Digital - 2018!5!20467047-T49060-Chekat Fahmy Rosyadi

UNIVERSITAS INDONESIA
THE INFLUENCE OF GOVERNMENT FRAUD AUDIT

EFFORTS ON CORRUPTION LEVEL IN INDONESIAN
PROVINCES
THESIS
CHEKAT FAHMY ROSYADI

1506773646
FACULTY OF ECONOMICS AND BUSINESS

GRADUATE PROGRAM IN ACCOUNTING SCIENCE
DEPOK
DESEMBER 2017
The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

UNIVERSITAS INDONESIA
THE INFLUENCE OF GOVERNMENT FRAUD AUDIT

EFFORTS ON CORRUPTION LEVEL IN INDONESIAN
PROVINCES
THESIS
Submitted as part of the requirement for the Degree of

Master of Science in Accounting
CHEKAT FAHMY ROSYADI

1506773646
FACULTY OF ECONOMICS AND BUSINESS

GRADUATE PROGRAM IN ACCOUNTING
DEPOK
DESEMBER 2017

iii

ABSTRAK
Nama : Chekat Fahmy Rosyadi

Program Studi : S2 – Program Pascasarjana Ilmu Akuntansi
Judul : Pengaruh Usaha dalam Fraud Audit oleh Instansi Pemerintah
terhadap Tingkat Korupsi di Provinsi-Provinsi di Indonesia
Tujuan dari penelitian ini adalah untuk mengetahui peran audit pemerintah dalam
mengendalikan korupsi. Penelitian ini difokuskan pada efektivitas kinerja lembaga
auditor internal Presiden RI, BPKP, melalui temuan penyimpangan di dalam
laporan auditnya terhadap tingkat korupsi yang terjadi di provinsi-provinsi di
Indonesia serta upaya dalam melakukan perbaikan setelah audit untuk
memberikan efek jera dalam pemberantasan korupsi. Penelitian ini menggunakan
sampel dari pemerintah daerah di tingkat provinsi selama kurun waktu 2012-2015
sebanyak 128 sampel pengamatan. Hasil penelitian ini menunjukkan bahwa
penyimpangan yang ditemukan oleh BPKP melalui fraud audit mempengaruhi
tingkat korupsi di provinsi-provinsi di Indonesia. Namun upaya perbaikan yang
dilakukan setelah audit tidak dapat menurunkan tingkat korupsi.
Kata Kunci:
Audit Pemerintah, BPKP, Korupsi.
ABSTRACT
Nama : Chekat Fahmy Rosyadi

Program Studi : S2 – Graduate Program of Accounting Science
Judul : The Influence of Government Fraud Audit Efforts on
Corruption Level in Indonesian Provinces
The purpose of this study is to examine the role of government auditing to restrain
corruption. This study is focused on the effectiveness of the internal auditor
institution of the Indonesian President, BPKP, performances through irregularities
found in fraud audit on the corruption level in Indonesian provinces and
rectification effort made following the audit to give a deterrence effect to curb
corruption. This study uses sample data from local governments on the provincial
level from 2012-2015 with 128 province-year observations. The result of this
study shows that the irregularities found by BPKP fraud audit influence the level
of the corruption in the Indonesian provinces. However, the rectification effort
made following government audit does not decrease the corruption.
Keywords:
BPKP, Corruption, Government Auditing.
v Universitas Indonesia

TABLE OF CONTENTS
TITLE PAGE ................................................................................................... i

STATEMENT OF ORIGINALITY ............................................................... ii
AUTHORIZATION PAGE ............................................................................. iii
STATEMENT OF AGREEMENT FOR THESIS PUBLICATION ........... iv
ABSTRACT ...................................................................................................... v
TABLE OF CONTENTS ................................................................................. vi
LIST OF TABLES ........................................................................................... vii
LIST OF APPENDICES ................................................................................. viii
1. INTRODUCTION ....................................................................................... 1
1.1 Research Background .......................................................................... 1
1.2 Research Question .............................................................................. 3
1.3 Research Contribution ......................................................................... 4
2. LITERATURE REVIEW ........................................................................... 5
2.1 Research Background .......................................................................... 5
2.2 Hypotheses Development .................................................................... 7
3. RESEARCH DESIGN ................................................................................ 10
3.1 Research Method ................................................................................. 10
3.2 Research Model ................................................................................... 10
3.3 Research Variables ............................................................................... 11
4. FINDINGS AND DISCUSSION ................................................................ 15
4.1 Descriptive Statistics ............................................................................ 15
4.2 Empirical Results ................................................................................. 16
5. CONCLUSION, IMPLICATIONS, LIMITATIONS, AND FURTHER
RESEARCH ................................................................................................. 22
5.1 Conclusion ........................................................................................... 22
5.2 Implications .......................................................................................... 23
5.3 Limitations ........................................................................................... 24
5.4 Further Research .................................................................................. 25
REFERENCE ................................................................................................... 26
APPENDICES .................................................................................................. 31
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LIST OF TABLES
Table 4.1 Descriptive Statistics ............................................................................ 15

Table 4.2 Coefficient Correlations ....................................................................... 16
Table 4.3 Regression result using Corrupt_it as DV (Model 3.1) ....................... 17
Table 4.4 ANOVA result using FrAu_it as DV (Model 3.2) ............................... 20
Table 4.5 Regression result using AuRec_it as DV (Model 3.3) .......................... 20
vii Universitas Indonesia

LIST OF APPENDICES
Appendix 1 Model Summary ................................................................................ 31

Appendix 2 ANOVA ............................................................................................ 31
Appendix 3.1 Coefficients .................................................................................... 31
Appendix 3.2 Coefficients .................................................................................... 32
Appendix 4 Histogram ......................................................................................... 32
Appendix 5 Normal P-Plot ................................................................................... 33
Appendix 6 Scatterplot ......................................................................................... 33
Appendix 7 Coefficients of Glejser Test .............................................................. 34
Appendix 8 ANOVA ............................................................................................ 34
viii Universitas Indonesia

