International Journal of Law and Management

Developing fraud prevention model in regional public hospital in West Sulawesi province
Kartini Kartini,
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Kartini Kartini, "Developing fraud prevention model in regional public hospital in West Sulawesi province", International
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 Developing fraud prevention model in regional public hospital in West Sulawesi
province

Abstract:
Purpose – This research to reveal the empirical facts of pressure, rationalization, effect on opportunity and fraud
prevention, and accountability to fraud prevention in RSUD in West Sulawesi Province.
Design/methodology/approach – This research includes explanatory research, with a time horizon from January
to July 2016. Selection of research objects at local public hospitals (RSUD) in West Sulawesi province. The
population in this study is all employees who are in the Regional General Hospital in West Sulawesi Province.
While sample is determined based on cluster sampling technique and the analysis tool used is Structural
Equation Modeling (SEM).
Findings – Based on the analysis results can be concluded that the variable pressure and rationalization positive
and significant effect on the opportunity, so that improvements in the variable pressure and rationalization will
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create improvements in the variable opportunity. The pressure, rationalization, and opportunity variables have a
positive and significant effect on fraud prevention, so improvements in pressure, rationalization, and opportunity
variables will create improvements in variable fraud prevention. Accountability variables have a negative and
significant effect on fraud prevention, so the higher the value of accountability will decrease the value of fraud
prevention.
Originality – Originality of this paper shows bulit developing fraud prevention model in regional public hospital
in west sulawesi province with five variables, namely: pressure, rationalization, opportunity, accountability, and
fraud prevention.

Keywords: opportunity, accountability, pressure, fraud prevention, explanatory research, SEM

Introduction
A. Background
News on high number of public complains on public services are often found in mass
media, and even often found in real life. Low public service infrastructures and poor services
by public servants are still far from expectation (www.interseksi.org). This phenomenon is
often associated budget corruption in the public sector (Windarti, 2015). According to a
survey by Transparency International, Corruption Perception Index (CPI) 2016, Indonesia
was ranked 90th with a score of37. For Asian region, Indonesia was far below Singapore,
which was in the 7th place with a score of 84, Hong Kong in the 15th place(77), Taiwanin the
31st place (61), South Korea in the 52nd place (53), and China in the 79th place (40). In
ASEAN, Indonesia’s ranking was below Brunei in the 41st place (58), Malaysia in the
55thplace (49). Indonesia’s ranking was slightly better than the Philippines, Thailand, and
Timor Lestein the 101st place(35), Vietnam in the 113th place (33), Laos in the 123rd place
(30), Myanmarin the 136th place (28), Papua New Guinea in the 136th place (28), and
Cambodia in the 156th place (21).

Table 1: Corruption Perception Index 2016

Rangking Country Score Rangking Country Score
1 Denmark 90 90 Indonesia 37
1 New Zealand 90 101 Philippines 35
7 Singapore 84 101 Thailand 35
15 Hong Kong 77 101 East Timor 35
20 Japan 72 113 Vietnam 33
31 Taiwan 61 123 Laos 30
41 Brunei 58 136 Myanmar 28
52 South Korea 53 136 Papua New Guinea 28
79 China 40 156 Cambodia 21
Source: www.transparency.org

