CC BY
8
THE INDICATORS OF FRAUDULENT FINANCIAL REPORTING AMONG STATE GOVERNMENT AGENCIES IN MALAYSIA
NOR 'ASYIQIN ABU *1, NOR AISHAH MOHD ALI2, WAN SHAFIZAH HUSSAIN3, ELINDA NORDIN4, MOHD AB MALEK MOHD SHAH5, ROHIMA SAAD6
1'2'3'4' Faculty of Accountancy, Universiti Teknologi MARA, 5> Department of Law, Universiti Teknologi MARA, 6 Accounting Research Institute, Universiti Kebangsaan Malaysia, Corresponding author: wanshafizah@uitm.edu.my
Abstract: One of the three levels of government in Malaysia is the state government organisation. The public is concerned about the fund governance within the entity because government agencies use public funds to carry out their everyday operations. Following the audit report released by the Auditor General's Department is one of the ways to check that public funds have been used responsibly. This research seeks to identify the different types of audit reports issued by the Auditor General Department in response to the public's growing concern regarding the financial oversight of these government agencies. (AGD). In order to accomplish the study's goal, a qualitative method using content analysis was applied to five years of data from 2013 to 2017 for audit report credentials issued to the condition government and reported online through the websites of the Auditor General Department (AGD). The results demonstrate that Melaka state government agencies reported the greatest number of Qualified Report incidences, at 23. The research also showed that the most common crimes involve faking liabilities and expenses, as well as altering the value of assets. These reports, which cover a period of more than five years, may point to possible fraudulent financial statement components or warning signs that may have occurred within government agencies. Such a situation could damage the organisation's reputation for good financial management and reflect poorly on public sector government bodies.
Key words: State government agencies, audit opinion, fraud, audit report.
Table of Contents
1. INTRODUCTION
1. 1 State Government Agencies in Malaysia
1.2 Audit in Malaysian Public Sector
1.3 Financial Report of State Government Agencies in Malaysia
2. LITERATURE REVIEW
3. METHODOLOGY
4. FINDINGS AND DISCUSSION
5. SUGGESTIONS AND RECOMMENDATIONS
6. CONCLUSION
7. DISCLAIMER
8. ACKNOWLEDGEMENT
1. INTRODUCTION
The National Anti-Corruption Plan 2019 (NACP) was created to fulfil Malaysia's goal of becoming
renowned for its honesty rather than its deterioration According to Goal 16 of the Sustainable Development Goals, the plan was developed to combat corruption by encouraging openness,
accountability, and integrity in all aspects of government administration. (SDG). Everyone in Malaysia needs to understand how important it is to fight crime if they want to become a developed
country. The public, private, public interest organizations, state-owned businesses, and nonprofit
organizations groups are urged to work together in this effort and uphold the rule of law by using
the principles of transparency, responsibility, and honesty as well as good governance. (GIACC, 2019).
Eliminating errors within the political system should be a priority for all government management in order to guarantee the effective implementation of this plan. The government sector has been the most susceptible to corruption in Malaysia over the past five years (2013-2018), according to the country's overall corruption tendency. The governmental sector displayed a vulnerability rate of 63.30%, which was more concerning than the private sector's 17.06% rate. It was found that the public sector's high susceptibility to corruption was caused by inadequate oversight in its procurement processes, law enforcement organizations, and management. The statistics from the MACC served to support this truth even more. The organization discovered that 30 senior government servants in total had been detained on corruption-related charges between 2015 and 2018. Their participation undermines the public sector's integrity in ensuring the security and prosperity of the nation more than just causing financial losses to the government (GIACC, 2019). Based on the above motion, This research seeks to categories the different kinds of audit reports that the Auditor General Section issues to State Government Agencies in Malaysia for 2013-2017 and highlights the important issues such as asset valuation, manipulating liabilities and expenses and fictitious revenues that may indicate the possibility of fraud. All these misconducts to restore stability and dependability to the Government's organization, they ought to be entirely removed from the administrative system.
