Financial Fraud in Indonesia: Whistleblowing System Falls Short Amidst Rising Incidence

Overview

A recent survey by Kroll/ACFE has revealed that 62% of financial fraud incidents in Indonesia were detected through whistleblowing systems, highlighting the effectiveness of these mechanisms. However, this figure also underscores the country’s over-reliance on reactive controls and its failure to implement more proactive measures.

The Role of Whistleblowing Systems

The Corruption Eradication Commission (KPK) has reported a conviction rate of almost 100% using sting operations that rely heavily on information provided by whistleblowers. While this is commendable, it raises questions about the many cases that go unreported and undetected.

Challenges in Reporting Fraud

Experts warn that Indonesia’s culture, which emphasizes harmony and seniority, can create an environment where employees are reluctant to report wrongdoing committed by their peers or superiors. This was reflected in the survey, which found that 83% of fraud perpetrators were employees.

The Limitations of Reactive Controls

The reliance on reactive controls such as whistleblowing systems also means that organizations may be vulnerable to fraud even after measures have been put in place. Data analytics (DA) has emerged as a promising tool in detecting financial fraud, but its effectiveness is dependent on the parameters loaded into the system and the organization’s understanding of its risks.

The Need for Proactive Detection Controls

Experts stress that more proactive detection controls are needed to prevent financial fraud in Indonesia. Joseph T. Wells, author of “Corporate Fraud Handbook: Prevention and Detection,” notes that employees who perceive they will be caught engaging in occupational fraud are less likely to commit it. Implementing effective fraud prevention measures can help deter potential fraudsters and create a culture where reporting wrongdoing is encouraged.

Recommendations for Improvement

To prevent financial fraud in Indonesia, organizations should:

• Implement proactive detection controls, such as data analytics
• Conduct regular fraud risk assessments to prioritize risks and focus on those that pose the greatest threat
• Create a culture of transparency and accountability, where employees feel comfortable reporting wrongdoing
• Provide training and resources to help employees understand their roles in preventing fraud

Accessing the Full Report

The full report of the Kroll/ACFE Indonesia Fraud Risk Survey is available for download, providing valuable insights into the prevalence and impact of financial fraud in the country.