From Fraud Risk Governance to Rural Bank Failure: A Systematic Literature Review and Integrative Research Framework

Abstract

Fraud risk and governance weaknesses are important concerns for banking stability, yet research on banking fraud, corporate governance, internal control, and bank failure often examines these issues separately. This systematic literature review synthesizes research on fraud risk governance and bank failure, with particular attention to the implications of international evidence for Indonesia’s Bank Perekonomian Rakyat (BPRs). It addresses five research questions concerning governance mechanisms, the relationships between governance weaknesses and fraud-related risks, pathways linking fraud and financial misreporting to financial distress or bank failure, factors influencing governance effectiveness, and gaps for future research. Using Scopus as the primary database and PRISMA 2020 as the reporting framework, the review employed four complementary search queries to identify 14 candidate studies for further assessment and synthesis. The synthesis distinguishes empirical findings from conceptual arguments and contextual observations, while treating documented fraud, suspected irregularities, financial distress, and formal bank failure as distinct phenomena. Based on the candidate literature, the review proposes a provisional integrative framework linking fraud risk governance mechanisms, fraud exposure, financial vulnerability, institutional outcomes, and contextual conditions. The framework provides a foundation for future empirical research and informs discussions of governance and early-warning mechanisms in Indonesian BPRs. However, the available evidence does not establish fraud as either a necessary or sufficient cause of bank failure, and the framework requires further empirical validation.