The bad modeling by Top Executives

I have to confess that Emirsyah Satar is one of my favorite leader in Indonesia Business environment. We never met in person, but I have once attended seminar at FEB UI starring him as keynote speaker. On that Seminar, He shared his experience when he developed Garuda Indonesia, state-owned Airlines company, from the very bottom line, until successfully brought Garuda to become an award winning five star airline expanding its fleet to 134 aircraft.

He is so powerful, intelligent, full of innovation, and creative and has been leading Garuda for a decade. He has sucessfully over sawed the Garuda’s debt restructuring strategy until brought Garuda to become a listed company in 2014.

This cloudy Saturday, while sipping hot macchiato at my favorite coffee shop in town (and waiting my friend to pick me up), I read news that turns my eyes even bigger. I could not believe that this is happening. The Corruption Eradication Commission (KPK) has named Emirsyah as a suspect that he has been allegedly engaged on bribery scheme related to the purchase of aircraft engines from the UK company, Rolls Royce.

Soon after. That news simply broke my confident upon him. I am more than dissapointed to not only on one figure, but also I am disapointed to know that FINANCIAL CRIME HAVE BEEN STICK IN ANYWHERE, be it in Government and also Business.

I am curious on why is actually the fraud exist? Do they need new Lamborghini?

Does the bribery offer sounds too good to be true?

I saw an interesting phenomenon that most of the fraud (and other financial crime such as corruption, theft, embezzlement, etc) are actually committed by the most powerful person in an organization. Not that upcoming, fresh accounting graduate innocently looking smile entering the room. The perpetrators are actually the top executives. They have high, legitimate position within institution. Aren’t they supposed to enjoy exclusive employee benefit offered by company? Are they got paid less than expected amount? Why would they need to theft illegal money when in fact they actually receive high salary?

Why is the Fraud exist?


In this post, I decided to dig on a course of fraud, and let us see what Donald R. Cressey found on the cause of the fraud itself.

Do you know that Fraud actually exists when there are Opportunity, Pressure, and Rationalization? Those three factors are all known to be Triangle Effect.


What are the Triangle Effect on Fraud?

  1. Pressure – you steal the money because you’ve got pressure. This is the motivation behind the crime and can be either personal financial pressure, such as debt problems, or workplace debt problems, a shortfall in your revenue, your extravagant lifestyle, list goes on.
  2. Opportunity – Secret is key to the perception of a viable opportunity. You see a loophole in an institution or company which you can use to take illegal action because no body sees, and notice it. You theft, and conceal the fact so that it blur the fraud itself.
  3. Rationalization, you rationalize the crime because you justify the crime in a way that is acceptable to his or her moral compass. This is the final stage in the fraud triangle. Most fraudsters are first-time criminals and do not see themselves as criminals, but rather a victim of circumstance. Rationalizations are often based on external factors, such as a need to take care of a family, or a dishonest employer which is seen to minimize or mitigate the harm done by the crime.


At least, Here are two my analytical observation on why such scheme have been gone well.

1. High Competitive Industry

Growing the competitiveness in an automotive industry create pressure for Rolls Royce to secure the bid of most Airlines Industry. Product market competition tend to negatively affect the performance over the financial position of company. By paying or offering officials certain amount of money or goods, they will have opportunity to impact the decision in continuing the business in particular country.

Surprisingly, Rolls-Royce’s bribery scheme is not only exist in Indonesia, but also other countries like Brazil, Kazakhstan, Thailand, Brazil, Azerbaijan, Angola.

For example In Iraq, Rolls-Royce middlemen bribed Iraqi officials after they had expressed concerns about turbines the company had sold. The Rolls-Royce bagman paid the bribe to “persuade the officials to accept the turbines” and prevent the officials from “blacklisting” Rolls-Royce from future business in Iraq.

