Believe half of what you see and none of what you hear Hendi Yogi Prabowo  ;   The director of the Center for Forensic Accounting Studies and the Center for Accounting Development at the Islamic University of Indonesia, Yogyakarta; He obtained his Masters and PhD in forensic accounting from the University of Wollongong, Australia

JAKARTA POST, 20 Januari 2015

                                                                                                                       

The year 2015 has just started. And yet, when it comes to corruption eradication, there seems to be no shortage of surprises. Earlier this month, the Corruption Eradication Commission (KPK) made a bold move by naming President Joko “Jokowi” Widodo’s sole candidate for the chief of the National Police, Comr. Gen. Budi Gunawan, a corruption suspect. This decision was made just one day before his scheduled confirmation hearing by the House of Representatives. Many politicians argued that the decision was a politically motivated one. The politicians also argued that the KPK decision was a direct insult to the President. However, as seen from media coverage and the public perception, people often have misconceptions about the true nature of fraud and corruption. First of all, when it comes to fraud investigation, the only certain thing is the uncertainty itself. That is to say that it is generally difficult for fraud investigators to accurately set the time frame of their investigations in advance. Many things could happen during the course of an investigation including the discovery of new evidence and the identification of new suspects. Many experts and observers commented in the media that the KPK could have picked a better time to name the chief-of-police candidate a corruption suspect. In a fraud investigation, due to its adversarial environment (where many people want to stop you from doing what you do), naming someone a suspect as soon as sufficient evidence is gathered is often a necessary means to ensure the effectiveness of the entire process. However, due to the uncertainty of the adversarial environment where the investigation is conducted, it will often be difficult, if not impossible, to accurately determine in advance the completion time of the evidence-gathering process. This also means that at the beginning of an investigation, given the available potential suspects, investigators generally cannot be sure when they can officially declare who the suspects are. Being accused of making a politically motivated decision is simply part of the occupational hazards of fraud investigators. The KPK deciding not to name a person a suspect even though the evidence against him or her is sufficient just because he or she is about to be appointed to a high position in the government would also be considered as making a politically motivated decision (i.e. to support a person’s rise to power). When the KPK named Budi a corruption suspect, many believed that the commission got the wrong guy mainly because there have never been any prior (visible) indications that he was involved in corrupt acts. Many have challenged the KPK to reveal the evidence based on which its accusation was made. As stated in the media, the KPK argued that the preliminary assessment of Budi’s suspicious transactions was started in 2010 after receiving reports from the public before launching a full scale investigation in mid-2014. The fact that such an investigation has never gained extensive media coverage suggests that the commission may have kept the investigation under wraps presumably to minimize resistance and disruption. In the risky and uncertain world of fraud investigation, secrecy is the key to a successful investigation. This generally becomes more challenging when the investigation is conducted within public institutions, as many parties (especially those affiliated with the investigated persons) will demand the process be fully transparent. When responding to this demand, an anti-corruption agency such as the KPK should find the right balance between secrecy and transparency. The commission needs to be cautious when making public statements about the progress of an investigation as the investigated parties will be eager to know how much the commission knows about their misconduct to devise counter-measures to hinder the investigation. The public needs to see and respond to the recent events related to the naming of the chief-of-police candidate as a corruption suspect wisely. While still honoring the principle of presumption of innocence, the public needs to trust the KPK to carry on its investigation without prejudice. We also hope that the government will provide its full support to the commission to carry out its duty as, based on worldwide experience, an anti-corruption agency is only as good as the government wants it to be. ●

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. ●

Know your leader : Assesing fraud risk in the government

Know your leader : Assesing fraud risk in the government Hendi Yogi Prabowo  ;   The director of the Center for Forensic Accounting Studies at the Islamic University of Indonesia, Yogyakarta. He obtained his Doctorate in forensic accounting from the University of Wollongong, Australia

JAKARTA POST, 08 April 2014

                                      

                                                                                         

                                                             

