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PUBLISHED DATE: - 03-08-2024
https://doi.org/10.37547/tajiir/ NICSPEEP-2024-01-11
FORENSIC ACCOUNTANTS’ DETERMINANTS IN
INDONESIA: ERADICATION OF CORRUPTION
THROUGH AUDIT TO CALCULATE STATE FINANCIAL
LOSSES
Evenri Sihombing
Faculty of Economics and Business, University of North Sumatra, Jl. Prof. TM Hanafiah, SH, USU
Campus, Padangbulan, Medan, 20155, Indonesia
Erlina
Faculty of Economics and Business, University of North Sumatra, Jl. Prof. TM Hanafiah, SH, USU
Campus, Padangbulan, Medan, 20155, Indonesia
Iskandar Muda
Faculty of Economics and Business, University of North Sumatra, Jl. Prof. TM Hanafiah, SH, USU
Campus, Padangbulan, Medan, 20155, Indonesia
Khaira Amalia Fachrudin
Faculty of Economics and Business, University of North Sumatra, Jl. Prof. TM Hanafiah, SH, USU
Campus, Padangbulan, Medan, 20155, Indonesia
RESEARCH ARTICLE
Open Access
Abstract
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INTRODUCTION
Based on global fraud survey, the 2022 ACFE
report encompasses 2,110 cases of corporate
financial fraud across 133 countries, recording a
total loss of USD3.6 billion. As widespread as
corporate financial fraud, fraud in public sector has
become increasingly substantial in Indonesia, as
evidenced by the growing number of corruption
cases being prosecuted. In 2019, it is reported that
the state financial loss incurred from 271 cases
amounted to IDR 8.4 trillion [1]. Despite the lower
amount of loss in 2022, the number of cases
managed by the Indonesian police agency reached
470 cases, causing the state financial losses of IDR
4.8 trillion [2]. At the same time, the Attorney
General's Office recorded the losses amounting to
IDR 144.2 trillion and USD 61.95 million [3]. Over
the course 2022
–
2023, the exposure of eight
large-scale corruption cases alone led to financial
losses totalling to IDR 25.81 trillion and economic
losses soaring to IDR 87.04 trillion.
In most of corruption cases, investigators from the
law enforcement agencies needed a forensic
accountant to calculate the state financial losses.
But when the case is considered as
straightforward, investigators, as permitted by law,
can quantify the state financial losses without the
assistance of forensic accountants. As stated in
article 1 number 28, the Criminal Procedure Code
(KUHAP), experts can be inquired for giving their
insights to help clarify the case being handled by
investigators [4].
In addition, conducting audit to count state
financial loss can have legal implications. A lawsuit
may be filed based on the audit result. Some of
them are listed in the following table:
Table 1 Lawsuit over the audit results of calculating state financial losses [5]
No
Cases
1
BPKP, West Nusa Tenggara, (overlooking refund of overpayment as a follow-up to BPK
findings)
2
BPKP, Aceh, (the audit report is based on physical expert prediction; hence it should be
deemed as flawed and having no permanent legal force)
3
BPKP, Central Kalimantan, (the audit report does not comply with standards, so the financial
losses become unclear, uncertain, and notional)
4
BPKP, West Papua, (the audit does not comply with audit procedures and audit standards, the
evidence collected through others)
5
BPKP, North Sulawesi, (the audit report does not comply with standards)
Source: Processed data (2024)
With the factual phenomena described in the
previous paragraph, audit quality has become the
focus of research in the last decades. Research on
audit quality has predominantly focused on the
corporate sector, leaving a gap in our
understanding of audit quality in the public sector,
in particular, the one that related to litigation. For
private companies, audit quality is determined by
various
factors:
standards,
regulations,
independence, competence, compliance with
standards or regulations, government policies and
auditor discipline [6]. Obtaining evidence becomes
challenging as involved parties often attempt to
conceal their fraudulent activities. The reality is
that complete documents are scarce, as some are
only available in copies and getting the reliable one
remains elusive [7]. Pursuit of evidence influences
audit quality based on perception [8], meaning that
evidence influences audit quality holistically, but it
does not influence audit quality when viewed from
an individual perspective [9]. The amount of audit
fees affects audit quality [10]. Affiliation with the
Big Four accounting firms results in higher fees
compared to non-affiliated ones [11]. The
esteemed reputation of an accounting firm
significantly shapes the magnitude of audit fees
[12]. In other words, the larger the audit office, the
greater the audit fees paid [13]. If the audit fee rate
is higher, the audit quality tends to be better [14].
