Prévention Corruption Oman

Open Access | Original Research
International Journal of Social Sciences and V4 | I2 | 2022 | PP: 10-20

Economic Review | Online ISSN (2706-9346) https://doi.org/10.36923/ijsser.v4i2.159
Organizational Corruption Prevention, Internal Audit, and Sustainable

Corporate Governance: Evidence from Omani Public Listed
Companies
Ali Rehman1
1
Internal Audit Department, A’Sharqiyah University, Ibra, Oman
ABSTRACT
Keywords: Fraud risk Purpose of the study: The purpose of this study is to analyze the impact of fraud risk assessment (FRA) and
assessment, internal audit internal audit activity (IA) on sustainable corporate governance within Omani publicly listed companies in
activity, Sustainable the context of the Fraud triangle, Institutional theory, and Agency theory. This study also explores whether
Corporate governance,
or not IA plays a mediation role between FRA and SCG. For this study, FRA and IA is the independent
Oman.
variable, and SCG is the dependent variable. IA in this study is also presented as a mediator variable. FRA is
the internal control necessary to mitigate fraud risk, IA is the control activity available within the organization,
and SCG is the governance mechanism for the organization.
Methodology: Descriptive cross-sectional survey design is utilized. The web-based application collects data,
Received Date: and Partial Least Square – Structural Equation Modelling tool (PLS-SEM) is applied for data analysis.
04-06-2022 Main Findings: The result implies that IA has a significant direct relationship with SCG and mediates the
relationship between FRA and SCG; however, FRA does not have a significant relationship with SCG.
Accepted Date: Research limitations/ implications: This study is conducted in the Omani market and only for publicly listed
06-04-2022 companies. Future research can be extended to other Gulf countries and utilise private companies' data. This
study is helpful for the regulators and policymakers who can amend the codes and policies and develop related
Publication Date: frameworks.
30-06-2022 Novelty/ Originality of this study: To the best of the researcher's knowledge, only a few studies have been
conducted that link the FRA to IA and SCG. This research contributes to the existing body of knowledge. It
can be used to amend corporate governance codes and organisational governance policies by introducing SCG
clauses/regulations and requiring FRA in governance management policies.
1. INTRODUCTION
©2022 by author(s). This is Corporate governance was introduced to provide satisfaction to the shareholders and transparency in
an Open Access article the business operations (NicolasGarcia, BelenFernandez & Cuesta, 2016). Corporate governance is
distributed under the terms implemented via codes or laws defined by regulators or similar authorities. In the current business
of the Creative Commons environment, organizations cannot operate unless they provide compliance conformity with corporate
Attribution License 4.0 governance codes. However, despite the availability of codes, regulators, and compliance authorities,
International License.
organizations still encounter fraud much more intensely than before (Rehman & Hashim, 2019a). In
accordance with the study conducted by the Association of Certified Fraud Examiners (ACFE), it is
Please cite this article as:
Rehman, A. (2022). estimated that organizations lose five percent of their annual revenue to fraud every year, with an
Organizational Corruption average loss of USD 1.5 million per organization (Association of Certified Fraud Examiners, 2020).
Prevention, Internal Audit, For offering security to shareholders and preventing organizations from fraud, innovation is
and Sustainable Corporate
necessitated in the field of fraud detection and corporate governance. This innovation can be termed
Governance: Evidence from
Omani Public Listed fraud risk assessment (FRA) as compulsory control and achievement of sustainable corporate
Companies. International governance (SCG). The three main business sustainability and growth pillars are SCG, FRA, and
Journal of Social Sciences internal audit (IA) (Rehman, 2021). Furthermore, SCG is only possible in a fraud-free environment
and Economic Review, 4(2), (Lombardi, Trequattrini, Cuozzo, & Cano-Rubio, 2019). Similarly, FRA as control and IA as an
10-20. activity are best suited to eliminating and mitigating fraud (Mock, Srivastava & Wright, 2017; Yee,
doi.org/10.36923/ijsser.v4i
2.159
Sujan, James, & Leung, 2008; Vinita, Joe & Lee, 2008).
SCG is defined as a mechanism that aids in the development of a proactive board of directors (BOD),
Read online:
an efficient and effective audit committee (ARC), a fruitful remuneration committee (NRC), and
Scan this QR code with your thoughtful executive/senior management (EM) (Crifo, Escrig-Olmedo & Mottis, 2019). EM develops
smart phone or mobile device organisational policies, which are reviewed and approved by the ARC and NRC before being
to read online.
approved by the Board of Directors. Because the BOD, ARC, NRC, and EM are the main pillars of
corporate governance and should strive to achieve the highest governance standards, these policies
assist organisations in achieving SCG (International Federation of Accountants, 2016). In order to
achieve shareholder satisfaction, organizations need a fraud-free environment. The impact of fraud is
not restricted to shareholder confidence but also affects the company's reputation and all related
stakeholders (Enofe, Ekpulu, & Ajala, 2015). FRA is the cornerstone of corporate governance
(Singleton & Singleton, 2010); however, it is overlooked and not implemented by several
organizations. According to a survey conducted by Klynveld Peat Marwick Goerdeler (KPMG, a Big
1Corresponding Author: [email protected]
www.ijsser.com 10 | P a g e
4 audit firm), fraud losses are increasing faster than FRA investment, and most organisations do not perform FRA at all
(Klynveld Peat Marwick Goerdeler, 2019).
An activity that assists in achieving organizational goals and objectives can be known as internal audit activity (IA). IA evaluates
controls and governance processes to perform its tasks (Institute of Internal Auditors, 2020). Codes of corporate governance