CHAPTER 1
INTRODUCTION
1.1 Research Background

Corruption becomes a significant concern in many countries because of its
ability to harm their economic development. According to Transparency
International (TI, 2017), there are no single countries free from corruption.
Transparency International did the survey of corruption perceptions index 2016
for 176 countries, and none of the countries had a perfect score. Based on data
from TI (2017), Indonesia is positioned on number 90 and has a score of 37 which
is below the average of 43. It means that Indonesia is still perceived as a high
corrupted country. According to Indonesia Corruption Watch (ICW, 2016), as of
2015, Indonesia has suffered a state financial loss around IDR 31.077 trillion
(equivalent with 2.2 billion Euro).
Indonesia is a country that consists of 34 provinces. Each province has a
different number of cities and counties. According to the data from the Indonesian
Ministry of Home Affairs (2015), as of 2014, there were 508 cities and counties. It
means there are 542 local governments (provinces, cities and counties) who
manage their own budget and performance. Most of the revenue budgets or funds
are derived from central government, and the remaining are gained from local
income, such as local taxes, retributions, mining concessions, and many others.
After Indonesian Law Number 32 of 2004 about Local Government had been
issued, the local governments have authority to manage their financial budget.
Decentralization has been one of the reforms in public sector in Indonesia.
Decentralization is expected to give a positive impact on the development of
lagging regions within a country. Therefore, the regions can be independently and
automatically be able to promote the national development.
Apparently, the decentralization also brings several problems. Rodrigo et al.
(2009) say that one of the challenges for a country that applies multilevel
regulatory is in creating high quality regulation on the lower level of government,
yet another problem is the level of corruption. Maravic (2007) says that
decentralization causes a movement in corruption from the state level to local
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government, so-called corruption decentralization. Rinaldi et al. (2007) argue that

decentralization can increase corruption in counties and cities and can create
‘money politics’ (create bias towards certain political groups due to monetary
interest) on the head of the region election. In maintaining good governance, the
citizens can assess the transparency and accountability of local governments’
performances through their financial reporting. According to Setyaningrum
(2015), local government financial reporting has functioned as a monitoring tool
for society to give evaluation regarding government performances.
Each local government has a regional parliament from political parties that
have the duty to monitor the implementation and the accountability of budget of
revenue and expenditure. Every end of the year, local governments have to
present a financial report as mandated by the laws. Then the local governments
are audited by external and internal audit institutions. The external audit
organization in Indonesia, the Supreme Audit Institution or Badan Pemeriksa
Keuangan (BPK), conducts an audit of the financial reports and gives an audit
opinion on local governments’ financial report. Each local government and central
government (i.e. The President and Ministers) has its internal audit institution that
conducts audit except audit of the financial report. Another task of the internal
audit agency is to assure the implementation of the government internal control
system as required by Regulation of Indonesian Public Government number 60 of
2008.
The study of Liu and Lin (2012) empirically investigates the role of the
audit that was conducted by the Chinese government to fight against corruption
from the perspective of fraud detection and the follow-up audit findings by using
samples in Chinese provinces. The results of the study show that the corruption
level in Chinese provinces has a positive relationship with the number of
irregularities found in government auditing but has a negative correlation with the
post-audit rectification effort. Masyitoh (2014) investigates the influence of audit
opinion and audit finding by BPK to corruption perception in local government in
Indonesia. The result of this study shows that audit opinion of local government
financial reporting from BPK audit report has a negative effect on corruption
perceptions.
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Indonesian Law Number 31 of 1999 about Act Crime of Corruption

describes the actions classified as corruption. Article 2 and 3 of the Law define
corruption as an unlawful act that enriches themselves or others and causes
financial state loss. It means to prosecute the act of corruption; those actions
should cause financial loss to the state. The investigator from the Indonesian
Commission of Corruption Eradication or the Indonesian Police or the Indonesian
Prosecutor institution can calculate the state financial loss by themselves or seek
assistance from other institution that has the competence and professional
expertise in calculating financial loss of state through audit investigative or audit
of calculation financial loss of state.
Corruption eradication can not be separated from the role of audit
institution. The audit function in financial management becomes the need for
overcoming agency problems. An audit that is conducted as a monitoring tool
from the principal, both internally or externally, and has an important role for
detecting irregularity behavior by the agent. The society demands audit to detect
any irregularities from government expenditure as mentioned in Hayes et al.
(2014) as policeman theory. The Finance and Development Supervisory Agency,
well known as Badan Pengawasan Keuangan dan Pembangunan (BPKP), as
internal audit institution of President (central government) has several tasks.
BPKP has to evaluate the internal control system implementation and fraud
control system that can prevent, detect, and counteract corruption. BPKP can also
conduct an investigative audit to the irregularity that gives an indication of
financial loss of the state to give prevention effect. Also, they can audit the
calculation of state financial loss and provide expert testimony based on
regulation.
1.2 Research Question
From the introduction above, the research question emerges is to what
extent government auditing help to restrain corruption. Specifically, this study
seeks to answer these following questions:
(1) to what extent can the irregularity found in BPKP fraud auditing influence the
level of corruption in Indonesian provinces?
(2) to what extent can the effort to detect the corruption give a deterrent effect to

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curb corruption?
1.3 Research Contribution
The research is based on the study of Liu and Lin (2012) that empirically
investigate the role of the auditor on detecting corruption in provinces government
in China and the study of Masyitoh (2014) that examines the influence of external
auditor opinion to corruption perception in Indonesia. What sets this study apart
from those previous research is that it attempts to investigate the role of the
internal auditor in corruption detection and by using the cases of corruption that
become ruling in corruption crime court as an assessment of the level of
corruption in the provinces. This research uses the audit opinion from the previous
year and local government characteristics as a control variable of corruption level.
This research is expected to give insight for further research as the reference
in investigating the role of internal auditor of government to detect irregularity
that indicates the act of corruption and to help decreasing the corruption. For the
government, this research is expected to portray the level of corruption occurred
in the region. Further, for the BPKP institution, it is expected to be an empirical
proof of BPKP performances in detecting and curbing the corruption.
This research remains chapters as follows. Chapter two describes an
overview of the previous literatures and hypotheses. Chapter three outlines the
research design and methods. Chapter four discusses the findings of descriptive
statistics and empirical results. And finally, chapter five provides the conclusion,
implications, limitations, and further research of the study.

CHAPTER 2
LITERATURE REVIEW
2.1 Literature Review

We can describe the development of audit services from various sources.
Hayes et al. (2014) provide a theory on which to base their demand and delivery
of audit services, which is the Policeman theory. This theory arose from a public
perception that the auditor's responsibilities to reveal fraud are equivalent to a cop.
Next, there was a shifting in the meaning of the audit verification of the
correctness and fairness of the financial statements. Several cases of fraud that
emerged recently become serious consideration in this theory. So there is a public
debate on the liability of auditors in detecting and exposing fraud back to the
current public perception of when this theory first appeared. In a general context,
the society wants to ensure the money collected from taxes and other sources are
well managed. Therefore, they want the auditor to detect any irregularities from
government expenditure.
Elder et al. (2013) distinguish three kinds of audits: (1) operational audit
which aims to evaluate the efficiency and effectiveness of the organization's
operations; (2) compliance audit which aims to test compliance or adherence to
the organization following the procedures, rules or conditions imposed by a higher
authority; and (3) financial audit which targets to test the suitability of the
financial statements that were prepared based on the standards that have been
established, such as GAAP or IFRS. While the State Financial Inspection
Standards contained in the Indonesian Supreme Audit Institution Regulation
Number 01 of 2007, the types of examination (audit) are (1) a financial audit to
generate audit opinion; (2) a performance audit to check the aspects of
performance effectiveness, efficiency, and economy in the management of state
finances, examining the internal control system of government and the compliance
with laws and regulations; and (3) examination with a specific purpose including
investigative examination. According to Indonesian Law Number 15 of 2004, the
investigative examination is part of the examination for a particular purpose and