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 High level of corruption in Indonesiashows the importance of active roleamong
government and non-government agencies to uphold accountability system. Weak
accountability system in public service contributes to high level of budget
corruption(Akinyele, 2016). Therefore, the public demands the government, including local
government, to apply accountability system (Idris, 2012).
One of the primary sector to to realize sustainable Indonesian development is the health
sector. Health development is the government’s main priority beside education sector.
Therefore, in state budget allocation, the Ministry of Health always receive relatively large
portion.In 2015, the health sector receivedRp. 55,8trillion. In 2016, the budget of the health
sector according to the constitutional mandate is 5% of state spending, or Rp 67,2trillion
(www.kemenkeu.go.id).
Development in the health sector is also supported by the implementation of Law No.
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40/2004 onNational Social Security System (SJSN) dated 1 January 2014 (bpjs-
kesehatan.go.id), marked by the assignment of PT. Askes asthe Healthcare and Social
Security Agency (id.wikipedia.org).As reported in its official site, healthcare service premium
assumption of Rp. 80 thousand perperson per month is multiplied by 174.324.644 people per
10 February 2017, so the fund managed by Health BPJS annually is Rp 167trillion.
Public fund in the health sector doesn’t include funds which enter through local budget.
The amount of public fund increases along with increasing amount of funds distributed to
autonomous regions in Indonesia. Large amount of fund in the health sector is a challenge for
local government because there is risk of fraud if not managed with good accountability
system.
South Sulawesi Province is a new expansion area established as the 33rd province on5
October 2004 based on Law No. 26 of 2004 (sulbarprov.go.id). As a new expansion area and
due to large amount of fund allocation to the health sector using fraud triangle and rational
choice theory, the researcher would like to study the role of individual in supporting fraud
prevention efforts in Regional General Hospital (RSUD) in West Sulawesi Province.

B. Problems Formulation
Based on the background that has been described, specifically formulated a number of
research problems as follows:
1. Does pressure have a positive and significant effect on opportunity in RSUD in West
Sulawesi Province.
2. Does rationalization have a positive and significant effect on the opportunity in RSUD
in West Sulawesi Province.
3. Does pressure have a positive and significant impact on fraud prevention in RSUD in
West Sulawesi Province.
4. Does rationalization have a positive and significant impact on fraud prevention in
RSUD in West Sulawesi Province.
5. Do opportunities have a positive and significant impact on fraud prevention in RSUD in
West Sulawesi Province.
6. Does pressure have a positive and significant impact on fraud prevention through
opportunity in RSUD in West Sulawesi Province.
7. Does rationalization have a positive and significant impact on fraud prevention through
opportunity in RSUD in West Sulawesi Province.
8. Does accountability have a positive and significant impact on fraud prevention in RSUD
in West Sulawesi Province.
C. Research Objectives

2
 To reveal the empirical facts of pressure, rationalization, effect on opportunity and fraud
prevention, and accountability to fraud prevention in RSUD in West Sulawesi Province.
Originality of this paper shows bulit developing fraud prevention model in regional public
hospital in west sulawesi province with five variables, namely: pressure, rationalization,
opportunity, accountability, and fraud prevention.

LITERATURE REVIEW
Rational choice theoryis a predominant theory in explaining the behaviors of human as
social creature. The theory focuses on factors determining one’s choice. Individual’s choice
affects social behaviors around them. This approach is often used in economy to explain
individual’s behaviors as homoeconomicus, which is characterized by high rationality and
self-interested attitude, (Burns and Roszkowska, 2016).
The theory is used to construct comprehensive human behavior model. It’s associated in
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effort to individual’s deepest motivation to achieve their target. In decision-making, an

individual views all alternatives, assesses the consequence of each alternative, considers the
alternative by their belief and interest, and then makes the best decision (Burns and
Roszkowska, 2016).
Consistent with the description above, Slezak’s study (2013) combines sociological
approach and criminological approach to recognize and analyze fraud behaviors in several
public schools in the United States. It produces fraud triangle theory (FTT), in which there are
three important elements which triggerfraud, i.e.: pressure/motive, rationalization, and
opportunity. This theory was adapted from the studyby Donald Cressey in 1950, (Abdullahi,
et al., 2015).
“Fraud” is derived from a Latin word “fraus”, which has various meaning. But all of
them refer to to the concepts of “danger”, “violation”, and “deception”. The noun“fraus”is
transformed into an adjective,“fraudelentus” (Silverstone, 2007). According to Tuanakota
(2007), there is a phrase that easily explains the cuase or root of fraud. It’s “Fraud by need, by
greed, and by opportunity”. It means if we want to prevent fraud, remove or reduce the cause.
Using FTT, Steinmeier (2015) studies several agencies with sustainably good
achievements.The result shows that managers face various pressures, have opportunities for
manipulation due to lacking monitoring environment.Fraud in this case is generally not
revealed much, but interviews with executives reveal that there are many frauds within certain
limits. Moral commitment is necessary to protect them against temptation for rationalization.
A study by Prabowo (2014) reveals that recognizing fraudster’s way of thinking will
give ways to prevent corruption. This view is supported by his research result that individual
who is exposed to pressure/motivation, has opportunity, and is capable of rationalization of
corruption, will consciousness (or unconsciously) assesses all benefits and losses they’ll gain
before deciding whether to commit corruption or not.
Studies involving FTT have only been applied by using variables inorganizational
environment only. Cieslewicz (2010) studies in larger area by inserting social-cultural
influence to develop fraud prevention efforts.The concept of FTTis reconstructed to have a
perspective consistent with the Theory of Planned Behavior. As a result, social-cultural
dimensions (power distance, assertiveness,anduncertainty avoidance) are aspects significantly
affecting fraud risk in organization, so it’s important for organization stakeholderto recognize
this.
According tothe Oxford Advance learner’s Dictionary, accountability is“required or
expected to give an explanation for one’s action. In other words, accountability contains
obligation to present and report all behaviors and activities, especially in financial
administration, to higher level. In this case, the terminology of accountability is viewed from
control of action in achievement of objective. Accountability media in the concept of