include a requirement for embedding IA into organizational operations; moreover, IA is the sole independent internal
organizational assurance authority (Capital Market Authority, 2018). With its knowledge and skills, IA contributes extensively
to implementing the control, detecting the vulnerabilities in various systems, and identifying meaningful recommendations
(Eulerich, Kremin & Wood, 2019), which can ultimately lead to the attainment of the SCG. Publicly listed companies in Oman
entrust IA with additional authority and reporting responsibilities, which enhances IA's objectivity and independence. Quite a
few studies have been performed to investigate the role of IA in corporate governance; however, limited research proves a
negative or positive relationship between IA and SCG.
In a current corporate environment, SCG is necessary for business continuance and endurance (Jarmai, Tharani & Nwafor,
2020). As per the survey conducted by World Bank, 66% of organizations recognize that SCG is essential for their organizations;
conversely, only 22% believe that their BOD is offering importance and proper oversight for SCG (World Business Council for
Sustainable Development, 2020). Available corporate governance codes still fail to define the necessity of SCG; moreover, the
achievement of SCG is also not incorporated in the developed codes, including codes developed for Oman (Capital Market
Authority, 2018).
Regulatory and market failures contribute to the non-implementation of SCG. Commercial laws and regulations require the
BOD to act in the best interests of the whole company (Grove & Clouse, 2017); however, the BOD and the EM are more
concerned with short-term profit taking so they can please stockholders. Furthermore, the BOD and EM are paid based on short-
term profitability rather than long-term growth (Lombardi, et al., 2019). The cause of such failures in the market is likely to be
a lack of corporate governance (European Commission, 2020), which creates obstacles to achieving SCG.
Codes of corporate governance implemented in Oman do not describe or give details of those necessary elements required for
achieving SCG. Revised codes were issued in 2016 that do not find the conditions or necessary circumstances for business
continuity, business sustainability and controlling or eliminating fraud and fraud-related activities (Rehman & Hashim, 2019a).
Moreover, corporate governance in Oman is less effective than in more developed countries (Qurashi, 2017).
For the assurance of corporate governance, external auditors are required to provide their opinion to the shareholders; these
opinions, however, are geared more toward protecting the external auditors' reputation than providing satisfaction to the
shareholders. Many audit firms recently got fined for not performing their assurance work correctly, and their processes and
controls did not prevent the auditing failures (Bramwell, 2020; Bramwell, 2018; Observer, 2019). In Oman, it is a regular
practice for external auditors to provide their opinion on corporate governance by stating that they did not perform the procedures
in accordance with International Standards of Auditing (ISA) or International Standards on Review Engagement (ISRE)
(Klynveld Peat Marwick Goerdeler, 2020). Such sort of audit opinion cannot provide satisfaction to the shareholders or inform
whether SCG is achieved or not (Garrow et al., 2019).
The independent variable in this study is fraud risk assessment (FRA), the independent and mediating variable is internal audit
activity (IA), and the dependent variable is sustainable corporate governance (SCG) (SCG). When the fraud triangle theory is
applied, FRA can be considered an integral part of the governance management system, and it plays a critical role in eliminating
fraud and achieving SCG. This study will contribute to the existing body of knowledge by demonstrating that FRA can have an
impact on SCG, with IA acting as a middleman for Omani publicly traded companies. To the best of the researchers' knowledge,
no study has ever been conducted that demonstrates how FRA and IA impact sustainable corporate governance; additionally,
previous relevant studies have verified only one essential element for SCG, whereas this study identifies four essential elements.
This study could assist professional bodies, regulators, and organisations in revising corporate governance codes and
organisational policies to include SCG conditions and ensure that FRA is a core component of governance management control.
2. LITERATURE REVIEW
The following section covers the relevant literature for the FRA, IA, and SCG, in addition to a summary of Oman's publicly
listed companies. Additionally, all three variables will be discussed in this section, along with the corresponding theories.
2.1. Fraud Risk Assessment
The focus of risk assessment is to implement suitable risk responses for the organization with the objective to achieve maximum
sustainable value (Florea & Florea, 2016), which can eventually lead to the achievement of SCG. FRA enhances the
understanding of the potential risk factors that can affect organizational performance, simultaneously increases the possibility
of success, and condenses the probability of failure (Gullkvist & Jokipii, 2015; Mohd-Sanusi, Rameli, Omar& Ozawa, 2015).
For compliance with rules, regulations and shareholders' expectations, governance and organizational management is pursuing
to understand enterprise risk assessment which also includes FRA (Julien & Richards, 2008). In recent times much attention has
been provided to FRA in terms of standard and definition development; however, it is not well understood by EM and is not
implemented in many organizations.
Fraud is one of the significant bars for SCG. In the current business environment, almost all organizations are subject to fraud,
including the organizations in Oman. Organizations across the globe lose 5% of their revenue in fraud every year, with an
approximate median loss of USD 125,000 per case (Association of Certified Fraud Examiners, 2020). It is worth mentioning
that fraud is an intentional act (Varma & Khan, 2016), as a non-intentional act can be considered an error or mistake. It is
