influence employees' inclinations to commit fraud, as well as investigate the numerous fraud patterns discovered and make recommendations to combat them. The study's findings provide researchers with better strategies and recommendations for preventing fraud in the future. This study was based on Donald Cressey's Fraud Triangle Theory (1953). This theory is composed of three components: opportunity, pressure, and rationalization. He claims that pressure from ravenous greed, bad habits, and delusions encourages management and employees to commit fraud. When the internal control system creates gaps that the perpetrators are aware of, fraud opportunities arise. Opportunities and motivation are inextricably linked.

Hospitalization of immediate family members, financial support for sibling's education, and participation in a Ponzi scheme are the most common situations that cause employees to become more financially stressed and eventually commit fraud. Peer pressure can lead to vices, gambling, and a desire for social acceptance. Work pressures encountered by employees include pressure to meet deadlines and pressure to maintain good standing performance. Excessive lifestyles include spending beyond means, and buying items considered wants rather than needs. Weak internal control can lead to fraud in any of the following circumstances: a) supervisors do not conduct monitoring visits; b) inability to identify weak and incapable staff on time; c) difficult geographical location and branch inaccessibility to communication; d) familiarity with colleagues resulting in closeness beyond professionalism, breaking off a chain of command and nepotism; and e) supervisors' reluctance to implement the cash management protocol.

Top management at MFIs should organize at least semi-annual fraud management training for employees, ensure that all newly hired staff understand fraud policies and procedures, and hold periodic workshops. This raises fraud awareness in institutions while also communicating staff responsibilities for fraud prevention and detection. Every employee must understand that internal measures at their level are their personal responsibility (Sama & Niba, 2016). The researchers also suggested that staff members and clients of microfinance institutions (MFIs) be exposed to a culture of openness and integrity, that clients be made aware of their rights, and that a complaint system be in place.

Keywords: Fraud, fraud triangle theory, microfinance institutions, financial pressure, peer pressure, excessive lifestyle, weak internal control