DETECTING FINANCIAL STATEMENT FRAUD USING FRAUD HEPTAGON THEORY IN MINING

Abstract

Financial statement fraud poses a serious challenge to capital markets, particularly within Indonesia’s mining industry, which is characterized by complex operations, large-scale investments, and volatile commodity prices. Although numerous fraud detection models have been introduced to identify fraudulent reporting, the application of the Fraud Heptagon Theory—which incorporates pressure, opportunity, rationalisation, competence, arrogance, culture, and religiosity—remains underexplored in the mining context. This study seeks to apply the framework by assessing the influence of these seven dimensions on fraudulent financial reporting among 24 mining firms listed on the Indonesia Stock Exchange between 2019 and 2023, employing the F-Score model to detect potential misreporting. Using a quantitative approach with purposive sampling and multiple regression analysis, the findings reveal that only opportunity significantly affects financial statement fraud, while the remaining six elements show no substantial impact. The model explains 26.1% of the variance in fraudulent activity, suggesting that external factors beyond the fraud heptagon may play a more dominant role in shaping fraudulent practices in the mining sector. Consequently, strengthening internal controls and corporate governance is essential to reducing opportunities for fraud within the industry.