The Role of Morality in Preventing Accounting Fraud: A Study of LPD in Karangasem District

Abstract

This research explores how individual moral awareness influences efforts to reduce accounting irregularities within Village Credit Institutions (LPDs) in Karangasem District, Bali. Individual morality is conceptualized as an internal psychological factor that significantly contributes to reducing the likelihood of fraud by fostering integrity and ethical awareness in financial decision-making. The research population comprised 23 LPDs with 63 employees. Samples were selected using a purposive sampling technique, focusing on active LPDs whose administrators consisted of the Chairperson, Secretary, and Treasurer. Based on these criteria, 14 LPDs with 42 respondents were included in the final analysis. The empirical assessment employed descriptive analysis, classical assumption verification (including normality and multicollinearity checks), and simple linear regression to evaluate the proposed relationship. Findings indicate that individual morality contributes positively and significantly to reducing accounting fraud, with a regression coefficient of 0.374, a t-value of 3.810, and a p-value of 0.000, confirming the robustness of the effect. A greater sense of moral responsibility among LPD staff is therefore associated with a decline in manipulative accounting behaviors. The research findings are consistent with the Fraud Triangle (Cressey, 1953) and Fraud Hexagon (Vousinas, 2019) theories, in which individual morality plays a role in suppressing the rationalization element of fraudulent behavior. Furthermore, these results reinforce Kohlberg's (1981) theory of moral development, which places individuals with high morality in the post-conventional stage, acting based on universal ethical principles. This research emphasizes the importance of morality as a non-formal internal control mechanism in strengthening the integrity of community-based financial institutions.