1.1 State Government Agencies in Malaysia
The Federal Constitution of Malaysia is the supreme law of the nation that outlines the governance of the country. The main objective of the constitution is to separate the governing powers among the executive, judicial, and legislative authorities both at the federal and the state levels, which became the base for the administration of the Malaysian government or known as federalism (Abd Rauf et al, 2015).
In Malaysia, the federal, state, and municipal governments make up the three jurisdictions that make up the public sector. The United States government is made up primarily of departments, ministries, and state businesses at the highest levels. The federal executive body's highest entity at this level is thought to be the ministries, such as the Ministry of Internal Affairs. Putrajaya, Malaysia's federal administrative capital, serves as these agencies' primary headquarters. The Yang di-Pertuan Agong, His Majesty, is in charge of the federal administration. In accordance with the federal constitution of 1957, the Prime Minister and the cabinet provide him with advice as he performs his responsibilities.
The state government executive level, which includes ministers (for two states in Malaysia), divisions, and public businesses, is the second tier. With the exception of some states, which are under the control of the Governor of the State, state administrations are typically headed by the Sultan. Each state government will have its own divisions and statutory organizations, such as the State Religious Division and the State Sports Council, respectively. The Local Authorities are at the lowest level of the hierarchy and include city councils, municipal governments, and district councils run by the government of the state in question, such as the city councils of Subang Jaya, Seberang Prai, and Hilir Perak (District council).
Figure 1 shows the three levels of Malaysia's government, which can help people understand the country's system of hierarchical government overleaf.
1.2 Audit in Malaysian Public Sector
As the handling of public funds symbolizes a trust, the creation of audit is inherent in the public sector accounting procedures. The government agencies at various level are required to keep proper records of their operation of which will be tabled in the parliament and the public as part of fulfilling their stewardship function of the public funds. Public sector auditing conducted by the National Audit Department (NAD) aims to inter alia, Identify any potential misappropriation of funds from the budgeted amount, as well as any "wrongdoings with regard to the tenets orders, laws, and legislation" and "any aspects or elements which lead for the effective, efficient, and economical utilization of government's resources." (Abd Rauf et al., 2015).
Public sector auditing also functions as a constructive mechanism towards good public governance, where objective assessment by the government auditors on public resources utilization assist the government agencies to achieve accountability, improve operations besides boosting the confidence level of their stakeholders. Hence, government auditors play vital functions through their oversight, insight, and foresight of the activities of the government organizations, in supporting effective governance. In Malaysia, the primary legal provisions of auditing within the public sector are the Federal Constitution 1957 and Audit Act 1957. Section 9 of Audit Act 1957 states, "The Minister or the Menteri Besar or Chief Minister of a State shall, as soon as a statement required under section 16 of the Financial Procedure Act 1957, has been prepared, transmit the statement to the Auditor General who shall forthwith cause the statement to be examined and audited and prepare his report thereon".
The Auditor General is required by Articles 106 and 107 of the Federal Constitution as well as the Audit Act of 1957 to audit the financial statements of the Federal and State governments and agencies and to submit a report to the President of Malaysia, His Majesty, Seri Paduka Baginda Yang di-Pertuan Agong the Ruler or Yang di-Pertua Negeri of the State as well as any other authority that may be specified by Federal or State law. His Royal Highness will cause the bill to be placed in the State Legislative Assembly, while His Majesty will cause it to be laid in Parliament.. According to Audit Act 1957, Auditor General has the right to audit the accounts of accounting officers of the Federation and of the States including states statutory bodies known as State Statutory Body (SSB), States Islamic Religious Council (SIRC) and Local Authorities (LA). Audit on State Government's Financial Statements tends to give an opinion as to whether the State Government's Financial Statement shows a true and fair view, as well as its accounting records properly maintained and updated. Auditing on financial statement conducted based on Audit Act 1957, auditing standards and International Standards of Supreme Audit Institutions (ISSAI) 1000. There are a few types of audit report's certificate that has been produced by Auditor, specifically:
i. Inexperienced if the auditor is confident that the financial accounts are accurate and fair; Unqualified with Emphasis of Matters (EOM), if there is any important thing to be emphasized to management;
ii. Certified when the auditor has concerns about the fairness of the financial statement's presentation, the application of accounting standards, or its consistency. Limitation of scope-related qualifications may also be imposed;
iii. Adverse when the auditor believes that, when considered as a whole, the financial statements and their notes do not accurately represent an entity's financial condition, outcomes of activities, or change in its financial situation; and
iv. When the auditor is unable to voice an opinion for one reason or another, such as scope restrictions, a disclaimer is made.