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implemented to reveal indications of fraud that may cause loss to the state and the
presence of criminal elements.
According to Singleton and Singleton (2007), many people and Congress
members in U.S. had been asking why financial auditors could not detect more
fraud. They believe that a financial audit is not adequate to detect fraud. A survey
from KPMG and ACFE Report to Nation shows that the financial auditor can
identify only about 10% of fraud (Singleton and Singleton, 2007). And because
they have a CPA or CA certificate, this result does not reflect the level of their
intelligence, experience, and expertise.
The theory of such audit in policeman theory shows expectations of the
people to the auditor to be able to calculate arithmetically and detect fraud.
Because the fraud is hidden, it will require special expertise to disclose. One way
is to uncover fraud through technical audit/forensic accounting that can detect
fraud more effectively, than audit/traditional accounting. According to DeAngelo
(1981), the quality of audit is defined by the ability of the auditor to identify and
report a breach in auditee’s accounting system. In government auditing, Zhao
(2005) describes the factors of government auditing quality into technical factors,
independence factors, and administrative factors. Particularly, the administrative
factors are defined by determining irregularities nature, producing the right
decisions and monitoring the rectification works.
According to the Association of Certified Fraud Examiner (ACFE, 2002),
"Fraud examination is a methodology for resolving fraud allegations from
inception to disposition. More specifically, fraud examination involves obtaining
evidence and taking statements, writing reports, testifying findings and assisting
in the detection and prevention of fraud." From these definitions it can be
explained that the audits concerning fraud are ways of audits related to the search
for evidence and information, reporting, giving testimony, and the findings related
to the provision of assistance in detecting and preventing fraud.
The BPKP Code Assignment of Investigation (2012) states that the audit of
financial loss of state is an audit to express opinions regarding the value of the
state financial losses arising from the alleged irregularities and used to support
litigation. It means the assignments in auditing to detect irregularities and giving

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the testimony in the court shows that auditors of BPKP had implemented forensic
accounting in helping investigators to uncover corruption.
2.2 Hypotheses Development
Research of Liu and Lin (2012) aims to investigate the role of government
audit in detecting and reporting irregularities of potential corruption in the
provincial government in China. This study includes several factors that can affect
corruption such as market development, the level of education or human capital,
the wage of public officials, the size of government and the openness. The result
concludes that the previous year audit findings have a positive impact on the level
of corruption, which means that the more findings of irregularities/fraud are
detected by the auditors, the higher the indication of corruption is. Another
finding is that the rectification effort post audit has a negative effect on the level
of corruption which means the more rectification effort after audit, the less
corruption. However, research of Masyitoh (2014), which examines the influence
of the audit opinion, the audit findings and follow-up audit on the perception of
corruption shows evidence that the audit findings in the weakness of the internal
control system have no influence on the perception of corruption.
Corruption in accordance with the Indonesian Law is considered as an act of
crime because this is an unlawful act that cause state financial loss by enriching
the perpetrators or others. Government auditors are required to detect fraud in
government spending and activities and the misuse of assets of government and
are determined to audit thoroughly in corruption detection (Gong, 2010). The
diligences of the audit institution in some extent are reflected by the number of
irregularities detected in government auditing. Moreover, the numbers of
irregularities found also reflect the corruption acts in public sectors. Corruption
cases and irregularities found are related with the quality of governance in public
sector. In a place with a high corruption level, the government auditors can detect
more irregularities.
From the aforementioned theories and previous research, I define the first
hypothesis as follows:
H1: BPKP fraud audit finding of irregularities is positively related to the level of
corruption in Indonesian provinces.

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The role of government auditing for curbing the corruption by detecting the
irregularities is not effective if the corrections do not follow it after the audit or if
there is no improvement following the audit. Huang and Wang (2010) and Wei et.
al. (2010) state, to promote the transparency and accountability, the most
determinant role of government auditing is in the rectification effort after the audit
conducted. Asking for responsibilities after irregularities found by government
auditing can be a deterrent effect of decreasing the corruption. Rectification effort
becomes a reflection of the government auditing effectiveness to reduce
corruption. Unlike the China setting, the internal government audit institutions in
Indonesia are not authorized to impose the sanctions and fines on audited
institutions directly when the irregularities found. They can involve in
rectification process by transferring the cases to the in-charges parties or to the
law enforcement institutions, giving statements to the investigator or to the court
and checking the progress of audit report recommendations. Therefore, I propose
the following hypothesis:
H2: The more rectification effort made following government audit, the more
effective BPKP will be in reducing corruption.
Audit findings and rectification efforts are also affected by other factors
such as amount audited, auditor, reports, and newsletters delivered by local audit
institutions and financial solvency of local government as mentioned in research
of Liu and Lin (2012). The number of irregularities has a close relationship with
the total amount audited. It is likely that the more amount of money audited, the
more irregularities can be found. Auditors are the most important component in
the government auditing. The higher the quality of auditors, the more they are
capable to detect fraud. Report from local audit institutions are related with the
problems found, suggestions for improvement and rectification solutions. When
the leading government officials, higher audit institutions or related departments
instruct or adopt these reports, there will be more incentives for auditors to
prepare these reports and for audited institutions to improve the performance.
Further, the rectification results post audit are related with the financial solvency
of the local government.

9

Liu and Lin (2012) also mention factors that affect corruption. Market
development is assumed to be related to the corruption level. The higher the
development of the market in a province, the less severe the corruption level in a
province. Education also plays a role in affecting corruption. The higher education
in a place, the less corruption will be in that place. The wage of public officials
also becomes an influential factor towards bureaucrats’ motivation to corrupt. The
higher the salary of public officials, the less motivation to corrupt. Size of
government is assumed to be an important factor affecting corruption, but in some
researches, it has a different effect on corruption level. The last is about the
openness of the province for international trade. The more openness in a province,
the less corrupt it will be.
According to the literature review and the hypotheses stated above, the
irregularities found and the rectification effort have a close relationship with the
level of corruption. There may be a two-way relationship between those variables.
There will be more effort to detect fraud in more corrupt places and on the other
hand, the misconduct exposure of audit institutions can give pressure to the
potential corrupt bureaucrats and improves the management of audited institution.
Therefore, the corruption will be reduced in the lagged period (Li et al., 2011).
And also, the more rectification results post audit, the more deterrent effect will be
accepted by the audited institutions and will be less likely to be corrupt in the
future. But in the same time, rectification effort may also be obstructed by the
prevailing corruption and it in the more corrupt place, the rectification will be
more difficult to be done.
The conceptual framework of this research can be seen below:
Variable Variable
Fraud Audit Finding Corruption Level
Rectification Effort
Control Variables
Opinion of Audit Level of Economic Growth
Level of Education Wage of Public Officials
Government Size Openness
Market Development

