FINANCIAL DISTRESS
1. Work 2. Business
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The Weak of Control Systems Result in the Emergence of a Number of Problems within the Organization
Muhammad Ja’far Shodiq
Sultan Agung Islamic University, Indonesia [email protected]
Abstract: The weak of control systems result in the emergence of a number of problems within the organization. In contrast, the control system that is too tight cause the appearance of action that it is counter-productive, such as increasing of cost of control systems design and decreasing of flexibility and innovation. The control system is able to reduce the risk of management by identifying problems and provide the best chance for corrective actions. Thus the control system is closely related to the organizational performance. Previous studies have shown that the impact of the control system on organizational performance is not directly so, but there is a contextual variables that affect the relationship between control system and performance. Unfortunately, commonly some previous studies use a non-systemic approach, so that the effect of all contextual variables on the relationship between control system and performance does not describe the real conditions. This study was done to examine the effect of contextual variables on the relationship between control system and performance by using system approach. Compared with the selection and interaction approach, the system approach is better in providing solutions to the complexity of multidimensional relationship problems. The model in this study is built on three main variables, namely Contextual Variables, Management Control Systems (MCS, Organizational Variable), and Organizational Performance. Contextual variables consist of Perceived Environment Uncertainty (PEU), Job Uncertainty (JU) and Company size (Size). Sample suddenly stand up of a number of medium and large manufacturing companies in Central Java, and the sampling is done by using purposive proportional sampling. The hypotheses are tested using multiple regression. The results showed that the PEU, JU and Size are moderating variables on the relationship between MCS and organizational performance. The relationship among contextual variables, organizational variable, and organizational performance is not simple, but there is complex and systemic relationship.
Keywords: Perceived Environment Uncertainty, Job Uncertainty, Company Size, Management Control System, Organizational Perfromance, System Approach
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Factors Influencing Trends Against Fraud (Fraud): Employee Perceptions of District Kendal
Dedi Rusdi, Zulmina Kumalasari Diponegoro University, Indonesia
Student of Sultan Agung Islamic University, Indonesia [email protected]
Abstract: Government agencies is one of service to the community to realize the achievement of good governance in Indonesia. However, in reality many of the staff members who commit fraud. This research is aimed to explore the perceptions of employees in government agencies about factors that impact fraud such as the effectiveness of internal control, information asymmetry, the suitability of compensation, organizational commitment, leadership style, organizational ethical culture compliance to accounting rules, and law enforcement. The sample in this research were 166 employees of government agencies in the Kendal Regency. Data collection using questionnaires. Data analysis in this study using a model full analysis Structural Equation Modeling (SEM) with smartPLS analysis tools. The results showed that internal control effectiveness, information asymmetry, the suitability of compensation, organizational ethical culture, compliance to accounting rules, law enforcement affected with fraud significantly. But the research showed that organization’s commitment and leadership styles did not affect with fraud. The advice given in this research to government service in Kendal that is expected to be more transparent abaout financial statements to the public, giving the reward employees for their work, the leader explain to more clearly convince the direction and purpose to the goal of organization. It is also suggested to next studies for making research in bank, private sector, trading and manufacturing company, another finance company are trend with fraud.
Keywords: Fraud, Perception, Goverment Sector 1. Introduction
We often hear and read articles and news about the indications of fraud or fraud / irregularities in a company or government agency that is committed by the employee / employees. The rise of the news about the investigation of the indications of irregularities (fraud) in the state management of the Company and also of going to press and television increasingly made aware that we have to do something to correct the irregularities. Fraud or cheating itself is an act against the law by people from within or outside the organization, with a view to personal gain and or group that directly harm others. Laymen often narrowly interpreted that fraud is a criminal act or acts of corruption. The tendency of accounting fraud (KKA) include various forms such as the tendency for corruption, the tendency to misuse of assets, and the tendency to deceive financial statement (Thoyibatun, 2009). In the public sector, forms of fraud (fraud) in this case is a corruption such as leakage. In this case it is the case with regard to local government Kendal. In the news reported by www.tabloidlidik.com mention the findings of the Indonesian Forum for Budget Transparency (Fitra) said, that the Kendal district ranks first in Central Java, the most common irregularities during the 2013 budget of 35 Regency / City in Central Java, Allegations of misappropriation of state funds in Kendal is estimated at 200 billion over the 94 cases.
