Revealing Red Flags of Insurance Fraud: A Case Study Research of PT Jiwasraya Indonesia
DOI:
https://doi.org/10.32353/khrife.1.2023.03Keywords:
Fraud; Insurance; Red Flags.Abstract
Insurance companies are prone to fraud due to high yield pressures and hence we need to identify certain red flags for fraud detection. This study is descriptive-analytical research that aims at analyzing the red flags of insurance fraud and at finding the strategies to eliminate potential fraud by learning from insurance fraud cases. Using PT Asuransi Jiwasraya (Persero) from 2006 to 2020 as case study research, the finding shows that mega fraud (corruption, asset misappropriation, fraudulent financial statements) occured during the period. Red flags of improper disclosure are disclaimer opinion from The Audit Board of The Republic of Indonesia, PwC’s adverse opinion, and 2002 and 2004 insolvency. Timing differences red flags are Jiwasraya bought second and third tier shares before the end of the 2019 quarter to be resold on January 2, 2020. Red flags of Jiwasraya’s corruption are indicated by misuse of interest by Jiwasraya’s directors, inappropriate bancassurance, purchase of shares and mutual funds that are more expensive than market prices. Jiwasraya’s red flag in asset misappropriation is shown by the purchase of shares and mutual funds of poor quality using income from the sale of saving plan products. These findings imply that detective, preventive, and repressive strategies are needed to combat insurance fraud in Indonesia.
References
Association of Certified Fraud Examiners (2017).
Fraud Examiners Manual (International): Insurance Fraud.
Association of Certified Fraud Examiners (2020). Indonesia Chapter. Survai Fraud Indonesia 2019 / Survai Fraud Indonesiai Fraud Indonesia.
Association of Certified Fraud Examiners (2020). Report To The Nations 2020 Global Study On Occupational Fraud and Abuse.
Badan Pemeriksa Keuangan Republik Indonesia (2016). Audit Report on the Management of the Insurance Business, Investment, Income and Operational Costs for 2014 to 2015 at PT Asuransi Jiwasraya (Persero) and other related agencies in Jakarta, Bandung, Batam, Medan and Surabaya. URL: https:// www.bpk.go.id/ihps#.
Brenner, L., Meyll, T., Stolper, O., Walter, A. (2019). Consumer Fraud Victimization and Financial Well-being. Journal of Economic Psychology. No 76. DOI: 10.1016/j. joep.2019.102243.
Cao, J., Luo, X., Zhang, W. (2020). Corporate employment, red flags, and audit effort. Journal of Accounting and Public Policy. No 39 (1). DOI: 10.1016/j. jaccpubpol.2019.106710.
Chen, Y. J., Wu, C. H., Chen, Y. M., Li, H. Y., Chen, H. K. (2017). Enhancement of fraud detection for narratives in annual reports. International Journal of Accounting Information Systems. No 26. DOI: 10.1016/j. accinf.2017.06.004.
Craja, P., Kim, A., Lessmann, S. (2020). Deep learning for detecting financial statement fraud. Decision Support Systems. No 139. DOI: 10.1016/j.dss.2020.113421.
Dechow, P. M., Ge, W., Larson, C. R., Sloan, R. G. (2011). Predicting Material Accounting Misstatements. Contemporary Accounting Research. No 28 (1). DOI: 10.1111/j.1911-3846.2010.01041.x.
Financial Services Authority (2017). Letter of OJK 46/SEOJK.05/2017of Fraud Control, Anti-Fraud Strategy Implementation, and Anti-Fraud Strategy Report for Insurance Companies, Sharia Insurance Companies, Reinsurance Companies, Sharia Reinsurance Companies or Sharia Units / Otoritas Jasa Keuangan. URL: https://www. ojk.go.id/en/default.aspx.
Gottschalk, P. (2018). Convenience Triangle in White-Collar Crime: Case Studies of Relationships Between Motive, Opportunity, and Willingness. International Journal of Law, Crime and Justice. No 55. DOI: 10.1016/j. ijlcj.2018.10.001.
Gullkvist, B., Jokipii, A. (2013). Perceived Importance of Red Flags Across Fraud Types. Critical Perspectives on Accounting. No 24 (1). DOI: 10.1016/j.cpa.2012.01.004.
Iriste, S., Katane, I. (2018). Expertise as a Research Method in Education. Rural Environment. Education. Personality. (REEP) : Proceedings of the 11th International Scientific Conference. No 11. DOI: 10.22616/ reep.2018.008.
Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics. No 3 (4).
Jeppesen, K. K., Leder, C. (2016). Auditors’ Experience with Corporate Psychopaths. Journal of Financial Crime. No 23 (4). DOI: 10.1108/JFC-05-2015-0026.