CHAPTER 3
RESEARCH DESIGN
3.1 Research Method

This research uses quantitative method following the study of Liu and Lin
(2012) and Masyitoh (2014). I obtain secondary data from:
a. Audit reports of financial loss of state calculation by the representative of
BPKP offices in each province of Indonesia during the year 2011-2015.
b. Corruption case rulings by Indonesian Supreme Court during 2012-2015.
c. Audit reports on local government financial reports contained the audit
opinion of Supreme Audit Institution or BPK during 2011-2014.
d. The level of economic growth and education in Indonesian provinces from
Indonesian Central Bureau of Statistics during 2012-2015.
e. The relative wage of public officials, final government consumption, total
amount of imports and exports, number of employees and total amount of
fiscal revenue and expenditure in local governments website and Indonesian
Central Bureau of Statistics during 2012-2015.
f. The number of auditors in BPKP offices in each province of Indonesia during
2012-2015.
This research uses data from period 2012 to 2015 because during that period
the corruption crime courts in most of the provinces in Indonesia had been
established. Population data in this research is data from all of local governments,
and the research chooses samples by purposive sampling method which means the
sample of province that has all of the data needed.
3.2 Research Model
This research adopts the models from the study of Liu and Lin (2012). I
conduct multivariate models using simultaneous equations. However, I do some
adjustments. First, I add audit opinion as control variable as in study of Masyitoh
(2014) in the model (3.1) to test the hypotheses. Second, I exclude variable of
report and newsletter delivered as the determinant factors of fraud audit, because
the data is not available in Indonesia in the model (3.2) and (3.3) to test the
reverse possibilities of hypotheses. The models are shown as follows:

11

!"##$%&'( = *+ + *- .#/$'(0- + *1 /$234'(0- + *5 /$6%7'(0- + *8 9#":&ℎ'( +

*< =>$4'( + *? @AB3'( + *C 9"DE7F3'( + *G 6%3H'( + *I JA#K3&'( +
+ M3A# + N'( (3.1)
.#/$'( = *+ + *- !"##$%&'( + *1 /O"$H&'( + *5 /$>7&"#'( + *8 6%3H'( +
*< JA#K3&'( + M3A# + N'( (3.2)
/$234'( = *+ + *- !"##$%&'( + *1 .#/$'( + *5 /$>7&"#'( + *8 23D%'( +
*< P3Q747&'( + *? 6%3H'( + *C JA#K3&'( + M3A# + N'( (3.3)
!"##$%&'( = Level of corruption in province i, in year t

.#/$'(0- = Fraud audit finding in province i, in year t-1
/$234'(0- = Rectification audit in province i, in year t-1
/$6%7'(0- = Opinion of audit in province i, in year t-1
9#":&ℎ'( = Economic growth level in province i, in year t
=>$4'( = Education level in province i, in year t
@AB3'( = Relative wage of public officials in province i, in year t
9"DE7F3'( = Government size in province i, in year t
6%3H'( = Openness in province i, in year t
/O"$H&'( = Amount audited in province i, in year t
/$>7&"#'( = Number of auditors in province i, in year t
23D%'( = Financial revenue in province i, in year t
P3Q747&'( = Deficit in province i, in year t
JA#K3&'( = Market development in province i, in year t
Year = Year dummies
N = Error
3.3 Research Variables
Furthermore, the definitions of the operational variables of this research are
presented as follows:
1) The level of corruption in the region according to the research of Liu and Lin
(2012) is measured by the number of corruption cases in the area that are
handled by law enforcement in the area. While in the research of Masyitoh
(2014) the level of corruption is measured by the Corruption Perception Index
(CPI) released by Transparency International Indonesia, in this study, the level

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of corruption is measured by the number of appeals filed in corruption cases

from the Supreme Court of the Year 2012-2015 as in the research of Monika
(2015) and aggregated by total number of local governments in each province.
2) Irregularities through fraud audit findings in the research Liu and Lin (2012)
are measured by the logarithm of the value of the findings in the audit fraud
but divided per capita. The measurement of variables in this study is based on
the number of fraud audit reports in the previous year as in the research of
Masyitoh (2014). However, this study uses the BPKP audit report since the
research of Masyitoh uses BPK. Number of fraud audit reports in this study
are aggregated by total number of local governments in each province.
3) In the research of Liu and Lin (2012), rectification effort post-audit has a
negative effect, and it is measured by whether the effort of rectification in
associated with the findings and recommendations of audit. This study will
follow the research of Liu and Lin (2012) in measuring the rectification effort
but regarding the Indonesian setting, the rectification effort is the audit results
that has been reported to the in-charges parties or law enforcer institutions and
is aggregated by total population of each province.
4) The audit opinion in many studies has a significant effect on the levels of
corruption, such as in research Masyitoh (2014), Setyaningrum (2015),
Monika (2015) and Ekasani (2016). BPK audits on local government financial
reporting produce four opinions, i.e. adverse, disclaimer, qualified, and
unqualified. Local authorities widely accept the financial statement of cities
and counties as representative of the overall opinion in the province regions.
Unqualified opinion is assumed as the highest opinion in financial report
because unqualified opinion shows that the financial statements are presented
by the local government according to fairness in all material respects and
related to the level of corruption in the region. Qualified opinion is obtained
when the auditors can acquire sufficient and appropriate evidences and
conclude that misstatements are material but not pervasive. Adverse opinion is
obtained when the auditors can acquire sufficient and appropriate evidences
and conclude that misstatements are material and pervasive. Disclaimer
opinion is obtained when the auditors can not acquire sufficient and

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appropriate evidences therefore the undetected misstatements can be both

material and pervasive. In this study, variable of audit opinion is measured by
the total audit opinion obtained by local governments multiplied by the rank of
audit opinion from the highest unqualified (4), qualified (3), disclaimer (2) and
adverse (1) and it is aggregated by number of local governments in each
province.
5) Some studies have demonstrated that the economic growth rate has a negative
effect on corruption, such as in research of Braun and Di Tella (2004),
Treisman (2007), Bhattacharyya and Jha (2013), Liu and Lin (2012) and
Masyitoh (2014). Research of Liu and Lin (2012) measures this variable by
looking at provincial Gross Domestic Product (GDP). This study will follow
the research of Bhattacharyya and Jha (2009) and Ekasani (2016) in measuring
the economic growth rate through Gross Regional Domestic Product (GRDP)
per 2010 capita constant prices data from the Indonesian Central Bureau of
Statistics because year of 2010 is the basic year of the latest survey conducted
by Central Bureau of Statistics.
6) The level of education according to Liu and Lin (2012) had a negative effect
on corruption. Liu and Lin (2012) uses the average length of schooling to
measure the level of education whereas research of Ekasani (2016) measures
the degree of education on the level of corruption uses the value of the human
development index from the Indonesian Central Bureau of Statistics. This
research will follow the research of Ekasani (2016) using the index of human
development from Indonesian Central Bureau of Statistics.
7) The wage of public officials based on Liu and Lin (2012) relates negatively
with the level of corruption. It seems that higher salary leads to less
motivation to act corruptly. This research follows the study of Liu and Lin
(2012) by using relative wage of public officials. It is measured by the total
governments’ personnel expenditure of public officers adjusted by GRDP in
each province.
8) Government size in some studies has a different effect on the level of
corruption. Fisman and Gatti (2002) find a negative relationship; meanwhile,
research of Ali and Isse (2003) has found a positive effect. This study