3
 accountability isn’t only limited to accountability report, but also includes ease of practice of
mandate provider in collecting information directly and indirectly (Ismail Mohammad dkk.
2004: 39).High quality financial accountability is characterized by: (1). Accountability
containing financial management accountability to perform government program and activity;
(2). Financial accountability involving financial performance assessment; (3). Financial
accountability which is developed by reliable information system; (4). Financial
accountability which is assessed objectively and independently; and (5). Follow-up of the
result of financial accountability assessment(Idris, 2012).
A study by Ntongo (2012) on private health institutions inUganda reveals a relation
positive and significant relation betweenfinancial accountability and internal control. Variable
internal control is the strongest explanatory among independent variables.Internal control is a
facility created by and for organizational interest. It’s in line with the definition by
theCommittee on Auditing Procedure of American Institute of Certified Public Accountants
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(AICPA) in 1949 (Sawyer, 2003) below:

Internal Control comprises the plan of organization on and all coordinate methods and
measures adopted within a business to safeguard its assets, check the accuracy and reliability
of its accounting data, promote operationalefficiency, and encourage to prescribed
managerial policies.
Akinyele (2016) performed a case study on government hospitals in Nigeria to measure
the implementation of financial control and accountability. It reveals significant correlation
between accountability and financial violation. Strict rule implementation will help
organization avoid potential fraud. Using samples of government agencies in South Sulawesi
Province, Idris (2012) concludes that there should be synergic efforts betweeninternal control,
internal auditor and accountability to develop effective fraud prevention effort.
Gupta & Gupta (2015) in their study tries to assess frauds in corporations in India and
their consequences on existing monitoring system. They found that the monitoring system is
weak and needs redefinition of the role of auditor. Similarly, coordination among monitoring
agencies is weak. Every time there is fraud in corporation, agencies blame each other.
Publication of fraud and fraud prevention are rare. These are worsened by lack of
professionalism of board of director at every level in company.
From previous fraud prevention efforts, 8 best practices of fraud prevention by
individual or group of individuals were selected. The strategies are: fraud awareness &
education, management of fraud control, personnel monitoring, transaction monitoring,
improvement in personal identification, counterfeiting prevention, computer systems
monitoring, legal-based deterrence. Each strategy depends on the condition of implementing
organization, e.g.: commitment to change of each individual and existing technology, Smith
(1999).

RESEARCH METHODS
This research includes explanatory research, with a time horizon from January to July
2016. Selection of research objects at local public hospitals (RSUD) in West Sulawesi
province.

4
 Pressure

X1

Fraud
Opportunity Accountability
Prevention

Y1 Y2 X3
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Rationalization

X2

Figure 2. Conceptual Framework Model

The population in this study is all employees who are in the Regional General Hospital
in West Sulawesi Province. While sample is determined based on cluster sampling technique,
(Sugiyono, 2014) there are 3 RSUD which become sample of this research, that is: 1. RSUD
Provinsi Sulawesi Barat, (2) RSUD Polewali Mandar Regency, and (3) Majene Regency
Hospital. Respondent data were taken from various work units and functional in RSUD. The
analysis tool used is Structural Equation Modeling, (Ghozali, 2005; Solimun, et al., 2017) by
analyzing the relationship between 5 variables, namely: pressure, rationalization, opportunity,
accountability, and fraud prevention.

