Addressing the Cancer of Corruption

The words ‘Indonesia’ and ‘corruption’ seldom go together in the same sentence without ‘endemic.’ Widely seen as the country’s greatest ill, corruption is the biggest hurdle to doing business in Indonesia and the starting point for thousands of developmental problems. Korupsi, Kolusi and Nepotisme, commonly abbreviated as KKN, are Indonesia’s intrinsic predicaments, unanimously hated but also painfully tolerated.

Indonesia’s global ranking and score for corruption eradication improved last year, according to the annual Corruption Perception Index survey by graft watchdog Transparency International (TI), but the country was still ranked 88th out of 168 countries. The reality is probably worse than the TI survey suggests, as Indonesians are known for remaining optimistic in the worst of situations. In a report released in May Hong Kong-based think tank Political and Economic Risk Consultancy (PERC) ranked Indonesia as the second-most corrupt country in Asia behind India.

Officials at government ministries and regional administrations usually top the list of individuals implicated in corruption, with as many as 27 regional heads and 24 legislative members at the central and regional levels named corruption suspects in the first six months of 2015 alone, according to watchdog Indonesian Corruption Watch (ICW).

With the exception of the much-admired Corruption Eradication Commission (KPK), virtually every law enforcement institution in Indonesia is tainted with corruption, including those in charge of investigating graft cases. Chief among them is the National Police, which has repeatedly topped TI’s list of the most graft-ridden government agencies. The House of Representatives, the judiciary, political parties and state officials followed in that order in its latest edition.

Most historians agree that the New Order of Suharto, considered the most corrupt leader in modern history, led to the consolidation of systemic corruption and caused its explosion during the democratic era, when the cookie jar became decentralized and accessible from every village, region and city. However, it is harder to pinpoint the exact moment when corruption morphed into the endemic sickness it is now.

Corruption on a similar scale and structure to the present was commonplace well over a hundred years ago

Merle Ricklefs, a scholar of the history and current affairs of Indonesia, points to the Dutch colonial-era Cultivation System (cultuurstelsel) introduced in the first half of the 19th century as one of the earliest examples of pervasive corruption in Indonesia’s modern history. Under this system, the village headman was the link between the cultivator and higher levels of Indonesian officials, culminating in the aristocratic regent, or bupati.

The bupati was responsible to the European administration, but European officials were also involved at lower levels. The appearance of European officers at village level indicated to ordinary Javanese for the first time that their lives were under colonial rule. The officials, both Dutch and Indonesian, who were charged with implementing the new scheme were paid commission dependent upon crop deliveries.

“This was a fruitful source of corruption and a stimulus to extortionate demands upon the villages. Indeed, corruption and abuse were rife. Yields were underestimated, a private trade in government crops grew up, and shady deals proliferated among indigenous administrators, Dutch officials and Chinese entrepreneurs. The colonial government in Batavia was never in a position to monitor and control the implementation of its directives except in a most general way,” Ricklefs writes in A History of Modern Indonesia Since C.1200.

While corruption and its motivations are as old as the civilizations suffering them, the example above illustrates that corruption on a similar scale and structure to the present was commonplace well over a hundred years ago. The motivations for cheating remain the same – inequality between governing elites and rural heads; impunity facilitated by distance from the center of government; and a progressive normalization of corruption.

These factors mirror the ‘fraud triangle’ of American criminologist Donald Ray Cressey, whose theory suggests that for a trust violation to occur, three elements must be present: motivation, opportunity and rationalization.


The fraud triangle and rationalization
Hendi Yogi Prabowo, an economist at the Center for Forensic Accounting Studies at the Sunan Kalijaga State Islamic University (UIN) in Yogyakarta who has analyzed the behavioral elements of corruption in Indonesia, argues that potential corruption offenders are exposed to pressure/motivation, opportunity and rationalization to commit corruption – mirroring Cressey’s fraud triangle. This rationalization process, which takes into account the two other factors, is what eradication efforts should tackle to tilt the balance away from dishonesty, Prabowo argues.

According to University of Pennsylvania criminologist Joel Caplan, the most commonly used standards of rationality are: responsiveness to incentives, narrow selfishness and rational expectation. Being responsive to incentives concerns one’s awareness of the potential benefits based on which a person makes the decision to act. Narrow selfishness is essentially related to a person’s predisposition to put his or her personal interests before that of others in making decisions. Rational expectation is related to long-term expectations from one’s acts.


Earlier this year, Religious Affairs Minister Lukman Hakim Saifuddin caused controversy when he suggested that male officials engaging in graft “are just trying to please their greedy wives.” The wives of the elite in Indonesia are well-known for their love of expensive designer clothes and handbags. “My message is not to demand too many material things that are out of the ordinary, that would be an outstanding contribution by women,” he added.

