Analyzing Asset Misappropriation Through the Lens of Fraud Hexagon Theory: Evaluating Whistleblowing Effectiveness in Financial and Asset Management Institutions

Abstract

Indonesia ranks 4th as the country with the highest number of fraud cases in the Asia-Pacific region, according to the Report to the Nations by the Association of Certified Fraud Examiners (ACFE) in 2023. The most dominant type of fraud is asset misappropriation, accounting for 86% of total cases, with an average loss of USD 100,000 per case. This study aims to analyze the influence of the fraud hexagon theory on asset misappropriation and assess the role of the whistleblowing system in mitigating the impact of fraud factors on asset misappropriation at the Regional Financial and Asset Management Agency (Badan Pengelolaan Keuangan dan Aset Daerah - BPKAD) in Malang and Surabaya. This research introduces novelty by examining two institutions that have implemented a whistleblowing system but remain ineffective in preventing fraud. This study employs a quantitative approach with a mixed-method research design, integrating both quantitative and qualitative data for in-depth insights. Quantitative data were collected through questionnaires distributed to 42 employees of BPKAD Malang and 67 employees of BPKAD Surabaya using a purposive sampling technique. Qualitative data were obtained through in-depth interviews with employees who had a minimum of five years of work experience. Data analysis was conducted using Partial Least Square (PLS) version 3. The results indicate that financial pressure, rationalization, and arrogance have a significant positive effect on asset misappropriation. In contrast, opportunity and collusion do not significantly influence asset misappropriation. Meanwhile, individual capability hurts asset misappropriation. The whistleblowing system was found to significantly moderate the relationship between financial pressure, opportunity, and rationalization with asset misappropriation but did not have a significant impact in moderating the relationship between arrogance and asset misappropriation. This study provides implications for strengthening internal control systems in government institutions, including enhancing the effectiveness of the whistleblowing system to detect and prevent fraud at an early stage. It is expected that this research will contribute to the development of fraud prevention policies, particularly in the management of regional financial and asset institutions.