There are four (4) of audit conducted by the Auditor General Department (AGD) on the government agencies i.e. attestation, compliance, performance, and governance audit. Attestation audit or usually referred to as the financial statement audit is the focus of this study. Except for attestation audit, any action taken by the auditees' agencies will be reflected in the so-called audit Dashboard which is accessible by the public online through the AGD website. The dashboard shows the status of the audit issue whether its in progress, action not yet taken or completed are reflected through yellow, red or green button respectively. To date there is no available information on the progress or monitoring of the issue highlighted in the attention audit.
1.3 Financial Report of State Government Agencies in Malaysia
Based on the latest Auditors' General Report for 2017, the following table shows the distribution of the State Statutory Body (SSB), State Islamic Religious Council (SIRC) and Local Authorities (LA) in 13 states within Malaysia overleaf.
This study highlights the audit opinion issued to the state government agencies reported by the Auditor General Department. This is achieved by categorizing the audit opinion issued to the State Government Agencies (SGAs) into several categories according to the Audit Act 1957, as well as summarising the information based on the regions, agencies and issues highlighted in the report issued. Audit opinion issued by the Auditor General may indicate loopholes within the SGAs, suggesting attention by its management and government regulatory bodies. The opinion issued by auditors may also indicate the occurrence of fraud. Based on measurement used by the Association of Certified Fraud Examiners (ACFE), this study focuses on investigating the indication or elements of fraud be inferred from the issues highlighted by the Audit General Department on the financial statements of these SGAs.
Table 1: State Government Agencies in Malaysia (in numbers)
SSB SIRC LA TOTAL
JOHOR 13 1 16 30
KEDAH 11 1 11 23
KELANTAN 9 1 12 22
MELAKA 11 1 4 16
NEGERI SEMBILAN 5 1 8 14
PAHANG 9 1 11 21
PERAK 14 1 15 30
PERLIS 4 1 1 6
PULAU PINANG 8 1 2 11
SABAH 20 1 24 45
SARAWAK 25 1 25 51
SELANGOR 13 1 12 26
TERENGGANU 8 1 7 16
TOTAL 150 13 148 311
SSB - State Statutory Body LA - Local Authorities
SIRC - State Islamic Religious Council
2. LITERATURE REVIEW
Research on fraud cases was pioneered by a criminologist, Donald Cressey who identified three factors contributing to fraud incidences which are pressure or incentives (usually financial), perceived opportunity and rationalization in 1950 named as the Fraud Triangle Theory (FTT). His theory explained the three factors as the interacting factors which will influence an individual to commit fraud (Cressey, 1950). Wolfe and Hermanson (2004) extended such theory with an additional element termed as capability, hence the theory is termed as the Fraud Diamond Theory (FDT). Wolfe and Hermanson (2004) argued that even though perceived pressure or incentive may co-exist with the opportunity to commit fraud coupled with rationalization to do so, fraud may not take place until the forth element surface i.e. capability is also present. In other words, the potential fraudster must have both the skills and ability to commit such fraud. The connection of both theories can be depicted as below.
Pressure/ Incentive A Pressure/ Incentive
A / \
/ \ Opportunity
/_\ Rationalization
Opportunity \/
Rationalization
Fraud Triangle Theory (Cressey, 1950) Capability
Fraud Diamond Theory (Wolfe &
Hermanson)
Figure 2: The connection between the Fraud Triangle Theory and the Fraud Diamond Theory
False and substantial depiction constitutes both a criminal and a tort known as fraud. (Singleton, Bologna & Lindquist, 2006). Theft, defalcation, inconsistencies, white-collar crime, and larceny are additional terms used to characterize fraud. According to Allan (1993), the present level of fraud and corruption in the public sector is not significantly different from that experienced in the business community, making it a topic of interest to the press and legislative debate. Fraud in the public sector is a serious crime because limited resources are not used to provide services that benefit the constituents, and even worse, because the constituents lose confidence in the leadership's ability to run the government organization (Douglas, 1995).