Saifuddin’s comments were unpopular, not least among women, but living beyond one’s means is the most common behavioral symptom of fraud offenders around the globe, according to a 2012 report by the Association of Certified Fraud Examiners.

In Indonesia, almost every corruption case uncovered by the KPK results in huge amounts of personal assets being confiscated, indicating the suspect’s extravagant lifestyle.  Public officials’ excessive desire for material wealth has been deemed as among the major causes of the rampaging corruption in Indonesia. High-ranking officials, including many in the police force, are well known for living in homes and driving cars which should be out of reach for someone on their salary.

On the other hand, day-to-day cases of fraud and cheating by lower-rank officials and company employees may be the result of insufficient pay resulting in financial hardship.


Narrow selfishness
Higher status is required to be able to tap into greater graft opportunities, often requiring officials to take part in bribery to access it. There is an underground market for officials willing to pay money to succeed in the civil service, police and the military. This creates a deviant culture or sub-culture within public institutions that becomes a fertile ground for corruption. Decentralized politics has also made such practices widespread among political parties where candidates running for public office are often the highest bidders.

Organizations with an orientation toward high social dominance show marked distinctions between members who are dominant and those who are subordinates, resulting in similar problems. Valerie Rosenblatt, author of Hierarchies, Power Inequalities, and Organizational Corruption, argues that at the individual level, “socially dominant individuals who believe that they belong to superior groups of people, are likely to be less aware of organizational corruption by feeling that they are more entitled to the use of power at the expense of others to get ahead and to maintain their dominant positions.”

Meanwhile, she argues, members of subordinate groups are also likely to have lower awareness of corruption when they show more favoritism and support for the members of the more powerful groups to increase their sense of worth and to preserve social order. This patronage, in turn, makes selfish attitudes tolerable and perpetuates the cycle of corruption.

In Indonesia’s recent past, Suharto utilized a system of patronage to ensure the loyalty of his subordinates, leading members of the national elite and critics. In exchange for business opportunities or political positions Suharto could count on their support. This pattern has been extended to the local level where local leaders now find it possible to push their greediness a step further in the decentralized era since the late 1990s.


Rational expectation
Prabowo, in his 2014 article ‘To be corrupt or not to be corrupt: Understanding the behavioral side of corruption in Indonesia,’ exemplifies the rational expectation process with the bribing of officials in Indonesia. He says common benefits include, but are not limited to, living an extravagant life, and desire to attain high status, power and prestige and loyalty to superiors and organizations.

On the other hand, people tempted to commit corruption may also recognize the risk of detection and prosecution, guilt and fear, disappointment, humiliation and possible restitution as the costs or negative consequences that may come with the action.

There are obviously also numerous external factors that may influence a potential offender’s subjective values. A weak legal system and ineffective anti-fraud agencies in a country, for example, will make the value of “risk of detection and prosecution” lower than if the system is strong and backed with effective anti-fraud agencies.

In Indonesia, the external factors are, overall, strong enough to make bribery, as well as other forms of corruption, widespread. According to Ernst & Young’s 2013 Asia Pacific Fraud Survey, 36% of surveyed Indonesian respondents believed that it is commonplace to use bribes to win contracts in their industry.


Taking responsibility
In 2010, then National Police internal affairs chief Comm. Gen. Nanan Sukarna said the public must not become involved in alleged corrupt practices in the National Police’s public services sector, saying that the public creates opportunities “for police officers to become corrupt.” According to Sukarna, corruption activities within police service units such as providing licenses and certificates of police records exist due to the need of members of the public to obtain services quickly.

The internal affairs chief picked a very poor example in citing the driving license service, as anyone who has gone through the process of obtaining a license without ‘assistance’ – as bribery is often described – will know that it can take up to four hours before a license will be issued. Ironically, Sukarna in 2013 was investigated as part of a graft case related to the procurement of driving simulators at the National Police’s Traffic Corps (Korlantas), although he was never convicted.

While it is certainly unfair to blame others for one’s greediness, Sukarna makes an important point. In a system where the greatest deterrent to graft – public oversight – is weak and where the public accepts corrupt practices as normal, tackling dishonest behavior is difficult.


In a 2009 study published in the journal Experimental Economics, researchers used a three-player corruption game with a briber, an official and a victim. The briber can bribe or not, the official can accept or not and the victim can accept corruption taking place or not. Indonesian public servants and students were asked to take roles in this game and researchers found that students were more prone to tolerating corruption than public servants.

The researchers conjectured that the difference in behavior was driven by the difference in real life experiences accumulated by the two groups, suggesting that younger generations were interiorizing corruption to a greater extent than other individuals in society, including those experiencing them in their workplace. While the finding is anecdotal, it paints a gloomy picture of the effects of normalized corruption.