RESULT AND DISCUSSION

This study sampled three government hospitals in West Sulawesi Province, namely:
West Sulawesi Provincial Hospital, Polewali Mandar District Hospital, and Majene Regency
Hospital. Results of compilation of incoming questionnaires data obtained 131 data of
respondents who are ready to be analyzed.
1. Overall Model Fit Test
The computational results shown in Table 2 show that the model test as a whole with the
various criteria proposed as a condition fit a model is met and the model is stated fit.

Tabel 2 :Overall Fraud Prevention Model Fit Test

Criteria Cut-off Score Computation Information
Result
GFI Approaching 1 0.763 Fit
AGFI Approaching 1 0.686 Fit
RMR Approaching 0,08 0.128 Fit
NFI Approaching 1 0,803 Fit
RFI Approaching 1 0,765 Fit
Hoetler 200 56 Fit

5
 2. Structural Model Test: Influence of Pressure, Rationalization, Accountability,
and Opportunity to Fraud Prevention

Based on the result of structural equation modeling analysis that has fulfilled the
criterion of goodness of fit, then tested significance of functional relationship between
variables as shown in table 3.

Table 3: One-way Functional Relationships Between Variables

Independent Dependent Variable Estimate Probability LF/Correlations
Variable
Pressure (X1) a. Opportunity (Y1) 0,245 0,011 0,176
b. Fraud Prevention (Y2) 0,227 0,029 0,248
Rationalization (X2) a. Opportunity (Y1) 0,630 *** 0,794
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b. Fraud Prevention (Y2) 0,109 0,560 0,208

Accountability (X3) a. Fraud Prevention (Y2) -0,546 0,015 -0,737
Opportunity (Y1) a. Fraud Prevention (Y2) 0,617 *** 0,936

1. The influence of Pressure (X1) and Rationalization (X2) on Opportunity (Y1)

a. The coefficient of influence of variable pressure (X1) to opportunity (Y1) is 0,245.
The probability value of 0.011 is well below 0.05 meaning the relationship between
these two constructs is significant. Based on the results of this computation concluded
pressure (X1) has a positive and significant effect on the opportunity (Y1).
b. The coefficient of influence of rationalization variable (X2) to opportunity (Y1) is
0,630. The probability value 0,000 (visible *** symbol) is well below 0.05 means the
relationship between these two constructs is significant. Based on the results of this
computation concluded rationalization (X2) has a positive and significant effect on the
opportunity (Y1).
2. The influence of Pressure (X1) and Rationalization (X2) on Fraud Prevention (Y2)
a. The coefficient of influence of variable pressure (X1) to fraud prevention (Y2) is
0,227. The probability value of 0.029 is well below 0.05 meaning the relationship
between these two constructs is significant. Based on these computational results it is
concluded that pressure (X1) has a positive and significant influence on fraud
prevention (Y2).
b. The coefficient of influence of Rationalization (X2) on fraud prevention (Y2) is 0,109.
A probability value of 0.560 is above 0.05 means the relationship between these two
constructs is not significant. Based on these computational results it is concluded that
pressure (X2) has an insignificant positive effect on fraud prevention (Y2).
3. The influence of Opportunity (Y1) on Fraud Prevention (Y2)
The coefficient of influence of opportunity variable (Y1) to fraud prevention
(Y2) is 0,617. The probability value 0,000 (visible *** symbol) is well below 0.05
means the relationship between these two constructs is significant. Based on the
results of this computation summed opportunity (Y1) has a positive and significant
influence on fraud prevention (Y2).
4. The influence of Pressure (X1) and Rationalization (X2) on Fraud Prevention (Y2)
through Opportunity (Y1)
a. The coefficient of influence of variable pressure (X1) to fraud prevention (Y2)
through opportunity (Y1) is 0,378. The value of standardized total effects of 0.413 is
above 0.04 indicating the relationship of this variable is significant. Based on the
result of this computation it is concluded that pressure (X1) has a positive and
significant influence on fraud prevention (Y2) through opportunity (Y1).