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Audit quality is also influenced by auditor rotation
[15]. However, the results of other studies indicate
that rotation has no effect. Rotating auditors or
partners does not have effect on audit quality [6].
In
accordance
with
regulation,
forensic
accountants managing suspected corruption cases
in the public sector are subjected to rotation as
well. As civil servants, they can also be mutated,
demoted, promoted, or even rotated to other
entities. The synergy between forensic accountants
and law enforcement investigators (including
police, prosecutors, and the KPK) in addressing
suspected
corruption
cases
remains
an
underexplored area of studies. The follow up effort
on the auditor's findings are important in the
context of conducting audit to calculate state
financial losses (APKKN) [16]. If state losses based
on the auditor's findings are of a criminal nature,
they are then referred to investigators for further
action that is in accordance with the provisions
outlined in article 10 of Law 30 of 2014 concerning
government administration.
METHOD
2.1 Framework conceptual
In this research, the independent variables consist
of audit cost, rotation, and synergy. The
independent variables influence the quality of the
APKKN, with their effects mediated by pursuit of
evidence, as captured in the following diagram:
Figure 1: Conceptual Framework
Source: Processed data (2024)
2.2 Research Hypothesis
Based on the above explanation, the research
hypotheses are arranged as follows:
-
The forensic accountant conducting the
audit can be summoned in trials as an expert.
The scale of audit costs affects audit quality
[10]. The lower the audit fee is the lower the
audit quality [14]. Thus, audit fees influence
audit quality [17]. H1: APKKN costs have a
positive and significant effect on APKKN
quality.
-
-
In Indonesia, the shorter the rotation
period or the retainment of an accounting
firm, the better the audit quality [18].
Partner rotation is expected to enhance
audit quality [19]. Meanwhile auditor
rotation encourages job satisfaction and
audit quality [20]. H2: Forensic
accountants’ rotation has a positive and
significant effect on the quality of APKKN.
-
A forum integration is needed to enhance
coordination among institutions working to
eradicate corruption [21]. Strengthening
collaboration with auditors leads to greater
accountability and minimizes loss over state
fund [22]. H3: The synergy has a positive and
significant effect on the quality of APKKN.
-
Forensic accountants should enhance their
efficiency and proficiency for evidence
gathering [23]. Frequently, the evidence
related to APKKN is not easily accessible and
relatively incomplete [7]. H4: Audit cost
have a positive and significant effect on
Cost Audit (X1)
Rotation (X2)
Synergy (X3)
Pursuit of Evidences
(Z)
Audit Quality of
Calculating State
Financial Losses (Y)
H1
H2
H3
H5
H6
H4
H7
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obtaining evidence.
-
Rotation improves audit quality by
collecting sufficient evidence [24]. H5:
Rotation of forensic accountants has a
positive and significant effect on pursuit of
evidence.
-
Failure to obtain evidence may undermine
audit quality [25]. Adequate and well-
documented evidence are hallmarks of high-
quality audits [26]. H6: The synergy of
forensic accountants with corruption
investigators has a positive and significant
effect on pursuit of evidence.
-
The APKKN aims to unveil a more evident
corruption scenario as disclosed in a report
(Article 187 paragraph c KUHAP) [4]. The
combination of investigative competence
and forensic accounting expertise enhance
the detection of the state losses [22]. H7:
Pursuit of evidence has a positive and
significant effect on the quality of APKKN.
-
The evidence for APKKN is acquired through
law enforcement investigators. The amount
of loss is disclosed in the report, while the
amount of profit gained by the perpetrators
is calculated based on administrative
evidence [27]. H8: Audit cost affects quality
of APKKN mediated by the pursuit of
evidence.
-
Auditors assigned to their home area tend to
have strong relationships with their local
government, so they tend to overlook the
standard audit procedures despite the risk of
the evidence obtained being manipulated
[28]. H9: Rotation has an effect on the quality
of APKKN mediated by the pursuit of
evidence.
-
The audit report relies on the analysis of
evidence sets prior to submission in court
[29]. The synergy of law enforcement
investigators and forensic accountants helps
in suppressing financial crimes [29]. H10:
The synergy of forensic accountants and
investigators influences the quality of
APKKN mediated by pursuit of evidence.
2.3 Research Design
The goal of this research is discovering any
correlation between several variables by
measuring the extent of association between
variables [30]. The quality of the audit to calculate
state financial losses (APKKN) becomes the
dependent variable, while the pursuit of evidence
is the mediating variable for the independent
variables consisting of audit costs, rotation and
synergy.
