T

he Supreme Audit Agency (BPK) has put its reputation on the line after the House of Representatives demanded an audit of two of its major investigations: the Bank Century bailout and the Hambalang scandal.

After three years, we have yet to reach the end of the Century bailout, although many public figures have been questioned by the Corruption Eradication Commission (KPK).

Critics say that one of the reasons for the slow investigation of the case is the KPK’s difficulty in proving that there was criminal intent behind the bailout. This is due to, among other things, the BPK’s forensic audit report, which was considered insufficient for the KPK to launch a formal investigation.

As for Hambalang, doubts persist that the report that the BPK submitted to the House on Oct. 31 will help further its investigation, in particular investigation by the KPK. These doubts intensified after a senior BPK member alleged that there was interference with the auditing process, although the BPK later asserted that that its investigation was independent, professional and uncompromised.

Fraud audits are also known as fraud examinations, financial forensics and investigative audits. Whereas a conventional financial audit is a rule-based process, a fraud audit is problem-based, which explains the differences in procedures, methods and terminology.

Due to the problem-based nature of a fraud audit, there is simply no one-size-fits-all standard procedure. Investigators need to understand the basic principles of fraud investigation to ensure success.

First of all, a fraud audit is a problem based, which means that the problems must be clearly identified at the outset.

Red flags need to be identified at the beginning: such as a project that is over budget with substandard results, an unusually close relationship between officials and customers or vendors and lack of proper supervision and internal controls.

Fraud auditors must also keep in mind that it is bad to start an investigation based on prejudice. It is important for an auditor not to have preconceptions about, among other things, who is guilty and who is not before starting an investigation.

Audits are all about facts and evidence. Auditors may formulate investigative questions that may lead to the formulation of investigative hypotheses — and how to test them — to keep them on track.

Maintaining the natural setting of the audit subjects is another important thing, due to the fact that fraud audits are conducted in an adversarial environment.

Unlike those in a non-adversarial conventional financial audit, offenders in a fraud audit, for example, act to avoid negative consequences (e.g., fines and imprisonment) by, for example, destroying evidence or fleeing overseas.

This is to say that the longer evidence is collected in a fraud audit, the more difficult it will be to achieve the desired objectives due to the changes in the audit environment.

Another factor is media exposure. In theory — real life is something else entirely — a good way of reducing the risk of change for a fraud audit’s environment is to audit in such a way that nobody except the auditors knows that an investigation is in progress. In practice, once a high profile fraud audit is initiated in Indonesia, it will be all over the newspapers and televisions in no time. This will give fraud offenders early warning to start to preparing for the coming storm.

It is understandably problematic that on the one hand, institutions such as KPK and the BPK are expected to be transparent on the progress of high-profile investigations, while on the other hand, such transparency will make it more difficult for them to carry out their duties by giving warning to those under audit.

A fraud audit is an expensive project requiring extensive hours of staff time. Unlike as in conventional financial audit, which can rely on data samples, fraud auditors aim at seeing the entire data population when proving or disproving allegations, simply because using samples means that there is a risk that fraud exists in transactions whose data are not sampled.

Ordinary financial audits focus more on an entity’s compliance with standards and thus, normally, there will be a clear pattern of what auditors need to do from day one to the last day of the audit.

A fraud audit is a process of finding answers to a set of predetermined questions using legally accepted investigation methods.

Therefore, the level of uncertainty in a fraud audit is considerably higher than that of a financial audit due to the fact that fraud auditors often only have limited information on a case at the beginning of an investigation.

So basically, when it comes to fraud audit, expect the unexpected, hope for the best and prepare for
the worst. Unfortunately for fraud auditors, the public often see fraud audits as just another financial audit that emphasizes uncovering fraud.

In the case of the Bank Century and Hambalang investigations, many parties have put pressure on the BPK to fix a schedule for initiating and ending their audits which is naturally difficult.

A fraud audit in some cases may not give the parties who commission the audit the desired information regarding, for example, who is guilty for perpetrating an offense.

In many jurisdictions, when a fraud auditor presents his investigation report in the court as an expert witness, he must refrain from making opinions on matters that are not within his expertise, including legal opinions on someone’s guilt.

Therefore, what fraud auditors say in their reports are only facts supported by evidence presented in a systematic way so as to enable judges who read the reports to draw their own conclusions whether fraud has occurred and if it has, who the perpetrator might be.

In conclusion, despite the challenges, a fraud audit is an essential part of combating fraud in Indonesia. Fraud auditors with a thorough understanding on how a fraud audit should be conducted should stand at the forefront of the country’s battle against corruption and other white collar crimes.

Unfortunately, only a handful of fraud audit professionals are available in Indonesia compared to the number of fraud cases.

With more fraud auditors working for the private and public sectors, Indonesia may have a better chance of eradicating fraud, once and for all.

The writer is director of the Center for Forensic Accounting Studies at the Islamic University of Indonesia (UII) in Yogyakarta. He obtained his master’s degree and doctorate in forensic accounting from the University of Wollongong in Australia.