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Jakarta Post

When greed is the creed

After the recent report from the Indonesian Financial Transaction Report and Analysis Center (PPATK), a number of currently undisclosed young civil servants’ fat bank accounts have come under scrutiny

Hendi Yogi Prabowo (The Jakarta Post)
Yogyakarta
Mon, December 26, 2011

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When greed is the creed

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fter the recent report from the Indonesian Financial Transaction Report and Analysis Center (PPATK), a number of currently undisclosed young civil servants’ fat bank accounts have come under scrutiny.

The suspicion arose with many believing that the civil servants’ (who were said to be under 30-years-old) salaries and their billions of rupiah of wealth did not add up.

According to Indonesian Corruption Watch, such accounts show signs of the country’s broken bureaucratic system. According to the PPATK vice chairman, Agus Santoso, these young government officials are occupying strategic positions within the government, such as treasurers.

Many believe that they have been involved in some kind of corrupt practices, which explains their sources of illicit income.

Further, according to Santoso, an example of their unlawful conduct is moving government funds into their personal bank accounts at the end of the year and using money laundering as a means to cover traces of their illicit fund transfers.

Although the fraud allegations surrounding the young civil servants’ accounts are yet to be proved in court, the suspicion does have a credible basis.

A study from the audit, tax and advisory firm KPMG, which focused on fraud and misconduct in Australia and New Zealand (2010), revealed that the most common motivation for people to commit fraud was greed. This means that many fraud offenders are not those in need of money but instead just want to get richer.

Similar result is also shown by ACFE’s global study (2010) on fraud, which also displayed similar findings. The study found that “living beyond means” was the most noticeable behavioral “red flag” of fraud perpetrators all around the world.

Other behavioral “red flags” based on the study, which can be used to spot a fraud offender, include “an unusually close relationship with the vendor/customer”, “a refusal to take vacations” and “excessive pressure within the organization”.

Regardless of the methods employed, three common elements of fraud are the “act” (e.g. theft), the “concealment” (e.g. making false statement) and the “conversion” (e.g. benefiting from the stolen goods). While concealing a fraudulent act is an “obligatory” step to avoid or at least reduce suspicion, “conversion”, on the other hand, will have the opposite effect.

It is interesting to see that in many cases of fraud there has been a recurring trend among offenders. They are often tempted to enjoy the proceeds of their crimes immediately through purchases of luxurious goods such as cars, homes and jewelries. Unfortunately for them, just as in the case of young Indonesian civil servants, this often raises the suspicions of the authorities or co-workers.

The excessive lifestyles of fraud offenders often leads investigators to dig through various avenues of evidence regarding the source of his or her income, and eventually uncovering the fraud. For this matter, resourceful and experienced fraud offenders often resort to complex money laundering schemes to cover the traces of their money while still able to enjoy the proceeds of their crime.

The reason why fraud offenders often rush into enjoying the fruits of their crime may be psychological. They may think that it is “easy money” and thus there is no need to worry about losing it so quickly through purchases of goods. Alternatively they may simply just want to look wealthy and successful.

ACFE’s study suggests that the most common way fraud is spotted is through inside information or “tip offs”. Therefore, building an effective whistle blower system will be an important means to gather and manage such information within an organization.

Additionally, as suggested by another global fraud study by Ernst & Young (2010), strong internal controls are the most important factor in mitigating fraud risks within an organization, followed by internal audit and management reviews.

In practice, the strongest drive in fraud prevention practice has always been an organization’s own culture. For example, in a corrupt organization, despite the existence of sound internal control, a corrupt director can easily override these controls and commit fraud.

Within such an organization, even a new employee with limited access to fraud opportunities is willing to act fraudulently knowing that nobody will blame him or her since such an act is common in his or her workplace. Therefore, however difficult, changing organizational culture is key to success in mitigating fraud in organizations.

All parties must work together to achieve a common goal. With a transparent culture, the ‘this is how business is done around here’ rationalization will exist no more.

The writer is director of the Centre for Forensic Accounting Studies at the Department of Accounting of the Islamic University of Indonesia, Yogyakarta. He obtained his Masters and PhD in forensic accounting from the University of Wollongong, Australia

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