The earliest study on the financial statement fraud was revealed in according to the 1999 Committee of Sponsoring Organizations (COSO) Report, almost 10% of the fraud in financial statements involved the unlawful use of resources, with the majority of money statement fraud (about 90%) involving abuse, change, and fabrication of stated financial data. (Beasley, Carcello & Hermanson, 1999). Fraudulent plans are numerous and frequently use multiple techniques to falsify financial statements. About 20% of financial statement frauds or errors result from understating liabilities and expenditures while the majority are caused by overstating revenues and assets (Beasley et al., 1999).
Another study in According to the United States General Accounting Office (GAO) report from 2002, revenue recognition was involved in about 38% of the 919 examined restatements (caused by accounting irregularities). Bill and hold transactions, side contracts, restricted sales, inappropriate
acceptance of consignment sales as finished sales, unauthorized shipments, and illegal cutoff of sales operations at the end of the period under review are examples of fraudulent revenue strategies frequently employed by businesses (GAO, 2002).
The most frequent types of accounting fraud, like income frauds, and the least frequent types, like accounts payable frauds, can both occur. Financial statement fraud can take many different forms, typically starting with the misrepresentation of interim statements and continuing into yearly financial statements. These types of fraud can include overstating revenues and assets as well as understating liabilities and expenditures. The most prevalent technique for committing financial statement deception is earnings management. For instance, manipulating earnings to meet earnings goals, analyst projections, and/or a pattern in earnings (Rezaee, 2005).
Financial statement fraud can also take different forms, such as the deliberate delay of transactions or events or the early detection of ultimate transactions or events. Deliberate overstatement of sales through the creation of fictitious invoices is an example of the former, whereas intentional exaggeration of sales through the use of otherwise legal shipments after the end of the period under review is an example of the latter. Contrary to intentional early (delayed) recognition of transactions, fictitious transaction fraud is frequently regarded as a more aggressive technique of fraud schemes, happens more frequently, and attracts more attention from auditors and regulators (Rezaee, 2005).
In Malaysia, the method by which governments inform the general public of their financial situation and operations is known as governmental financial reporting. These reports serve as the benchmark for how efficiently, effectively, and financially the government is run by residents, oversight organizations, and other stakeholders. Government accounting may not satisfy the requirements of all users, but there are numerous ways to evaluate accountability and come to wise decisions. However, it is challenging to quantify the input of fiscal reporting by governments to the fight against corruption (Eiji Oyamada, 2015).
Pawi, Juanil, Zahari & Yusoff (2011) contended that it is the responsibility of the local government in Malaysia to handle the public facilities and infrastructure in a way that preserves their integrity and maximizes public satisfaction. An additional study conducted by Aziz, Rahman, Alam & Said (2015) additionally identified the problems with Malaysian public sector's inability to manage their assets and facilities, which ultimately may harm the value of honesty in the public sector. These issues were highlighted by local media outlets. Mohd Ali, Abu, Hussain, and Nordin (2017) found that, of the fraud instances reported by the media in 2016, the state level accounted for the majority (72.6%), followed by the federal government (22.4%) and local authorities (5%). Taking into accounts the previous literature discussion on financial statement fraud, there is indeed dearth of literature on financial statement fraud within the SGAs being investigated in Malaysia. Hence, this study investigates the trend of the audit reports issued to the state government agencies SGAs spanning the last five (5) years in Malaysia, to determine whether there could be indication or elements of fraudulent financial statement be inferred from the issues highlighted by the Audit General Department on the financial statements of these SGAs.
