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Governance gaps, lax oversight hurt Indonesia’s start-up scene
A series of fraud cases raises questions about due diligence, but also regulatory oversight, in Indonesia’s start-up scene at a time when young companies are already struggling to raise new funding.
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Illustration photo of financial accounting (Shutterstock/Shutterstock)
F
ailings in corporate governance and regulatory oversight are eroding investor confidence and potentially imperiling the country's bid to attract foreign investment amid a spate of start-up fraud scandals, experts warn, urging stronger regulatory enforcement to restore trust and safeguard the broader financial ecosystem.
Experts highlighted that a complex web of directors, board members, consultants, advisors and trustees, as well as auditors and legal counsels is often deeply entrenched in the business of purported sound governance, for example because they are big-name companies, meaning that uncomfortable truths are left ignored.
“Start-ups often have rudimentary governance at best, and basic internal controls may be lacking,” Mak Yuen Teen, an accounting professor who specializes in corporate governance of the National University of Singapore (NUS) Business School, told The Jakarta Post on Sunday.
Read also: eFishery scandal exposes weak governance in Indonesia's tech start-ups
“Audits provide reasonable assurance, not absolute certainty. Investors must conduct their own due diligence, asking if revenue growth looks too good to be true,” he added, pointing to over-reliance on audits and high-profile backers.
This concern arose as eFishery, once Indonesia’s latest unicorn, or a start-up with a valuation exceeding US$1 billion, is now embroiled in a fraud scandal over allegations that it inflated revenue by nearly $600 million in the first nine months of 2024.
A 52-page draft report by FTI Consulting, circulated among investors and seen by the Post, found that more than 75 percent of eFishery’s reported revenue was fraudulent.