For example, according www.beritakendal.com, occurring within a deviation of local budgets (budget) involving a civil servant (PNS) Department of Highways, the SDA and the ESDM Kendal and two contractors in fiscal year 2012 which led to loss of 200 countries million dollars. Another case was conducted by the former marketing manager of Kendal Town PD BKK mode with embezzling clients and fictitious credit application. The total losses suffered by PD BKK Kendal reached Rp 1.2 billion City. As well as cases of corruption Social Assistance (Bansos) conducted by legislative candidates (candidates) House of Representatives from the Golkar Party and former Regent of Kendal and corruption cases equity participation company-owned Enterprises in Various Regions 2004-2011 by the Director of PD Aneka Business, Director Finance and Operations Director. Many things can be the reason for someone to commit fraud such as pressure, opportunity and justification happens to actors, but the real fraud (fraud) that occur in the environment of government agencies not only tour of duty and corruption, there are many other modes. Almost in all the business processes and services run by government agencies, central and local levels are still fraught with fraud and corruption. In addition fictitious business travel mode, deviations that have been uncovered include: engineering procurement of goods / services, reception
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deviations country / region, the cost of licensing, illegal charges and others. Several studies have shown that factors mem¬pe¬ngaruhi tendency fraud (fraud). Wilopo research (2006) shows that the internal control, compliance, accounting rules, accounting and information asymmetry affect the morality management of unethical behavior and tendencies of accounting fraud, while compensation does not affect the suitability of unethical behavior and tendencies of accounting fraud and unethical behavior affect the tendency of accounting fraud. Najahningrum (2013) conducted a study on employees of government agencies DIY. The results indicate that there are significant between the enforcement of regulations, the effectiveness of internal control, asymmetry infor¬masi, distributive justice, procedural justice, organizational commitment and ke¬cenderung¬¬an fraud (fraud), while the ethical culture of the organization does not ber¬pengaruh cheating tendencies (fraud).
Theoretical Framework and Hypotheses Development Theoretical Basis
Theory of Perception: This theory includes the psychological theory of behavior, that perception is a psychological factor that has an important role in influencing behavior. The difference in perception is strongly influenced by the different interpretations on any individual or group (Mahmud, 1990 in Rukmawati, 2011). Perception according to Robbins (2008) is the process by which individuals organize and interpret their sensory impressions in order memberi¬kan meaning to their environment. However, what is received by a person can essentially differ from objective reality. The behavior of individuals based on their perception of reality, not kenyatan itself.
Attribution theory: Attribution theory developed by Kelley (1967), and Green and Mitchell (1979). They argued that leadership behavior is caused by attributes cause. The theory explains why the leadership attributes leadership behavior occurs. So leadership is inseparable from the way of thinking, feeling, acting, act, and behave in a job in an organization with subordinates or others (Waworuntu, 2003). The tendency Fraud (Fraud) Definition of fraud according to Black's Law Dictionary in Rukmawati (2011) are:
"A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment, a tort is usual, but in some cases (esp. When the conduct is willful) it may be a crime."
The above definition means that, cheating is kesengaja¬an on one statement of a truth or disembunyi¬kan state of a material fact which may influence others to commit acts which harm him, usually an error but in some cases (especially when taken intentional) allows a crime.
Internal Control Systems: Internal control is a management tool used to monitor the implementation of the powers and responsibilities given to subordinates. In addition, internal controls can also be used as a tool to control the operation of the company in order to operate more effectively and efficiently.
Understanding Internal Control itself according to PP 60 of 2008 is a process that is integral to the actions and activities that are carried out continuously by management and all employees to provide reasonable assurance on the achievement of organizational goals through effective and efficient, the reliability of financial reporting, safeguarding of state assets, and compliance with laws invitation.
Information asymmetry: The most important thing is the information from the real world. Asymmetric Information or inequality of information is a situation where the manager has different information (better) on the condition or prospects of the companies owned by investors (Brigham, 1999: 35 in Susetyo, 2006). This information asymmetry occurs because the management has more information than the investors (Husnan, 1996: 325 in Susetyo, 2001).
Suitability Compensation: Compensation or remuneration are all forms of payments made by the company to employees as remuneration for the performance of duties or the employee's contribution to the company, both of which are given on a regular basis as well as situational. Reward or compensation is an important factor affecting how and why people work in an organization and not on the other organization.
Organizational Commitment: Organizational commitment is defined as the degree to which employees are involved in the organization and intends to remain a member, where it contains the loyalty and the willingness of employees to work optimally for the organization in which the employee works (Greenberg and Baron, 2003).
