Top PDF The Effect of Internal Control, Individual Morality and Ethical Value on Accounting Fraud Tendency

The subjects used in this research are the accounting employee of Start-Up Businesses operating in Jakarta, Indonesia, in which use a computerized accounting information system to operate, with the criteria as such: have at least ten accounting staffs and have been working with the computerized accounting system for minimum five years. Data collection in this study used a closed questionnaire; this is done to gather detailed answers with minimum time. The population used in this research is the Start-Up companies client of PT Metacific Consultant, Indonesia, as of 2015 to 2018 with a total of 282 companies. In this case, the target sampling for this study is based on each company's response, meaning one person will represent each company as a respondent. As formulated by the Slowin Formula, the minimum samples required for this research are 165 samples. One hundred eighty-eight (188) respondents participated in this study. This study uses snowball sampling, in this type of sampling, participants will be asked to identify or provide recommendations for other companies that, according to the criteria in the study. Snowball sampling is used besides random sampling in the case of the lack of respondents, with the hope that by getting recommendations, the proper amount of respondents to conduct this research can be achieved. The data analysis method used is the multiple linear regression, which is used to determine the effect of internal control, individual morality, and ethical value on accounting fraud tendency.

, 2013). Another theory used to answer the phenomenon of fraud is the theory of moral development developed by Kohlberg (1969) regarding the level of a person's moral based on the development of moral reasoning as expressed. There are six stages which are divided into three levels: pre-conventional, conventional and post-conventional. This theory holds that moral reasoning is the basis of ethical behavior. Management at the conventional stage begins to shape its management morality by making and maintaining rules, which in this research are the accounting rules that are continued to a high level of moral maturity, namely the post conventional stage. The accounting rules compliance is seen as the level of conformity of organizational asset management procedures, the implementation of accounting procedures, and the presentation of financial statements along with all supporting evidence, with the rules determined by the BPK and / or SAP (PP RI Number 24/2005). An agency or institution will commit fraud because it os not guided by the applicable accounting rules (Bartenputa, 2016). Parmini, et al. (2017); Rizky (2016); Shintadevi (2015); Thoyibatun (2012) found that adherence to accounting rules had a negative and significant effect on the trends in accounting fraud. The results of the research contradict the results by Widiutami et al. (2017) and Purnomo & Khafid (2017), while Arista et al. (2016) and Nurlaeliyah & Anisykurlillah (2017) showed that accounting fraud is not influenced by observance of accounting rules. Based on varied findings of previous research, it is possible that there are variables that affect the relationships of internal control system, fairness of distribution, and compliance with accounting rules for accounting fraud. This research uses unethical behavior as the mediating variable. Management at the post-conventional stage shows high level of moral maturity. Moral maturity is the basis and consideration in designing responses and attitudes towards the ethical issues. The

On the government section, the type of fraud that often occur is corruption. Corruption itself has many types such as state financial harm, abuse of authority, bribery, even giving false testimony. Fraud which happens in government circles are not without causes. According to Bologna (1993), there are four factors that drive a person misbehaves, namely: greed, opportunity, need and exposure. Some claimed that Greed and Need is a factor related to individuals while Opportunity and Exposure is a factor associated with the organization. Individual factors related to the behavior inherent in the individual itself and here we can associate with morality. Greed and Need can influence a person to do unethical and likely to violate the rules. Speaking associated moral, this can be attributed to research used by Kohlberg (1969) about the morality or, more specifically, about the intensity of morality. Moral intensity is closely related to actions concerning ethical individual. The morality intensity influence in recognizing the moral issues through the introduction of the individual against the consequences of his decision. To begin the process of making moral decisions, one must be able to recognize a moral issue. Moral issue arises when a person’s actions can harm or benefit others.Along with the Greed and Need factor, there are also Exposure and Opportunity factor which often called organizational-related factor. Exposure and Opportunity have a really close relationship with internal control. One cause their chance to do the accounting fraud is a lack of oversight and weak internal control organization.