impossible to eliminate all frauds in all organizations (Karanja, 2018); however, implementing the FRA will maximize the
likelihood that fraud will be detected and prevented in a timely manner (Cotton, Johnigan & Givarz, 2016). FRA assists
organizations in controlling all three aspects of the Fraud Triangle theory, namely opportunities, pressure and rationalization
(Gullkvist & Jokipii, 2015).
FRA is required to be performed continuously to identify possible plans and events that need to be evaluated (Mansour, Ahmi
& Popoola, 2020), thus offering guidance for IA to perform procedures to verify the fraud control and its related implementation.
FRA provides complete support to SCG in the form of policies and s governance management, to words, national strategies that
that be impacted by fraud (Vona, 2011). However, to perform all these support services towards SCG, skills and knowledge of
IA are required (Morang & Sobel, 2017).
2.2. Internal Audit
As a function available within an organization, internal audit (IA) provides objective assurance to stakeholders about how
effectively organizational operations and governance are run (Florea & Florea, 2016). An IA is an essential component of any
successful organization (Capital Market Authority, 2018) and can also contribute to the achievement of the Strategy for Change
Goal (Cioban, 2016). Those involved in internal auditing are professionally governed by the Institute of Internal Auditors'
framework.
IA's three core functions are to provide objectivity, independence and assistance to organizations to governess processes and
improve risk. Auditors’ independence is needed for IA to be objective because it can improve IA's operations, reduce the
influence of EM (MacRae & Gils, 2010), and provide better governance and risk services, thus assisting in the achievement of
SCG.
In today's corporate environment, governance management expects more of IA, so IA must also transition from traditional
auditor to agile (Jr, 2015). The application of IA agility can improve efficiency, generate value-driven insights, and also create
risk agility. IA can assist FRA by checking the compliance of policies, identification of risk which is not covered and can also
implement Fraud Triangle theory by embedding opportunities, pressure and rationalization in their audit programs and
performing audit task for their identification or exposure (Said, Alam, Ramli & Rafidi, 2017).
IA is considered an important activity for corporate performance to enhance the quality of financial information and deliver
transparency to organizational financial statements (MacRae & Gils, 2010). In accordance with research conducted by Drogalas
et al., (2016), it was identified that IA has a positive association with corporate governance and enhances the quality of ARC,
which is the principal constituent of SCG. In a similar context and IA's ability to enhance quality for the constituents of
governance management, IA is capable enough to impact the SCG positively.
2.3. Sustainable Corporate Governance
Organizations and society both need sustainable corporate governance (SCG). It can improve/ augment the trust and confidence
of shareholders in an organization’s corporate leaders (Choi et al., 2020). In accordance with the corporate governance codes,
organisations' leaders include ARC, NRC, EM and BOD. Shareholders and societies are protected from fraud by regulations
and laws, and measures are taken to prevent these frauds from happening in the future. Recent corporate scandals such as 1
MBD fraud, NMC Health Care fraud, and the downfall of the Abraaj group (Burroughs & Khan, 2019; Parasie, 2020; Sharif,
2019) have fostered doubts regarding corporate organizational accountability and the corporate social responsibility. The only
solution to evade fraud and satisfy shareholders in the current corporate environment is through SCG (Grove & Clouse, 2017).
The European Union (EU) attaches great importance to establishing and implementing the SCG. EU states in their Inception
Impact Assessment report that "Sustainability should be further embedded into the corporate governance framework, as many
companies still focus too much on short-term financial performance compared to their long-term development and sustainability
aspects” (Commission, 2020). Following are the principles of SCG that can be surmised from the EU Inception Impact
assessment report:
a. Align long-term interests of EM, shareholders, stakeholders and society as a whole.”
b. Integrate stakeholder interests, sustainability risks, dependencies, opportunities and adverse impacts into strategies,
decisions and oversight.”
c. Create legal certainty enabling organizations to identify, assess and mitigate adverse impacts.”
d. Develop corporate governance arrangements regarding directors' remuneration and corporate bonus schemes.”
e. Empowering corporate directors to integrate broader interests into decisions and enhancing existing corporate governance
mechanisms.”
f. Implement Non-Financial Reporting Directive, which will assist organizations in disclosing information about their risks
and impacts.”
g. Implement SCG strategy through proper risk management and impact mitigation procedures.”
With SCG, organizations can better deal with social change, environmental changes, and sudden exogenous shocks that could
threaten their long-term survival. For the development and implementation of SCG, the major stakeholders (BOD, ARC, NRC,
and EM) are significant contributors. The following is an overview of these four constituents:
2.3.1. Board of Directors
The board of directors (BOD) can be defined as leaders of the organization who monitor the organization's business and control
its operations. BOD is responsible for ensuring that the organisation's success is aligned with long-term objectives and are
achieved. BOD also plays an essential role in scrutinizing/ monitoring and ascertaining corporate governance. In addition to
being an advocate for organizational sustainability and substantial commitment, the Board of Directors is also expected to
incorporate sustainability into the organization and its culture (Salvioni, Gennari, & Bosetti, 2016).
2.3.2. Audit and Risk Committee

