Beating fraud in Indonesia

It has been over one month since graft suspect Muhammad Nazaruddin was arrested in Colombia by Interpol and yet his wife, Neneng Sri Wahyuni, remains at large. She is currently listed on the agency’s website as a fraud suspect due to her alleged involvement in her husband’s series of fraud offenses.

Generally, fraud is known globally as an offense which involves intentional use of false statements which, due to a victim’s reliance on them, causes damages or losses. In Indonesia, many have misconceptions about the definition and nature of fraud by arguing that “fraud is corruption” and “corruption is fraud”.

In reality, however, fraud occurs in many forms and can be perpetrated by anyone and corruption is just one of them. The Association of Certified Fraud Examiners (ACFE) in its annual global fraud survey, for example, lists corruption as one of the categories under the fraud tree classification system with the other two being asset misappropriation and fraudulent statement.

Under this category are various related offenses such as conflict of interest, bribery, illegal gratuities, and economic extortion. Nevertheless, ACFE’s fraud classification system may not be fully compatible with legal definitions of the offense in various countries.

This is so because fraud, including corruption, is often defined differently across legal systems. This is particularly problematical for scholars conducting research in the area of anti-fraud practices from which sound strategies to address the problem can be articulated. Therefore, an important prerequisite in combating fraud is to have the same perception as to what constitutes an offense before resorting to further action.

With the combination of perception and interpretation, efficient coordination can be attained and predetermined targets are more likely to be achieved.

Additionally, with fraud such as corruption now becoming a global pandemic it is important for countries to learn from each other about the best actions to take against the crime. This unity of perception and interpretation will promote continuous improvement through benchmarking and networking among, for example, law enforcement agencies across various countries.

Another thing worthy of note in combating fraud is that, just like a disease, prevention is always better than a cure. Media coverage in Indonesia often creates an impression that combating fraud is all about punishing the offenders. Severe punishment is believed to be the ultimate means of eliminating or at least minimizing threats from fraud. In reality, this is only half true.

Over half a century ago criminologist Donald Cressey formulated what is known today as the “fraud triangle” in an effort to understand why people, some of whom without previous criminal records, commit fraud.

The theory establishes that the three elements behind the occurrence of fraud are; pressure or motivation, opportunity and rationalization. There are many factors that lend an element of pressure or motivation to the triangle. Consumerism in Indonesia, for example, which is believed to promote greed, may cause offenders to choose to live beyond their means. They then resort to fraudulent means to boost their income.

Opportunity to commit fraud often emerges from one’s position in public or private institutions, the use of which enables one to influence decision-making processes for one’s own benefit. During elections in Indonesia, for example, the public often witnesses the fierce struggle for strategic positions in the House of Representatives. Several lawmakers have now become fraud suspects and are currently being investigated by the police or the Corruption Eradication Commission for offenses such as corruption, bribery, asset misappropriation, to name just a few.

Thirdly, rationalization is the means by which offenders justify their acts or at least avoid feeling guilt. Studies of fraud suggest that among the most common excuses (rationalization) used by fraud offenders are; “this is how business is done around here”, “everyone is happy and nobody gets hurt”, “I am just trying to help my friends and family” and “the law does not say anything about this”. This way, psychologically, fraud offenders often lie not just to others but also to themselves about their crimes.

To minimize the occurrence of fraud means to suppress elements that cause it. In other words diminishing the offenders’ pressure or motivation, opportunity and rationalization will likely be effective means in minimizing fraud in society.

However this can be achieved only when all parties, not just law enforcers, collaborate in achieving such an objective. Educational institutions, for example, can play a role in ensuring that morality and ethics are rooted deeply in future generations’ minds preventing them from taking part in any fraudulent conduct whatever the motivation or pressure.

The opportunity to commit fraud can be minimized generally by making it more difficult for potential offenders to perpetrate fraud. This can be achieved in particular through implementing strong internal control throughout an organization. Furthermore, organizations of various kinds can create a culture of transparency which will eliminate the ‘this is how business is done around here’ rationalization.

Finally, as the last line of defense, a strong legal system will deter potential fraudsters and prevent them from becoming actual offenders. I believe that through a more holistic approach, starting from building future generations’ morality and ethics, Indonesia will be able to beat fraud.

By Hendi Yogi Prabowo director of the Center for Forensic Accounting Studies at the Department of Accounting of the Islamic University of Indonesia, Yogyakarta.