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Leadership Style: The style of leadership is how a leader carry out the functions of leadership and how it is seen by those who seek leads or those who may be observing from the outside (Robert, 1992).
Significant leadership role to the success and failure of an organization.
Organizational Ethical Culture: Organizational culture is a pattern that are shared within an organization that is not written to be obeyed by all persons involved in the organization. The existence of organizational culture in any organization tend to be the result of interaction between the founders' biases and assumptions on the one hand, with what is learned by the first member of the organization, which dipekerja¬kan by the founders of the organization, from their own experience.
Obedience Accounting Rules: Theoretically, accounting obedience is also an obligation. Therefore, if the financial statements are made without following the applicable accounting rules, the state declared as a form of failure and will lead to a tendency of cheating or unethical behavior that can not be or is difficult to trace the auditor. Adherence to accounting rules is viewed as the degree of conformity procedures asset management organization, implementation of accounting procedures, and presentation of financial statements and all supporting evidence, the rules established by the CPC and / or SAP (PP RI No.
24/2005).
Law Enforcement: Law enforcement is a process for the enforcement of remedies, or the functioning of legal norms to guide behavior in real traffic or legal relations in society and state. (Shidique, Jimly A, 2006).
Hypotheses Development
Relationship Effectiveness of Internal Control and Fraud Trends (Fraud): The tendency of fraud (fraud) is influenced by the presence or absence of an opportunity to do so. Great Opportunity makes the tendency of cheating (fraud) is more common. These opportunities can be reduced by good internal control system. Good internal control can reduce or even shut down opportunities for cheating tendencies.
H1: Internal Control Effectiveness negatively affect tendency fraud (fraud).
Relationship of Information Asymmetry and Trends Fraud (Fraud): If there is asymmetry of information on the scope of government, users, especially people who do not know information about the use and management of budget funds the possibility of financial reports will be manipulated by the preparers of financial statements that would open up opportunities to commit fraud (fraud). Wilopo study (2006) showed that the positive effect of information asymmetry on the trend of cheating. Thus, the higher the asymmetry that occurs between the manager and the users of financial statements, the likelihood of fraud (fraud) will be higher.
H2: Information Asymmetry positive effect on the tendency of cheating (fraud)
Relations Compensation Compliance and Fraud Trends (Fraud): To reduce fraud committed someone in the company, the company usually give rewards or gifts to employees in the form of a bonus or something. It is expected that employee perceptions of the compensation awarded company in accordance with the capabilities that it provides for the company. Due to reward or prize, is expected to raise the motivation of employees to be more passionate in their work and will forget to do acts of fraud.
H3: Compliance Compensation negatively affect the propensity fraud (fraud)
Relationships and Organizational Commitment Fraud Trends (Fraud): Organizational commitment is defined as the degree to which employees are involved in the organization and intends to remain a member, where it contains the loyalty and the willingness of employees to work optimally for the organization in which the employee works (Greenberg and Baron, 2003). Employees with a high degree of organizational commitment would involve himself in the organization and work on behalf of the organization. If an employee in an organization has a high organizational commitment to the organization this can reduce the occurrence of acts of fraud (fraud).
H4: Organizational Commitment negative effect on the propensity fraud
Relationship of Leadership Style and Trends Fraud: Person's leadership style will greatly affect the performance of subordinates, in this case if a leader has a style of leadership that is respected by his subordinates are expected to reduce acts of fraud within the organization. Otherwise, if the person's
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perception of his boss's leadership style is not respected tend to do things that will hurt the company as an act of fraud.
H5: Leadership style negatively affect the tendency of cheating
Ethical Culture and Relations Organization Trends Fraud: The founder of the organization have a positive impact for the survival of the organization, which is why the founders of the organization often becomes a legend in every organization. If the institution has an ethical organizational culture is low it will encourage employees to perform acts of fraud, but on the contrary, if in an agency has instilled the values that a fraud is an act that is not good and detrimental to many parties, the staff members will be less likely to commit fraud. It can be concluded that the better the organization's ethical culture of an agency, the lower the tendency of employees to commit fraud.