The Audit and Risk Committee (ARC) is a mandatory feature of corporate governance, whose members are selected from the
Board of Directors. Oman's new regulations require that ARC members be independent, with IA reporting directly to ARC
(Capital Market Authority, 2018). ARC's success is directly related to its oversight responsibilities and relationships with other
constituents of the SCG, including the Board of Directors, NRC, Executive Committee, and external auditors. The nomination
and Remuneration Committee (NRC) is mandated for the EM's bonus, payments, remuneration, and other compensations. NRC
plays a vital role in diffusing agency conflicts and also provides satisfaction to shareholders (Dell'Atti, Intonti, & Iannuzzi, 2013;
Acharya & Volpin, 2010). The NRC helps firms achieve a higher level of performance and reduce the levels of failure.
2.3.3. Executive Management
Executive Management (EM) performs a vital role in corporate governance, as they are the implementers of the instructions
received in the form of goals, guidelines and policies from BOD (Capital Market Authority, 2018). As part of its role, EM is
responsible for monitoring, implementing and developing corporate strategies aimed at achieving sustainable organizational
goals. EM is a group of experts who are responsible for the performance of an organization and are primarily responsible for
achieving its goals, mission, and vision (Carcello, 2009).
2.4. Corporate Governance in Oman
Founded in 2002, the Omani codes of corporate governance underwent a second revision in 2016 (Capital Market Authority,
2018). Some more amendments have been introduced recently, which are aimed at improving control and transparency in the
performance of organizations. Although the developed codes do not define sustainability clauses, they only aim to comply with
certain procedures rather than making policy recommendations (Baatwah et al., 2015). The Sultanate of Oman has developed
sustainability goals for 2030, which include all the mandatory components, such as the centre for governance and sustainability
(Omanuna, 2015); however, the rules of corporate governance do not include sustainability clauses, and there is no mechanism
to identify sustainability in the corporate governance of an organization. Muscat Stock Market (MSM) had 115 companies listed
at the end of August 2020. MSM divides companies into three categories: (1) financial, (2) industrial, and (3) services. The
MSM requests that organisations comply with corporate governance codes and submit material information to the website.
2.5. Underlying Theories
Applicable theories associated with this study are the Fraud Triangle theory, Agency theory and Institutional theory. These
theories are explained below:
2.5.1. Fraud Triangle Theory
Fraud is the major barrier to the achievement of SCG, and the Fraud Triangle theory (FTT) establishes reasoning informing why
a fraudster commits a fraud (Torpey, Walden & Sherrod, 2011). FTT defines three dimensions, presented in Table 1, for any
fraud to occur.
TABLE 1
Fraud Triangle Dimensions
Dimension Description
Pressure Fraudsters' personal motivations or incentives.
Rationalization Fraud is “committed with an intention that the fraudster believes to be his/ her right and
is also in the best interest of the society.”
Opportunity The fraudster should be capable of committing fraud, i.e., being able to govern the
system or bypass internal controls.
Source: Association of Certified Fraud Examiners (2018)
FRA can provide a pressure assessment and the consequences it may have on an organization. IA can identify fraudsters through
its skills and knowledge via profiling or by observation and can mitigate the consequences of fraud. As part of the rationalization
process, FRA develops controls, assesses the level of risk, and considers the impact on the organization. The FRA, when properly
implemented, will show all areas in which fraud can take place, as well as its level of severity (Abdullahi & Mansor, 2015).
Opportunities are only available when internal controls are weak. With the assistance of IA and reinforcement of FRA, these
control lapses can be strengthened.
2.5.2. Agency Theory
Afza and Nazir (2014) explain agency theory as the process by which shareholders entrust certain experts with several
responsibilities in order to achieve organizational success while solving conflicts of interest. Corporate governance is
implemented by enlisted agents such as EM, IA, the BOD and related committees (Baatwah et al., 2015), which eventually leads
to the achievement of the SCG. According to the Agency Theory, the ultimate responsibility for corporate governance rests with
the agents who are hired by the principals. It is also the duty of organizational and governance management to ensure transparent
results and safeguard shareholder interests, and such a responsibility can be met only by achieving SCG and utilizing IA. In
addition, IA can contribute to the resolution and mitigation of agency conflicts and agency costs.
2.5.3. Institutional Theory
According to the Institutional Theory, organizations must conform to the demands of their institutional environment (Voet,