3. METHODOLOGY
This research uses a quantitative design and extracts audit data through content analysis reports on the SGAs over five (5) years spanning from 2013 to 2017 on the website of the Auditor General Department. The online report was selected instead of the normal report circulation as they are easily accessible by the public at large. The data were then combined, compared, and classified according to type of report, state agencies and the financial reporting issues involved where the cases reported to have occurred. This study classified the audit report into four (other than the Unqualified Report) which are Unqualified Report with Emphasis of Matter, Qualified Report with either qualified, disclaimer or adverse opinion. The following part contains a breakdown of the data.
For the purpose of this study, the financial statement fraud is classified based on the measurement used by the Association of Certified Fraud Examiner (ACFE, 2015). ACFE highlighted data analysis
tests for detecting financial statement fraud. The tests for financial statement fraud schemes include financial statement analyses that can be performed using the horizontal, vertical and ratio analyses. These analyses can assist in identifying changes, trends and significant accounts on the financial statements that may indicate the occurrence of fraud in the organizations or agencies. (ACFE, 2015). Figure 2 below shows the summary of classification of financial statement fraud.
Figure 3: Financial statement fraud classification Source: Association of Certified Fraud Examiner (ACFE) (2015)
Financial statement fraud, according to the ACFE, is the manipulation of data used to create financial statements that are made available to the public and banking institutions in order for the business to present a better but false financial picture or to conceal a payment of money, liabilities, or assets. These frauds come in a variety of shapes and sizes, and they can affect the entire organisation or just one department or individual. Fraud typically involves manipulating sales or expenses (profit and loss numbers) or asset valuation and concealing liabilities (balance sheet items). Timing manipulation and entry fraud are the two major categories into which most of these frauds fall. ACFE divides clock manipulation into two categories (2) ways which are:
early recognition of revenues which bringing revenues from a later period into the current period, increasing revenues for the current period; or
(i) postponing expenses by delaying booking expenses to the next period, decreasing the expenses and raising profits for the current period.
For the second category of the financial fraud, it involves and produces false entries on either real or fictitious assets or liabilities. They commonly fall into the three areas:
(i) Fictitious revenues where it can be created by inventing sales transactions or by classifying other incomes or gains as sales; or
(ii) Manipulating liabilities and expenses which can be done by moving a short-term liability to long term liability, capitalizing expenses and writing them off slowly creates an asset that does not exist and reduces the expenses in the current period, not writing off assets when appropriate or moving reserves from the balance sheet reduces expense accounts on the profit and loss account; or
(iii) Valuing assets which can be created by valuing the inventory at a higher price than appropriate (at an inflated selling or cost price) and by valuing the inventory at the correct amount and inflate the number of items, creating false sales and debtors and writing off good debtors at the end of a period as to create an expense and lower profits.
The below diagram illustrates on how the researcher retrieve the data for the study.
Tracing the state government
agencies report through Auditor's General Department
^_website_y
_|_
▼ T
Figure 4: Flow of Retrieving Data
4. FINDINGS AND DISCUSSION
Data for the study was collected over five (5) years of 2013 to 2017 based on types of audit report issued has been gathered. Table 2 shows the detail distribution of types of opinions issued to all states in Malaysia other than Standard Unqualified audit report for the last five (5) years. The highest audit reports issued were the Qualified report with Qualified opinion (72 incidence, 77.4%), followed by Unqualified report with Emphasis of Matter (17, 18.3%), Qualified report with Disclaimer opinion (3, 3%), and lastly only one case involving Qualified report with Disagreement opinion was noted. From the table, it can be seen that the state of Melaka received the highest qualified reports from the AGD with a total of 23 incidences even though by size it is the second smallest state in Malaysia. The state with the lowest Qualified Report is Johore, with only two (2) Qualified reports noted. Other two (2) states which were issued with considerably high Qualified report were Sabah and Selangor with 11 Qualified reports each for the last five (5) years. In general, except for Melaka, Sabah and Selangor, on average, other states have a trend of receiving three (3) to five (5) Qualified report within the duration of five (5) years.
