How to break the fraud triangle in Malaysia’s public sector

Noor Adwa Sulaiman

Corruption cases involving senior public sector officials, including those linked to national defence institutions, have once again shaken public confidence in the integrity of Malaysia’s public governance.

While public debate often centres on individual wrongdoing, this focus is insufficient to address the problem in a meaningful and sustainable way.

A more compelling explanation lies in systemic and structural weaknesses that allow corruption to recur. In public governance and public sector accounting, corruption is fundamentally a form of fraud – involving the abuse of power, manipulation of processes, and diversion of public resources for personal or group gain.

Fraud triangle

Against this backdrop, the fraud triangle comprising pressure, opportunity and rationalisation offers a powerful framework for understanding why corruption persists in the public sector.

In the public sector, pressure does not necessarily arise from personal financial distress. It often takes the form of political expectations, organisational performance demands, and the urgency to deliver projects – particularly in strategic sectors such as defence.

Large budget allocations, national security considerations and compressed timelines can create environments in which speed and discretion are prioritised over diligence and control. While such pressures do not excuse misconduct, they help explain why ethical boundaries may be tested when institutional safeguards are weak.

Among the three elements of the fraud triangle, opportunity is the most decisive. Opportunities arise when internal controls are weak, oversight is fragmented, and accountability mechanisms are not effectively enforced.

Defence procurement, typically complex, high in value and protected by confidentiality, is especially vulnerable to these conditions. Weak segregation of duties, opaque supplier selection, inadequate contract monitoring and poor documentation create space for the abuse of power and process manipulation.

These vulnerabilities demonstrate that corruption is not merely an individual moral failure but a manifestation of governance and control failures.

The third element, rationalisation, allows misconduct to be internally justified. Corruption is often framed as a temporary act, a reward for service, or a necessary compromise in the interest of the organisation or the nation.

When audit findings are repeatedly raised without firm corrective action, such justifications become normalised. Over time, fraudulent behaviour becomes institutionalised, integrity culture erodes and public trust deteriorates.

Internal controls

Understanding corruption through the fraud triangle highlights the need for preventive and structural solutions.

Strengthening internal controls must be a priority. This includes tightening procurement processes, enforcing segregation of duties, clarifying approval hierarchies, mandating conflict-of-interest declarations and conducting rigorous supplier due diligence.

Integrating financial, procurement and asset management systems is also critical to enable effective oversight, particularly in high-risk institutions.

Audit follow-up

Equally important is audit follow-up. Audits lose their deterrent effect when identified weaknesses are left unresolved.

In recent years, Malaysia’s National Audit Department has placed increasing emphasis on follow-up audits to ensure that audit findings translate into corrective action rather than recurring annually in audit reports. [The Audit (Amendment) Act 2024 has now formally empowered the auditor general to conduct such follow-up audits, and the ‘auditor general dashboard’ provides a platform to monitor whether agencies act on recommendations.]

Structured, time-bound and transparent audit follow-up helps close the ‘opportunity’ element of the fraud triangle by ensuring that identified weaknesses do not become persistent leaks in the system.

Correcting weaknesses

Corruption in the public sector is not inevitable; it stems from system weaknesses that can be corrected. Three priorities are clear.

Policymakers must recognise corruption as a form of fraud that emerges when pressure, opportunity and rationalisation coexist – and that reforms fail when this interaction is ignored.

Internal controls must be strengthened comprehensively, especially in high-risk areas such as procurement, through enforced segregation of duties, transparent approvals and effective contract monitoring.

And auditing functions as a preventive mechanism only when supported by firm, accountable and time-bound audit follow-up.

Ultimately, public trust depends not on the number of regulations or audit reports produced, but on confidence that identified weaknesses are taken seriously and rectified without compromise.

Dr Noor Adwa Sulaiman is an associate professor at the Department of Accounting, University of Malaya.

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