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he Youth and Sports Ministry is once again under the spotlight of the authorities, in particular the Corruption Eradication Commission (KPK). After the athletes’ village controversy implicating former Democratic Party treasurer Muhammad Nazaruddin, the ministry is currently facing fraud allegations related to the development of the Hambalang Sports Center, which experienced structural damage last month.

According to the Indonesian Forum for Budget Transparency (Fitra), the development of the sports center has cost the country around Rp 753 billion (US$80 million) to date, or 63 percent of the allocated budget for the project (Rp 1.2 trillion or $127 million). Many suspect that the quality of such facilities is substandard (as indicated by the structural damage) due to, among other things, bribery.

Despite denials by the Youth and Sports Ministry, public suspicion of bribery in the Hambalang Sports Center case is understandable as there have been many other similar cases in Indonesia. Some “red flags” in bribery cases include, but are not limited to, low quality of products and services delivered, close relations between decision-makers and external vendors and the ability of certain individuals to steer the appointment of vendors. Studies suggest that one major reason people engage in bribery is the “this is how business is done around here”
rationalization.

In Ernst & Young’s recent 2012 annual global fraud study, for example, 60 percent of Indonesian respondents said that making cash payments to win new business is acceptable practice. Transparency International’s Bribe Payers Index 2011 shows that Indonesia is one of the countries in which companies are most likely to bribe when doing business abroad.

These are indications that bribery may have already become part of our business culture, which will likely be passed on to future generations.

The Bribe Payers Index also reveals that public works contracts and construction are the most likely areas for bribery to occur. Other high-risk areas include mining, oil and gas and fisheries. According to Transparency International, this is due to the fact that public works contracts are usually large and construction projects are often unique. The projects’ unique characteristics make it more difficult to find a comparable benchmark for costs and time.

This will eventually create an opportunity for fraudulent conduct, such as hidden expenditure inflation. Additionally, the involvement of contractors and sub-contractors contributes to the difficulty in monitoring a project’s progress and the flow of payments. The results of such misconduct can be very damaging not just financially as there will also be serious issues in relation to the failure to meet safety standards.

As far as studies are concerned, the decision to bribe is often affected by norms existing in the workplace. In many cases, companies who bribe government officials, for example, feel that they have no choice but to do so as part of common business practice. Fraudulent behavior is often seen as a viable solution to the problem of business pressures. In Ernst & Young’s global study, for example, of nearly 400 interviewed CFOs, 34 percent said it was OK to offer entertainment to win or retain business.

Additionally, 20 percent thought that giving personal gifts to win or retain business was just “business as usual”. Upon winning the desired business project, a company that pays a bribe will usually calculate it as part of its operational costs and will adjust its planned spending on the project accordingly. This often results in a lower quality of goods or services delivered.

The business environment often plays an important role in a company’s decision to bribe or not to bribe. Transparency International’s Corruption Perception Index and Bribe Payers Index, for example, indicate that in a country where corruption is commonplace, such as Indonesia, the level of bribery tends to be high as well. Changing the business environment is seen as an important first step in reducing bribery. To do so, putting in place a sound control mechanism is essential to the process.

From a company’s point of view, there must be strong corporate anti-corruption policies as well as commitment to implement them effectively. From the government’s side, this means that it needs to be more proactive in combating bribery by, for example, strengthening existing anti-bribery legislation.

There have been various initiatives by a number of organizations to reduce misconduct in construction sectors globally. For example, Global Infrastructure Anti-Corruption Centre (GIACC) in collaboration with Transparency International has developed a practical tool, the Project Anti-Corruption System (PACS) to assist companies and other parties involved in major construction projects in reducing the risk of corruption.

Similarly, the Construction Sector Transparency Initiative (CoST) was launched in 2008 to explore how public sector construction can be made more transparent and accountable to minimize mismanagement, waste and corruption.

In principle, these efforts are in particular aimed at reducing opportunities for misconduct such as bribery and corruption as well as diminishing the rationalization to do so.

Without the “this is how business is done around here” rationalization, companies and government officials will have fewer excuses to give or accept bribes and Indonesia might have a better chance of eradicating bribery and corruption.

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