Indonesia is electing a new government, which — many hope — will tackle the endemic corruption plaguing the country that is undermining development. Deputy chief of the Corruption Eradication Commission (KPK) Busyro Muqoddas said the 2009 election had resulted in a corrupt regime, as evinced by the fact that many public officials had been arrested or convicted of graft. Now people expect the new leaders to redeem promises of change, rewrite the political script and establish a leadership that stands on the principles of good governance, anticorruption and rule of law. An important measure of a good government is its low fraud risk, which is essentially the likeliness of potential fraud offenders to commit graft, which will in turn affect the governance system. Assessing fraud risk itself is an important process in the prevention, detection and investigation of fraud within organizations. For example, in fraud investigation, generally the amount of resources allocated to gathering evidence will be greater if higher fraud risk is identified due to, among others, possible alteration or destruction of evidence by offenders. Over half a decade ago, criminologist Donald R. Cressey proposed what is known as the “Fraud Triangle” where, in relation to fraud risk, the propensity of fraud to occur is largely influenced by the presence of pressure (or motivation), opportunity and rationalization (justification of one’s wrongful act). Leadership has been identified by anti-fraud experts as a determining factor for Fraud Triangle elements within an organization. Leadership style will influence the propensity of fraud to occur within an organization or even a country. The role of leadership in corruption, for example, has been seen as an evolution of processes of transformation from caution, honesty, respect and valuing others to the thrill and excitement of selfishness, narcissistic and omnipotent gratuity. A good leader must possess moral strength, perception and empathy and is a role model for his or her people. Unfortunately, some individuals in leadership positions are simply not cut out to lead. Narcissistic leaders, for example, have been identified by various studies as a major cause of corruption and other fraud problems. Former leaders of fallen giant corporations such as Enron and WorldCom as well as some country leaders have been deemed the modern day incarnations of Narcissus. Many believe that narcissistic leaders can be identified by their authority, superiority, self-admiration and entitlement. For example, there have been numerous critics on the excessively high salaries of the members of the Indonesian House of Representatives (DPR) that do not seem to match their performance. According to data from the Independent Parliamentary Standards Authority and the International Monetary Fund cited in The Economist, the salaries of the House members (US$65,800 per year) is the fourth highest in the world in comparison to the country’s per capita income (around 18 times per capita income of the year). Even in the US, representatives’ $174,000 salary per year is only three times the country’s per capita income. Some behavioral scientists have been using salary as a proxy for measuring leaders’ level of narcissism as in many cases leaders will have considerable influence over their salaries. For example, in terms of authority, a high compensation will put him or her in the center of attention. In terms of superiority, he or she may think they must be rewarded for being more superior to others. In terms of self-admiration, he or she is an extraordinary individual who must be handsomely compensated. Overall, because of these perceptions, in terms of entitlement, an individual believes that he or she deserves the highest remuneration. Other means that can be used to identify narcissistic leaders include the way they present themselves in the media. Leaders or potential leaders who like to put their faces all over the place, for example, are said by behavioral experts as possessing high level of narcissism. Fraud has been known to spread in organizations like a cancer. Bad leadership is a major cause of the disease. According to a leadership expert, Mike Myatt, a sign of bad leadership is when a leader does not understand the concept of “service above self”, thus, he or she will not gain the trust, confidence and loyalty of his or her followers. Good leadership traits do not include much ego, pride and arrogance. Evidence suggests that bad leadership and fraud often come hand in hand with fraud. This is so since a narcissistic leader might think that he or she lives in a fantasy world where everything is his or her for the taking, thus, they will be more likely to engage in bold action that crosses the line. Living in the fantasy world will enable them to rationalize their misconducts and reduce internal disequilibrium (e.g. guilt and fear) from such action. Fraud risk in leadership must be minimized to reduce the propensity of fraud such as corruption to occur within the government. Having the right leaders with strong moral compass is of upmost importance in ensuring that the government will not become corrupt and tyrannous and end up as nothing more than a means to satisfy corrupt politicians’ insatiable greed. ●

Pieces of the puzzle : Gathering evidence of fraud Hendi Yogi Prabowo  ;   The director of the Center for Forensic Accounting Studies at the Accounting Program of the Islamic University of Indonesia Yogyakarta; His master’s and doctorate in Forensic Accounting from the University of Wollongong, Australia

JAKARTA POST,  20 Februari 2014

                                                                                                                        

                                                                                         

                                                                                                                       