Canadian accounting researchers Pamela Murphy and Tina Dacin in their 2011 book Psychological pathways to fraud: Understanding and preventing fraud in organizations, argue that an egoist ethical climate is likely to lead employees to engage in fraudulent acts without even thinking about it.


Fraud in organizations
According to Prabowo, to diminish opportunity to commit corruption in an organization, strong internal controls must be built and maintained so as to close loopholes which may be exploited for fraud. To enhance the organization’s immunity to corruption, it is important for organizations to avoid becoming nothing more than a hierarchy-enhancing entity and instead create a balance with a culture that promotes equality and is less prone to corruption.

An organization must have strong anti-fraud initiatives in place that can suppress pressure/motivation, opportunity and rationalization to commit fraud. For example, low income may drive an otherwise honest person into choosing the path of fraud. Thus it is important for an organization to have a good remuneration system and pay employees a fair salary.

Other measures which may diminish the causal factors of fraud within an organization include regular job rotation, employee counseling programs, segregation of duties and employee vacation plans.

In a 2006 Indonesian submission to a publication of ACFE, a global provider of anti-fraud training, researcher Ika A. Kurniwanti told the instructive story of Nina, a cashier at an Indonesian automotive dealership. Nina handled the cash management system at one of the dealership’s branch offices. The system recognized and differentiated between two types of cash flows – bank transactions and cash transactions – and was set up to receive credit card payments that were recorded as bank transactions.

The question is how to convince people that honesty can be more profitable than dishonesty

Nina received the bank statement printout daily, so she was aware of every credit card payment transferred into the branch’s bank account. A few days after each transaction, when the payment had cleared the bank, she would record the net payment received in the system by crediting accounts receivable and debiting the bank account, leaving the balance in accounts receivable equal to the amount of the bank charge. To zero out the residual amount, Nina would periodically record a bank transaction labeled as “credit card charge” for the amount of the total credit card charge.

Nina was also responsible for the monthly cash bank reconciliation. She prepared the reconciliation under the branch finance manager’s supervision, with additional oversight from the accounting officer at the company’s head office. Because Nina recorded the transactions based on the daily bank printouts, reconciling the books at month-end was relatively straightforward. Usually only the bank charges and interest needed to be updated in the branch’s record system.

Nina’s job performance was flawless. But, unfortunately, during her nine years at the company, Nina acquired considerable knowledge about the system’s weaknesses. Although she was unfamiliar with the concept of segregation of duties, she was quite aware that she held most of the cash processing duties in her office. This knowledge, coupled with her nearly unlimited access to incoming cash, enabled Nina to execute an embezzlement scheme that continued for two years before it was finally detected. During this time, she managed to glean Rp150 million of the company’s funds.

Nina’s example shows the need for companies not to take honesty for granted and to take measures that discourage employees from identifying, let alone exploiting, company loopholes.


The culture of cheating
Of course, had Nina been from Denmark or New Zealand, two countries where graft is rare, she may have never accepted the opportunity to commit graft. It is clearly at this stage that promoting honesty in a society or organization has to be second nature in order to reduce fraud. The question is how to convince people that honesty can be more profitable than dishonesty.

Educational institutions play an important role in eradicating corruption as places where the minds of the younger generation are equipped with various skills and knowledge to prepare them for future competition. However according to TI children who are confronted by corruption and a disregard for human rights in their early childhood and within their schools may not develop an appropriate sense of dignity, integrity and respect for human rights.

Unfortunately, Indonesia’s education sector is plagued with corruption, normalizing and breeding social acceptance of corruption at the earliest age, as the comparative study between students and public servants highlighted. Aside from graft hindering the development of adequate education infrastructure and staff numbers in many areas, cheating has been a core component of Indonesia’s education system for decades.

The National Examination conducted every year for all school students has been rife with cheating to the point of becoming an integral part of the academic process. A 2015 30-country ranking on cheating around the world published in the Journal of Criminal Justice Education ranked Indonesia second behind Mongolia for school cheating.

The pervasiveness of cheating in the Indonesian school system reached new heights in 2011, when reports began to circulate of teachers ordering their own pupils to cheat, even if they did not want to. The scandal came to light when the mother of a 13-year-old boy in Surabaya, East Java told the local media that her son had been forced by his teachers to share his answers to a national exam with his classmates. The mother first complained to the school but was ignored, so she took her story to a local radio station.

The reaction to the whistle-blowing was worse. Instead of being hailed for her honesty, the woman found her house surrounded by a mob of neighbors and fellow-parents accusing her of “selfishness” and calling her a “disgrace to the school.” She and her family were forced to go and stay with relatives. Following a probe by the local education authorities the headmaster of the school and two teachers were sacked.

In a rare example of an Indonesian state institution learning from its mistakes, the Basic Education and Culture Ministry has since last year overhauled the National Examination process to not only prevent cheating, but reward honesty.

