An Empirical Analysis on The Determinants of Fraud Cases in Turkey

In this paper, the perspectives of executive managers have been analyzed to evaluate the potential determinants of fraud cases in Turkey. The analysis integrates the theory of the fraud triangle, which states that corporate fraud is a function of incentives, opportunities and attitudes/rationalizations, and the corporate governance (CG) principles. Auditing regulation (AICPA, 1988, 1997, 2002) has outlined frequent fraud indicators and related risk factors. These indicators are also called “red flags” and correspond to possible signs within an organization’s business environment which indicate a higher risk of an intended misstatement of the financial statements. This paper tries to provide empirical evidence on the determinants of fraud cases in Turkey based on the executive managers’ current experiences and perspectives related to fraudulent cases they witnessed in business environment. The data is obtained from (146) executive managers from prominent companies in various sectors by interviewing with them to complete the questionnaires or online surveys. The data is analyzed by using Logit Models to assess the empirical findings. The logit model results of fraud survey in Turkey indicates that the probability of at least one fraud case occurring in a company is estimated as %2,4. The relation between the probability of fraud case occurring in a company and the existence of procedure and policy, the amount of fraud case, the revenue level, labor and being publicly traded is an inverse relationship, which means that if a company is having a policy and procedure, increasing revenue and labor size and also publicly traded then, the probability of having fraud case is % 2,4. In the contrary case, if these conditions are not existing for a company, then the probability of having a fraud case will be %97,6. The variables used in the fraud model are also good indicators of corporate governance for a company. In other words, if a company is having above mentioned conditions then the probability of having a fraud case will be less likely. The marginal effects of each explanatory variable are also estimated and the results are parallel to the relevant literature. Briefly, all variables contained in the model influence the probability of having a fraud case in Turkey, i.e. the degree of corporate governance implementation increase under these conditions. Finally based on these findings, some policy recommendations are presented as concluding remarks.