2.3.1 Population, Sample, and Sampling
The respondents in this research are forensic
accountants working at the BPKP and having
experience on conducting audit to calculate state
financial losses. The number of populations is 660
people with a minimum sample size of 230 using
Isaac and Michael's table [31]. The instrument used
is primary data by distributing questionnaires in
softcopy (google form). As a result, 364 valid
respondents returned the questionnaires. Data
analysis techniques use quantitative data,
descriptive statistical analysis, and multiple linear
path regression models processed by the WarpPls
8.0 application [32].
2.3.2 Path Analysis
The model used in this research is path analysis
which describes the structure of the cause-and-
effect relationship between independent variables,
intervening variables, and dependent variables
[30]. The linear relationship between independent
variables (X1, X2, X3) and the dependent variable
(Y) involves an intervening variable (Z). The
research also employs ordinal (interval) data. The
formula used:
Y = b1X1+b2X2+ b3X3+ bZ+e1
…(1)
Z = b1X1+b2X2+ b3X3+ e2
…(2)
Y = Quality of APKKN
Z = Pursuit of evidence
X1 = Audit costs
X2 = Forensic accountant rotation
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X3 = Synergies between forensic accountants and
law enforcement investigators
e = Tolerable error (5%)
RESULTS AND DISCUSSION
3.1 Results
3.1.1 Convergent Validity Test, Discriminant
validity, Reliability Test, and Collinearity Test
Convergent validity is assessed using the value of
loading factor (LF) and the cross-loading factor
CLF) [32, 33]. The higher the value of LF, generally
a value higher than or equal to 0.5 (≥ 0.5), the
stronger the associations [32, 33, 34]. According to
the results of data processing, all parameter of
variables was 0,601 ≤ scores ≤ 0,863. The
discriminant validity test is assessed using the
value of Average Variance Extracted (AVE). If the
AVE value is > 0.5, it means that the latent variable
has absorbed more than 50% of the information
from its indicators [32,33]. AVE values are Y
(0.775), Z (0.782), X1 (0.739), X2 (0.790), X3
(0,805). Reliability is assessed through the
Composite Reliability (CR) weight and Cronbach's
Alpha (CA) value [32]. The expected value of CR
and CA is ≥ 0.7 [32]. CR value are Y (0.923), Z
(0,916), X1 (0.915), X2 (0.930), X3 (0.940) and CA
value are Y (0.903), Z (0.893), X1 (0.894), X2
(0.930), X3 (0,939). The collinearity test aims to
assess whether variables or constructs are free
from collinearity, particularly when they are
constructed using different attributes. Average full
collinearity VIF (AVIF) measures predictor
collinearity, while lateral collinearity is shown
through the cross-loading factor value for each
variable (construct) <0.5 [32]. AVIF from this
study is 1.991, acceptable if <= 5, ideally <= 3.3.
3.1.2 R-Squared Testing (R2)
The R2 test describes the size of the determination
of the independent variable/construct (predictor)
on the dependent variable (criterion). From the
results of data processing using WarpPLS 8.0, the
following R-squared picture is obtained R2 of
APKKN (0.615), pursuit of evidence (0.465),
adjusted R-squared coefficients of APKKN (0,611)
and pursuit of evidence (0,465). It is suggested that
a model is considered as moderate if its R-squared
coefficient is in between 0.33 and 0.67 (0.33 < R2 <
0.67). In addition, the model is deemed as weak if
R2 <0.33 and strong if R2 >0.67 [35]. The closer the
R2 to 1, the better the determinants used in the
model. The results concludes that both models are
considered moderate.
3.1.3 Evaluation of Model Fit
This model is an evaluation tool for the
relationships between latent variables. If the Q-
squared value is > 0, the model-built lacks
predictive relevance.
Table 2 Model Fit Indices
Figure 2: The Result of Research Model
Source: Processed data (2024), using WarpPLS 8.0
Model Fit
Indices
Average path coefficient (APC)
=0.246, P<0.001
Average R-squared (ARS)
=0.542, P<0.001
Average adjusted R-squared (AARS)
=0.538, P<0.001
Average block VIF (AVIF)
=1.355, acceptable if <= 5, ideally <= 3.3
Average full collinearity VIF (AFVIF
=1.991, acceptable if <= 5, ideally <= 3.3
Tenenhaus GoF (GoF)
=0.573, small >= 0.1, medium >= 0.25, large >= 0.36
Simpson's paradox ratio (SPR)
=1.000, acceptable if >= 0.7, ideally = 1
R-squared contribution ratio (RSCR)
=1.000, acceptable if >= 0.9, ideally = 1
Statistical suppression ratio (SSR)
=1.000, acceptable if >= 0.7
Nonlinear bivariate causality direction ratio (NLBCDR) =1.000, acceptable if >= 0.7
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The indirect effect on variables in this research is as follows:
Table 4 Results of Indirect Effects
Source: Processed data (2024), using WarpPLS 8.0
Based on the above results, the mathematical
equation is presented as the following:
Y = - 0.04X1+0.10X2+ 0.25X3+ 0.544Z (1) and Z = -
0.08X1+0.09X2+ 0.62X3 (2).
