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continue to have a devastating impact on the lives of the citizens in the countries it infects. The
government of Indonesia has made important progress in the last few years to combat corruption.
The efforts of one of its major ministries to strengthen the capabilities of its auditors, by developing
their skills in forensic auditing, will contribute significantly to the fight against corruption and the
damage it causes. Preparing Indonesian government auditors to detect, investigate and report
corrupt activities is an essential step in developing an infrastructure of competency that is sorely
needed for combating corruption in many other countries throughout the world. Auditors are one of
the essential components of an overall strategy needed for detecting, investigating, and reporting
corrupt activities and bringing perpetrators into the legal system, thus exposing them to penalties
and sanctions.
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The Financial Action Task Force (FATF) in particular has made significant contributions to the fight
against international corruption, most specifically in the area of money laundering. The FATF in
1990 developed Forty Recommendations that addressed the misuse of financial systems for money
laundering. In 1996 the Forty Recommendations were revised to reflect evolving money laundering
topologies, which were endorsed by 130 countries and created the standard for combating money
laundering. In late 2001 the FATF expanded its mandate to deal with terrorism financing and
created Eight Special Recommendations on Terrorist Financing. These recommendations, which are
aimed at thwarting the funding of terrorist acts and organizations, complement the Forty
Recommendations.7
Recommendation after recommendation has been made to stem the seemingly inexorable progress
of international corruption. Strategies that are making a difference:
* focus on enforcement and punishing offenders,
* involve citizens in prevention and detection,
* include major public sector reform efforts including enhanced accountability, transparency and
oversight; and
* strengthen the rule of law, improve anti-corruption legislation, address money laundering and
promote good governance.
International Initiatives to Combat Fraud
In Bosnia-Herzegovina, recently instituted state-level courts and new criminal procedure codes are
having a long-awaited impact on that country's fight against corruption. Slovenia has created an
office called the Office for the Prevention of Corruption, which is specifically charged with
coordinating that country's fight against corruption. In the Philippines the Office of the Ombudsman
uses a two-phased, eight-point strategy against graft and corruption. That strategy includes the
investigation, prosecution and punishment of wrongdoers, deterrence, intense oversight of the
delivery of government services and citizen empowerment. In the Republic of South Korea, the city
of Seoul has adopted a systematic approach to combat corruption. That approach includes
preventive measures, punitive measures, ensuring transparency in governmental administration and
a public-private partnership. Armenia's efforts include more than 90 pieces of legislation that are
expected to be in place by 2007 to guide its anti-corruption initiatives. The legislation would cover
money laundering and a transparent judicial system. Rules for state tenders, and a commission to
oversee civil service appointments have already been enacted in Armenia.
Such efforts by members of the international community are indeed commendable and will help to
prevent, or at least impede, the spread of international corruption. However it is abundantly clear
that much more needs to be done. The Republic of Indonesia, long plagued with corruption, has
taken a major initiative to address the malady by attacking it at its very source. The initiative,
strengthening the abilities of its auditors to detect, investigate and report fraud, is certain to yield
some relief from the deleterious impact that corruption has had on Indonesia and on its citizens for
so many years.
Corruption in Indonesia
The Republic of Indonesia has been plagued by corruption for decades. Former Indonesian leader
Soeharto, the President of Indonesia for more than 30 years, allegedly embezzled an estimated $15
billion to $35 billion from that country during his tenure.8 On the other hand and at the same time,
Soeharto publicly espoused and even advocated accountability in government. In an address
delivered to members of the Asian national audit offices assembled for a meeting in Jakarta in 1997,
Soeharto emphasized the importance of accountability for public funds. He said "...that state
finances collected from the people must be used efficiently and maximally for the people's wellbeing. The government must, politically and morally, be accountable for the use of the people's
money that is entrusted to be managed by the state."9
Whether what is said about Soeharto is true or not, it is widely acknowledged by international
scholars'" and by Indonesians themselves that endemic corruption has plagued the country for at
least the past 30 years.
