Good Corporate Governance Strategies for Reducing Fraud in

Indonesian Green Businesses: A Literature Review

Khoiron Khulud
202210280211001

Lecturer
Prof.Ir. Ilyas Masudin, MLogSCM., Ph.D

Master of Management, Muhammadiyah University of Malang

cooludroni@gmail.com

Introduction
In the business world, financial statement fraud is a serious problem
worldwide (Xiuguo & Shengyong, 2022). Fraud is providing fake financial
records without permission by omitting or adding important information to trick
the legitimate owner of the document (Villaescusa, 2022). Taking part in
dishonest practices with the intent to deceive others is known as fraud. This
includes publishing financial documents with the intention of misleading readers.
The various types of fraud can be broken down into three categories: asset
misappropriation, financial statement fraud, and stock market manipulation
(Jennings, 2022).
Fraud can have consequences that cause harm to organizations or
businesses in the public and private sectors (ACFE, 2022).Many studies have
been conducted to determine the independent variable factors that influence the
occurrence of fraud. Many academic studies employ the Fraud Triangle model
(Triastuti, Jati, & Warsono, 2019). According to Cressey's Fraud Triangle theory
(1953), there are three main factors that encourage someone to commit fraud, if
one of these factors does not occur, fraud will not occur (Jibril, Cakranegara,
Putri, & Octiva, 2022).
Good corporate governance is defined as governance, regulations,
processes and activities that are integrated and interrelated to manage and control
organizational affairs so that there are no conflicts of interest (agency problems)
(Younas, UdDin, Awan, & Khan, 2021). In Roestami's research (2022) states that
strong corporate governance significantly reduces company intentions towards
fraudulent financial reporting (Rostami & Rezaei, 2021), However studies by
Wardhana and Usman (2022) show that poor company governance is a major
contributor to fraud. Firm age has a significant negative impact on fraud, while
income smoothing has a significant positive impact. (Wardhana & Usman, 2022).
. The aim of this literature review article is to add to the existing literature
examining the role of corporate governance in preventing and mitigating
corporate fraud so as to advise management in fighting fraud and to assist
shareholders in making informed investment decisions.

Literature Research
Fraud is an intentional act to do or not do something that causes the
publication of financial reports to mislead users. This fraud can be grouped into
three categories, namely asset misuse, financial statement fraud and corruption
(Jennings, 2022).
1. Asset Misappropriation
Cash assets are misappropriated through a number of schemes,
including skimming, larceny, and fraudulent practices. According to Kassem,
misappropriation of assets is the act of stealing or abusing corporate resources
for one's own use and financial gain through inflated business expenses.
2. Financial Statement Fraud
Financial statement fraud (Financial Statement Fraud) Financial
statement fraud is intentional misstatement and negligence to cover up actual
financial conditions by engineering financial reports, either by inflating assets,
recording fake income or understating expense reports. According to the
Center for Audit Quality, fraudulent financial statements are defined as
intentional material misstatements in financial statements,
3. Corruption
The Black Law Dictionary of Wales (Henri & Wouters, 2020) defines
corruption as something that is corrupted; tainted corruption lowers moral decay.
Corruption programs can be divided into four categories: 1) conflict of interest, 2)
bribery, 3) illegal remuneration, and 4) economic extortion.
Cressey (1953) proposed a hypothesis commonly referred to as the "Fraud
Triangle Theory," which states that there are three main factors that encourage
someone to engage in fraudulent behavior. Some of the factors that can increase
the likelihood of fraud occurring are those listed in the so-called "fraud triangle"
theory.
1) Pressure
Eplain both external influences and the perpetrator's own motivations for
engaging in fraud. The intended pressure can take the form of a personal crisis or
problem that motivates the perpetrator to commit fraud (Shah, Sirojuzilam, &
Maas, 2020). The following variables will be used to assess the relative
importance of these risk factors:
a. marital status;
b. dependent child number;
c. work environment;
d. home environment;
e. large family environment;
f. separation between home and workplace;
g. total amount of persons actively looking for aid money.
2) Possibility
Other than predisposing factors, opportunities are what make criminal acts
possible; without them, criminal acts cannot occur. This opportunity arises if
weak internal entity implementation is carried out (Bradley, 2015). Some of the
variables that will be used to measure the impact of risk factors in this study
include:
a. environmental monitoring;
b. aerial surveillance;
c. responsible for risk;
d. disciplinary action; and
e. control activities.
3) Justification/Reasoning for Support
Justitification, the third factor, emerged to strengthen the first two factors
mentioned above. Motivation is the for dishonest behavior, leading the offender
to believe that his or her actions will not have negative consequences. F. Febriani
& S. S. Suryandari, 2019. These justification factors are the variables that
encourage workers to give themselves permission to cheat:
a. working hours;
b. position;
c. pay;
d. proximity to superiors;
e. the type of drugs they take;
f. their age;
g. the availability of facilities.

