Understanding fraud risk: how legal ambiguity, work pressure, and rationality shape fraudulent behavior

Type of the article: Research Article AbstractFraud remains a serious challenge for organizations because it can damage integrity, financial stability, and public trust. One of the main difficulties in overcoming fraud is understanding the factors that influence the occurrence of such actions, both from the individual and institutional side. This study aims to analyze the influence of factors that trigger fraud, both directly and through mediation and moderation mechanisms with a focus on legal ambiguity, rationalization, opportunity, and capability. The study was conducted on 333 managers of microfinance institutions in Central Java, Indonesia. Data were analyzed using SEM-PLS to test the direct and indirect relationships between variables. The results showed that legal ambiguity, rationalization, and work pressure had an effect on fraud. Rationalization mediation significantly strengthened the relationship between legal ambiguity and fraud, while mediation through opportunity and work pressure did not show a significant effect. Besides, moderation of capability on the relationship between rationalization and fraud was also significant, indicating that individuals with high capabilities tend to strengthen rationalization in committing fraud. Conversely, moderation of capability on work pressure and opportunity did not show significant results. These findings provide theoretical contributions to the development of risk management and organizational behavior literature, and offer practical insights for managers and policy makers to reduce fraud risks through improving regulatory structures, enforcing strict rules, and strengthening ethical values within organizations. AcknowledgmentThanks are expressed to the Directorate General of Higher Education, Research and Technology, Ministry of Education, Culture, Research and Technology for supporting this research. Thanks also go to the Institute for Research and Community Service (LPPM) of Unisnu Jepara Indonesia.