Koornhof, C., du Plessis, D. (2000). Red Flagging as an Indicator of Financial Statement Fraud: The Perspective of Investors and Lenders. Meditari Accountancy Research. No 8 (1). DOI: 10.1108/10222529200000005.
Lisic, L. L., Silveri, S. D., Song, Y., Wang, K. (2015). Accounting Fraud, Auditing, and The Role of Government Sanctions in China. Journal of Business Research. No 68 (6). DOI: 10.1016/j.jbusres.2014.11.013.
Makki, S. (2020). Chronology of the Jiwasraya Case, Failure to Pay to Allegations of Corruption / CNN Indonesia. URL: https://www.cnnindonesia.com/ekono mi/20200108111414-78-463406/kronologi-kasus-jiwasraya-gagal-bayar-hingga-dugaan-korupsi.
Mutmainah, D. A. (2022). The Ministry of State Owned Enterprises Asks The Audit Board of The Republic of Indonesia to Be Transparent About Jiwasraya / CNN Indonesia. URL: https://www.cnnindonesia. com/ekonomi/20200107203147-92-463280/ kementerian-bumn-minta-bpk-transparan-soal-jiwasraya.
Nola, L. F. (2020). Legal Protection for Jiwasraya Customers. Expertise Agency Research Center at The House of Representatives, Republic of Indonesia. No XII (2). URL: https://berkas.dpr.go.id/puslit/f iles/ info_singkat/Info_Singkat-XII-2-II-P3DI-Januari-2020-209.pdf.
Purnomo, H. (2019). Total Debt of IDR 40 T, Is the Jiwasraya Case Really This Scary? / CNBC Indonesia. URL: h t t p s : // w w w. c n b c i n d o n e s i a . c o m /market/20191115114506-17-115525/total-utang-rp-40-t-benarkah-kasus-jiwasraya-seseram-ini.
Repousis, S. (2016). Using Beneish Model to Detect Corporate Financial Statement Fraud in Greece. Journal of Financial Crime. No 23 (4). DOI: 10.1108/JFC-11-2014-0055.
Ridwan, M., Ryandi, D. (2020). Jiwasraya Corruption, 3 Financial Services Authority Officials and Former IDX Boss Asked for Information from Attorney General / JawaPos.Com. URL: https://www.jawapos. com/nasional/hukum-kriminal/02/12/2020/korupsi-jiwasraya-3-pejabat-ojk-dan-eks-bos-bei-digarap-kejagung/.
Sayekti, N. W. (2020). Problems with Jiwasraya Insurance: Dissolution or Rescue. Expertise Agency Research Center at The House of Representatives, Republic of Indonesia. No XII (2). URL: https://berkas.dpr.go.id/ puslit/files/info_singkat/Info_Singkat-XII-2-II-P3DI-Januari-2020-163.pdf.
Singleton, T. W., Singleton, A. J. (2010). Fraud Auditing and Forensic Accounting. 4th ed. New Jersey.
Smith, A. L., Murthy, U. S., Engle, T. J. (2012). Why Computer-Mediated Communication Improves the Effectiveness of Fraud Brainstorming. International Journal of Accounting Information Systems. No 13 (4). DOI: 10.1016/j.accinf.2012.03.002.
Tkachenko, A., Yakovlev, A., Kuznetsova, A. (2017). ‘Sweet Deals’: State-Owned Enterprises, Corruption and Repeated Contracts in Public Procurement. Economic Systems. No 41 (1). DOI: 10.1016/j. ecosys.2016.12.002.
Vahdati, S., Yasini, N. (2015). Factors Affecting Internet Frauds in Private Sector: A Case Study in Cyberspace Surveillance and Scam Monitoring Agency of Iran. Computers in Human Behavior. No 51 (PA). DOI: 10.1016/j. chb.2015.04.058.
Wang, Y., Ashton, J. K., Jaafar, A. (2019). Money Shouts! How Effective Are Punishments for Accounting Fraud? British Accounting Review. No 51. DOI: 10.1016/j. bar.2019.02.006.
Wicaksono, A. (2020). The Audit Board of The Republic of Indonesia Doesn’t Want the Jiwasraya Case to Become a Century Scandal. Volume II / CNN Indonesia. URL: https://www.cnnindonesia.com/ek onomi/20200108150419-78-463504/bpk-tak-ingin-kasus-jiwasraya-jadi-skandal-century-jilid-ii.
Yin, R. K. (2011). Applications of Case Study Research. SAGE Publication. Vol. 34.
Yu, X. (2013). Securities Fraud and Corporate Finance: Recent Developments. Managerial and Decision Economics. No 34 (7–8). DOI: 10.1002/mde.2621.
Zainudin, E. F., Hashim, H. A. (2016). Detecting fraudulent financial reporting using financial ratio. Journal of Financial Reporting and Accounting.