2. Poor & Inadequate of Internal Control, and Lack of Independent Checks by Audit Committee

Second reason is that the Internal control of the company is often poor and rather weak. It would be nice to believe the perfect things: that most individuals and most employees (and top executives) are so honest that they would never commit fraud and, therefore, the kind of culture an organization creates and the fraud opportunities that exist aren’t important. Unfortunately, I believe that is not the case. Most people are capable of committing fraud, and most people adapt to their environments. When placed in an environment of low integrity, poor controls, loose accountability, or high pressure, people tend to become increasingly dishonest. While they may have the required Code of Business Ethics and Conduct, in many cases it is not tailored to their organization, their competitive position, management’s commitment or their employees.  They may have limited policies and procedures and are too small to effectively segregate critical duties within the organization, and because of the expense, they do not have internal control/audit functions, and are unable to provide formal employee training.

When placed in an environment of low integrity, poor controls, loose accountability, or high pressure, people tend to become increasingly dishonest.

3. Management Behavior

Another very important indicator of potential fraud is a prevalent lack of top management support and commitment to ethical compliance and behavior. All organizations, large and small, should review this list and take corrective action accordingly. Even if the institution have applied the code of conduct, the top management often OVERRIDE it without any clear reason. They tend to do so because they have legitimate position to create decisions. That is why I believe losing their capabilities is the best way so that

While my friend of mine has arrived to pick me up, I close the book and ready to go –with the shock, and sad mood. He asked me why, and I said none just read another-financial-crimes.

I am lucky to have friend like him because he always stimulate me think critically. He then popped me a questions: As Accounting Student, How do you believe that Fraud will not be growing? How to fight Fraud?

I said, Bro, that is difficult question. But I’ll give it a try though.

For me, at least there are four proactive way to fight fraud. Firstly, applying comprehensive approach in eliminating opportunity. I say, those opportunity exist when someone is having single authority check. Eliminating opportunity can be done by establishing A Good Internal controls over the activities the management in order to check how effective and efficient the policies run. Good internal controls includes the segregation of duties, having multiple check, discouraging collusion between employees is also important and others. Another thing to be done is informing vendors of company policies so that they aware the right and obligation of engagement. .

Secondly, CREATING A CULTURE OF HONESTY, OPENNESS, AND ASSISTANCE. Prevention is the best action that the company can do. Those action includes hiring honest people and providing fraud awareness training. Fraud awareness training helps to prevent fraud and ensure that frauds that do occur are detected at early stages, thus limiting financial exposure to the corporation and minimizing the negative impact on the work environment. Education includes instructing vendors and other outsiders, not just employees, about the organization’s expectations. Implementing employee assistance program will also add benefit for company in the long term. Why? Because this program will build the awareness of the effect of the fraud so that each employee will be responsible in every their action.

Thirdly, HAVING A SYSTEM OF MONITORING AND REPORTING. Monitoring involves having internal auditors, external auditors, and even management performing audits and reviews. Employees and vendors who know that an effective monitoring and reporting system is in place are much less likely to commit fraud than are individuals who work in high fraud environments. Effective prevention of fraud usually involves efforts to create in
the minds of potential perpetrators that their activities will be uncovered. For prevention purposes, it doesn’t really matter whether a perpetrator actually will be caught, but rather only whether he or she thinks they will. Reporting also involves publishing facts about the
fraud to those who can benefit from the information. Publication does not mean making sure the case and all its accompanying details are in local newspapers. Indeed, until there is a conviction, such publication is ill-advised, because it can lead to slander or libel suits. Rather, what “publication”means in this context is depersonalizing the case (that is, disguising the identities of the perpetrators and other people involved) and publishing it internally in a security newsletter or a memo that is distributed to auditors, security personnel, and appropriate management and employees.

Lastly, CREATING AN EXPECTATION OF PUNISHMENT. Taking no action should not even be a possibility; rather, whenever possible, fraud perpetrators should be prosecuted. A strong prosecution policy must have the support of top managers, and they must be informed if someone commits fraud and is not prosecuted. Gone are the days when prosecution resulted in bad publicity. Most people now realize that fraud exists in every
organization. They also realize that organizations that take a tough prosecution stance will reduce the number of future frauds significantly and will ultimately be more profitable because of the deterrent effect of prosecution.

By the time I finish my explanation, he eventually thumb me up because of my ‘passionate speech’ against him. Anyway, that is only thought. I hope no fraud will exist in the near future. I hope more people will have more integrity. I hope for a change and improvements for all of sectors. I hope no one will commit fraud and we will more aware that such fraud has grew at such an alarming rate.




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