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 Table 4: Total Effect Analysis Result
The influnces Total Effects Standardized Total
(estimates) Effects (LF)

Pressure
Opportunity
Fraud Prevention 0,378 0,413

Rationalization
Opportunity
Fraud Prevention 0,498 0,951

The coefficient of influence of variable rationalization (X2) to fraud prevention (Y2)

through opportunity (Y1) is 0,498. The value of standardized total effects of 0.951 is well
above 0.04 indicating the relationship of this variable is significant. Based on the results
of this computation concluded rationalization (X2) has a positive and significant
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influence on fraud prevention (Y2) through opportunity (Y1).

5. The influence of Accountability (X3) on Fraud Prevention (Y2)
The coefficient of influence of accountability variable (X3) to fraud prevention (Y2) is -
0.546. The probability value 0.015 is below 0.05 means the relationship between these
two constructs is significant. Based on the results of this computation concluded
accountability (X3) has a negative and significant effect on fraud prevention (Y2).

DISCUSSION
A. The Influence of Pressure (X1) and Rationalization (X2) on Opportunity (Y1)
1. The influence of variable pressure on opportunity was positive and significant. It meant
that increasing pressure significantly increased opportunity, assuming that other factors
were constant. Therefore, it was important to encourage preventive efforts by giving
attention and trying to control factors (indicators) that potentially increased pressure.
Respondents’ answers on pressure showed that generally respondents gave extra
attention to indicators job risk and income, followed by intervention and, lastly, financial
burden. It showed that increased risk of loss of position, especially loss of job as public
servant, increased job pressure for employees, thus encouraging them to take
opportunities to do corruption while still occupying certain positions in government
agencies. Furthermore, the risk would get higher if not measured, so it was important to
produce performance criteria for every position and implement them consistently to
reduce job risk for employees.
Income that fulfills employee’s life necessities madethe employee more focused in
finishing their work. It created conducive work atmosphere because they didn’t think
about getting extra income to fulfill life necessities. It minimized possible thoughts of
taking opportunities for corruption. Therefore, agencies should have payroll systems that
suit appropriate life necessities and job characteristics. Lack of intervention that disturbed
professionalism at work reduced job pressure.It created comfortable work atmosphere, so
employee didn’t think about taking opportunities for corruption.
Reduced extra financial burden to pay installment or other expenses also reduced job
pressure to employees, reducing potential of committingfraud. So, agencies should
perform activities to inform employees about appropriate lifestyles. Lifestyle that exceeds
financial ability potentially leads to fraud.
2. The influence of variable rationalization on opportunity was positive and significant. It
meant higher rationalization significantly increased opportunity,assuming that other
factors were constant. Career system and good competence based on clear and consistent
implementation of rules created comfortable work atmosphere because everything had
clear criteria. Polarization of employees in agencies couldminimized because there’s no