A recent World Bank study" showed that Indonesia was in the 6.7 percentile for the governance
indicator category, "control of corruption." That means that 93.3 percent of the countries studied
Acts of corruption in Indonesia do not always involve huge sums of money or complex, intricate
schemes. Most acts of corruption are simple and uncomplicated:
* Giving money to a government employee to help process an application for a permit or license;
* Offering a procurement official a piece of jewelry for his wife in anticipation of getting a contract
or a purchase order;
* Allowing a judge the use of a vacation home for a favorable decision;
* Knowingly submitting false financial information to a bank in anticipation of a loan; or
* Presenting an instructor in medical school a gift in expectation of receiving favorable academic
treatment.
No matter what the act is, or how small the gratuity is, or why it is being given-it is corruption. It
brings a degradation of the social order, a disregard for the law and a diminution of the rights of
every citizen.
Consider for a moment the impact on Indonesian society, on virtually all its members when:
* An unqualified applicant receives a permit or license to construct a building or drive a vehicle;
* An incompetent contractor builds a government facility;
* An inequitable, unjust decision is rendered by a judge;
ministries, or the Supreme Audit Institution of Indonesia, should take their places along the first
lines of defense against fraud and corruption. Many in Indonesia are recommending that auditors
and investigators of such institutions be thoroughly trained to execute the audit and investigative
skills necessary to detect and investigate fraud and corruption.
In an article titled, Corruption as a Driving force of a Shadow Economy, Lilia Carasciuc of the
Republic of Moldova urges that measures to combat corruption should include improving the
qualification levels of audit personnel. Those measures include training auditors in forensic audit
skills.14 Activities of supreme audit institutions in many countries over the past several years
illustrate concerns for the implementation of these ideas. For example:
* At a conference held in South Africa in 1999 sponsored by Transparency International, the
conferees decided that the role of national audit offices in combating corruption was a valuable
resource in anti-corruption efforts.
* In 1997 the auditor general of Barbados, in the annual report to Parliament, cautioned that
government ministries and departments lacked sufficient, independent checks to identify or restrict
occurrences of fraud and embezzlement.
* In 1997, members of the Caribbean Organization of Supreme Audit Institutions at a meeting in
Guyana, recommended that national audit offices increase their efforts and capabilities for
preventing, identifying and reporting suspected cases of fraud.
* In 1996, representatives of 10 national audit offices from the Pacific Region met in Micronesia.
They discussed the need for investigative expertise within their offices to enable the objective
examination of the potential for fraud and allegations of fiscal misconduct in public office. The
Pacific Region representatives suggested that:
* Examinations aimed at detecting official misconduct, such as conflicts of interest, bribes and other
illegal or corrupt practices were a logical extension of audit by national audit office auditors; and
* Training in investigative skills, specifically the ability to gather and present useful evidence under
judicial rules and the capability to deal with concealed financial and economic matters, were
essential competencies to enable their auditors to combat corruption.15
So it is clear that the strengthening of the audit and investigative capabilities of all of Indonesia's
audit institutions, including its Supreme Audit Institution, is an essential component of Indonesia's
efforts to combat corruption. Strengthening Indonesia's institutional audit and investigative
capabilities requires a number of legal and structural changes. What is certain however is that
intensive training in forensic auditing skills is an absolute requisite. One of Indonesia's major
ministries is attempting to do just that.
One of Indonesia's Major Ministries has Recently Taken Significant Steps to Strengthen its Ability
to Combat Corruption
One of Indonesia's major ministries recently engaged in an effort, supported by the Asian
Development Bank,16 to strengthen its ability to detect and investigate fraud and corruption. The
staff of its office of inspector general worked closely with Indonesian arid international forensic
experts during 2003 to enhance, and to further develop the capabilities of that ministry's
professional staff to conduct forensic audits and investigations.
The project, which lasted for several months, included a number of components designed to
strengthen the capabilities of its staff to detect and investigate incidents of fraud and corruption
uncovered during its work. The specific components of the project included:
* The development and delivery of training programs designed to teach ministry auditors and
investigators how to recognize fraud, and how to investigate it.
* The preparation of an operating manual containing audit guidance for its staff, specifically
forensic auditing.
* The hands-on training of, and consultations with ministry auditors and investigators by the
Indonesian and international forensic audit experts during the execution of audits and
investigations.
* The presentation of seminars to acquaint the public and other stakeholders with the issue of
corruption and what was being done to help eliminate it.
