The nexus between fraud risk factors, Islamic corporate governance, and occupational fraud in the Islamic banking industry

Fraud poses a formidable challenge for businesses globally, highlighting the gravity of this issue (Othman et al., 2023; Kaab Omeir et al., 2023). Despite its importance, there has been limited research on occupational fraud (OF) in Malaysian Islamic banks, particularly in the context of integrating Islamic corporate governance (ICG) principles with the fraud diamond theory. This study aims to investigate the effect of the fraud diamond risk elements and ICG on fraud incidences in Malaysian Islamic banks. Data was collected using random sampling, involving 94 respondents, generating a 24 percent response rate. Descriptive, univariate, and multivariate analyses were performed to analyze the data. The findings indicate that opportunity (OP) and capability (CA) exhibited significant positive relationships with fraud in Malaysian Islamic banks. In contrast, pressure (PR), rationalization (RA), and ICG showed insignificant relationships with fraud. The results suggest that employees in Malaysian Islamic banks are more likely to engage in bank fraud if they see an OP and possess the necessary capabilities to commit fraud. This study provides valuable insights into potential fraud risk factors in Islamic banks in Malaysia, recommending that banking institutions focus on fraud risk management strategies that minimize opportunities and limit employees’ capabilities to commit bank fraud.