7
 favorite employee, successful team, and official’s relative, leading to no envy among
employees. Therefore, potential for rationalization of fraud by taking opportunity was
reduced.
Merit system had started to be implemented among State Civil Servants. The better the
implementation of this system in agency, the higher the employee’s spirit because they
were assessed based on work achievement. Performance was directly related to
performance allowance. It reduced potential of corruption. People won’t say that civil
servants receive the same amount of salary whether they work hard or not, anymore.
Organization’s ability to adapt, change in case of mistake, also supported the creation of
conducive work atmosphere.It’s known as learning organization. The higher an
organization’s adaptability, the better it was in controlling employees’ fraudulent
behaviors. Every mistake didn’t become rationalization of other mistakes, but used as
opportunity to learn together as an organization.
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B. The Influence of Pressure (X1) and Rationalization (X2) on Fraud Prevention (Y2)
1. The influence of variable pressure on fraud prevention was positive and significant.
It showed that increased risk of loss of position, even loss of job as civil servant,
increased work pressure for employees, this increasing potential of misappropriating
budget, so that the usage of organization’s budgetwas inconsistent with its intended use.
Income that fulfills employee’s life necessities made the employee more focused in
finishing their work. It minimized fraud potential. Lack of intervention that disturbed
professionalism at work reducedwork pressure.Similarly, lack of financial burden
contributed to creating comfortable work atmosphere. They contributed positively to lack
of employee’s potential for fraud in management and using agency’s budget.
2. The influence of variable rationalization on fraud prevention was positive and significant.
It showed that the better and more transparent the career development system, the lower
the employee’s potential to rationalize misappropriation of organization’s budget. The
same applied to indicators competence, merit system, and adaptable. The better
anorganization managed the three indicators, the better the work atmosphere, preventing
potential for fraud.
C. The Influence of Opportunity (Y1) and the Influence of Accountability (X3) on Fraud
Prevention (Y2)
1. The influence of variable opportunity on fraud prevention was positive and significant.
It showed the importance of whistleblower system in government agency. The system
was expected to produce high financial management performance. In this system,
monitoring can be performed by anyone and at any time regardless of hierarchy, so it’s
effective and efficient because it doesn’t require monitoring team which needs regular
funding. The better the whistleblower system management in organization, the smaller
the potential for fraud.
The role ofinternal auditor is also important. Guidance and accompaniment in
supervision could keep activities around financial management to company with existing
strict regulation and mechanism. The better the role of internal auditor, the lower the
fraud potential by employee. Integrated and IT-based financial management led employee
to company with existing regulation and mechanism, because financial treatment
followed certain pattern. The better a government agency in internalizing IT system for
financial, the better the fraud prevention efforts.
Using non-cash transaction also created controlled positive atmosphere. In this
transaction model, the amount of money to be paid is clear without potential for mark-up.
For public service providers, it keeps them from asking for extra payment for services.
Chance for illegal charge, which is common in public services, could be reduced. In other

8
 words, the better the implementation of non-cash transaction in government agency, the
smaller the potential of fraud in financial management.
2. The influence of variable accountability on fraud prevention was negative and significant.
It meant increased accountability significantly reduced fraud prevention efforts, assuming
that other factors were constant. The result was very different from the previous three
variables, which all had positive and significant correlations. The initial hypothesis of the
relation between accountability and fraud prevention used to create this fraud prevention
model wasn’t proven.
In the context of research locust, improving accountability didn’t automatically
improvefraud prevention. The opposite was true. It indicated that improved
accountability didn’t directly impact fraud prevention efforts. So, the researcher now
assumes that the relation between accountability and fraud prevention is moderated by
other variables, such as leadership and organization culture.
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CONCLUSION AND SUGGESTION

Conclusion
Based on the analysis results can be concluded that the variable pressure and
rationalization positive and significant effect on the opportunity, so that improvements in the
variable pressure and rationalization will create improvements in the variable opportunity.
The pressure, rationalization, and opportunity variables have a positive and significant effect
on fraud prevention, so improvements in pressure, rationalization, and opportunity variables
will create improvements in variable fraud prevention. Accountability variables have a
negative and significant effect on fraud prevention, so the higher the value of accountability
will decrease the value of fraud prevention.
Suggestions
1. To produce optimal and sustainable fraud prevention model, there should be integrated
and comprehensive cross-unit organization management. In terms of hard system, there
should be consistent and transparent employee performance appraisal system;
performance-based payroll system that fulfills sufficient life necessities and suitable with
job characteristics; multi-direction monitoring system (whistleblower system); reliable
auditor internal; financial management by IT; non-cash transaction; and transparent career
system supported by employee assignment based on competence.
2. To complement fraud prevention model construction above, it’s important to develop
employees’ awareness to live according to their income. Employee’s lifestyle is an
important soft system to maintain the success of the implementation of fraud prevention
model.
3. Some factors thought to influencefraud prevention modelaren’t discussed in this study,
especially in analyzing the relation between accountability and fraud prevention, in which
it’s suspected that there are moderating variables of organization culture and leadership.
Therefore, future research should include the variables.

9
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