This study aims to examine the effect of unethical behavior on financial management fraud in village governments, with internal control systems acting as a moderating variable. The research is motivated by the increasing number of corruption and fraud cases in village fund management across Indonesia, indicating weaknesses in governance, accountability, and supervision at the local level. The study employs the Fraud Hexagon Theory, which integrates six determinant factors—pressure, opportunity, rationalization, capability, arrogance, and collusion—to provide a more comprehensive understanding of unethical conduct and fraudulent behavior in public sector finance.

The research was conducted in two villages in Madiun Regency, East Java (Sukosari and Gemarang), selected due to documented irregularities in financial reporting and fund allocation. A total of 70 respondents involved in village financial management participated in the study. Data were collected through a structured Likert-scale questionnaire and analyzed using Moderated Regression Analysis (MRA) to test the causal relationships among variables.

The empirical results reveal that unethical behavior has a positive and significant effect on financial management fraud, confirming that unethical conduct among village officials increases the likelihood of fraudulent practices. Furthermore, the internal control system demonstrates a significant negative moderating effect, indicating that strong and effective internal controls can mitigate the influence of unethical behavior on fraud. These findings highlight the strategic importance of internal control mechanisms in strengthening accountability and reducing fraud risks within public financial management.

Theoretically, this research contributes to the enrichment of the Fraud Hexagon Theory by validating its applicability in the public sector context, particularly in rural financial governance. Practically, the study offers critical implications for policymakers, auditors, and local governments to enhance fraud prevention strategies through risk-based internal control, transparency enhancement, and participatory supervision. Strengthening internal control systems is essential to build ethical awareness and ensure that village financial management remains transparent, accountable, and free from corruption.