Impact of Strengthening Internal Audit’s Roles towards State Budget Loss
(1) Indonesia University
(2) Department of economics, Faculty of economics and business, Indonesia University
Abstract
This research evaluates the effect of strengthening government internal audit’s (APIP) roles on reducing state budget loss in Indonesia. Since 2014, the role of internal audit as a provider of objective quality assurance is strengthened by adding comprehensive consulting activities that are inherent in each cycle of state budget process to make sure that there are no irregularities on managing the stage budget. By using the difference-in-differences (DID) approach, this study analyzes state budget loss data obtained from the Audit Board of Republic of Indonesia (BPK) in 492 cities/districts during 2009-2018. The results show that strengthening internal audit’s roles decreased state budget losses in the regions that have a relatively high capital expenditure by 0.435% and it is significant at 1% level. This finding shows the positive effect of adding a consulting role to government internal audit on reducing the state budget losses in Indonesia.
Keywords
Full Text:
PDFReferences
Albrecht, et al. (2012). Fraud Examination. Third Edition. South Western, a part of Chengange Learning. USA.
Andvig, J. C., O.-H., Fjeldstad, I. Amundsen, T., Sissener., & Soreide, T. (2001). Corruption A Review of Contemporary Research. Chr. Michelsen Institute Development Studies and Human Rights.
Anderson, U. (2003). Assurance and consulting services, In Research opportunities in internal auditing, Edisi 4, 97–129. Altamonte Springs: FL: Institute of Internal Auditors Research Foundation.
Angrist, J., & Piscke, J-S. (2014). Mastering 'metrics: The path from cause to effect. Princeton: Princeton University Press.
Anthony, R., & Govindarajan, V. (2005). Management Control System. Volume I and II, Translation of Kurniawan Tjakrawala and Krista. Jakarta: Salemba Empat
Arens, A. A., Rendall, J. E., Mark B. M. S., & Wibowo, H. (2008). Auditing and Assurance Services: An Integrated Approach [Auditing dan Jasa Assurance: Pendekatan Terintegrasi]. Edisi 12 Jilid 1. Jakarta: Erlangga.
Ateljevic, J., & Budak, J. (2010). Corruption and public procurement: example from Croatia. Journal of Balkan and Near Eastern Studies. 8953. https://doi.org/10.1080/19448953.2010.531202
Becker, C. L., DeFond, M. L. J., Jiambalvo, & Subramanyam, K. R. (1998). The Effect of Audit Quality on Earnings Management. Contemporary Accounting Research, Spring. 1-24
Becker, G. S. (1968). Crime and Punishment: An Economic Approach. Journal of Political Economy University of Chicago. 75(2), 139–146.
Brigham, E. F., & Louis, C. G. (1996). Intermediate Financial Management. Florida: The Dryden Press.
Blume, L., & Voigt, S. (2011). Does Organization Design of Supreme Audit Institution Matter? A Cross-Country Assessment. European Journal of political economy, 27.
Bologna, G. J., Robert J. L., Joseph, T. W. (1993). Investigation Audit. 4 th Edition, New Jersey: Prentice-Hall.
Card, D., & Krueger, A. B. (1994). Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. The American Economic Review, 84, 772–793.
Cohen, A., & Gabriel, S. (2010). The effectiveness of internal auditing: an empirical examination of its determinants in Israeli organisations. Australian Accounting Review 10(54). 296–307.
Corem, P. (2008). Internal Audit, Alternative Internal Audit Structures and the Level of Misappropriation of Assets Fraud. Accounting & Finance, 48(4), 543-559.
Djankov. (2002). The Regulation of Entry. The Quarterly Journal of Economics, CLXII(1).
Dorminey, J., Fleming, A. S., Kranacher, M.-J., & Richard A. R. (2012). The Evolution of Fraud Theory. Accounting Education, 27(2), 555-579.
Eisenhardt, K. M. (1989). Agency Theory. An Assessment and Review. Academy of Management Review, 14(1), 57-74.