For the past few weeks, no day has passed without news about the authorities searching alleged corruptors’ houses and offices. Yes, it appears that, despite being one of our New Year’s resolutions, the end of corruption is still far away as new cases emerge seemingly every day. Among the highlights are those of the Banten province ruler’s family. Since the arrest of the Banten governor, Ratu Atut Choisiyah, and her younger brother, Tubagus Chaeri Wardana, for a number of alleged corrupt acts, the Corruption Eradication Commission (KPK) has been working around the clock to uncover just exactly how much proceeds the two had earned from their offenses over the years. A number of searches have been conducted at their residences and as a result a number of assets as well as documents have been confiscated. Every fraud investigation is essentially a process of putting together pieces of a “puzzle”. The first challenge in the process is to determine what the puzzle is all about. In other words, investigators need to really understand the issues in question before proceeding to the next steps. In a fraud investigation, connecting puzzle pieces is one thing, but finding the missing pieces in the form of facts and evidence is another. Conducting searches and seizures is a common method for finding useful clues as well as evidence pertaining to the case. In reality, despite being widely used in the world of law enforcement, there is simply no “one size fits all” method to conduct search and seizure activities. Generally, in every fraud investigation, maintaining the natural setting of the investigated parties is crucial. This extends to activities of search and seizure. For one thing, fraud investigators need to ensure that during the course of search and seizure they maintain full control over scene and situation. This is important in order to maintain investigators’ safety as well as to preserve evidence. A common approach is to keep the suspected offenders away from the areas where evidence may exist. This will be easier if the offenders are already in custody. Nevertheless, search and seizure actions can also be undertaken without taking targets into custody. When this is the case, things are going to be tougher for the investigators mainly because of the risk of intervention by the targets. Additionally, extra care is required to ensure that none of the important evidence in the area is overlooked during the course of search and seizure as repeating the procedure will likely be ineffective. This is so since, after investigators leave the scene, any overlooked evidence may be removed or destroyed by the potential offenders or their accomplices. Therefore, when searching for evidence, investigators need to consider all possible areas where evidence could be found. This includes trash bins, shredder bins and dumpsters just to name a few. Gathering evidence through search and seizure activities can be a delicate and meticulous process. Before entering the scene, investigators need to ensure that they are well prepared. This includes carrying the necessary equipment to handle the evidence such as cameras, containers, boxes, labels, etc. They also need to prepare for things such as opposition from the residents as well as possible hostile situations. In terms of team members, they need to be selected on the basis of the required skills. For example, ideally there should be at least one person with digital forensic expertise to handle possible digital evidence stored in potential offenders’ computers. Gathering evidence is certainly not the end of the journey as investigators will have to race against time to analyze their findings and determine the results. Experts believe that when it comes to analyzing fraud evidence, the sooner the better. This is important for example when investigation targets have not been taken into custody and thus may attempt to flee the country to avoid prosecution. Over the years, a number of Indonesian corruption suspects had fled the country. Although many have been arrested or prosecuted, the last one being Anggoro Widjojo, without a doubt their escapes had hindered KPK’s investigations at some point. When an investigation is finally concluded, or in other words, when the puzzle is finally solved, we can only hope that it will create strong deterrence effect for future offenders. Furthermore, with all the resources used in the investigation process, the public will expect that fraud offenders such as corruptors will receive severe punishment for their crimes. This will depend on, among other things, how the outcomes of the investigations are presented before the court and how the court will rule on the cases. ●

Keep your enemies close and fraudsters closer Hendi Yogi Prabowo  ;  The Director of the Center for Forensic Accounting Studies at the Islamic University of Indonesi; He obtained his Master’s and PhD in forensic accounting from the University of Wollongong, Australia

JAKARTA POST,  13 Januari 2014

                                                                                                                        

