How Audit Takes Part in Fighting Corruption in Indonesia

The problem of corruption from both the businesses and government sectors in Indonesia continues to be in the headlines for almost every day in the local media. Corruption is the misuse of a position of trust for personal gain or advantage. Corruption spreads like an endemic in Indonesia as it resulted in Indonesia's corruption rate of 3.93 out of 5 points (Indeks Perilaku Anti Korupsi [IPAK] Indonesia 2022). Looking back to history, corruption has existed almost as old as the civilization in Indonesia itself. Starting from the kingdoms like Majapahit and Mataram, corruption was followed by the officials of VOC in the colonization era, the former governments after Indonesia’s independence, and even the governments today.

As similar as it may seem, financial auditing has distinguished corruption from the definition of fraud and instead classifying it as ‘a failure to comply with laws and regulations. It is stated that corruption doesn’t leave material errors in the accounts and leaves no evidence for the auditor, but it does result in misrepresentations in the accounts of the organizations that provided and received the corruption. Therefore, auditing standards must include corruption in the definition of fraud, adopt auditing techniques to detect corruption, and accounting professionals must implement effective corruption mitigation measures.

Auditing helps assess the anti corruption programs, foresees risks, and detects the existing and potential incidents (IIA, 2014). Auditing can also be used to evaluate corruption schemes, evaluate internal control environments, and create a scoring criteria for account risk assessments. Therefore, auditors have a big role in mitigating corruption as they can indicate its existence when they found diseconomy, inefficiency, and ineffectiveness in one’s financial statement.

Combating corruption in a country requires multi-pronged steps. Indonesian Supreme Audit Institution (Badan Pemeriksa Keuangan Indonesia) exists to enforce external supervision to all entities that use the state budget. The results of the BPK's supervisory function serve as a reference for state officials to prevent allegations of corruption committed by officials or apparatus. The existence of BPK can only be effective if the auditors can comply with the code of ethics and independence in judgement. Unfortunately, bribery is still prevalent in the internal side of BPK which leads to the lack of public trust in this institution.

In emphasizing social accountability, auditors played a major role in sharing information with other organizational functions, enforcing compliance, and investigating corruption schemes. However, accounting standards and audit techniques need to be revised first so that corruption is viewed not only as internal fraud (which can have a significant impact on the financial statements) but also as an illegal act that needs to stop.