DISCUSSION
The audit costs (Cost (X1)) have a negative
relationship but insignificant effect on the quality
of APKKN (Qual (Y)). This is shown by the path
coefficient of -0.04 and p-value = 0.20, which is
greater than the value α > 0.05. The result of this
research is different from the result of previous
research [10,17,36]. The quality of APKKN is not
influenced by the amount of fees. It shows the
efficiency of BPKP. The more efficient the
organization operates, the more effective its
governance is managed [37]. The result confirms
the incomplete contract theory [38] suggesting that
the costs of conducting audit remain elusive due to
the inability to predict the exact future cost needed.
The forensic accounting rotation variable (Rota
(X2)) is 0.10 with a p-value of
0.03, where the α
value <0.05. It means that this hypothesis is
accepted, the rotation of forensic accountants at
BPKP has a significant effect on the quality of
APKKN (Qual (Y)). The steady and longstanding
relationships between forensic accountants and
investigators may lead to overlooking critical facts.
Implementing rotation can significantly reduce the
risk of opinion bias compared to a scenario with no
rotation [39]. The result of this research
strengthens the finding [40], rotation enhances job
satisfaction and audit quality [41]. Rotation is also
needed to ensure factual objectivity and reduce
bias in delivering expert opinion through APKKN.
The result shows that the path coefficient for the
synergy variable between forensic accounting and
investigators (Syne (X3)) is 0.25 with a p-value of
<0.01, where the p-
value or α <0.05. This means
that this hypothesis is accepted, the synergy
between forensic accountants at BPKP and
investigators (Syne (X3)) has a significant effect on
the quality of APKKN (Qual (Y)). The results of this
research are in accordance with previous research
[39,40]. The result of this research confirms goal
theory [42], an individual goals are fulfilled
through the combination of his/her values and
intentions. The effective synergy between forensic
accountants and law enforcement investigators
plays a pivotal role to ensure its accountability
during the trial.
The audit cost (X1) is -0.08 with a p-value of 0.07
where the α value is > 0.05. Cost do not have a
significant effect on the pursuit of evidence (Evid
(Z)). The relevant evidence is usually obtained
through law enforcement investigators. Forensic
accountant must strive for greater efficiency,
increased acumen, and heightened effectiveness in
gathering evidence [23]. The research aligns with
the incomplete contract theory [38] that the exact
number of cost is difficult for major obstacles as the
risk of misinformation, the level of complexity, the
speed of data access, and the rationalization. The
rotation variable (Rota (X2)) is 0.09 with a p-value
of 0.04, where the α value <0.05. It means that this
hypothesis is accepted, the rotation of forensic
Independent Variable
Intervening Variabel
Dependent Variable
Coefficient (β) p-value H Conlusion
Indirect Effect
Cost Audit (Cost (X1))
--> Pursuit of evidence (Evid (Z))--> APKKN Quality (Qual(Y))
-0.043 0.125 H8 rejected
Auditor Rotation (Rota (X2)) --> Pursuit of evidence (Evid (Z))--> APKKN Quality (Qual(Y))
0.050 0.089 H9 rejected
Synergy (Syne(X3))
--> Pursuit of evidence (Evid (Z))--> APKKN Quality (Qual(Y))
0.338 <0.001 H10 received
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accountants at BPKP has a significant effect on
obtaining evidence (Evid (Z)). A new forensic
accountant is expected to have better compliance
to investigative guidelines, fostering the
accountability of evidence obtained for trials. The
supervisory will encourage forensic accountants
assigned to conduct APKKN. This result confirm the
previous research [24] suggesting that rotation
improves audit quality by acquiring sufficient
evidence. The research’s result complements goal
theory [42]. Rotation of forensic accountants
maintain objectivity in obtaining relevant,
sufficient, and competent evidence. The synergy
variable between forensic accounting and
investigators (Syne (X3)) is 0.62 with a p-value of
<0.01, where the p-
value or α <0.05. This means
that this hypothesis is accepted. The effective
synergy may accelerate the process of obtaining
evidence, thus reducing the overall time consumed.