1) Hypothesis testing influences individual characteristics on fraudulent Village Fund Management accounting. Based on the results of the t-test, the value of the individual characteristic variable t is 6.930 with a significance value of 0.000 <α (0.05). H0 is rejected. This means that the individual characteristic variables have a significant effect on the fraudulent variable of Village Fund Management accounting in the village administration of West Denpasar District. This means that the higher the moral level of a person or individual, the higher the person's desire to do the right thing in carrying out their duties and authority, the better the quality of the accountability report for fund management, because the possibility of accounting fraud is very small. This finding supports the results of previous research conducted by Zuliarti, 2012, which states that if the ability of financial management employees is good, then the output or results in the form of financial statements will be better. The results of this study also confirm attribution theory which states that fraud occurs because it is influenced by individual characters. Division of tasks should consider individual character, age, and ability. Whereas according to the Fraud Triangle Theory of fraud occurs due to individual personal integrity. Integrity gaps and unharmonious relationships between superiors and subordinates will trigger fraud.

In Kohlberg’s moral levels, obeying the existing rules to avoid certain penalties is included in the lower stages (the pre - conventional level). Individuals with low moral reasoning, when faced with the presence of internal controls, are less likely to commit accounting fraud because they fear their deeds will be detected by the organization’s internal controls, and they will receive legal sanctions. This is in accordance with the stage one model of Kohlberg's moral development. There is empirical evidence from Graham (1995) and Patterson (2001), as cited in Moroney and McDevitt (2008), who found that individuals with lower levels of moral reasoning are more regulatory and legal sanctions’ oriented. Based on this, the second and third hypotheses are: H 2 . In the absence of internal control elements,

Traditional cost model assumed that cost shows symmetric behavior regardless of increase and decrease in operating rate (Noreen 1991). However, an argument was proposed (Cooper and Kaplan 1998) that cost shows downward sticky behavior because it is more difficult to reduce cost when activity level is reduced than to increase cost when activity level is increased. Previous studies conducted at home and abroad including the study of Anderson et al. (2003) report downward sticky behavior of cost. Specifically, Anderson et al. (2003) verified that the change in cost differs when activity level of an enterprise increases and decreases, pointing out the agency problems such as pursuit of private benefit and utility by the entrepreneur as a cause of downward sticky behavior. In other words, since reducing size of the organization or dismissing an employee who shares the same interest brings damages the personal dignity of the entrepreneur, the entrepreneur has an incentive to not actively reduce surplus resources when sales volume decreases. Chen et al. (2012) also presented a view that empire-building tendency and perquisite consumption of entrepreneurs induce downward sticky behavior of cost. On one hand, subsequent studies verified diverse effects of corporate governance structure on downward stickiness of cost under the judgment that opportunistic incentives of an entrepreneur are limited by reduced agency cost in an enterprise with effective control structure because it has high efficiency of monitoring.

Generally, ethics theories can be divided into five categories. The first is eternal law, which is related very closely to religion. The golden rule, which is derived from the Christian theology that is ‘do unto others as you would have others do unto you’ is the main idea of the functionality of this theory. The next theory on ethics is classical teleological ethical theory, which is also known as utilitarianism. Utilitarianism is concerned with the consequences of actions, with the emphasis on the actions, rather than the intent of an individual’s actions. The gist of utilitarianism holds on the notion that, an action is right if it produces the greatest amount of good for the greatest number of people (Crane and Matten, 2007). The third theory on ethics is the classical deontological ethical theory, which is also known as universalism, a Greek word referring to duties or obligations of individuals. This approach is based on the idea that the moral worth of an action is dependent on the intentions of the person taking the action. The fourth and fifth theories are categorised as modern ethical systems and are based on values rather than principles. Distributive justice theory is based on the primacy of a single value, which is justice. The belief in the primacy of justice will lead us to make decisions and take actions that are expected to result in compensating benefits for all, especially to the least advantaged members of our society. Personal Liberty is also based on the primacy of a single value, which is liberty, and the belief in the primacy of liberty will lead us to make decisions and take actions that will result in greater happiness and increased benefits for all.

