Financial Fraud in Indonesia: A Growing Concern

Indonesia has been plagued by financial fraud cases in recent years, with companies and individuals manipulating financial statements to deceive investors and regulators. This growing concern has led researchers from the School of Accounting at State Polytechnic of Malang to investigate the extent of financial statement fraud in the country.

Senior Management Responsible for Most Fraudulent Activities

The study analyzed 93 listed companies that were subject to official investigation due to financial misstatement. The findings revealed that senior management was responsible for most fraudulent activities, with recording fictitious sales being the most common method.

Patterns of Financial Statement Fraud Under Different Regimes

The study found that each regime has a specific pattern of financial statement fraud. Under the old regime, companies would often engage in fraud to inflate their profits and assets, while under the new regime, the Financial Services Authority (OJK) has taken a more proactive approach to enforcement.

OJK’s Risk-Based Supervision Approach

The OJK has introduced risk-based supervision, which allows for more targeted inspections and penalties for companies that violate regulations. As a result, the number of financial statement fraud cases has decreased significantly since the introduction of the new regime.

Limitations of OJK’s Enforcement Approach

However, the study also found that the OJK’s approach to enforcement is often focused on punishing individuals rather than corporations as legal entities. This can lead to a lack of accountability and a failure to address the root causes of financial fraud.

Widespread Problem in Indonesia’s Capital Market

The researchers used content analysis to examine annual reports from listed companies and found that financial statement fraud was a widespread problem in Indonesia. The study concluded that financial statement fraud is a significant issue in Indonesia and requires more attention from regulators, investors, and other stakeholders.

Recommendations for Preventing Financial Statement Fraud

To address the growing concern of financial statement fraud in Indonesia, we recommend:

• Improving risk-based supervision by OJK to ensure targeted inspections and penalties
• Focusing on corporate accountability rather than individual punishment
• Increasing transparency and disclosure requirements for listed companies
• Enhancing investor education and awareness about financial statement fraud

Conclusion

Financial fraud is a serious issue in Indonesia, and regulators, investors, and other stakeholders must work together to prevent and detect fraudulent activities. The OJK’s approach to enforcement is a step in the right direction, but more needs to be done to address the root causes of financial statement fraud and ensure that companies are held accountable for their actions.