2020). Institutional environments shape organizations through intimidating and normative mechanisms. Due to fraud being the
main barrier to attaining SCG, institutions have created pressure to develop controls such as fraud risk assessment (FRA) and
establish assurance functions such as internal audit activity (IA). Additionally, this theory provides the standards for corporate
behaviour (Scott, 1987) as well as their attitude toward controlling the environment and controlling efforts. As defined by this
theory, managerial accountability is evaluated based on institutional effects as it considers the process by which rules, guidelines,
and policies are developed (Aguilera, 2005; Puffer & McCarthy, 2015). It is based on the institutional theory that the role of
governance management in preventing corporate corruption is directed toward creating SCG and satisfied shareholders
(Lombardi et al., 2019).
3. RESEARCH METHODOLOGY
Using IA as a mediator, this study aims to identify the relationship and impact of FRA and IA on SCG. An analysis of public
listed companies is conducted using a quantitative cross-sectional survey design. Previous studies have been used to develop
the questions, i.e. questions were adopted and adapted from past studies. Participants in this study were those who could answer
on behalf of the organization, such as the members of BOD and related committees and senior/ executive management, which
included the CEO, CFO, COO, and head of internal audit departments. This study uses a five-point Likert scale logic along with
multiple choice questions of 'yes' and 'no'. From strongly disagree to strongly agree, the Likert scale ranges from 1 to 5. There
are separate question sections for SCG, FRA, and IA. These sections outline the research's definition and purpose. The sample
size is determined by G*Power3, which suggests 74 organizations with an effect size of 0.15. The sample size of 74 organizations
is necessary for a power of 0.95 and for a significance level of 0.05; however, 115 companies have been contacted for the
purpose of this study.”
PLS-SEM was used to analyse the data. The data was gathered from the twenty-seven questions asked of respondents, three of
which were demographic questions. Respondents were asked to answer questions on an internet-based platform. The link was
shared via email, LinkedIn, and WhatsApp. The measurement model should be evaluated to determine "if the study meets the
requirements for further assessment of the structural model." According to Ramayah et al., (2016), the measurement model is
evaluated using PLS-SEM, and Table 2 shows the acceptable value of the measurement model."
TABLE 2
Acceptable Values for Model Evaluation- Measurement Model Analysis
Measurement/ Assessment Index Utilized in PLS-SEM Tolerable Values
Ensure validity for internal consistency Composite reliability (CR).” CR is greater than or equal to
0.70.”
Factor loading/ Indicator reliability Indicator Loading” Outer loadings are greater
than or equal to 0.5.”
Ensure validity of the convergent dimension Average Variance Extracted (AVE)” AVE is greater than or equal
to 0.5.”
Ensure validity of the discriminant dimension HTMT Criterion” HTMT should be less than
0.85.”
Sources: Henseler, Ringle and Sarstedt (2015) and Ramayah, Cheah, Chuah, Ting, and Mumtaz (2016).
Subsequent to the “measurement model assessment, the next step is to assess the structural model in PLS-SEM. Acceptable
values of assessment model measurement are presented in Table 3.
TABLE 3
Tolerable “Values for Model Evaluation- Structural Model Analysis.”
Assessment Name of Index Acceptable Values
“Collinearity” “Variance inflators factor (VIF)” VIF < 5”
“Path Coefficient” “Path Coefficient” t value>2.33 and p-value <0.05”
“R-square” “Coefficient of determination” 0.26- Substantial, 0.13- Moderate and 0.02- Weak.”
“f-square” “Effect size” Large 0.16-0.35, “Medium 0.03-0.15 and Small 0.02”
Sources: García-Carbonell, Martín-Alcázar and Sánchez-Gardey (2015) and Hair, Hult and Ringle (2017)
Testing of the path relationship on the research model and the rules described in Tables 2 and 3 are mandatory in order to
determine whether the relationship is statistically significant and also confirm the framework of the research study (Hair et al.,
2017).
4. RESULT
In this study, FRA and SCG are evaluated along with IA as a mediator. A questionnaire was distributed to all 115 companies
for this study, and those who were capable of responding were selected to participate as respondents. Compared to the suggested
sample size of 74 by G*Power, the responses were received from 80 companies, which represents 70% of the overall
organizations and goes beyond the sample size. A web-based tool is used to collect data, which is then analyzed utilizing PLS-
SEM.
4.1. Demographic Profile of Respondents
According to the survey, most respondents are male, come from the industrial sector, and are in executive/senior management
roles. An excellent mix of responses was received, and the demographic breakdown is presented in Table 4.
TABLE 4
Demographic Profile
Question Response Percentage
Gender “Male” “96%”

