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Accounting numbers don’t lie; or do they?
A consumer finance company, Sunprima Nusantara Pembiayaan (SNP), was recently suspected of credit fraud and financial statement fraud that caused losses of Rp 14 trillion (US$940 million).
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consumer finance company, Sunprima Nusantara Pembiayaan (SNP), was recently suspected of credit fraud and financial statement fraud that caused losses of Rp 14 trillion (US$940 million). According to the National Police, SNP allegedly defrauded 14 banks in 2016-2017 using fraudulent receivables as loan collaterals.
SNP allegedly used a list of receivables from another company, CMP, as security for its loans to banks. The police’s preliminary investigation has led to the arrest of five SNP directors/senior executives for their alleged involvement in the fraud.
Many allege the fraud was caused by the failure of state-owned credit rating agency (CRA) Pefindo in assessing SNP’s creditworthiness. CRAs provide credit rating services for firms, particularly to measure their creditworthiness. The value of a CRA’s reports lies in the quality of the information and methods used in measuring an entity’s creditworthiness.
At some point before authorities investigated SN’s alleged fraud, Pefindo gave the company an “IdA” or “single A” rating that indicates high creditworthiness, but later downgraded its rating to “IdCCC”, or a “triple C” rating. Shortly after this, SNP filed for bankruptcy. Many questioned whether the rating agency had done its job properly, considering its failure to assess SNP’s true creditworthiness.