Corruption is a complex global problem that requires special approaches to address. It is known to have regenerative power and its schemes continuously evolve over time.  According to the 2013 Corruption Perception Index, out of 177 countries surveyed, more than two-thirds scored less than 50 (out of 100), which suggests that most countries in the world are still plagued by corruption. In the survey, Indonesia’s ranking improved slightly from 118 (2012) to 114 (2013); but that unfortunately keeps the republic among the most corrupt countries in the world. Centuries ago the great master of strategy Sun Tzu said: “If you know your enemy and know yourself, you will not be imperiled in a hundred battles.” This principle has been applied globally in various fields and crime eradication is no exception.  Monitoring potential perpetrators of fraud is an example of the application of this principle. The Corruption Eradication Commission (KPK), for example, has been known to use surveillance to detect alleged corrupt acts as well as to gather evidence to prosecute the offenders.  Recently, members of the House of Representatives’ Commission III overseeing legal affairs asked the KPK to submit its phone-tapping standard operating procedures (SOPs).  A commission member said the KPK had gone overboard with its phone-bugging activities, which could undermine democratic principles. But the KPK insisted that its surveillance activities were conducted in accordance with acceptable practices in law enforcement. In practice, a fraud investigation is a meticulous process that requires substantial resources and, thus, effectiveness and efficiency are the prime criteria for evaluating its success.  To be able to effectively collect evidence to prove or disprove allegations, fraud investigators need to be able to identify various possible sources of evidence on the case under investigation.  Generally, the three primary sources of evidence that can be utilized by fraud investigators are documents, interviews and observations (also known as “surveillance”). Documentary evidence can be gathered from paper, computers and other written and printed sources by means of public record searches, data mining (for instance, Benford’s Law), financial statement ratio analysis and net worth analysis, to name just a few.  Throughout investigative interviews, auditors personally interact with interviewees (suspects, witnesses) in question and answer sessions to gather information or evidence in a case.  Surveillance is where investigators use their senses (hearing and sight) to gather evidence. Various means and methods can be employed to support this process.  Depending on the need and situation, investigators may use stationary (directly observing someone’s actions at a particular place and time), moving (following suspects) or electronic surveillance (email and phone-tapping) methods or any combination of the three.  The means and methods for electronic surveillance, such as video surveillance and phone-tapping, are now growing rapidly.  There are numerous ways someone’s conversation via a phone or through emails can be tapped for investigative purposes. Nevertheless, many fraud investigation experts believe that, due to its sensitive nature, electronic surveillance should not be used as the primary investigative tool.  According to the United Nations Office on Drugs and Crime (UNODC), for example, the use of electronic surveillance should only be considered when other less intrusive means have proven ineffective or when there is no reasonable alternative to obtain crucial information or evidence.  Therefore, regarding the question on the correctness of a law enforcement institution’s decision to employ, for example, phone-tapping in its investigation, we first need to see whether or not other means have failed or are believed to be incapable of gathering sufficient information or evidence.  Even when electronic surveillance is used, to be effective, it generally needs to be supported by other investigative methods.  As far as theories and practices are concerned, a major factor that determines the success of any fraud investigation is its surreptitious nature. In any fraud investigation, it is crucial to maintain the “natural setting” of the investigated parties. Failure to do so will result in incidences, such as missing or altered evidence, and the escape of the alleged offenders.  In order to succeed, an investigation must be performed in a manner that will at least limit alleged offenders’ abilities to hinder the process.  This includes gathering evidence as quickly as possible and restricting offenders’ movements, as well as limiting their knowledge on the true nature and manner of the investigation (maintaining a degree of secrecy of the process), which, in reality, can be difficult to do.  For example, some parties have demanded the KPK be transparent in its investigations, which includes exposing its investigative techniques to the public or at least to people’s representatives.  Despite this seemingly rightful demand, fulfilling it would risk the commission’s chance of success in investigating corruption, as offenders and potential offenders would be able to anticipate their investigators’ actions.  Fraud investigation is similar in some ways to the game of chess. Every action taken by investigators may result in counteraction by fraud offenders. Investigators devote time and energy to finding the missing pieces of the puzzle and putting them all together to uncover the fraud, whereas offenders do the opposite. Therefore, every action by investigators must be decided by considering, among other things, the possible counteraction by the alleged offenders.  The public must also realize that, due to the nature of the process and for the sake of the effectiveness of that process, not all of the information regarding fraud investigations can be shared with them.  ●

Corruption doesn’t pay, or doest it?

Corruption doesn’t pay, or doest it? Hendi Yogi Prabowo  ;   The director of the Centre for Forensic Accounting Studies of the Islamic University of Indonesia Yogyakarta. He obtained his masters and doctorate in forensic accounting from the University of Wollongong, Australia. JAKARTA POST, 30 September 2013

Recently, the Corruption Court sentenced a defendant in the vehicle simulator procurement case, Insp. Gen. Djoko Susilo, to 10 years imprisonment, fined him Rp 500 million (US$52,000), and seized his assets.