“Female” “4%”
Sector “Financial” “29%”
“Industrial” “43%”
“Services” “28%”
Position in organization “Board of Directors” “21%”
“Audit and Risk Committee member” “16%”
“Nomination and Remuneration Committee member” “4%”
“Executive/ Senior Management” “31%”
“Chief/ Head of Internal Audit/ Risk Officer” “28%”
Sources: Calculate by the author
4.2. Assessment of Measurement Model
Measurement model assessment is performed as per the tolerable values defined in Table 2 and are presented in Table 5 and
Figure 1.
TABLE 5
Measurement Model Assessment
Indicator Loading
Indicators Range Composite Reliability Average Variance Extracted
FRA1 to 5 0.6 to 0.83 0.829 0.501
IA1to 6 0.675 to 0.867 0.917 0.651
SCG1 to 13 0.591 to 0.769 0.914 0.500
Figure 1: Value of Outer-loading and R2
It appears that all the parameters are following the measurement model. Indicator reliability is above 0.5 for all indicators. As a
result, the CR and AVE for FRA are 0.829 and 0.501, respectively, for IA, they are 0.917 and 0.651, and for SCG, they are
0.914 and 0.5. In Table 6, the HTMT values are below 0.85, which is within the threshold, demonstrating its discriminant
validity.
TABLE 6
Heterotrait-monotrait (HTMT) Ratio
Variable FRA IA SCG
FRA
IA 0.548
SCG 0.371 0.651
4.3. Assessment of Structural Model