‘We (now) produce two scores: one is the academic result, the other is the integrity index’

Former minister Anies Baswedan, earlier the rector of Paramadina University in Jakarta and known for his reformist views, told a gathering at the Jakarta Foreign Correspondents Club (JFCC) in June that the cheating trend has for the first time been reversed thanks to the ministry’s School Integrity Index.

“We (now) produce two scores: one is the academic result, the other is the integrity index. So we measure integrity of a school when they are undertaking exams. Can we measure honesty? That is very difficult. But we can measure cheating,” Baswedan said.

He said the ministry has employed psychometric specialists to examine multiple-choice exams on a national scale and detect exam results with the same answers within the same school, city or region. “We can compare the results among the students. Imagine if 70% of the students answer the same questions: same (answers) right and same (answers) wrong, then something is not right.”

The percentage of students caught cheating in a school becomes a coefficient. For instance, if 25% cheat, a school loses 0.25 points on a 0-to-1 integrity index, ending with an integrity index of 0.75.

“In the past, we only talked about those who score high in their exams. Now we put a second axis which is the integrity, high integrity and low integrity. What we’d like to see are people to score in the first square (of the integrity scatter plot diagram). The score is high, the integrity is high – that’s what we’d like to see,” he said.

Scatter plot diagram used to combine academic marks (horizontal) and integrity index (vertical). Ousted minister Baswedan wanted underperforming schools to move into the top-right square. Source: Basic Education and Culture Ministry

Baswedan said schools that scored high in the integrity index were given a certificate to exhibit proudly and students of the top 100 were invited to meet President Joko Widodo at the State Palace. He said 23% of schools had a high integrity index (above 0.80) in 2015 but that number has since risen to 42%, which Baswedan said is proof that rewarding students and schools with not cheating is proving successful.


A new minister
Baswedan was ousted from the cabinet reshuffle on July 27, replaced by Muhadjir Effendy, the rector of Malang Muhammadiyah University in East Java. The choice of Effendy by President Widodo appeared to have mainly reflected the need to give a prominent position to a figure from Muhammadiyah, Indonesia’s second-largest religious organization. The largest group, Nahdlatul Ulama, already had a number of prominent figures in the cabinet. Effendy has stressed that the key to good education is teachers with professional standards.

The ministry is also empowering local communities to become the direct overseers of their local schools by providing statistics on educational spending in local areas. If the education system is underperforming and not enough money is being allocated, parents can contact local authorities in charge of budgeting and school management to demand corrections.

Meanwhile, academic scores have dropped since the introduction of the integrity index, providing a more accurate picture of the genuine educational standing of students in the country. “When their integrity is below 50, they scored well last year (with academic scores of) 80. As soon as they are doing it with honesty, it drops to (academic scores in the) 50s,” said Baswedan.

“This number reflects more the reality that we have today. It is bad, it is sad, but it is the reality and we can then put the correct intervention. In the past we cannot intervene because we didn’t know where the issue was, because the number that we were seeing was not the reality. Now the number reflects the reality and intervention can take place better,” he added. Baswedan’s removal from the cabinet unfortunately raises questions of what motivated the president to remove a minister who was finally coming to grips with cheating in the school system.


A glimmer of hope
According to TI, evidence from countries around the world suggests that developing wide-ranging programs on integrating anti-corruption initiatives into school curriculums and classroom activities is essential in eradicating corruption, at least in the area of education. In other words, nurturing students’ honesty and integrity will ensure that future leaders of a country will be more immune to corruption.

The psychometric approach used by the Basic Education Ministry may be difficult to replicate in other state institutions or organizations plagued with cheating, but it shows that endemic fraud can be tackled with transparency and systematic penalization – two paths increasingly simplified by technology. When a collective such as the school system is directly impacted by cheating members who are easily identifiable it will also take steps to address it.

Unfortunately, there seem to be few examples of similarly successful models to address fraud at state institutions and private organizations in Indonesia. One of the few examples is Jakarta’s e-budgeting system, introduced while President Widodo was still governor.

It has been credited with making procurement projects and budget allocations more transparent, efficient and resistant to graft. However, bribery and other forms of corruption are believed to be ongoing at the city’s administration and it is unclear to what extent state losses have been reduced since its introduction.

Dealing with the problem appears to rely on factors including removing the potential for corruption by means such as e-procurement while working in the schools to stamp out corruption and establishing integrity as a norm. Such steps would minimize the role of two of the factors cited by Cressey: reducing the opportunity and rationalization for the crime. Dealing with his third factor, motivation, is likely to prove far more difficult and is probably best addressed by more draconian jail terms as a deterrent.

A version of this article was first published by Concord Review on August 9, 2016. Free trial subscriptions are available.

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