The fifth hypothesis in this study is that the internal control system moderates the regional size variables of the local government against the level of disclosure of local government financial statements. Based on the processed data from Table 4.8, the regional government variable size with a moderating variable (X1 * Z) obtained the value of prob. t count is 0.815. Because the value of tcount> 0.05 then there is no significant between independent variables by including moderation variables to the dependent variable. Or in other words, there is no significant effect between independent variables of regional government size by including moderation variable (X1 * Z) on the dependent variable level of disclosure of local government financial statements. Internal control includes the organizational plan and all coordination methods and measures adopted in a business or business to protect assets, check the accuracy and reliability of accounting data, encourage efficiency of activities and compliance with established managerial policies (Indra Bastian, 2007). One function of internal control is protecting assets. In this study the size of local government is measured by the total assets of local governments. This means that good internal control will be able to protect the assets of local governments and disclose them in their financial statements.

the term "lean accounting" is the general term used for the changes required in the unit Circuit operations support lean manufacturing and slim thinking, as most units are transformed Accounting, control and measurement To fitness quickly find significant changes in management methods because they are at odds with the methods of fitness that they do Units, due to the fact that those units have been designed with traditional accounting systems in line with the wide production or Massive, while graceful practices break these rules and are on the opposite side of mass production but production According to the demand or so-called withdrawal system, and therefore the traditional accounting systems in the "best case" is not appropriate with And may be highly hostile to the agile changes of the economic unit. [8]

Capital spending as a form of government investment to increase the regional and property assets can be used as a tool of improving reception areas, especially the original Income area (Rahmadi&Safri, 2014). However, there are still problems in management. The body of the Financial Examiner (CPC) discovered the existence of irregularities in the realization of the capital expenditures for public facilities which resulted in losses to the State valued at Rp 817.47 billion from 1,453 cases. (Source: https://bisnis.tempo.co/). Then Indonesia Forum for transparency of budget stated that local governments still not because manage budgets capital expenditures for public facilities, resulting in financial losses in the region of Rp 4 726 billion (source: https://nasional.kompas.com/).The rise of such cases caused by weak internal control systems. MR. RI find 15,568 problems, among them, as much as a debilitation 7,661 SPI (source: CPC News-RI October edition of 2016).

Soon, the inevitable started to happen and the Raptors were in danger of going belly-up. This happened as a result of a major decrease in Enron’s stock price. Another reason was, “they had already paid out more than $160 million to Mr. Fastow's LJM partnerships, whose investors included Merrill Lynch, J. P. Morgan Chase, Citigroup, the MacArthur Foundation and the Arkansas Teacher Retirement System” (Eichenwald et al, 2002). It was going to take some serious strategizing and unwavering efforts to get the Raptors back up to where they needed to be. Miraculously, at the end of Enron’s reporting period, employees of the company somehow made this happen and the Raptors passed the essential accounting tests. This meant that Enron did not need to report any losses for this particular period. Skilling was exceptionally pleased about this. In their article “Enron Buffed Image to a Shine Even as It Rotted from Within,” Eichenwald and Henriques claim that, according to senior employees at Enron, Skilling was “intensely interested” in fixing the Raptors’ problems and made it “one of the company’s highest priorities” (2002). The accountants at Enron fixed the Raptors for the time being.

While there are common attributes of a fraudster, the situational aspect of fraud is also important. Donald Cressy researched fraud to hypothesize “Trusted persons become trust violators when they conceive of themselves as having a financial problem which is nonshareable and are aware this problem can be secretly resolved by violation of the position of financial trust…” (Wells 13). This conclusion has led to the concept of the fraud triangle: motivation, opportunity, and rationalization (see graphic). Motivation is the perceived nonsharable financial need or “driving force” behind the act (Biegelman and Bartow 33). It is usually caused by greed as described by “living beyond one’s means”, addiction, family circumstances, or the pressure to pay debts. (33). At times, revenge, ego, or the pressure to perform can play an alternative role instead of greed (33). The second factor is opportunity, which is determined by position of authority and access to resources (34). Fraudsters must have the opportunity to commit fraud as a result of weak internal controls, lack of supervision, and/or poor ethical culture (Dorminey et al.). This is the only element that can be prevented if companies are proactive in their risk management, internal controls, and fraud prevention programs (Biegelman and Bartow 35). Rationalization justifies the fraudulent activity by cognitive reasoning like “I was only borrowing the money; This is not much money so the company won’t miss it; I’ll stop once I get over this financial hump; The company owes it to me, etc” (35). When fraudsters justify embezzling money by persuading themselves they will pay it back, this payback usually does not occur (Dorminey et al.). Fraudsters rationalize the fraud in order to consider their action acceptable.