Ewan, F., & Edoardo, O. Strategic Management in Public Services Organizations: Concepts, Schools and Contemporary Issues, Local Government Studies, 42(1), 167-170
Fullerton, R R., & Durtschi, C. (2004). The Effect of Profesional Skepticism on The Fraud Detection Skills of Internal Auditors. Working Paper Series, March 5, 2012.
Gultom, Y. M. L. (2019). Governance structures and efficiency in the US. electricity sector after the market restructuring and deregulation. Energy Policy, 129(March), 1008–1019. https://doi.org/10.1016/j.enpol.2019.02.005
Guy, M. (1999). Auditing. Fifth Edition. Translated by Paul A. Rajoe and Ichsan Setiyo Budi. 2003. Auditing. Edisi Kelima. Jakarta: Erlangga.
Goel, R. K., & Nelson, M. A. (1998). Corruption and Government Size: A Disaggregated Analysis. Public Choice, 97(1), 107–120. https://doi.org/10.1023/A:1004900603583
Hopkin, J., & Rodríguez-pose, A. (2007). Grabbing Hand or Helping Hand? Corruption and the Economic Role of the State. Governance: An International Journal of Policy, Administration, and Institutions, 20(2, 187–208.
Hogan, C. E., Z. Rezaee., R. A. Riley., & U. K. Velury. (2008). Financial Statement Fraud: Insights from The Academic Literature. Auditing: A Journal of Practice and Theory, 27.
Hood, C. (1991). A Public Management for All Season? Public Administration, 69(1).
Jensen, M., & Meckling, W. (1976). Theory of the Firm; Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 305-360.
Jensen, M. C. (1993). The Modern Industrial revolution, Exit, and the Failure of Internal Control System. Journal of Finance, 48, 831-880.
Kalbers. L. P., & Forgathy, T. J. (1993). Audit Committe Effectiveness: an empirical investigation of the contribution of power. Auditing a journal of practice & Theory,12(1).
Karni, S. (2005). The Role of Public Accountants in Preventing and Detecting Fraudulent Financial Reporting [Peranan Akuntan Publik Dalam Menceah Dan Mendeteksi Kecurangan Pelaporan Keuangan]. Jakarta: FEUI.
Koeswoyo, P. S. (2016). Effect of Competence, On Internal Audit Professionals Skepticism, Implication on Regional Head of Corruption Practices (Case Study District/ City in West Java Province). European Centre for Research Training and Development UK. United Kingdom.
Li, J. T., Miao, L. Q., & Liang, Y. H. (2011). An empirical study on operating effects of accountability audit. Auditing Research, 3, 24–30
Liu, J., & Lin, B. (2012). Government Auditing and Corruption Control: Evidence from China's Provincial Panel data. China Journal of Accounting Research, 5.
Luayyi, S. (2010). Agency Theory and Earnings Management From the Ethical Viewpoint of Managers [Teori Keagenan Dan Manajemen Laba Dari Sudut Pandang Etika Manajer]. Jurnal Malang: FE Universitas Brawijaya. 199-216
Lucas, B. A. M., & Mbiti, I. M. (2015). Access, Sorting, and Achievement: The Short-Run Effects of Free Primary Education in Kenya. Applied Economics, 4(4), 226–253.
Ma, S. G. (2007). Empirical research on the effect of government auditors’ qualities on audit performance. Auditing Research, 3, 24–29
Makawimbang. (2014). State financial losses in corruption, a progressive legal approach [Kerugian keuangan negara dalam tindak pidana korupsi, suatu pendekatan hukum progresif]. Yogyakarta: Thafa Media
Michael, J., & William, M. (1976). A Theory Of The Firm: Governance, Residual Claims And Organizational Forms. Harvard University Press, Journal of Financial Economics (JFE), 3(4).
Mauro, P. (1998). Corruption and the composition of government expenditure. Journal of Public Economics, 69, 263–279.
Messier, W. F., Glover, S. M. Jr., Prawitt, D. F. Jr. (2000). Auditing and Assurance Serviced Systematic Approach, Second Edition International Edition, New York: Irwin McGraw-Hill Co.