H6: organizational ethical culture negative effect on the propensity fraud
Obedience relationships and tendency Fraud Accounting Rules: Disclosure requirements explained that each accounting entity within the government is expected to present the financial report comprising the financial statements and performance reports. These reports are made in a form and content according to SAP so that the organization's performance between periods can be compared. So the obedience of an agency or company in the preparation of financial statements in conformity accounting rules would reduce the likelihood of fraud because it is easier to detect Auditor.
H7: Obedience accounting rules negatively affect the propensity fraud
Relations Law Enforcement and Fraud Trends: Cheating in general is an unlawful act committed by persons from within or outside the organization, with a view to personal gain and or group that directly harm others. Most people know about the law, but did not stick with it. So in this case the required awareness. Public awareness of law enforcement can arise when running properly. Good law enforcement is expected to reduce fraud (fraud).
H8: Law enforcement negatively affect the tendency of cheating
2. Methodology
Types and Sources of Data: Data used in this study are primary data obtained through filling a questionnaire conducted by the respondent. Data sources are the characteristics and perceptions of civil servants working in Kendal subsections that deal with financial or finance.
Population and Sample: The population in this study were all civil servants working in the Department of Local Government Kendal with a total of as many as 1,114 employees. Research conducted the study population but not the study sample, which examines some of the populations represented. The sample of this study is a regional secretariat, one Bappeda and 16 district offices in Kendal, the author assumes that employees working in finance or financial handling as many as 10 employees for each department, but the authors gave questionnaires to several agencies with the reason for having the possibility of cheating high tendency in that agency. So the sample size is 195 employees.
Method of Data Collection: The collection of the data required in this study a data collection conducted from questionnaires. The questionnaire consists of questions with explanations given for each question in order to facilitate the respondents in answering. The questionnaire in this study were prepared using a Likert scale. This study will use a Likert scale of 1-5, with details as follows: (1) Strongly Disagree (STS), (2) Disagree (TS), (3) Undecided (R), (4) Agree (S) and (5) Strongly Agree (SS)
Measurement of Variables
Effectiveness of Internal Control (KPI): The instrument used to measure the tendency of fraud consists of five items were developed from the PP question number 60 of 2008 on the Internal Control System of the Government. The response of the respondents was measured with a Likert scale 1 strongly disagree to 5 strongly agree.
Information asymmetry (AI): The instrument used to measure the asymmetry of information consists of six items dikembang¬kan question by researchers Dunk (1993) in Wilopo (2006). The response of the respondents was measured with a Likert scale 1 strongly disagree to 5 strongly agree.
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Suitability Compensation (KK): The instrument used to measure the suitability of compensation (Gibson, 1997 in Wilopo, 2006) regarding the reward and consists of six items question. The response of the respondents was measured with a Likert scale 1 strongly disagree to 5 strongly agree.
Organizational Commitment (KO): The instrument used to measure organizational commitment was developed from research Pingka (2013) consists of seven items of questions. Likert scale of 1 strongly disagree to 5 strongly agree was used to measure the response of the respondents.
Leadership Style (GK): The instrument used to measure the leadership style developed by Fiedler's theory (Stoner et al, 1996 in Pramudita 2013) consists of five items the question. Likert scale, 1 strongly disagree to 5 strongly agree was used to measure the response of the respondents Organizational Ethical Culture (BEO): The instrument used to measure the ethical culture of the organization (Robbins, 2008 in Pramudita, 2013) consists of five items the question. The measurement using a Likert scale, a scale of 1 strongly disagree to 5 strongly agree
Obedience Accounting Rules (KKA): The instrument used to measure adherence to accounting rules developed from (IAI, 1998 in Wilopo (2006)) consists of seven items concerning the code of ethics questions accountant. Likert scale, 1 strongly disagree to 5 strongly agree was used to measure the response of the respondents.
Law Enforcement (FH): The instrument used to measure the law enforcement consists of five items were developed from the research questions Pramudita (2013). The response of the respondents was measured with a Likert scale, 1 strongly disagree to 5 strongly agree.
The tendency of cheating (FO): The instrument used to measure the tendency of fraud consists of five items of questions developed from (IAI, 2001 in research Pramudita, 2013). Measurement of this variable using a Likert scale, 1 strongly disagree to 5 strongly agree.
Method of Data Analysis: This study methods of data analysis using structural equation modeling (SEM) is a statistical technique that analyzes the relationship patterns and indicators of latent constructs, the latent constructs to each other, as well as measurement error directly. The analytical tool used is SmartPLS. Method of analysis undertaken include descriptive statistics, testing the model outer, inner test models, and hypothesis testing.