2) provide the USD with an efficient and effective means to administer activity funds. Many USDs will find that these guidelines constitute minimum controls they want to adopt. To adopt anything less would likely increase the risk of misuse or fraud. Therefore, before discounting any of these suggested policies and procedures, you should consult your auditor. Your auditor cannot only explain the importance of these internal controls, but can also assist you in implementing them.

According to Association of Certified Fraud Examiners (ACFE) (2009), there are three kinds of fraud, namely misuse of assets, fraud in financial statements, and corruption. Indonesia is a country with the highest corruption level in the world. In 2014, Transparency International reported that In- donesia ranked 107 of the 183 countries with the highest corruption index. The higher the rank of corruption, the more corruption occurred in the country. Corruption in the government sector has become the public concern for years. According to Johnson (2014), the government, both central and local, tends to be apt to commit fraud because of their environment and the way they perform their duties. The survey report by the ACFE (2014) showed that, in the United States, the fraud com- mitted by the government employees is the second largest sector below the fraud committed by corpo- rate executives. In Indonesia, the report of Indone- sian Corruption Watch (ICW) states that in 2014 there were 43 Regional Heads who were entangled corruption issues. Based on the Central Statistics Agency (BPS), in 2013, the corruption index in- creased while the anti-corruption index declined. In the first quarter of 2014, the Supreme Audit Board (BPK) found 670 finding objects in the government sector. There were about 14,854 non-compliance cases amounting to IRD 30.87 trillion in 2014. The number of corruption cases in the government sec- tor encouraged a public demand for the increased government financial accountability. Strengthening supervisory sector, both internally and externally, is a response to the public demand.

First, Law No. (4) of 2018, replaces Law No 8 of 2010, regarding the establishment of the Financial Audit Authority (FAA). This law clarifies that the Financial Audit Authority (FAA) is tasked with controlling public funds, and its spending and management. The Authority also seeks to ensure that departments under the purview of this Law spend public funds efficiently and effectively. The Authority is also tasked with making sure that administrative decisions and processes conform to Dubai’s regulations and its high standards of transparency and integrity. The Authority is also responsible for investigating any financial or administrative irregularities discovered by the FAA or entities under its control, identifying the reasons behind it and taking appropriate actions. It is also tasked with ensuring that entities under the FAA’s control comply with regulations and policies; verifying the calculation and collection of public revenues and financial returns from the provision of services; ensuring that banks operating in Dubai adhere to regulations; and making sure that fees, prices, taxes, sales revenues, profits, etc. are correctly calculated as per the provisions of the regulation.

Clavel, Martinez & Ortiz (2003) [33] found that there are differences between net income and shareholders’ funds preparation according to domestic GAAP and US GAAPs. Also, it was identified differently in the indus- try itself. All these options are only a matter of simple ideas when IAS (International Accounting Standards) needs to be handling for proper financial statement preparations. Bierstaker (2003) [34] conducted an experi- ment on the auditors based on their training sessions and found that there are differences in the results. Auditors with lower levels of internal controls are experienced in part-list interferences, however internal control evalua- tion of auditors are not affected by the flowcharts due to their high levels of internal control knowledge. It is be- cause the flowcharts are the guidelines for their auditing processes to the ends results. In the case of accounting procedures, auditors’ recalls were found significant as it was not that important for them.