14

measures the government size with the government final consumption ratio to
GRDP in each province following research of Liu and Lin (2012).
9) Openness in some studies such as Gatti (2004) and Zhou and Tao (2009) has a
negative relationship with the level of corruption. Countries or provinces that
have higher exports and imports tend to be less corrupt. Following research of
Liu and Lin (2012), I use the total amount of exports and imports adjusted by
the province’s GRDP.
10) Market development in some of the studies has a negative effect on the level
of corruption. In the research of Zhou and Tao (2009) and Wu and Rui (2010),
less corrupt provinces have the higher market development. This study follows
Liu and Lin’s (2012) research in measuring market growth through a number
of employees of private companies, adjusted by the total number of
government staff in each province.
11) Amount audited is measured by using the total actual revenue and expenditure
of provinces as a proxy, adjusted by population size following the Liu and
Lin’s (2012) research.
12) Auditor is the number of auditors in BPKP branch offices in each Indonesian
province.
13) Financial revenue is adjusted by the population size.
14) Deficit is measured by the ratio of the expenditure revenue.
Variables of numbers of auditors, financial revenue and the deficit follow
the research of Liu and Lin (2012).

CHAPTER 4
FINDINGS AND DISCUSSION
4.1 Descriptive Statistics

This study presents observations from 34 provinces in Indonesia during the
period 2012-2015. However, two of the provinces are excluded from the study,
Jakarta province and North Kalimantan province. Jakarta has extreme value data
since it has no other local governments and therefore becomes outlier. While
North Kalimantan is the youngest province in Indonesia, formed in 2013, so there
is no complete data from 2012. Finally, the study provides 128 observations from
32 provinces within 2012-2015.
Table 4.1 summarizes data contained total observations, mean, minimum,
maximum, and standard deviation from each of variable.
Table 4.1 Descriptive Statistic
N Min Max Mean SD
Corrupt_it 128 .0000 4.5000 1.2875 .9510
FrAu_it_1 128 .0000 2.0000 .6255 .3889
AuRec_it_1 128 14.0800 212639253.57 1663983.32 18794588.61
FrAu_it 128 .0000 2.0000 .6669 .3757
AuRec_it 128 14.3500 47405.4500 3151.3612 5246.6901
AuOpi_it_1 128 1.1429 4.0000 2.9939 .5932
Growth_it 128 17120.0 1331418.0 219217.227 295273.4159
Educ_it 128 55.5500 77.5900 67.3666 3.8927
Wage_it 128 1.3800 15.1000 5.9291 3.1514
Govsize_it 128 3.9600 42.6000 13.8852 8.3035
Open_it 128 19.6500 326.4900 102.5681 51.4566
Amount_it 128 2870732.98 43794860.45 9474745.27 6480864.70
Auditor_it 128 15.0 196.0 74.797 41.8248
Revp_it 128 1455098.05 21365426.79 4769486.65 3254698.78
Deficit_it 128 .7800 1.2400 .9831 .0500
Market_it 128 7.6500 59.2800 21.0755 10.4557
Based on the descriptive statistics above, the average number of corruption
cases appeared in each province is 1.2875. It explains that each local government
experienced on average 1.2875 times corruption case within the year of
observation. This variable has the standard deviation of 0.9510 which means the
variance between the mean and the unit sample is 0.9510. Minimum value of this

16

variable is from West Sulawesi (2015) that has zero corruption case and the
maximum value is from Central Sulawesi (2015) where the local government has
an average of more than 4 cases of corruption.
The independent variables such as fraud audit finding report of BPKP, audit
rectification effort, and audit opinion have various results. The average number of
irregularities found through fraud audit finding of BPKP are 0.625 (it-1) and
0.6669 (it) which means each of local government in the province experienced
0.625 or 0.6669 times fraud in their financial management activities. The average
number of the rectification efforts from fraud audit of BPKP aggregated by
population size of each province in the lagged period is IDR1,663,983 (EUR106)
per capita. The average of the rectification effort is IDR11,908,811,555
(EUR768,311) and the average population size is 7,507,000 residents. Also for the
audit opinion variable, the average opinion received by the local governments is
2.99 or almost 3 which means they received qualified opinion of audit and the
standard deviation is 0.5932.
4.2 Empirical Results
This study runs model following research of Liu and Lin (2012) to test the
hypotheses. Table 4.2 summarizes the correlation result of the variables in the
model (3.1).
Table 4.2 Coefficient Correlationsa
FrAu AuRec AuOpi Growth_ Educ Wage Govsize Open Market
Variables _it_1 _it_1 _it_1 it _it _it _it _it _it
FrAu_it_1 1.000 .156 .026 -.064 -.302 .040 .017 .135 .121
AuRec_it_1 .156 1.000 -.047 .043 -.024 .027 .001 .009 .034
AuOpi_it_1 .026 -.047 1.000 .107 -.327 -.458 .516 -.058 -.196
Growth_it -.064 .043 .107 1.000 -.118 .168 -.098 .292 -.608
Educ_it -.302 -.024 -.327 -.118 1.000 .031 .004 -.395 .063
Wage_it .040 .027 -.458 .168 .031 1.000 -.937 .281 .024
Govsize_it .017 .001 .516 -.098 .004 -.937 1.000 -.223 .091
Open_it .135 .009 -.058 .292 -.395 .281 -.223 1.000 -.091
Market_it .121 .034 -.196 -.608 .063 .024 .091 -.091 1.000
a. Dependent Variable: Corrupt_it
I performed some tests to check the violation of classic assumption
regarding the problems of multicollinearity, heteroscedasticity, and
autocorrelation (Gujarati, 2003). In model (3.1) there is a multicollinearity