Table 2: Distribution of Audit Report issued other than Standard Unqualified to the State Government Agencies over 5 years (2013-2017)
State Government Types of Audit Opinion
Ue Q A D Total
JOHOR 2 2
KEDAH 2 1 3
KELANTAN 1 2 3
MELAKA 7 16 23
NEGERI SEMBILAN 2 1 3
PAHANG 2 5 1 8
PERAK 9 9
PERLIS 5 5
PULAU PINANG 5 5
SABAH 11 11
SARAWAK 3 1 4
SELANGOR 1 10 11
TERENGGANU 2 4 6
TOTAL 17 72 1 3 93
Ue: Unqualified with Emphasis of Matters (EOM) Q: Qualified A: Adverse D: Disclaimer
Analysis performed over the issues directing to the issue of specific audit report within the SGAs highlights several matters which may indicate possible fraud. The summary of the possible frauds that may have occurred over the past five (5) years within the SGAs in Malaysia is summarized in Table 3.
In total, opinions issued to the 61 agencies which received Qualified Report repeatedly were scrutinized to elicit the justification for them being issued such report. To summarize the issues expressed, financial statement fraud categories suggested by the ACFE is applied. Whilst 93 Qualified report were issued (as shown in Table 2) for the past five years, only 61 SGAs were involved. Out of this, the study has identified 121 possible fraud from categories of Manipulating Timing and Fictitious Revenue. Most of the possible fraud incidences heavily involves the Valuing Asset and Manipulating Liabilities and Expenses categories as depicted in Table 3 above. Considering that there could be circumstances due to scope limitation for the Auditor General in performing their duties and due to limited information disclosed in the audit reports, such circumstances were categorized as 'Others' due to the following factors:
i. Natural disaster
For example, Kuala Krai and Dabong District Council received disclaimer due to document validation cannot be implemented due to the destruction of documents by the flood in 2014.
ii. Inconsistency in application of accounting standards
For instance, Unqualified Emphasis of Matters are issued to PERPUSTAM as PERPUSTAM adopts Malaysian Private Entity Reporting Standards (MPERS) and Malaysian Financial Reporting Standards (MFRS) in a single statement. The adoption of both standards in the presentation of financial statements has implicated different financial results, especially for Government Grant Amortization items.
iii. Non-compliance with accounting standards
Penang Hill Corporation has received a qualified opinion due to failure to comply with financial regulations related to Asset Management and Control, Payment Management and Presentation of Financial Statements.
Qualified opinion issued to the Perak Malay Islamic and Customs Council for failing to comply with accounting standards and financial regulations and maintaining poor accounting records.
iv. Incomplete records
The amount of business receivables amounting to RM47.15 million from RM67.75 million stated in the financial statements of Islamic Religious Council of Sabah cannot be confirmed as the amount is not supported by the rental payment agreement and the balance of the complete rental arrears.
v. Going concern issue
The Selangor State Sports Council is given a qualified opinion due to a doubt against the Agency's ability to continue operations as a going concern entity.
vi. Not enough information (NEI)
Unqualified with EOM has been given to the Terengganu State Executive Development Corporation (PMINT) as there is a subsidiary financial statement subject to Disclaimers and Qualified Opinion during the current financial year. There is no further information on why the subsidiary is given the particular opinion.
Table 3: Distribution of Possible Financial Statement Fraud within State Government Agencies for 5 years (2013 - 2017) in states of Malaysia
No of Type of Possible Financial Statement Fraud
State agencies MT FE
Government involved ER PE FR MLE VA Others Total
Johor 2 1 2 3
Kedah 3 1 1 3 5
Kelantan 2 1 2 3
Melaka 14 1 1 4 12 14 1 33
Negeri Sembilan 3 1 1 1 3
Pahang 7 2 4 2 8
Perak 7 9 9
Perlis 2 2 4 2 8
Pulau Pinang 2 4 3 3 10
Sabah 5 3 9 2 14
Sarawak 4 3 1 4
Selangor 7 1 3 5 5 14
Terengganu 3 1 1 5 7
TOTAL 61 1 2 9 32 46 31 121
MT: Manipulating Timing FE: Falsifying Entries
ER: Early Recognition PE: Postponing Expenses
FR: Fictitious Revenue MLE: Manipulating Liabilities & Expenses
VA: Valuing Asset
The distribution of the possible financial statement fraud depicted in Table 3, supported the previous studies by Rezaee (2005) which states that fraud can range from overstating revenue and asset, understating liabilities and expenses which typically begin with misstatement of financial statement. This finding may also validate the theories (both Fraud Triangle and Fraud Diamond theories) presented earlier as it is possible that financial statement fraud could have been committed if the person bestowed with responsibility to manage the SGA's account lack of integrity thus use his or her position to commit fraud.