kan lingkungan pengendali yang digunakan untuk meningkatkan efektifitas sistem pengendalian internal. Obyek penelitian ini ada- lah BMT Anda. Metode penelitian menggunakan metode kualitat- if. Data dikumpulkan dengan metode wawancara dan pengamatan di lapangan selama 4 bulan. Narasumber penelitian adalah mana- jer, dan 20 karyawan. Hasil penelitian menunjukkan bahwa mana- jemen memiliki komitmen bahwa etika karyawan merupakan ele- men kunci untuk menghindari kecurangan. Upaya untuk menjaga etika karyawan, manajemen mewajibkan karyawan untuk melak- sanakan salat berjamaah (Dhuhur dan Asar), mengikuti kegiatan pengajian seminggu sekali, dan menargetkan semua karyawan untuk membaca Alquran setidaknya satu hari satu juz (One Day One Juz - ODOJ). Pelaksanaan kegiatan keagamaan Islam harus diterapkan pada lembaga keuangan syariah dalam upaya mening- katkan etika karyawan, selanjutnya akan mengurangi potensi kecurangan. Hal ini dikarenakan karyawan yang melaksanakan kegiatan keagamaan secara benar bisa mengurangi potensi kecu- rangan.

The information which are created and documented by computerized AISs will be used by interested users in different locations. According to Moscove & Simkin (1984) in their definition for AISs insisted that AIS communicates financial information to both company‟s external and internal parties. In this situation, IT will be very helpful in transmitting accounting data and information to various locations, because, data communication which refers to transmitting data to and from remote locations, enable AISs to transmit accounting data over local and wide area networks. Many accounting applications use data communications in normal business operations. For example, banking systems enable individual offices to transmit deposit and withdrawal information to centralized computer locations. Therefore, accountants must understand data communication concepts because so many AISs use them and also because so many clients acquire AISs that depend on data transmissions. Many AISs now use LANs or WANs for e-mail, sharing computer resources, saving software costs, gathering input data, or distributing outputs. Wi-Fi technology 17 of the future will significantly increase the ability of accountants to be mobile, yet connected to their offices as well as to their clients (Malik, 2003).

Economic theory on fraud dates back to when white collar frauds by Chief Executive Officers (CEOs) against the organization were becoming rampant. This theory started with Akerlof (1970)’s study with the belief that this is an inefficient contract that is manifested in the market for lemons. One of the notorious white collar crimes is the employee fraud in the organization with intent to enrich and at most and exits the organization as quickly as possible when the fraud has been successfully executed. Committee of Sponsoring Organization of the Treadway Commission (2010) reports large sums of money being lost regularly by public firms and more commonly among the medium or lower size firms, where more than 26% of assets were lost. The make-up of the management seems not significantly different from non-fraud prone firms. Black (2005) had earlier termed the phenomenon as control fraud. There are different variants of control frauds: Accounting fraud, looting and crass kleptomania. This theory, traced from the efficient market hypothesis proves that the awareness by the executives of deposit insurance and other palliatives that provide succour to creditors incentivise the looting spree by the CEOs. The special case of the Savings and Loans in the United States of the 1990s is likened to two other scenarios during which noticeable losses to the financial system of Chile and United States occurred which were subsequently transferred to the deposit insurers. Wood (2003) held to the belief that the deposit insurance provided impetus for looting in over 3000 savings and loans firms in those years. Chakrabarty (2013) defines fraud as any behavior by which one person intends to obtain a dishonest advantage over another where the person makes an illicit gain while the other party incurs a

The results of testing the hypothesis shows the influence of information technology (ti) on the prevention of fraud (pf) is 0.370 and the p value <0.001 is less than 0.05. So that information technology influences fraud prevention. Information technology is important in fraud prevention. Through reliable information technology, company management will be able to take strategic decisions for the future of the company, especially to avoid fraud. This is consistent with the opinion of Devaraj and Kholi (2003) that information technology has a significant role for the future of the company. Furthermore, Wilkinson and Cerullo (1997) stated that good information technology will provide accurate information and this can minimize fraud. In line with Elder et al (2013) states that sophisticated information technology in entities is able to assist management in segregating employee duties so that opportunities for asset misappropriation can be minimized. Advanced information technology can be realized by management with the use of accounting applications that are able to assist entities in business management. One example is e-procurement, an information technology system used to procure goods. So far this system is considered the best to minimize fraud in the procurement of goods (Oktaviani, 2017). In addition, according to Olasanmi (2013) stated that the use of CAATs or e-audit systems is able to overcome fraud risk and this is believed to be able to detect the possibility of fraud that will occur.