Discussion
This article employs a literature review approach. Reviewing the existing
literature and comparing it to other literature in order to get a theoretical picture of
the variable in question is the method known as the literature review (Jibril et al.,
2022) Bibliographic searches of books, academic articles, and other relevant
sources on a given topic, research area, or theoretical framework; provision of
summaries, contexts, and critical assessments of the aforementioned works in
relation to the research question under investigation. Give a reason why the author
should be able to draw conclusions from the research that are in line with its
goals. (Pandiangan, Oktafiani, Panjaitan, Shifa, & Jefri, 2022)
Literature reviews have been conducted on the existing literature
concerning the relationship between sound corporate governance and the
prevention of fraud. Insight criteria were gleaned from eight research results with
full texts available, and in-text literature searches could be conducted (Tabel 1).
This article aims to analyze the causes of accounting fraud using a three-
stage approach. This text was written using the purging technique. The results
indicate that financial stability has an effect on the accuracy of financial
statements (Gunawan, 2021). The falsification of financial reports has the
hallmarks of an industrial crime. There is a weak monitoring effect when it comes
to financial report fraud. There is no effect of financial goal misstatement in this
location. Other factors, which vary depending on the state of the company being
studied, may also contribute to inaccurate financial statements, necessitating
additional research to determine the precise nature of these other variables and
their influence on financial statements that are inaccurate. Other factors that can
affect financial report fraud include external pressures, personal financial needs,
and organizational capabilities (Suriany & Kuntadi, 2022)
All employees and managers of a company are responsible for adhering to
the principles of good corporate governance to ensure that the company's
decisions benefit all stakeholders, including stockholders (Ramadhany, Indrawati,
& Al Azhar, 2017). The very nature of the human mind is a breeding ground for
deceit. Personality is how we act and how we think; integrity and self-control are
indispensable traits that need nurturing so that we don't defraud ourselves
monetarily (Sharma, 2022)
The term "Good Corporate Governance" (GCG) refers to the set of rules
that govern the relationships between shareholders, management, creditors,
governments, employees, and outside parties regards to the rights and
responsibilities of running a business (Herawaty & Hernando, 2020).
Principles of transparency (prioritizing transparency in disclosing all
relevant information promptly and accurately) and accountability (defining
responsibilities and ensuring they are carried out within a company or
organization so that they can be managed) are at the heart of good corporate
governance (Indahsari, 2018). The principle of accountability (which ensure that
the company is run in accordance with sound corporate principles and applicable
tax laws), independence (which ensures that the company is run professionally
without any interference from personal gain or external pressure), and fairness
(which ensures that shareholder matters are handled in an honest and equitable
manner) are all upheld (Marciano, Syam, Suyanto, Ahmar, & Gayatri, 2018)
 Table 1. Literature Research
No. researcher Variable results
1. (Ibrahim, Darwis, &  Corporate Governance Companies can avoid financial report inaccuracies by providing
Supriatiningsih,  Pressure incentives for high-performing employees and conducting
2022)  Opportunity stringent oversight of all company operations.
 Rationalization
 Fraud of financial
2. (Wardhana & Usman,  corporate governance  Corporate governance has a significantly negative impact on
2022)  Perception fraud triangle fraud.
 income smoothing  Income smoothing has a positively significant correlation to
 Character fraud fraud.
 a business's culture is negatively indicative of fraud.
 Motives for taking action against fraud and an organization's
size that are not significant
3. (Natalis, 2022)  Fraud pentagon The Fraud Pentagon has significant evidence against corporate
 Corporate fraud fraud.
4 (Triastuti et al., 2019)  behavior  Employees' intentions to blow the whistle might be influenced
 Subjective Norm by their worldview, institutional norms, and perceptions of
 perceptive control authority.
  whistleblowing
5. (Andrew, Candy, &  Stimulus
Robin, 2022)  Capability
 Opportunity
 Rationalization
 Ego
 Financial Distress
 Corporate Fraud
6. (Ramadhany et al.,  Internal control system
2017)  Information asymmetry,
 Compensation
 good corporate governance
 accounting fraud
7. (Rustandy,  Good Corporate Governance
Sukmadilaga, &  Training Internal
Irawady, 2020)  prevention Fraud
 Workers' perceptions of managerial control over their work,
attitudes, and subordinate norms are the strongest predictors of
whether or not they will blow the whistle on their employer.
 Effectively detecting fraud with stimulus, capability, and
financial distress.
 Anomaly Detection (Detektor anomaly) Research concludes
that companies in the BEI industry classification are more
likely to engage in fraud.
The prevalence of accounting irregularities can be influenced by
instituting good corporate governance practices. The
implementation of good corporate governance has a positive
impact on management, making them more focused and
systematic in the distribution of responsibilities, accountability
mechanisms, and other aspects of running the business.
Organizational culture, corporate governance, and internal training
all contribute to PT Pos Indonesia's fraud prevention efforts
(Persero).
8. (Rowa & Arthana,  Good Corporate Governance Good business management has a noticeable and positive effect
2019)  Fraud on preventing theft from BPR in Kupang.
Conclusion
Based on the author's presentation of evidence from eight scholarly works,
good business administration practices are required to reduce the risk of financial
report fraud (good corporate governance).

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