A much detailed breakdown for each year for the individual SGA is shown in Appendix 1. It can be inferred that for some SGAs, not much improvement is shown in the reporting of their financial statement of these SGAs as the same form of audit reports have been issued by AGD to the same SGAs. For instance, K2, M7, M9 and PP2 are those SGAs which have been receiving the same qualified report with qualified opinion over the last five (5) years.
5. SUGGESTIONS AND RECOMMENDATIONS
The public is becoming increasingly alarmed by fraud cases involving corruption, asset theft, and other forms of fraud that are reported by the mainstream media, particularly when these cases involve millions of ringgit and go on for years before being found. The general public is entitled to cast doubt on these government organisations' moral character while performing their responsibilities. As a result, the study advises the authority to handle potential fraud cases more transparently, as evidenced by the numerous qualified audit reports given by the Auditor General's Section to the SGA. Perhaps, continuous training on public sector accounting to the accountants and accounts officers within the SGAs will upgrade the quality of the accounting information thus mitigate the possible fraud to be occurred.
6. CONCLUSION
The public's concern over fraud among government agencies is increasing. The results of this small research may suggest that the government sector lacks integrity because department heads may engage in fraud by abusing their authority, according to the study's findings. To ensure that Malaysia's public sector is managed ethically and the public's confidence is upheld, the government must come up with effective countermeasures to these fraud activities. The findings of this research might not, however, apply to all situations, other government agencies as audit reports were only focusing on the state government agencies.
Indication of fraud among the government agencies highlight loopholes in the government agencies financial operation be it due to the system or lack of competencies among the staffs. It is suggested that serious attention given by the authorities to mitigate such situation. This study will be extended for further research to investigate the possible determining factors for instances of fraudulent financial reporting among Malaysian state government entities, and eventually propose a tool to mitigate the fraudulent financial statement within the state government agencies.
7. DISCLAIMER
This is a study based on the audit report issued to the state government agencies as disclosed in the Auditor General Department website. Opinions expressed therein is the result of expert study and represents the authors' opinions. It is not intended to reflect the public's viewpoints or beliefs. The writers are accountable for any mistakes. In addition, the information disclosed is solely based on the audit opinion expressed by the Auditor General in the audit reports. Any subsequent actions taken by respective agencies in relation to the audit issues on them are beyond the researchers' knowledge.
8. ACKNOWLEDGEMENT
The authors would like to acknowledge the Ministry of Higher Education and Institute of Research Management and Innovation, Universiti Teknologi MARA Malaysia for providing a grant for this study. Grant reference No: 600-IRMI/FRGS 5/3 (144/2019) and Grant reference No. (MOHE): FRGS/1 /2018/SSO 1 /UiTM/02/40.
REFERENCES
[1] Abd Rauf, F.; Yusoff, H., Othman, R.; Yatim, N.; Pubalan, U.R. & Che Salleh, S. (2015). Public Sector Accounting: Malaysian Context. 4th edition. Kuala Lumpur. Pearson Allan, D. (1993). Someone Else's Money': Learning from Economic Crime in the Public Sector. Journal of Financial Crime, Vol. 11ssue: 2, pp. 147-155.
[2] Asare, S. K., Wright, A., & Zimbelman, M. F. (2015). Challenges facing auditors in detecting financial statement fraud: Insights from fraud investigations. Journal of Forensic & Investigative Accounting, 7(2), 63-112.