17

problem with the variables Wage and GovSize where the correlation between the
variables is almost 1 (also see appendix 3.1). After one of the variables, GovSize,
is deleted, the VIF value of variables in the model lies between 1-10 which means
there is no multicollinearity problem (see appendix 3.2). Glejser’s
heteroscedasticity test produces the results in which the significance of variables
is over than 0.05 which means that there is no heteroscedasticity problem (see
appendix 7). An autocorrelation test is not performed because this study uses
panel data. The normality test can be seen from the histogram that has bell-shaped
and normal p-p plot that points of data distribution are near on a straight line (see
appendix 4 and 5).
Table 4.3 summarizes the empirical results of the model (3.1).
Table 4.3 Regression result using Corrupt_it as dependent variable (Model 3.1)
Variables Expected Sign I II III
Corrupt_it Corrupt_it Corrupt_it
Cons. ? -3.513** -4.299* -3.435**
FrAu_it_1 + 0.458** 0.581*
AuRec_it_1 - 1.281E-8* 1.447E-8*
AuOpi_it_1 - 0.287*** 0.245 0.254
Growth_it - 2.068E-7 3.323E-7 2.676E-7
Educ_it - 0.064** 0.082* 0.061**
Wage_it - 0.038 0.033 0.048
Open_it - -0.004** -0.005* -0.004*
Market_it - -0.002 -0.004 -0.001
Year dummies Controlled Controlled Controlled
N 128 128 128
R-squared 0.319 0.354 0.396
*Significance at the 1%
**Significance at the 5%
***Significance at the 10%
After I checked the classic assumptions, the result of the study shows that
the independent variables simultaneously influence the dependent variable. In
table 4.3, Goodness of fit test to check the correlation between variables describes
the value of R squared is 0.396 which means the independent variables in the
model (3.1) can explain the dependent variable as much as 39.6% and the rest is
explained by other variables outside the model (see appendix 1). The result from
Anova F-value test shows that the model (3.1) is significant (see appendix 2). The

18

independent variables from hypothesis 1 and 2 are run separately (I and II) and
simultaneously (III). Both separately or simultaneously, the variables fraud audit
(FrAu_it_1) and audit rectification effort (AuRec_it_1) are significant. The
irregularities found by fraud audit report of BPKP from previous year has a
positive relationship with the level of corruption on the Indonesian provinces.
This result accepts hypothesis 1. The reason why those two are positively related
is that there is a delay in the process of the fraud audit reports which are brought
to the investigator or the court, thus adding the number of cases in the following
year. Also, this finding is consistent with the result of Liu and Lin (2012).
However, the sign of the AuRec_it_1 is different with the predicted sign. It
means the more rectification efforts made in the previous year, the higher the level
of corruption in the current year. Therefore, it rejects hypothesis 2 of which the
more rectification effort made, the more effective BPKP will be in reducing
corruption. This result is in contrast with the finding of Liu and Lin (2012) and
Masyitoh (2014) but it is consistent with the result of Ekasani (2016). After I
regressed Corrupt_it and AuRec_it_1 separately, the result remains the same.
Variables of Corrupt_it and AuRec_it_1 is still positively related. Another
measurement for rectification effort is also conducted, by aggregating the total
amount audited and total unit audited but the results become insignificant. The
implications that can be concluded from these finding are that the measurement of
rectification effort needs to be improved and the data source should be enlarged
from other institutions such as the court, the prosecutor or the ministry of finance.
Meanwhile, the opinion of audit from previous year received by local
governments in this study has no significant effect on the corruption level. It is
different with the researches of Masyitoh (2014), Setyaningrum (2015), and
Monika (2015). However, this finding is consistent with the research of Ekasani
(2016) that audit opinion in the previous year does not have influence on the level
of corruption. One thing that can be inferred from the findings is that the
measurement of audit opinion should be improved, especially when I use
aggregation of audit opinion on the provincial level because each local
government receives audit opinion for its financial statement. Also, the
unqualified opinion does not guarantee that the financial statement is free from

19

fraud because the unqualified opinion is issued when the financial statements are
prepared in accordance with fair presentation framework and evidence gathered to
give the auditor reasonable assurance that the financial statements are free from
the material misstatement (Hayes, et al., 2014). It means there is a possibility that
the auditor does not take evidences from audit sampling that contains fraud.
Level of education has a positive relationship with the level of corruption
which is consistent with the study of Liu and Lin (2012). It means the higher level
of education in the province, the higher level of corruption occurred. It can be
concluded that the actors of corruption are the educated people. Pradiptyo (2016)
and Indonesian Corruption Watch (2017) state that the top perpetrators of
corruption in Indonesia are educated people such as private businessmen,
bureaucrats, member of parliaments and the head of regions. Whereas the level of
openness has a negative relationship with the level of corruption. It is consistent
with the study of Wu and Rui (2010) and Liu and Lin (2012). Provincial-level
government become more transparent when they have direct relations with other
countries through exports and imports. Meanwhile, economic growth, relative
wage of officials and market development have no significant effect on the level
of corruption in this study. These results are in contrast with the studies of Liu and
Lin (2012) and Wu and Rui (2010), but it is consistent with the results of Ekasani
(2016). Based on the results, hypothesis 1 can be accepted but hypothesis 2 needs
to be rejected.
I also run models to find the reverse effect of corruption level on fraud audit
finding and rectification effort. Liu and Lin (2012) argue that there could be
reverse causality between level of corruption and fraud audit finding effort. There
is a chance that the effort to detect fraud in the current year is influenced by the
number of cases of corruption in the same year. Therefore, additional tests are
conducted through model (3.2). However, unlike the research of Liu and Lin
(2012), I exclude the variable of adoption rate of reports and newsletter delivered
because the data is not available in Indonesia. After the regression is performed,
the finding is that the model is not significant (p>0.10). The model could not
reject the H0 which means that independent variables simultaneously in the model
(3.2) are not significant to explain fraud audit effort in the current year. This result

20

is not consistent with the study of Liu and Lin (2012). The result is showed on the
Table 4.4.
Table 4.4 ANOVA result using FrAu_it as dependent variable (Model 3.2)
Sum of Mean
Model Squares df Square F Sig.
Regression 1.619 8 .202 1.477 .173b
a. Dependent Variable: FrAu_it
b. Predictors: (Constant), D_2015, Open_it, Corrupt_it, Market_it, D_2013,
Amount_it, D_2014, Auditor_it
There is also the possibility that audit rectification effort in the current year
is influenced by level of corruption in the same year. Therefore, the researcher
conducts regression of the model (3.3). This model is significant based on the
Anova F-value test (appendix 8). The regression result is presented on table 4.5.
Table 4.5 Regression result using AuRec_it as dependent variable (Model 3.3)
Variables Expected Sign I II III
AuRec_it AuRec_it AuRec_it
Cons. ? -32822.135* -1.886E+10* -0.321*
Corrupt_it - -346.439 -34138403 -0.004
FrAu_it + 2164.239*** 773819691 0.023***
Auditor_it - 0.811 -402172.41 1.341E-5
Revp_it - 0.000* 18.571 -1.368E-9
Deficit_it - 36109.755* 1.990E+10* 0.384*
Open_it - -11.628 -4436168.1 -7.202E-5
Market_it - -38.542 21017600.3 -0.001
Year dummies Controlled Controlled Controlled
N 128 128 128
R-squared 0.234 0.228 0.159**
*Significance at the 1%
**Significance at the 5%
***Significance at the 10%
Table 4.5 shows that level of corruption cases in the current year does not
significantly influence audit rectification effort in the same period. Audit
rectification effort is measured by doing some sensitivity tests aggregated by unit
audited (number of local governments/II) and amount audited (revenue and
expenditure budget/III) in addition to population size (I). The results remain the
same, audit rectification effort is not significantly influenced by corruption level
in the same period. This is not consistent with the results of Liu and Lin (2012)