Muralidharan, K., & Prakash, N. (2013). Cycling to School Increasing Secondary School Enrollment for Girls in India.
Moeller, R. R. (2009). Brink’s modern internal auditing: a common body of knowledge: seventh edition. John Wiley & Sons, Inc. New Jersey, USA: John Wiley & Sons, Inc. https://doi.org/10.1002/9781118371558
Neupane, R. (2015). The Effect of Brand Image on customer Satisfaction and Loyalty Intentionin Retail Supermarket Chain UK. International Journal of Social Sciences and Management, 2(1), 9-26.
Nitzan, S. (1994). Transfers or public good provision? A political allocation perspective. Economics Letters, 45(4), 451–457. https://doi.org/10.1016/0165-1765(94)90086-8
Olken, B. A. (2005). Monitoring Corruption: Evidance From a Field Experiment in Indonesia. NBER Working Paper Series, 11753. Retrieved from http://www.nber.org/papers/w11753
Olofsson, M., & Bobby, P. (2011). Structure and Profesional Judgement in Audit Planning. Hongskolan Kristiamstad and Business Economy and Administration. Code 6202, Pages 1:28. Kristiandstad, Sweden
Petrovits, et al. (2011). The Causes and Consequences of Internal Control Problems in Nonprofit organizations. The Accounting Review: January 2011, Vol. 86, No. 1, pp. 325-357.
Richardson, V. J. (1998). Information Asymmetry and Earnings Management: Some Evidence. Dissertation, University of Kansas, March.
Rose-Ackerman. (1996). Altruism, nonprofits, and economic theory. Journal of economis Literature, 34, 701-728.
Sawyer, L. B., Dittenhofer, M. A., & Scheiner, J. H. (2005). Sawyer's Internal Auditing. Edisi Kelima. Penerbit Salemba 4. The Institute of Internal Auditors. New York. Scully, G. W. (1991). Rent-seeking in US. government budgets, 1900-88. Public Choice, 70, 99–106.
Schelker, M., & Eichenberger, R. (2010) Auditors and fiscal policy evidence on a little big institution. Journal of comparative economics, 38.
Scott, W. R. (2000). Financial Accounting Theory. New Jersey: Prentice Hall Inc.
Sugiono. (2000). Business Research Methods, Fifth ed [Metode Penelitian Bisnis, Cetakan Kelima], Bandung: CV Alfabeta.
Azzali, S., & Mazza, T. (2018). The Internal Audit Effectiveness Evaluated with an Organizational, Process and Relationship Perspective. International Journal of Business and Management, 13(6), 238-254.
Tanzi, V., & Davoodi, H. (1997). Investment and Growth. The Welfare State, Public Investment, and Growth. the 53rd Congress of The International Institutes of Public Finance. 41–42.
Thaer A. Abu Tabar. 2016. The Role of Internal Audit function in the Public Sector. Basic Research Journal of Business Management and Accounts. Jordania
Tuanakotta, T. M. (2012). Audit Berbasis ISA (International Standards on Auditing). Jakarta: Salemba Empat
Watts, R.L., Zimmerman, J.L. 1978. Toward a Positive Theory of Determination of Accounting Standards. The Accounting Review, 53, 112-134
Wallace, W. (1984). A Time Series Analysis of the Effect of Internal Audit Activities on External Fees. Altamonte Springs. FL. Institute of Internal Auditors Research Foundation.
Walsh, J. P., & Seward, J. K. (1990). On the efficiency of internal and external corporate control mechanisms. The Academy of Management Review, 15(3), 421–458. https://doi.org/10.2307/258017
Ware, G. T., Moss, S., Campos, J. E., & Noone, G P. (2012). Corruption in procurement. Handbook of Global Research and Practice in Corruption, illustrated edn. UK: Edward Elgar Publishing.
Weston, J. F, & Copeland, T E. (1989). Financial Management, Eighth Edition [Manajemen Keuangan, Edisi kedelapan]. Jakarta: Erlangga.
Zhao, J. S. (2005). An analytical framework for government audit quality characteristics in China. Auditing Research, 4, 65–68
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 4.0 International License.