[3] Association of Certified Fraud Examiner (ACFE), (2015). Common Financial Statement Frauds from ACFE: https://brisbaneacfe.org/library/ third-party-fraud/common-financial-statement-frauds/ (March 2019).
[4] Aziz, M.A.A., Rahman, H.A., Alam, M.M. and Said, J. (2015), "Enhancement of the accountability of public sectors through integrity system", Internal Control System and Leadership Practices: A Review Study, Procedia Economics and Finance, Vol. 28, pp. 163-169.
[5] Beasley MS, Carcello JV, Hermanson DR. Fraudulent Financial Reporting: 1987-1997. An Analysis of Public Companies. New York, NY: COSO; 1999.
[6] Cressey, D.R. (1950), "The Criminal Violation of Financial Trust", American Sociological Review, Vol. 15 No. 6, pp. 738-743.
[7] Douglas, E.Z. (1995). State and local government fraud survey for 1995", Managerial Auditing Journal, Vol. 11 Issue: 9, pp.50-55.
[8] Eiji Oyamada, (2015) "Anti-corruption measures the Japanese way: Prevention matters", Asian Education and Development Studies, Vol.4 Issue: 1, pp24-50.
[9] Eiya, O., Otalor, J.I., 2013. Forensic accounting as a tool for Fighting Financial Crime in Nigeria. Research Journal of Finance and Accounting, 2013, 4(6), 1-8.
[10] Hashim, H.A., Salleh, Z., Shuhaimi, I. and Ismail, N.A.N. (2020), The Risk of Financial Fraud: A Management Perspective", Journal of Financial Crime, Vol. ahead-of-print No. ahead-of-print. https: / /doi.org/10.1108/JFC-04-2020-0062.
[11] Ismail, Aida Hazlin et al. Does Audit Quality Matters In Malaysian Public Sector Auditing? Journal of Academia, [S.l.], v. 7, p. 102-116, mar. 2020. ISSN 2289-6368. Available at: <http://myjms.moe.gov.my/index.php/joa/article/view/8257>. Date accessed: 13 Aug. 2020.
[12] Jaafar, H., Halim, H. A., Ismail, R., & Ahmad, A. S. (2018). Fraudulent Financial Reporting and Impression Management: An Examination of Corporate Accounting Narratives. International Journal of Academic Research in Business and Social Sciences, 8(10), 824-837.
Malaysian Government, (2006). Audit Act 1957. Kuala Lumpur: National Printing Department.
[13] Mohd Ali, N.A, Abu, N.A, Hussin, W.S, Nordin, E. (2017),'"Profiling Fraud Committed by Public Sector Employees: Evidence from the Malaysian Media Reporting'", Proceedings of the 3rd International Public Sector Conference 2017.
[14] National Audit Department (2019). The State Governments' Financial Statements from National Audit Department: http://www.audit.gov.my/index.php/en/financial-statement (February 2019).
[15] National Centre for Governance, Integrity and Anti Corruption (GIACC), (2019). National AntiCorruption Plan 2019-2023: http://integriti.my/giacc/wp-content/uploads/2019/01/National-Anti-Corruption-Plan-2019-2023.pdf/ (April 2019).
[16] Pawi, S., Juanil, D.M., Zahari, W. and Yusoff, W. (2011), "Property Tax Performance of Local Authorities in Malaysia", Artificial Intelligence, Vol. 6 No. 1, pp. 42-46.
[17] Rezaee Z, Causes, Consequences, and Deterrence of Financial Statement. Critical Perspectives on Accounting 16 (2005) 277-298.
[18] Singleton, T.W., Singleton, A.J, Bologna, G.J., Lindquist, R.J. (2006). Fraud Auditing and Forensic Accounting. 3rd edition, Hoboken, New Jersey, John Wiley & Sons, Inc., pp. 1-325.
[19] United States General Accounting Office (GAO). Financial restatements, trends, market impacts, regulatory responses, and remaining challenges; 2002.
[20] Wolfe, D., & Hermanson, D. R. (2004). The Fraud Diamond: Considering Four Elements of Fraud. The CPA Journal, 74 (12), 38-42.