After the measurement model has been assessed, the structural model can be evaluated according to the rules in Table 3. The
results are shown in Figure 1 and Table 7. VIF values are below 5, indicating that there is no issue of collinearity. R2 values are
above 0.26 and are considered as strong. Effect size values of the f2 are small for FRA → SCG; however, f2 for FRA →IA and
IA →SCG are large as values are above 0.35.
4.4. Significance of the direct effect
The researcher used PLS-SEM for bootstrapping 80 samples with 5000 sub-samples in order to assess the significance of the
direct effect. The path coefficient is used to determine the significance level of direct effects. In Figure 2 and Table 7, we display
the significance of direct effect – path coefficients.
TABLE 7
Significance of Direct Effect - Path Coefficient
Standard
Variable Path Beta Deviation T Statistics P values R2 f2 Decision
FRA → IA 0.556 0.084 6.634 0.00 0.309 0.447 Supported
FRA → SCG 0.071 0.107 0.661 0.254 0.006 Not Supported
IA → SCG 0.628 0.103 6.113 0.00 0.449 0.495 Supported
The beta value for all the relationships is positive, showing a direct relationship. Nevertheless, the relationship between FRA
and SCG cannot be regarded as significant, as the t-value is lower than 2.33 and the p-value is higher than 0.05. Furthermore,
the effect size of 0.006 suggests a relationship is not significant. A significant relationship exists between FRA and IA, as t
values are greater than 2.33 and p values are less than 0.05.
Figure 2: Direct Effect - Path Coefficient and t-values

