The influence of internal audit and internal control toward fraud prevention

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The influence of internal audit and internal control toward fraud prevention

Abstract

Purpose: This study aimed to determine whether there is an influence of internal audit and internal control on fraud prevention at PT Pos Indonesia (Persero) Bandung.

Research methodology: This study used the verification method, the sampling technique used in this study was a combination of non-probability with a saturated sampling technique. The sample in this study were employees at PT Pos Indonesia (Persero) Bandung City, amounting to 91 people. The Program used in analyzing data was Statistical Package for Social Sciences (SPSS) Ver25.00.

Results: The results showed that internal audit and internal control influence the prevention of fraud in PT Pos Indonesia (Persero) Bandung. In addition, the magnitude of the influence of internal audit and control in contributing to the prevention of fraud by 68.8%.

Limitations: The study was only conducted at PT Pos Indonesia (Persero), Bandung City.

Contribution: This research is expected to be able to provide input for PT Pos Indonesia (Persero) Bandung City which is aimed at improving improvements in minimizing and preventing fraud, and can be used as additional information for related parties.

CHAPTER ONE

INTRODUCTION

Background of the study

Basically, every activity in the company will not be separated from the risk. Every organizational activity has uncertainty that is identical to risk, including fraud (Karyono, 2013:1). Fraud can be termed as fraud that contains meaning and irregularities and illegal acts, which is done intentionally for a specific purpose, such as deceiving or giving misleading images to other parties. People can do this both from within and from outside the organization. Fraud is designed to take advantage of opportunities that are not honest, which directly or indirectly harm other parties (Karyono, 2013:4). In Indonesia alone, fraud cases still frequently occur in various companies, both private companies or state-owned/regional companies. The 2016 Global Association of Certified Fraud Examiners (ACFE) results show that each year an average of 5% of organizational revenues in Indonesia are victims of fraud (ACFE Indonesian Chapter, 2017).

Fraud prevention is eliminating opportunities or opportunities to commit fraud by developing and implementing risk management (specifically fraud risk management), internal control and honest corporate governance (Priantara, 2013:184). One way to minimize fraud in the company is important for companies to improve the effectiveness of the internal audit. This internal audit helps the organization achieve its goals by taking a systematic and disciplined approach to assess and improve risk management, control, and governance processes (Redding et al., 2013:2). The internal audit function is a function of free appraisal within an organization to review or study and assess the company’s activities to provide suggestions to management so that their responsibilities can be carried out effectively (Tugiman, 2014:11). Internal auditors as the most appropriate agent to realize internal control, risk management and good corporate governance, which will undoubtedly add value to resources and the company (Kumaat, 2014:35).

Risks faced by the company include integrity risk, namely the risk of fraud by management or company employees, illegal actions, or other irregularities that can reduce the good name/reputation of the company in the business world or can reduce the company’s ability to manage internal audit is an autonomous activity, objective viewpoints, and consultation meant to add value and enhance organizational works. This internal audit helps the organization achieve its objectives by taking a methodical and disciplined appearance to evaluate and enhance the effectiveness of risk management, control, and governance processes (Redding et al., 2013:2). Internal audits intend to help companies perform adequate controls by evaluating their effectiveness and efficiency and encourage continuous enhancement (Sawyer et al., 2014:55). The risk of fraud requires the internal auditor to develop preventive measures to prevent fraud (Amrizal, 2014:11).

In addition to internal auditing, one factor of fraud in the company is caused by weak internal control (ACFE, 2017). Internal control is a process composed, performed, and controlled by those charged with governance, management, and other employees to provide sufficient confidence regarding the fulfillment of an entity’s objectives correlating to the reliability of financial statements, efficiency and effectiveness of operations, and compliance with laws (Agoes, 2017:162).

The paramount prevention of fraud is to establish an internal control system in every movement of the organization. In order to effectively inhibit fraud, internal control must be competent in the design of its control structure and sound practices in its implementation (Karyono, 2013:47). The relationship between internal control and fraud problems in a company is very related. Fraud is always a difficult issue. A good internal control system aims to ensure that organizational activities are effective and efficient (Tugiman, 2014:12). A comprehensive internal control system, implemented thoroughly and regularly monitoring the activities of an organization, is an important step to safeguard and detect the risk of loss caused by fraud in the financial sector. Internal control is very important in detecting financial fraud that is at the risk of harming the company (Susanto, 2014:93). Implementation of internal control can at least reduce management collusion regarding fraud (Natasya et al., 2017).

Information quoted from the article shows that PT Pos Indonesia still commits corruption in connection with the procurement of Portable Data Terminal (PDT), namely regarding corruption cases related to the cost of sending Social Protection Cards (KPS) and incompatible specifications of the equipment provided by the agreement in the procurement contract. The case of making the country suffer losses due to the procurement of funds obtained from the Ministry of State-Owned Enterprises (BUMN) (Rahman, 2016). Other information shows that there is still allegations of corruption committed by PT Pos Indonesia related to the provision of tantiem or bonuses to the directors and commissioners of PT Pos Indonesia in 2017 by selling assets in the form of shares in Mandiri Taspen Pos Bank. The granting of bonuses when companies suffer losses can be categorized as detrimental to the state leading to corruption (Movanita, 2017). Therefore we need an activity to prevent fraud.

Other information quoted from the 2017 national Kompas article, Boyamin Saiman, as the Coordinator of the Indonesian Anti-Corruption Society, stated that PT Pos Indonesia had suspected corruption. Boyamin Saiman suspected that there were irregularities in giving bonuses to the directors and commissioners of PT Pos Indonesia in 2017, even though the company was at a loss. PT Pos Indonesia is suspected of attempting to manipulate the books so that it appears as if it is experiencing profits by selling assets in the form of shares in Bank Mandiri Taspen Pos. PT Pos Indonesia gave Rp. 5,359,000,000 to the company’s Directors and Commissioners in 2017. In the same year, PT Pos Indonesia was declared to be losing money based on the company’s 2017 balance sheet. Boyamin Saiman also stated that giving bonuses when the company loses money can be categorized as causing losses to the state leading to criminal acts of corruption with a total loss of Rp 5,359,000,000.

Moreover, the bonus was given after selling assets in the form of shares in Bank Mantap amounting to Rp 324.61 billion. Of this amount, IDR 200 billion was included as revenue. In addition, Boyamin Saiman considered the sales figures too cheap. Along with the report, Boyamin attached evidence in the form of PT Pos Indonesia’s profit and loss report to a list of tantiem payments to company directors and commissioners from the Attorney General’s Office (Movanita, 2017).

Several previous studies relating to this study have been conducted by Maliawan et al. (2017). The results of his research indicate that internal audit and the effectiveness of internal control affect the prevention of fraud. Research conducted by Suginam (2017) shows that internal audit and internal control have an effect on fraud prevention. In addition, research conducted by Wijaya and Nugraha (2017), the results of his study showed that internal control and internal audit affect fraud. Based on the results above, the researcher is interested in further researching the effect of internal audit and internal control on fraud prevention at PT Pos Indonesia (Persero) Bandung.

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