Asset Misappropriation Tendency: Rationalization, Financial Pressure, and the Role of Opportunity (Study in Indonesian Government Sector)

Abstract

Purpose: The purpose of this study is to analyze the relationship between Rationalization and Financial Pressure on Asset Misappropriation Tendency by mediating Opportunity in the Indonesian government sector based on the Fraud Triangle perspective.
 Methodology: The Population of this study was Indonesian government employees. The Sample method was Purposive Sampling and the survey method was direct surveys, postal mail, and online surveys. The number of respondents was 363 and analyzed using Structural Equation Model with AMOS-based covariance.
 Main Findings: The results show that financial pressure, rationalization, and opportunity had a significant positive effect on Asset Misappropriation Tendency. Furthermore, Opportunity mediates the relationship between rationalizations on Asset Misappropriation Tendency; However, Opportunity does not mediate the relationship between Financial Pressure and Asset Misappropriation Tendency.
 Implications: This study contributes to the literature on asset misappropriation in the government sector which is rather very limited and supports the Fraud Triangle Theory. It also has several practical implications for being a source of information to formulate policies in fraud prevention and detection that will improve management control systems in the government sector a developing country.
 Novelty: A limited study of asset misappropriation in the government sector in a developing country that examines the influence of element strength of Fraud Triangle in Asset Misappropriation which has been criticized by previous researchers.

Financial Statement Fraud Risk Factors of Fraud Triangle: Evidence From Indonesia

“…Kenyon and Tilton (2006) also said that weak internal control, lack of supervision, adequate separation of tasks can create opportunities for fraud. Yusrianti et al (2020) also implied that the opportunity had a significant positive effect on asset misappropriation tendency.…”

“…Skousen, et al (2009) also carried out empirical testing of the fraud triangle concept adopted by SAS 99 to detect financial statement fraud. Yusrianti et al (2020) also examined the risk factors of the fraud triangle on Asset misappropriation that is one type of fraud.…”

Prevention Village Fund Fraud in Indonesia: Moral Sensitivity as a Moderating Variable

“…The Government's internal control system affects accountability in the management of village funds because the Government's internal control system can minimize errors or fraud in the management of village funds, bookkeeping data, etc. According to Yusrianti et al (2020), the opportunity is a situation where opportunities are open to employees that allow fraud to occur. These opportunities are due to weak internal control, weak supervision, and weak law enforcement within the institution.…”

“…Internal control is designed to provide reasonable assurance in achieving operational objectives, provide reliable financial reporting, and comply with applicable laws and regulations (Monteiro et al 2021). Internal control plays a vital role in fraud prevention and detection (Yusrianti et al 2020). The research findings of Rukmana (2018) and Setiawan (2018) show that the correct internal control system can reduce the possibility of fraud cases and assist in fraud prevention.…”

Asset Misappropriation Employee Fraud: A Case Study on an Automotive Company in Indonesia

“…Several types of fraud committed by employees at work are theft of cash for personal need (Aba et al, 2020;Kalovya, 2020;Kazemian et al, 2019), fraud by taking customer deposit money without depositing it to the company (Kennedy, 2018;Nigrini, 2019;Yusrianti et al, 2020), fraud involving suppliers or contractors in a collusive manner aimed at taking personal gain (Feess & Timofeyev, 2020;Pacini et al, 2021;Reurink, 2018), fraud employees through salary and commission mechanisms (Adenuga et al, 2020;Maynard-Patrick & Higgins, 2019), abuse of company costs through fictitious, overstated or mischaracterized expenses (Bakri et al, 2017;Le & Tran, 2018), fraud using cheque instruments (Raj et al, 2018;Yusuf et al, 2020), theft of inventory (Yusrianti et al, 2020;Zuberi & Mzenzi, 2019) and manipulation of financial statements (Aris et al, 2015). ACFE defines fraud as a process of using one's responsibility to satisfy one's personnel interests by enriching oneself through the deliberate abuse of power (ACFE, 2017).…”