Fraud audit : In between secrecy and transparency Hendi Yogi Prabowo  ;   The director of the Centre for Forensic Accounting Studies of the Islamic University of Indonesia, Yogyakarta; He obtained his master’s and doctorate in forensic accounting from the University of Wollongong, Australia

JAKARTA POST,  08 Mei 2014

                                                

                                                                                         

                                                      

When it comes to corruption in Indonesia, there appears to be no shortage of high-ranking public officials who are named suspects in corruption cases by the Corruption Eradication Commission (KPK). The latest addition to the list is the former chief of the Supreme Audit Agency (BPK), Hadi Poernomo. Hadi was recently named a suspect ina corporate tax fraud case linked to one of the largest banks in Indonesia, Bank Central Asia (BCA). According to the KPK, Hadi is accused of falsely granting income tax leniency to the BCA during his tenure as the director general of taxation between 2002 and 2004. During his tenure as the BPK head, he oversaw a number of audits to assist the KPK in uncovering corrupt practices and individuals, including those tied to the Bank Century bailout and Hambalang sport complex cases. Now, the public is eager to know what the authorities will uncover in their investigation of this case. The KPK’s decision to name Hadi as a corruption suspect on his 67th birthday, which was also his first day of retirement, has sparked widespread debate. For example, some believe that such a decision is politically motivated in particular due to the fact that it was made during the election month. On the other hand, the KPK argued that it has sufficient evidence to name him a suspect and that it was an objective decision that was not made based on political motivation. At the center of public debate is whether or not Hadi’s decision to grant income tax leniency constituted a criminal offence. Generally, according to Indonesian taxation regulation, in the case when a bank has non–performing loan (NPL), it may apply for income tax leniency to the directorate general of taxation on the NPL amount provided that all the requirements (e.g. no family relationship with NPL debtors) as stipulated by the existing regulation are fulfilled. Such an application will then be reviewed by the directorate general of taxation to determine whether or not all the requirements have been met to receive tax concessions. In BCA’s case, after undergoing a review by the director of income tax for almost a year, it was then decided that BCA did not qualify for income tax concession. However, using his discretionary power as the director general of taxation, Hadi eventually nullified the decision and granted BCA a tax concession. The million dollar question is: What did Hadi do wrong to deserve being named a corruption suspect? Unfortunately, just as in many other countries, dealing with corruption cases related to discretionary power in Indonesia can be anything but easy. So far as theories and practices are concerned, discretionary power has been part of governance systems in countries all around the globe. Governance experts argue that a public official is said to have discretion when the effective limits on his or her power gives him freedom to make a decision among possible causes of action or inaction. In Hadi’s case, he used his discretionary power to grant tax leniency to BCA despite his subordinate’s previous decision to reject the application. Governance scholars are of the opinion that there are a number of reasons for a public official to be given discretionary power. For example, not all policies are translated into legislation and there are also cases where decision needs to be made in the absence of predefined technical rules. In reality, it is next to impossible to formulate regulations that can address every contingency or circumstance. Some regulations can be inflexible and thus discretionary power is used to fill the gap. As evidenced by the cases of abuse of discretionary power all around the globe, anti-fraud experts believe that just because a public official is given the power, it does not mean that he or she is free to do whatever he or she wants with it. When exercising this power, a public official must do so in accordance with the prudential principle so as to avoid causing losses to his or her country. In a fraud audit, determining the three fundamental stages of fraud (act, concealment and conversion) is essential in uncovering the alleged fraud scheme. When determining what the fraudulent act is, fraud auditors will often focus their analysis on the existing regulations to determine if the alleged offence actually breaks any part of them. On the other hand, in the case of alleged discretionary power abuse, auditors will also focus on whether or not the discretionary power is exercised in a prudential manner. In other words, a corrupt behavior is identified when evidences suggest that the authority has been abused. In the case of Hadi, he can be considered to have committed corrupt act if there are sufficient evidences to prove that, for example, instead of using his own judgment in the public interest, he pursued his own personal benefit at the expense of greater good. Nevertheless, this may raise an important issue related to the technical definition of “prudence” which may become a matter of personal interpretation and thus expert opinions are needed. As stated in the media, KPK appeared to be aware of the delicacy of the case and has been in consultation with a number of experts from various backgrounds before deciding to name BPK’s former top figure a corruption suspect. Although not directly part of the investigation process itself, society’s support is of importance in ensuring that the objectives of the process are met. Any major corruption case involving high-ranking public officials will always attract public attention. People will keep their eyes open for any new progress from the investigation and sometimes some parties will even demand KPK to reveal exactly what it has achieved in its investigation. Many people still do not fully understand that, unlike an ordinary financial audit, a fraud audit needs to maintain a degree of secrecy for the sake of its success. The public needs to understand that, for example, fraud auditors cannot be completely transparent to external parties due to various considerations (e.g. maintaining the “natural setting” of the audited parties). In more than a few corruption cases, for example, some parties even demand to know exactly how fraud auditors are doing their jobs. So far as theories and practices are concerned, there is no such thing as a successful fully transparent fraud audit. Public should give their trust to the anticorruption institution and let it carry on its duties without any prejudice. ●