21

where the corruption level statistically influences audit rectification effort. It may
be caused by the measurement of corruption level using number of case appear in
the court, but the rectification effort is measured by the amount found in the
government audit without considering corruption case happened in the unit
audited.
Fraud audit effort has a significant effect on audit rectification which is
consistent with the result of Liu and Lin (2012). It means that the more detection
on fraud audit, the more rectification audit that can be done. It can be understood
that the rectification audit effort is the follow up of the fraud audit effort. Other
variables have the same result as the study of Liu and Lin (2012), but some of
them are not consistent. The auditor has no significant effect, but the deficit is
positively related with the audit rectification effort as in the study of Liu and Lin
(2012). However, openness and market in this finding has no significant effect
with the audit rectification. This is inconsistent with the results of Liu and Lin
(2012) where both of the variables are negatively related with the audit
rectification. When I measure the dependent variable by aggregating with the
population size (I), financial revenue variable is significantly related with the
audit rectification effort. But when it is aggregated by unit audited (II) or amount
audited (III), the result becomes insignificant.
This study could not find the relationship between corruption level and
fraud audit finding in the same period. Even, the model that is adopted from study
of Liu and Lin (2012) in this study is not significant. Also the rectification effort
in the same year is not significantly influenced by corruption level in this study. It
shows that the reverse possibilities of hypotheses that the level of corrupt place
will influence the irregularities found and also the rectification effort made by
auditors in the same year are not proven in this study.

CHAPTER 5
CONCLUSION, IMPLICATIONS, LIMITATIONS, AND FURTHER
RESEARCH
5.1 Conclusion
This study investigates the role of government auditing to restrain
corruption in Indonesia. Specifically, this study analyses the role of the internal
auditor institution of the Indonesian President, BPKP, in detecting fraud on the
corruption level of Indonesian provinces and the rectification effort of BPKP to
curb corruption. This study uses panel data from 128 observations province-year
during the period 2012-2015.
The first objective of this study is to examine how irregularities found in
BPKP fraud audit can influence the level of the corruption in Indonesian
provinces. The result of this study accepts hypothesis 1. This study finds that
irregularities found in BPKP fraud audit give significant effect to the corruption
level in Indonesian provinces. It confirms the previous research of Liu and Lin
(2012) in saying that government fraud audit finding of irregularities is positively
related to the level of corruption in Indonesian provinces. The more irregularities
found through BPKP fraud audit, the more corruption case can be revealed and
can be used to measure the level of corruption in the provinces at the following
year.
The second purpose of this study is to examine how the effect of audit
rectification effort can give the deterrence effect to curb corruption. The results of
this study shows that audit rectification effort has a significant effect on the level
of corruption. Unlike the previous research, the sign of the finding is positive. It
means, the more rectification effort made, the higher level of corruption in the
provinces. Therefore, the hypothesis 2 needs to be rejected. The positive
relationship might be caused by the authority of BPKP which is restricted to give
direct sanctions or penalties to the units audited. BPKP should transfer the fraud
audit report and recommendation to the law enforcer and the court. Therefore, the
effect of deterrence of punishment to curb the corruption depends on another law
institution.

23

This study also finds that audit opinion does not influence the corruption
level in Indonesian provinces. This might be because the measurement of the
variable is not appropriate when summing up the audit opinion from local
governments to the level of provincial. Variables of growth, wage, and market
also have no significant effect on the corruption level. In this study, there is no
relationship between level of growth of provinces with the corruption level, as
well as level of public official wages and the comparison number of private
employees with the total number of employees. Economic growth, relative wage
of public officials and market development are not determinants of corruption
level based on this study finding.
Variables of education and openness have a significant effect on the level of
corruption in this study. Education has positive relationship with the level of
corruption. The higher level of education in the province, the higher the number of
cases of corruption. It is proven that the act of corruption is mostly perpetrated by
educated people in bureaucracy, parliaments, private business, and local
government. Moreover, the more the province is involved in export and import
trading with the other countries, the more transparency required and the less
corruption.
Model (3.2) and (3.3) are also performed to examine the influence of the
corruption level on the fraud audit detection effort and audit rectification effort in
the same year. In the place where the level of corruption is higher, we need more
effort to detect fraud and more enforcement to do rectification. Unlike the
previous research, this study could not find the evidence that effort to detect fraud
and effort to enforce rectification are influenced by the corruption level in the
same year.
5.2 Implications
The findings of this study imply that detection effort performed by auditor
of BPKP in the previous year can be used to measure the level of corruption in the
provinces. Based on the data obtained, there is a significant influence between
fraud audit detection effort and level of corruption which is consistent with the
hypothesis 1. Internal auditor performance of BPKP in detecting fraud is related
with the corruption case appear in the following year. It means their finding in

24

their audit report can be used to estimate the level of the corruption in the
Indonesian provinces. The positive relationship between fraud audit detection and
corruption level shows that the more irregularities found by auditors of BPKP, the
more cases of corruption can be revealed. It shows the effectiveness of BPKP
performances that is assigned by President of Indonesia through President Law
No. 192 Year 2014.
However, rectification effort made by auditor of BPKP is not consistent
with hypothesis 2. Although there is a significant relationship between
rectification effort and corruption level, it has opposite sign. The effort of
rectification made after government audit could not decrease the corruption. It is
not consistent with the result of Liu and Lin (2012) because in China setting, the
government audit institution can give direct sanction to the unit audited. This
result show that BPKP has no full power to give direct sanction and penalty to the
local governments when fraud detected. BPKP is allowed to transfer the fraud
found to the law enforcer and court institution. Therefore, the performance of
rectification effort of BPKP depends on other institution.
5.3 Limitations
There are some limitations related to this study in spite of the
comprehensive results. They are:
1) Level of corruption data is measured only by number of case that is brought to
the corruption court in the level of province and there are also some of
provinces that do not have their own corruption court therefore I could not
separate it easily.
2) Rectification effort data is limited by the finding of audit report. It should take
data from the law enforcer and the court institution where they process the
corruption case from audit report. However, since the data from law enforcer
and the court institution is not easy to collect, I acknowledge this is as the
biggest limitation in this study.
3) Audit opinion variable is based on the average opinion received by the local
governments in the province. Since the unit level of analysis is provincial, I
use the aggregate of opinion received by local governments in the province.