High-quality audits are characterized by thorough
and well-documented evidence [26].The results of
this research complement goal theory [42] that
synergy between forensic accountants and law
enforcement investigators is another new
fundamental principle in support of the acquisition
of evidence. The evidence acquisition variable
(Evid (Z)) is 0.54 with a p-value of <0.01, where the
p-
value or α <0.05. The acquisition of evidence has
a significant effect on the audit quality of
calculating state financial losses (Qual (Y)).
Forensic accountants at BPKP will issue a report on
auditing if all relevant evidence have been collected
[43]. The combined impact of investigative skills
and forensic accounting proficiency contributes to
the increase in state losses [22]. This research
supports the capability signal elements of forensic
accounting theory [44], but it does not confirm the
materiality elements, bonus systems, anonymous
systems and unsustainable impact systems of an
entity, program, or activity in the public sector.
Materiality is determined by the ability to disclose
relevant facts and chronology, direct bonus system
is not defined in regulation, identities must be
clear, and they are more focus in law enforcement
than going concern program.
The impact of audit costs on the quality of APKKN
is mediated by the pursuit of evidence was rejected
by the path coefficient, which is -0.08, and its p-
value, that is 0.125, greater than 0.05. The efficacy
of evidence acquisition hinges upon the adept
facilitation provided by law enforcement
investigators. The pursuit of evidence mediates the
influence of forensic accountant rotation on the
quality of APKKN was also unfounded by the path
coefficient is 0.050 but its p-value is 0.089, greater
than 0.05. Obtaining evidence (Evid (Z)) does not
mediate the effect of forensic accountant rotation
on APKKN quality (Qual (Y)). Forensic accountants
do not unilaterally search and collect it themselves
for the APKKN is an integral part of the
investigation process. Pursuit of evidence (Evid
(Z)) mediate the effect of synergy between forensic
accountants and law enforcement investigators on
APKKN quality (Qual (Y)) as shown by path
coefficient of 0.378 and p-value <0.001, smaller
than 0.05. The results are in accordance with the
result of previous research [29] implying that the
synergy of law enforcement with forensic
accountants helps entities suppress financial
crime.
CONCLUSIONS
According to the results discussed in the previous
paragraphs, we can conclude the following points:
-
Audit costs don’t have a significant effect on
the quality of audits to calculate state financial
losses (APKKN) because accountant forensic at
BPKP have assess the elements of unlawful
conduct, estimated state financial losses, and
investigation stages by initial reviewing the
adequacy of availability evidence before APKKN.
Rotation has a significant effect on the quality of
APKKN for keeping integrity of their opinion by
strictly supervisory. Synergy has significant effect
on the quality of APKKN. The effective synergy
ensure the accountability of state financial losses
estimation during the trial.
-
Audit costs don’t have a significant effect on
obtaining evidence in terms of APKKN for evidence
collected by investigators. Rotation of forensic
accountants at BPKP has a significant effect on
obtaining evidence. Without rotation, there is a
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higher risk of receiving limited evidence to
calculate state financial losses. Synergy has a
significant effect on obtaining evidence by
accelerating the process of handling corruption
case, which usually takes a relatively long time up
to 12 months [45]. Pursuit of evidence significantly
influences the quality of APKKN for help forensic
accountants to construct an objective and well-
organized chronology of facts.
-
Pursuit of evidence doesn’t mediate the
relationship between audit cost and rotation on
APKKN quality. The nature of audit costs of forensic
accountants at BPKP differed from that of audit
fees of public accounting firms. The amount of the
audit costs depends on the length of time for the
official trip as approved by the authorized official
and rotation in BPKP is based on individual request
or the organization’s consideration. The pursuit of
evidence mediates the synergy between forensic
accountants and investigators on the quality of
APKKN. Robust synergy enhances data accuracy
and fosters greater accountability of information.
Furthermore, synergy reduces the sectoral egos
and intensify coordination across multiple sectors.
-
The focus of this research is forensic
accountants in BPKP. Future research can expand
the population by including BPK, institution of
government internal auditors other than BPKP,
investigators and judges. This research also focuses
on the investigation stages (with two early legal
evidence). Future researchers can expand the
scope of research by starting from the initial stage
of investigation and by including new variables
such as blended knowledge, resiliencies, training,
and legal risk for forensic accountants.
ACKNOWLEDGMENTS
We declare our highest appreciation for the
ultimate contribution of thought and attention to
support this research, specifically Prof. Erlina, Prof
Iskandar Muda, Prof. Khaira Amalia Fachrudin, Dr.
Rujiman and Dr. Chandra Situmeang.
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