4.5. Assessment of Mediating Variable
Bootstrapping is performed with a two-tail test with 5000 sub-samples and a significance level of 0.05 (Hair et al., 2017;
Ramayah et al., 2016). Mediation occurs when the indirect relationship between independent and dependent variables is
statistically significant. Table 8 demonstrates the indirect significance:
TABLE 8
Testing on Mediation
Standard Decision Supported
Relation Beta Deviation T Statistics P values
FRA→ IA→SCG 0.349 0.079 4.395** 0.00 Yes
It is evident from Table 7 that FRA is not having a significant impact over SCG; however, Table 8 defines that IA mediates the
relationship between FRA and CGM as the T-value is greater than 2.33 and the p-value is lower than 0.05. IA, as an activity
and part of Agency theory, explains the relationship between control, which is FRA and system, which is SCG.
5. DISCUSSION
This study added to the existing body of knowledge by providing a framework for the SCG and its impact on fraud. This study
establishes that FRA has no significant influence over SCG because control can be changed and violated by EM. However, with
the assistance of IA, fraud can be controlled and SCG achieved. It is worth noting that previous studies only verified the impact
of one factor/ constituent of SCG, and the impact was verified with either control or assurance activity; however, this study
verified all four constituents of SCG, and the impact of FRA and IA was verified simultaneously. There are a few studies whose
findings can be linked to the current study and compared. This finding is consistent with the findings of Boros and Fogarassy
(2019) and Drogalas, Arampatzis, and Anagnostopoulou (2016), who found that risk controls, or FRA, have a positive
relationship with risk mitigating activity, or IA, and that IA has a strong positive relationship with corporate governance. FRA
is a policy which is amended over time, and usually, fraud occurs when these policies are not complied with. IA verifies the
compliance with policies, and for this reason, there is a significant direct relationship between FRA and IA. Moreover, and in
accordance with Fraud Triangle theory, pressure, incentive and motive are required to be monitored by activity available within
the organization, i.e. IA. This result is consistent with the study conducted by Boros and Fogarassy (2019), where it is stated
that risk controls which are FRA has a positive association with mitigating risk activity, which is IA.
IA, as an activity and part of the governance codes, contributes significantly to the achievement of SCG. IA is the agent of
agency theory, providing shareholders with much-needed security and satisfaction. IA performs and executes a task that is
directly related to organisational strategies and thus significantly aids in the achievement of SCG. The findings of this study are
consistent with those of Drogalas et al., (2016), who found that IA has a strong positive association with corporate governance.
As previously stated, FRA is a control, and there are numerous opportunities for management to override the controls;
additionally, controls change over time, and they can never remain constant. Institutional theory requires that rules, regulations,
and controls be updated in order to meet organisational needs, but there is a possibility that FRA controls are not amended or
updated, resulting in a direct but insignificant relationship with SCG. The mediation results are consistent with the findings of
Mohd-Sanusi, Rameli, Omar, and Ozawa (2015), who found that fraud control programmes have no significant impact on
corporate governance due to constant changes in the regulatory environment, non-updating of policy, and management
overriding of controls.
6. LIMITATION, AND FUTURE RESEARCH OF THE STUDY
This study is only for the Sultanate of Oman, but future studies for other Gulf countries are possible. Another limitation of this
study is that it only includes publicly traded companies, whereas future research could include private companies as well.
Furthermore, this study used responses from governance management, whereas future research can consider organisational
management perspectives.
7. CONCLUSION
This study makes significant contributions to sustainable governance systems in addition to providing practical application to
companies not only in Oman but globally. SCG compliance is required for publicly traded companies, and it is also an
international requirement. The conceptual framework developed in this study is supported by three major theories: Agency
theory, Fraud triangle theory, and Institutional theory. Agency theory supported the cause-and-effect relationship between IA
and SCG, while Fraud triangle theory supported the influence of FRA on SCG. The SCG is explained by institutional theory,
which determines that the SCG is dependent on many factors and can be achieved by FRA and IA. Similarly, this study is
expected to make a significant contribution to a better understanding of IA in the context of SCG. Companies will benefit from
the study's findings and conclusions because they will be able to update their codes to include SCG principles; additionally, this
study will assist organisations in identifying and closing activity and strategic gaps. All aspects of sustainability goals should be
integrated into organisational corporate governance in order to achieve total sustainability. FRA-provided controls, which are
monitored by IA, help to prevent fraud by detecting potential threats, implementing controls, and developing mitigating policies.
Fraud is a high-risk possibility that can only be mitigated and regulated by the FRA and IA. Furthermore, it is the SCG that may
help organisations achieve sustainable operations and businesses reach their full potential by providing benefits not only to
themselves or their shareholders, but to society as a whole.
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Author’s BioData: Ali Rehman, Ph.D. is the Director of Internal Audit at A'Sharqiyah University. His research interests include
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He holds a PhD in Risk and Corporate Governance from Universiti Sains Malaysia. He also holds the FCMA, CGMA, CIA, and
CRMA certifications.

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International Journal of Social Sciences and V4 | I2 | 2022 | PP: 10-20

Organizational Corruption Prevention, Internal Audit, and Sustainable

1Corresponding Author: [email protected]

2.3.2. Audit and Risk Committee

Question Response Percentage

Gender “Male” “96%”

Figure 1: Value of Outer-loading and R2

4.3. Assessment of Structural Model

Figure 2: Direct Effect - Path Coefficient and t-values

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