Some believe the verdict is historical as it is the first time an active Indonesian police general is sentenced for his involvement in a corruption case. Many believe that Djoko’s sentence is an achievement for the Corruption Eradication Commission (KPK) in combating graft in Indonesia. Back in the day before the commission was established, high ranking law enforcement officers like Djoko would have been untouchable by the law regardless of the offense they had committed. KPK has appealed the verdict, saying it is too light to give sufficient deterrence effect.

Many believe that the high perceived “net benefit” is a major cause on why corruption is rampaging in Indonesia. The desire to live a high life which, unfortunately, has been many people’s creed nowadays, seems to have shaped our generation’s mindset into tolerating unethical or even unlawful conducts for the sake of fulfillment to such a desires. Big houses and fancy cars are now perceived by many as a standard of living and proof of success. Children are often spoiled by their parents in ways that would lead them into believing that material wealth is the true representation of happiness in life.

Just like other white collar criminals, corrupt people are rational beings (at least in their own way). So far as the rational choice theory is concerned, their actions are always guided by rationality in deciding the best action for them. Each potential offender will subjectively weigh the benefits and costs of each option of action in a circumstance where, as advocated by criminologist Donald R. Cressey, pressure (or motivation), opportunity and rationalization (justification) are present and form a fraud triangle.

In reality, however, the net benefit calculation that occurs in an offender’s mind is much more subtle and complex than any expert can fully explain as it involves weighing different factors subjectively based on his or her perception of the realities of the world he or she lives in.

Although different offenders may consider different cost-benefit elements, some elements appear to be commonly used to calculate the net benefits of engaging in corrupt acts.

Corruption will disappear in Indonesia if everyone perceives the “net benefits” of not engaging in corrupt acts outweigh those of committing corruption.

For example, in the case of bribery in Indonesia, evidence suggest that the common benefit that may have been expected by Indonesian public officials who accept bribes include, but are not limited to, extravagant life, high status, power and prestige.

On the other hand, they may also recognize the risk of detection and prosecution, guilt, fear, disappointment, humiliation and possible restitution as the costs or negative consequences that may come with the action. Additionally, a potential offender will also measure the benefit and costs of not doing such an act.

Whereas low income (compared to those of corrupt officials), low power and prestige and intimidation from corrupt co-workers and superiors can be considered the costs of not engaging in a corrupt act, peace of mind, long lasting career and respect from the society may be considered among the benefits from being an honest public official.

For every perceived cost-benefit element, a potential offender will determine its weigh by assigning a “subjective value”. The option with the highest perceived “net benefits”, either engaging in corrupt act or not, will be the chosen action.

As an important part of a potential offender’s consideration, the perception of risk of detection and prosecution is mostly influenced by the effectiveness of anti-corruption initiatives in a country. KPK’s ability to bring a police general to justice, for example, will increase potential fraudsters’ perceived risk of detection and prosecution.

Evidence shows that the majority of offenders in corruption cases in Indonesia received light sentences compared to the damages they had caused to the country. Many hope that the KPK’s decision to appeal Djoko’s jail sentence to the High Court will succeed and thus create an effective deterrence.

To add to the problem of light jail sentences, even if an offender is sent to prison, there is no guarantee that he or she will have a “harsh time” from the deprivation of liberty in the institution. This is evident from the corruption convicts in Indonesian who apparently receive special treatment and facilities in prison compared to ordinary street criminals.

Experts have long been discussing about the concept of “punishment” for crime offenders. Some argue that crime offenders must be punished because of the crime they committed in the past and that the punishment has to be in proportion to their so-called “blameworthiness”, also known as “retributivism” view. Others who support the “consequentialism” view believe that whatever punishment crime offenders receive, it has to yield future benefits in particular to the society as the victim.

The two perspectives have been incorporated in particular into the prison systems all over the world. Despite the difficulty in its measurement, an expected output from any prison anywhere in the world would be the reduction of crime rate in the society.

Unfortunately, in the case of corruption in Indonesia, the higher number of incarcerations of high profile public officials since the inception of KPK does not seem to result in the disappearance of the crime in the country which suggests that more extensive and comprehensive measures need to be taken. Among such measures is the improvement of the Indonesian prison system so as to give sufficient “harsh time” for the corruption convicts and at the same time benefit the society by reducing corruption in society.