Benefits to the Ministry and its Auditors
The benefits of this project to the ministry and to its auditors and investigators will be considerable.
More important, as the ministry and its staff benefit, so too will each citizen of Indonesia.
Training
Training will enable ministry staff to be better prepared to recognize corruption during the
performance of their audit activities. Once able to recognize it, ministry staff will be more able to
investigate it, and prepare a case for referral to Indonesia's attorney general or other official body
for further investigation and ultimately prosecution or other judicial action.
Only about 20 percent of the ministry's audit and investigative staff had studied auditing at the
university level, and only about 30 percent had ever received training in forensic audit
techniques.17
Training in InterviewingTechniques
Interviewing and the collection and analysis of testimonial evidence is a basic technique for
obtaining important audit and investigative information.
Only about 20 percent of the ministry's auditors and investigators had ever been trained in
conducting fraud-related interviews.18
Training in fraud-related interviewing skills and techniques will enable ministry audit staff to more
efficiently and effectively interview witnesses and others during the course of an audit or
investigation and will contribute to the overall productivity of their work.
Training in the Collection of Evidence
All relevant audit standards require the collection of evidence in support of the auditor's or
investigator's conclusions and recommendations. As expected, evidence intended for use in an
Indonesian court of law must be collected in compliance with prevailing Indonesian law for it to be
admissible in an Indonesian court and contribute to prosccutorial efforts.
Only 5 percent of the ministry's auditors had ever prepared evidence for a court proceeding, and
only 2 percent had ever received training in preparing evidence for a court proceeding.19
Training in evidence collection familiarized ministry staff with the standards for collecting forensic
audit evidence, the variety of techniques used to collect that evidence, and the ways that evidence
can be analyzed. This training will make evidence collection more efficient and effective, and
contribute to the ministry's efforts to conduct productive audits and investigations that will result in
prosecutions in accordance with the Indonesian code of criminal law.
Training in Detecting Fraud and Other Irregularities in Computer-Processed Data
In Indonesia, as in most parts of the world, more and more transactions are being processed
electronically. The use of the computer to accumulate, store and process data is growing at an everincreasing rate. The need to access and use computer-generated data as evidence by auditors and
investigators is growing at the same rapid pace. Not surprisingly, the use of the computer to
perpetrate fraud and other corrupt practices is growing even faster.
Accordingly, auditors and investigators must be able to recognize the potential for fraud and other
irregularities in computer systems and in computer-processed data to ensure that the computerprocessed data are free from fraud or other irregularities, and are valid.
Only 2 percent of the ministry's auditors and investigators had ever received training in the use of
the computer related to fraud.20
Training in detecting computer fraud taught ministry staff what prevailing audit standards require
for validating the integrity of computer-processed data. It also exposed them to the techniques for
testing the validity of that data and the capabilities of computer systems to generate reliable data.
Training in the Investigation of Bribery, Payoffs and Kickbacks
An inventory of corrupt practices in any environment is not complete without mention of bribery,
payoffs and kickbacks. Together they are fundamentally the same act, namely offering money or
something of value to a public official or other person to influence official behavior or a decision, or
being the recipient of something of value for the same reason.
In a recent study by the World Bank Institute,21 it was estimated that more than $1 trillion a year is
paid in bribes worldwide in both rich and poor countries.
This form of corruption is especially prevalent in an environment that involves substantial outlays
of monies for construction contracts and for purchasing goods and services, as did this particular
ministry. Its impact is devastating.
Only about 25 percent of the auditors and investigators had ever received training in fraud audit as
it relates to government contracts and procurement, and only about 7 percent had ever received
training in fraud auditing as it relates to construction project management.22
Training in investigating bribery, payoffs and kickbacks exposed ministry staff to recognizing and
investigating one of the most prevalent forms of corruption that exists today. The training included
discussions of:
* Why bribery, payoffs and kickbacks occur, and indicators that signal that they may have occurred;
* How to plan and conduct an investigation into bribery, payoffs and kickbacks;
* How to demonstrate with evidence that they have taken place;
* Pertinent Indonesian law; and
* Case illustrations.
