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An Analysis of Factors for Preventing and Detecting Corruption: Evidence in Indonesia Village Government

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Universitat de Barcelona. Facultat d'Economia i Empresa

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[eng] The enactment of Village Law No 6 of 2014 is intended for village decentralisation which allows the village government to manage the village under regency and ministry regulations. Its purpose is to increase community welfare and village development. However, despite efforts to decentralise the village government, the number of village corruption has been increasing since 2016. The unresolved problem of village corruption in Indonesia is projected will exacerbate poverty and village underdevelopment. Therefore, it is crucial to conduct analysis of corruption within village’s government structure. 
The objective of this thesis is to investigate the village governance elements, namely internal control, accountability, transparency, and participation that are considered able to prevent and detect village corruption. This research focuses on how internal control, accountability, transparency, and participation at the village level can prevent and detect corruption effectively. 
This research has several contributions to academic knowledge. First, it provides the first bibliometric review and content analysis of village corruption literature over the past 30 years. It presents the village research trend and key elements and also proposes future research agendas. Second, this research provides new evidence in village corruption research which analyses the accounting factors by investigating the village governance elements for preventing and detecting corruption. It also presents a novel research topic by analysing the accounting factors including the two COSO frameworks of internal control, namely control environment and control activities, implemented in village governance to understand the internal control effectiveness for preventing and detecting corruption. Besides that, it also analyses the determinants that are considered able to create good village governance, namely village staff competency and information technology support. Third, this research contributes to the methodology. By using mix method, this research combines quantitative and qualitative in this research to obtain a deep understanding of village governance practices in Indonesia.
It applied bibliometric review and mixed method approach to get comprehensive findings. The bibliometric review was applied to analyse the academic literature on village corruption. This method offers a systematic comprehension of research trends, developments in research fields, and impactful publications in village corruption over time. We analysed 158 articles from the Web of Science database from 1992 to 2022.
The mixed method applied in this research is a sequential explanatory research study to conduct an in-depth investigation to discover details for why something occurs. The method combines quantitative and qualitative methods in one research project. The process of a sequential explanatory research method is quantitative data are collected and analysed first, then qualitative data are collected and analysed to explain quantitative data (Creswell, 2009). The quantitative research is initially conducted to analysed the effect of the good governance elements, namely internal control, accountability, transparency, participation on corruption. The determinant of good governance, village staff competency and information technology support also were analysed quantitatively. The quantitative data were collected using a questionnaire survey with total 346 pairs of final questionnaires from 123 villages. The data collected then was analysed using partial least squares structural equation modeling (PLS-SEM) to examine the hypotheses. This model conducts measurement model analysis prior to the structural model analysis to determine the reliability and validity of the relationship between indicators and constructs. Once the measurement model fulfils all the parameters, the next step is assessing the structural model to answer the hypotheses.  
Meanwhile, qualitative data was acquired through the interview. The in-depth interview was conducted using two online communication platform applications, Zoom Meeting and WhatsApp video. The respondent is permitted to choose the most convenient platform. In total, there were 23 interviews with village staff, members of the village consultative council and the auditors. The semi-structured and open-ended questions were asked to participants, then recorded using an audio recorder and subsequently transcribed (Creswell, 2012). The questions are used together the detail and in-depth information about participant experience, perspective and opinions.
Based on our findings, the trend of village corruption research has been increasing since 2015. The research area evolved from economics and politics areas to accounting, management and others. There are four themes dominated the literature over the past 30 years; politics and corruption, the impact of corruption on economics and development, decentralisation and corruption, village management and corruption eradication. The research theme about accounting and corruption eradication is still rare which provides future research chance to explore further the importance of accounting role in village corruption eradication. 
Furthermore, the analysis of village governance shows that village governance practice has not reached good village governance. Our research found that among four elements of village governance, only participation has effectively affected corruption incidence. Meanwhile, other elements, internal control, accountability, and transparency are not effective in decreasing corruption. We found weaknesses in the implementation of village governance.
First, we identified several weaknesses in the village's internal control implementation.  The implementation of two COSO elements is far from ideal. The control environment has not been established properly, such as the village government has not had a written code of ethical rules that must be committed by the staff to create integrity and ethical value. The investigation shows that the perpetrator of the ethics violation was not charged seriously due to inadequate implementation of the control environment. We also find that the audit standards and internal control regulations for village government have not been established yet. It causes difficulties for auditors in conducting financial audits. Therefore, the current audit is only limited to a compliance audit than a financial audit. This condition is also exacerbated by the inadequate number of auditors to perform regular audit every year. It supports the finding of Jeppesen, (2019) who argues that auditor is in an exceptional position for corruption eradication, therefore, audit standards must contain corruption in the fraud definition and audit profession must support effective preventive actions.