To tip the “corruption decision scale” in favor of the “not committing corruption” decision, multiple approaches must be employed to decrease the “net benefits” of committing corruption and increase those of not committing the offense. In addition to strengthening the existing legal system and anti-corruption agency, other measure such as nurturing ethics and morality through education and building healthy organizational culture in public offices should be seriously considered in combating corruption in Indonesia.

Corruption will disappear in Indonesia if everyone perceives the “net benefits” of not engaging in corrupt acts outweighs those of committing corruption.  ●

Civil servants, corruption

Civil servants, corruption Hendi Yogi Prabowo ;   Director of the Centre for Forensic Accounting Studies at the Accounting Program at the Islamic University of Indonesia. He obtained his Master’s and PhD in forensic accounting from the University of Wollongong Australia

JAKARTA POST, 24 Juli 2013

The government plans to recruit around 60,000 civil servants in August to replace the 110,000 due for retirement. Many job seekers view a civil servant position as a way to ensure their success in the future; as a result this intensifies the competition for the job.

The new recruits will need to adapt to the formalized social structure and organizational behavior of the relevant institution. Leadership is a determining factor in the formation of an organization’s behavior.

Behaviorists believe that leaders with a strong vision will be able to construct perspectives that can be projected to colleague to shape their perceptions of the reality inside and outside their organizations. 

Among the major issues in civil servant recruitment are transparency and accountability. Reports of bribery have plagued recruitment in the past. This created the impression that civil servant recruitment is all about money rather than competency. Some consider the bribing of civil servant recruitment committees to be a negligible petty offence compared to much larger schemes perpetrated by high ranking officials.

Nevertheless, as far as organizational behavior is concerned, such acts shape the mindset of the new wave of civil servants: teaching them that their unlawful act is permissible under their organizations’ rules and culture. 

In the long run, this may contribute to the development of rationalization for unethical or even unlawful conduct throughout the organizations. When such a mindset is embedded within an organization’s collective consciousness, it will become fertile ground for the seeds of corruption to grow and flourish and will affect the entire system.

From the behavioral perspective, some experts believe corruption is an outcome of a disorder within an organization’s mindset, which prevents it from properly carrying out its primary functions. 

Such a disorder may be characterized by its tendency to live in its own world, unable to properly connect to reality. A public institution that suffers from “organizational autism” will be unable to properly communicate with the people that it should served, thus, decisions and policies are made based on the perceived rather than actual problems.

Indonesia is infamous for its corrupt culture. Many foreign companies consider bribing public officials an unavoidable cost for doing business in the country. 

Control Risks, a global risk and strategic consulting firm, recently published a paper based in part on its experience conducting business in Indonesia. 

It states that graft is a way of life that has created a high level of business uncertainty for foreign companies. Control Risks believe the current decentralization system has made corruption more entrenched than ever. 

Corruption was more centralized during the New Order regime and it was easier for foreign companies to predict when and where they would be asked to pay bribes. Under the current regime, however, uncertainty prevails as to when or where demands will come from. 

Furthermore, despite its bold moves, the Corruption Eradication Commission (KPK) is considered by foreign businesses insufficient to eradicate corruption and promote business certainty in the country. 

When it comes to corruption eradication, even small things matter. Among the most important areas that must be addressed is changing the organizational behavior of the country’s public offices. Such an effort starts from changing the behavior of public officials themselves.

A noticeable behavioral “red flag” among high ranking public officials is extravagant lifestyles obviously beyond their financial means. As individual behaviors shape the collective mindset of an organization, they also characterize its policies and decisions. An excessive wealth seeking mentality leads to the temptation of corruption.

Recently, the Indonesian Forum for Budget Transparency (FITRA) published a list of the top five most corrupt provinces, cities and municipalities. In its report, FITRA highlights regional governments’ lack of competency in managing their resources and suspects that corruption is a major cause of the inefficiencies. According to FITRA, the most common corruption patterns in these areas include fictitious procurement, mark-up, unfinished work, disbursement fraud and low quality goods.

There is no easy way to change the excessive wealth seeking mentality as process that started at an early age. Factors that influence the formation of this mentality include family, education and mass media, just to name a few. 