Development of an Audit Manual
Sound, thoughtful institutional guidance is indispensable to auditors and investigators, especially to
those who have just begun to concentrate on conducting fraud audits and who perhaps have not yet
been fully trained. The audit manual prepared by the experts will serve to guide ministry staff
during the planning, execution and reporting of their audits and in particular will help initiate the
auditors to their responsibility for fraud detection, and in the art of forensic audit. The manual
contains a chapter exclusively dedicated to fraud and investigations, and discusses in detail a variety
of fraudrelated topics including:
* The auditor's responsibility for detecting fraud, standards that guide the execution of that
responsibility, how fraud detection procedures must be incorporated into audit programs, and
preparing and planning for a forensic audit: 80 percent of the ministry auditors had never employed
nsk assessment techniques as a means to detect fraud.n
* How to recognize the potential for fraud, including recognizing red flags and allegations, and how
to address them: 80 percent of the ministry auditors had never received training in the role of "red
flags" in fraud detection.24
* The importance of internal control assessment as a means for identifying the potential for fraud:
70 percent of the auditors had never assessed internal controls to help detect fraud.25
* Types of evidence and related standards governing evidence collection and techniques for
collecting forensic evidence, and evidence that demonstrates intent to commit fraud: About 50
percent of the ministry auditors had not been trained in the use of working papers related to fraud,
and 98 percent had not been trained in preparing evidence of fraud for a court proceeding26
* Reporting the results of a forensic audit: 87 percent of the ministry auditors had never received
training in how to prepare a report related to a fraud audit.27
* Delivering testimony in court: 98 percent of the ministry auditors had never received training in
delivenng testimony in court,28
5. How terrorists get their money, by Merchant International Group Ltd., June 16,2004.
6. "More than $lt (trillion) paid in bribes a year: WB," Deutsche Presse-Agentur; Washington, a
study being undertaken by the World Bank, Jakarta Post, April 12,2004.
7. Recommendations to Combat Money laundering and Terrorism Financing, Financial Action Task
Force, The International Consortium on Governmental Financial Management, Public Fund Digest,
Volume IV, No. 1,2004.
8. Op. cit Deutsche Presse-Agentur.
9. Op. cit. Zacchea.
10. "A Nation in Waiting: Indonesia's Search for Stability," by Adam Schwartz, 1999, and "Shared
Hopes, Separate Fears: Fifty Years of U.S.-Indonesian Relations," by Paul F. Gardner, 1997.
11. http://info.woiidbank.org/ governance/kkz2002/sc_chart.asp,O.Kaufmann, A. Kraay and M.
Mastruzzi 2003: Governance Matters III: Governance Indicators for 1996-2002.
12. Statement by Peter Eigen, Chairman, Transparency International, at the Foreign Press
Association, London on October 7,2003.
13. "KKN a stumbling block to investments", by Peter Guntensperger, Jakarta Post, April 13, 2004.
14. Op.cit. Zacchea.
15. Ibid.
16. Asian Development Bank Project, No. TA 3842-INO, Strengthening The Capacity of MSRI To
Combat Fraud And Corruption, 2003.
17. Op.cit. Asian Development Bank.
18.Ibid.
19. Ibid
20. Ibid
21. Op.cit. Deutsche Presse-Agentur.
22. Op.cit. Asian Development Bank.
23.Ibid.
24. Ibid
25.Ibid
26. Ibid
27. Ibid
28. Ibid
AuthorAffiliation
-By: Safaat Widjajabrata, CPA, and Nicholas M. Zacchea, Ph.D., CGFM, CFE, CM
AuthorAffiliation
Nicholas M. Zacchea, Ph.D., CGFM, CFE, CM, a member of AGA's New York City Chapter, was
assistant regional manager in GAO's New York Office. He is now an international consultant who
has worked in South and Central America, the Caribbean, Europe, the South Pacific, North and
South Africa, Southeast Asia and the Middle East.
AuthorAffiliation
Safaat Widjajabrata, CPA, is chairman of the Jakarta Chapter of The Indonesian Accounting
Institute. He studied in Indonesia, the United States and Scotland. He is currently a partner in the
Indonesian public accounting firm of Soejatna, Mulyana and Rekan in Jakarta.
Copyright Association of Government Accountants Fall 2004