Meanwhile, in the control activities context, the establishment of segregation of duties has not been clear and strict. The unclear work authority was caused by the limited amount of village staff capacity and the large amount of work. Besides that, we also find that the function of the village consultative council for supervising and controlling the village governance does not work properly because of the village staff supremacy over the village consultative members. It can be said that if public institutions fail to implement the COSO framework, corruption incidence will be higher. It confirms the statement of Antón (2020) which argues that implementation of the COSO framework to increase control mechanisms in the public sector is urgently required to create a new form of government and its integrity. It also confirms previous research by Lucas, (2016) who revealed that at the village level, there is a tremendous conflict for resource control between the elites and the village community and also among the members of the local elite themselves.
Second, we found that several issues undermine the degree of accountability and transparency in the village accounting practice. Village government has not been complemented with village financial accounting standards. Due to the absence of these standards, village accounting practices depend entirely on government policies and regulations. However, the existing regulations overlap and conflict with each other. It is consistent with the investigation of Kimbro, (2002) who found that countries experiencing less corruption have better regulations, excellent financial reporting standards, a more effective court system and a greater number of accountants. The other issue in the village government is it has complex financial transactions in the post-enactment of village law compared to the pre-enactment of village Law which is also aggravated by unrelated village staff's educational background to the job specification. Therefore, it is difficult for the village government to create reliable accountability and transparency for the community. These findings are consistent with the study of Lewis, (2015) who states that the difficulties faced in village administration are vague village service responsibilities, unprepared village public financial management systems for managing the huge amount of village funds, and a lack of mechanisms to monitor the budget expenditure which causes the challenge of local corruption eradication.
The finding of information technology implementation also demonstrates that it is currently underdeveloped. The village government is still plagued by the not reliable financial software in running financial reports, such as system errors during monthly reporting. The reasons behind the unreliable software are the huge differences in village characteristics resulting in various economic transactions which cannot be covered by the system and also the poor quality of the information technology infrastructure. These factors contribute to the failure in providing high-quality accountability, transparency and financial report. The findings in technology development confirm Abbaszadeh et al. (2019) who found that the move from traditional data collection and transactions to modern and written instructions in information technology had a positive effect on internal control. It also support the finding of Mistry (2012) who explained that creating accurate and reliable record-keeping through computerised records and automated services is the foundation of transparency and accountability.
There are several implications can be generated from this research. Firstly, this research has implications for policymakers or regulators to establish and provide village financial accounting standards and village audit standards. These two standards are urgently needed for the implementation of internal control and accounting practice in the village government. Secondly, policymakers and regulators should urgently review and revise the existing government regulations that are enacted by the Ministry of Village Development, the Ministry of Home Affairs, and also the regulation from the regency some of which are considered conflicting and overlapping. Thirdly, the government also should consider the adequate number of regency auditors to conduct regular audits in the village government. Fourthly, the requirement of relevant educational background or experience in the village staff recruitment process. Village staff with relevant educational background or experience will increase village staff's capability and competency, therefore, the segregation of duties can be implemented properly.  Fifthly, The government is urgently to develop reliable technology to support the accounting process to increase the quality of accountability and transparency. 
This research uses a survey method which may be causing bias in their responses to corruption incidence. Even though data collection through questionnaires is commonly used to measure corruption or fraud incidence (Bierstaker et al., 2006; Widmalm, 2005), it may also still contain individual bias. Therefore, for decreasing the bias, the corruption incidence questionnaire was filled out by the member of the village consultative council whose main duty is to supervise the village government. Therefore, future research needs to be further analysed using a more objective measure of corruption than those obtained from responses to questionnaires, such as village corruption data if it has been available. Future research also must consider another methodology to analyse these factors on village corruption, such as using field experimental method. This method may further explain the relationship between village governance and corruption in the village government

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Tesis Doctorals - Facultat - Economia i Empresa

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An Analysis of Factors for Preventing and Detecting Corruption: Evidence in Indonesia Village Government