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Fraud hurts retail investors
The lenient sanctions are certainly no strong deterrent to accounting malpractice, let alone fraud. Such blatant lax in law enforcement breeds poor governance, low accountability standards and moral hazard.
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Defendants wear face shields and masks during a hearing in the PT Asuransi Jiwasraya case at the Jakarta Corruption Court. (JP/Dhoni Setiawan)
P
ublic accountancy and fund management firms, the Financial Services Authority (OJK) and Indonesia Stock Exchange (IDX) comprise the basic infrastructure of the financial market. But they have been increasingly complicit in the shenanigans and outright fraud at financial services companies at the expense of thousands of investors. Left unchecked, this flurry of crimes will damage investor confidence in the financial market.
The Attorney General’s Office (AGO) recently named 13 fund management firms, an OJK executive in charge of capital market monitoring and the directors of two publicly listed companies as suspects in the Jiwasraya fraud case, which alleges that the state-owned insurer failed to repay claims worth Rp 16 trillion (US$1.1 billion) to policyholders.
The results of the AGO’s preliminary investigation indicate that multinational consultancy PricewaterhouseCoopers (PwC) has also been implicated through the questionable, unqualified opinions it provided Jiwasraya in 2016-2017.
In May, the Supreme Audit Agency (BPK) revealed in its 2019 second semester audit report that the OJK did not comply with the prudent banking rules in its supervision of seven banks.
In mid-2019, publicly listed flag carrier Garuda Indonesia was found to have committed major accounting misconduct that required making a massive material correction to the company’s bottom line, from a profit of $870,000 in the “cooked report” to total losses of $175 million.
In mid-2018, accounting misconduct at financial services firm PT Sunprima Nusantara Pembiayaan misled investors and creditors to cause Rp 1.8 trillion in losses to banks and investors.
And in July 2010, four large public companies affiliated with the Bakrie Group simply admitted to erroneous bookkeeping entries that generated discrepancies amounting to Rp 9.3 trillion (almost $1 billion) in their assets as published in their separate financial reports for the first quarter of that year.
Even more discouraging, though, is that the senior supervisory officials, directors and auditors (mostly local affiliates of international accounting firms) who were found complicit in these fraud cases from 2010 to 2019 were given a mere slap on the wrist. In fact, none of the auditors has been brought to trial.
More questionable is that the Garuda CEO who signed the “cooked” financial report and was alleged of smuggling luxury motorcycles in December 2019 has yet to be brought to justice.
The question, then, is who is responsible for protecting the investing public, notably retail investors, from overly greedy finance managers who like to use creative accounting methods to deceive shareholders, creditors and tax officials?
The lenient sanctions are certainly no strong deterrent to accounting malpractice, let alone fraud. Such blatant lax in law enforcement breeds poor governance, low accountability standards and moral hazard.
Meanwhile, audited financial reports are key to the integrity of the financial services industry, the first requisite for good corporate governance and the primary guide for investors.
The fact that such extensive window dressing took place at publicly traded companies that are subject to stringent disclosure requirements, has raised great concern among the investing public about the credibility and reliability of other companies’ financial reports, OJK oversight and the quality of governance at the IDX management.