25

5.4 Further Research

This study can be improved by using better measurement on the variables
such as corruption level, rectification effort, audit opinion, economic growth,
wage of public officials, and the market development since in this study, the result
is not consistent with the previous research from Liu and Lin (2012). Corruption
level might come from transparency international or public integrity index. Also,
corruption level of the region can also come from law enforcer data for instance
data from police and attorney department since they are the institution that
investigate corruption case. Rectification effort variable can also be obtained from
the law enforcer and the court because they usually consider the punishment based
on the audit report to give the deterrence effect to the perpetrators of corruption.
Audit opinion variable can be measured by using dummy variable as unqualified
or non unqualified opinion to give the big difference between the highest of audit
opinion and others.
It is also recommended to examine the corruption on the level of region
since every region has its own data for variables. And it is interesting to include
the political background of the head of region. Head of region that comes from the
same coalition of major party with parliamentary majority is feared to have
collusion in the local government budget. Also the capabilities of internal auditor
institution of each local government can be included to the model as determinant
of the corruption to give insight the influence of internal control in preventing
corruption. The higher capability of the internal auditor, the less region suffered
from corruption.

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APPENDICES
Appendix 1 Model Summaryb

Adjusted R Std. Error of Durbin-
Model R R Square Square the Estimate Watson
a
1 .629 .396 .338 .7735766628 2.454
69385
a. Predictors: (Constant), D_2015, Growth_it, AuRec_it_1, Open_it,
FrAu_it_1, D_2014, AuOpi_it_1, D_2013, Wage_it, Educ_it, Market_it
b. Dependent Variable: Corrupt_it
Appendix 2 ANOVAa
Sum of
Model Squares df Mean Square F Sig.
1 Regression 45.445 11 4.131 6.904 .000b
Residual 69.417 116 .598
Total 114.861 127
b. Predictors: (Constant), D_2015, Growth_it, AuRec_it_1, Open_it, FrAu_it_1,
D_2014, AuOpi_it_1, D_2013, Wage_it, Educ_it, Market_it
Appendix 3.1 Coefficientsa

Unstandardized Standardized Collinearity
Coefficients Coefficients Statistics
Model B Std. Error Beta t Sig. Tol. VIF
1 (Constant) -3.556 1.500 -2.370 .019
FrAu_it_1 .583 .206 .238 2.834 .005 .742 1.347
AuRec_it_1 1.448E-8 .000 .286 3.832 .000 .941 1.063
AuOpi_it_1 .299 .182 .186 1.647 .102 .409 2.445
Growth_it 2.502E-7 .000 .078 .676 .500 .398 2.515
Educ_it .062 .024 .252 2.526 .013 .528 1.895
Wage_it .007 .089 .024 .082 .934 .060 16.725
Govsize_it .017 .035 .147 .479 .633 .056 17.908
Open_it -.004 .002 -.233 -2.639 .009 .674 1.484
Market_it -7.472E-5 .011 -.001 -.007 .995 .341 2.934
D_2013 -.207 .199 -.095 -1.041 .300 .635 1.575
D_2014 -1.113 .203 -.509 -5.490 .000 .610 1.638
D_2015 -.574 .227 -.262 -2.523 .013 .486 2.059

32
Appendix 3.2 Coefficientsa

Unstandardized Standardized Collinearity
Coefficients Coefficients Statistics
Model B SE. Beta t Sig. Tol. VIF
1 (Constant) -3.435 1.474 -2.330 .022
FrAu_it_1 .581 .205 .238 2.836 .005 .742 1.347
AuRec_it_1 1.447E-8 .000 .286 3.844 .000 .941 1.063
AuOpi_it_1 .254 .155 .158 1.639 .104 .558 1.793
Growth_it 2.676E-7 .000 .083 .729 .467 .401 2.491
Educ_it .061 .024 .252 2.532 .013 .528 1.895
Wage_it .048 .031 .157 1.528 .129 .491 2.039
Open_it -.004 .002 -.223 -2.606 .010 .709 1.410
Market_it -.001 .011 -.006 -.051 .960 .344 2.910
D_2013 -.204 .198 -.093 -1.030 .305 .635 1.574
D_2014 -1.116 .202 -.510 -5.524 .000 .611 1.637
D_2015 -.568 .226 -.260 -2.511 .013 .487 2.054
Appendix 4

33
Appendix 5
Appendix 6

34
Appendix 7 Coefficients of Glejser Testa

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -.244 .915 -.267 .790
FrAu_it_1 .245 .127 .192 1.928 .056
AuRec_it_1 -2.281E-9 .000 -.086 -.976 .331
AuOpi_it_1 -.003 .096 -.003 -.027 .979
Growth_it -1.535E-7 .000 -.091 -.674 .502
Educ_it .014 .015 .108 .917 .361
Wage_it -.003 .019 -.018 -.146 .884
Open_it -.001 .001 -.104 -1.027 .306
Market_it -.003 .007 -.056 -.383 .702
D_2013 -.003 .123 -.002 -.022 .983
D_2014 -.316 .125 -.276 -2.522 .013
D_2015 .022 .140 .019 .156 .876
a. Dependent Variable: abs_res
Appendix 8 ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 818992092.066 10 81899209.207 3.579 .000b
Residual 2677033021.361 117 22880624.114
Total 3496025113.427 127
a. Dependent Variable: AuRec_it
b. Predictors: (Constant), D_2015, FrAu_it, Open_it, Corrupt_it, Revp_it,
D_2013, Deficit_it, Auditor_it, D_2014, Market_it

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UNIVERSITAS INDONESIA

THE INFLUENCE OF GOVERNMENT FRAUD AUDIT

CHEKAT FAHMY ROSYADI

FACULTY OF ECONOMICS AND BUSINESS

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

THE INFLUENCE OF GOVERNMENT FRAUD AUDIT

Submitted as part of the requirement for the Degree of

CHEKAT FAHMY ROSYADI

FACULTY OF ECONOMICS AND BUSINESS

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

Nama : Chekat Fahmy Rosyadi

Nama : Chekat Fahmy Rosyadi

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

TITLE PAGE ................................................................................................... i

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

Table 4.1 Descriptive Statistics ............................................................................ 15

vii Universitas Indonesia

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

Appendix 1 Model Summary ................................................................................ 31

viii Universitas Indonesia

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

1.1 Research Background

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

government, so-called corruption decentralization. Rinaldi et al. (2007) argue that

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

Indonesian Law Number 31 of 1999 about Act Crime of Corruption

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

2.1 Literature Review

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

3.1 Research Method

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

!"##$%&'( = *+ + *- .#/$'(0- + *1 /$234'(0- + *5 /$6%7'(0- + *8 9#":&ℎ'( +

!"##$%&'( = Level of corruption in province i, in year t

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

of corruption is measured by the number of appeals filed in corruption cases

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

appropriate evidences therefore the undetected misstatements can be both

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

4.1 Descriptive Statistics

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

5.4 Further Research

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

Gatti, R. (2004). Explaining Corruption: Are Open Countries Less Corrupt?

The influence of goverment..., Chekat Fahmy Rosyadi, FEB UI, 2017

Komisi Pemberantasan Korupsi (KPK). (2016). Statistik Tindak Pidana Korupsi.

!"##$%&'( = + + - .#/$'(0- + 1 /$234'(0- + 5 /$6%7'(0- + *8 9#":&ℎ'( +