Assessment of the Risks of Financial Crimes in Local Government

Introduction

Financial crimes in the municipality, like other corruption crimes, distort relations between individuals and reduce trust in local authorities, which are closer to the population and formally represent the government. Frauds by municipal officials affect the balance of economic competition and can also distort it. When the financial resources intended for the local community fall into the hands of fraudsters, it increases social inequality and injustice and degrades the ethical values of society.

There is much research on why companies or citizens pay bribes to public officials whose decisions affect their daily activities or lives. Therefore, there is a general recognition that corruption is a transaction between two actors: a civil servant from the state side and a citizen or company from the other side. However, according to Harch (1993), in some regions, corruption is associated with a wider range of criminal offences, such as theft, fraud, false accounting, embezzlement or embezzlement of state property.

On the other hand, it is recognized that financial crimes in the public sector can cost significantly more than other forms of corruption. And even academics are used to justify them. The movie “Inside Job” shows how intellectual academics provide an intellectual justification for financial problems (Gough, 2013). Fraud is said to be the second largest source of global money laundering (National Fraud Authority, 2011; The UK’s Fraud Prevention Community, 2020). Global events have confirmed that cases of fraud and theft in the public sector can destabilize the country's political system, affect the well-being of the local community, and can stop financial support for the development of poor countries. Even the Catholic Church has faced various financial crimes (West, Zech, 2007).

Fraud and employee theft in the private sector are classified as forms of organizational deviance (Hollinger, Clark, 1982; Gabor, 1994; Greenberg, 1997; Pinto et. al., 2008; Govender, 2012; Karstedt, 2015; Tomlinson, 2016; Beck, 2017; Bennett et. al., 2018; Watkins, 2021). The analysis of the literature on the topic of corruption showed the prevailing attitudes in the public sector. It is clear that financial crimes in the public sector are not considered corruption, based on the strict legal position in many domestic and international definitions of corruption (Galtung et. al., 2013; Dvorak, 2017). Generally, financial crimes are included in the broader concept of corruption (Andvig, Fjelstand, 2001). However, it is noted that a certain context must exist: embezzlement of money, property and other values, when these values are appropriated or taken by a person who does not own them, but has access to them.

Previous studies (Brito, Pimenta, 2015) found that when conducting research on the prevention of financial crimes, local self-government faces problems determining the circumstances that are usually characteristic of many crimes of a corrupt nature. Financial crimes (e.g. fraud) are often difficult to measure, so one can actually talk about the perception of financial crimes in municipalities. Also, in order to ensure effective prevention of corruption and financial crimes in municipalities, reliable statistical information is needed. It is clear that the municipal units responsible for prevention, without having such information, cannot know in which areas the greatest risk exists. According Burkšienė et. al. (2019), obtaining such data can be helped by m-government solutions in local government.

The aim of the study is to reveal the risks of financial crimes in local self-government; identify the main trends in the emergence of risks. Two research questions guided the curent research. How does the existing literature in the field of corruption (financial crime) prevention cover the aspect of local governments?; What are the risks of financial crimes, the factors influencing financial crimes in local government?