Universities have been criticized for overemphasizing on teaching their students about revenue and profit maximization while giving morality building a lesser amount of attention in, among others, their accounting and business curriculum. For this, education should be at the forefront of our struggle against corruption by building the ethics and morality our future generations.

Public offices must also focus control internally to minimize fraud opportunities, with a thorough and transparent recruitment process as part of the mechanism. Strong leadership must support and lead all these changes by people with strong integrity and solid characters. ●

Fight against graft : The rich, the poor and the devious

Fight against graft : The rich, the poor and the devious Hendi Yogi Prabowo  ;   Director of the Center for Forensic Accounting Studies at the Accounting Program, Islamic University of Indonesia, Yogyakarta; His Master’s and Doctorate degrees in Forensic Accounting from the University of Wollongong, Australia

JAKARTA POST, 15 Juli 2013

Recently, at the Democratic Party’s legislative candidate orientation, Corruption Eradication Commission (KPK) chairman Abraham Samad stated that the civil servants’ low income may make them more vulnerable to the temptation of corruption.

He argued that two important factors constitute corruption in Indonesia. The “need” and “greed” factors.

Whereas low-level civil servants who accept bribes represent the former, the latter is often demonstrated by high-ranking public officials who engage in corrupt acts.

Most, if not all of corruption cases investigated by the KPK can be identified as being driven by greed. This is due to the fact that perpetrators in such cases are those who already have (way) more than enough to support their needs.

Corruption analysts believe that income inequality has often been thought as an outcome of rampaging corruption in a country in which corruption may diminish the availability of, among other things, services to the poor.

People in high positions in the government have more opportunity to misuse their power for personal benefits than those in low positions.

In the cases of public funds (e.g. disaster relief fund and social assistance fund) embezzlement, for example, high-ranking public officials enrich themselves by “stealing” what would have been the right of the low-level people.

Corruption also causes inefficiencies within the government by unnecessarily increasing its operating cost and thus reducing the resources available for, among other things, health and education spending.

On the other hand, as suggested by Abraham’s above statement, many also believe that income inequality is also a factor for corruption.

For example, due to their low salary, a public official may be tempted to offer “illegal services” in exchange for a sum of money (bribe). This means that both corruption and income inequality may form an endless “vicious circle” in the
society.

One’s affection for money is believed by behavioral scientists to be among the primary cause for his or her intention to commit corruption. Such affection is believed to have existed prior to one’s entrance to the professional world.

Everyone who is committing fraud will have in his or her mind a cost-benefit assessment, at least subjectively, prior to his or her act.

 In such assessment, he or she will weigh every possible outcome of the act such as the expected financial gain, the possible feeling of guilt, and the risk of being detected and prosecuted.

For someone with high affection for money with lack of morality, financial gain from his or her misconducts may weigh more than the possible feeling of guilt or even the risk of detection and prosecution by the authorities.

In Indonesia, the punishment for corruptors is still considered very light compared to the damages they cause to the country, which essentially makes the potential financial gain from corruption appear to be more rewarding compared to the risk of detection and prosecution.

In practice, fraud offenders’ affection for money is often demonstrated by their extravagant lifestyles, which often raises suspicions and may lead to investigation.

Corruption analysts believe that corruption circles around asset ownership where “need” or “greed” will drive an offender to increase his or her asset ownership through whatever means necessary.

The desire to accumulate assets is believed to be a reflection of one’s past education.

In other words, whether or not someone will be a “wealth-worshiper” is influenced by the values that he or she learned during his or her education.

Based on studies, for example, business students are considered to be more prone to become “wealth-worshipers” compared to, among others, psychology or medical students.

This is mostly caused by the fact that the curriculum used in the learning process emphasized more on profit seeking activities and gives less attention to ethics and morality.

A common misconception among the “wealth-worshipers” is that money can really buy happiness. Nevertheless, recent behavioral studies suggest that such a notion is not entirely true as it generally applies only to those below the poverty line.

A slight increase in wealth will mean so much for the poor whereas a huge increase may mean almost nothing to the rich.

Therefore, changing the mind-set of our young generation can be a solution for our corruption problem. Our education system is a perfect place to teach morality and ethics to our country’s youth who will become our future leaders.

Additionally, as suggested by the KPK’s chairman, income inequality problems should not be left unattended and our government must take this matter seriously for the sake of the nation. ●