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International Journal of Management (IJM)
Volume 9, Issue 4, July–August 2018, pp. 29–39, Article ID: IJM_09_04_005
Available online at
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ISSN Print: 0976-6502 and ISSN Online: 0976-6510
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THE EFFECT OF PROCUREMENT SYSTEM
AND INTERNAL CONTROL SYSTEM ON
ACCOUNTABILITY OF INSTANT
PERFORMANCE IN PREVENTING FRAUD
Dian Nurlina
Ministry of Religion Office of Papua Province, Indonesia
Syaikhul Falah and Meinarni Asnawi
Faculty of Economics and Business, Cendrawasih University, Indonesia
ABSTRACT
The purpose of this study was to test the effect of the application of the system of
procurement of goods and services to the accountability of the performance of
government agencies in preventing fraud Population and sample in this research is
the whole apparatus of the Ministry of Religious Affairs Office of the Province of
Papua and the Office of Religious districts / municipalities in Papua who have been
involved directly in the procurement process goods and services in each agency.
Methods of collecting samples by purposive sampling technique.
Testing Data were analyzed by using PLS (Partial Least Square) by the number of
respondents as many as 47 people. The results showed a significant effect for the
influence of hypotheses are developed.
The first hypothesis (H1) provide evidence of the effect of procurement of goods
and services provide value contribution to the accountability of agency performance
by 0.355. The second hypothesis (H2) gives an explanation that internal controls have
a significant impact on increasing the accountability of agency performance. The third
hypothesis (H3) influence procurement of goods and services provide value
contributes to the detection of fraud amounting to 0.433. The fourth hypothesis (H4)
the effect of internal control provide value contributes to the detection of fraud
amounting to 0.255 although the effect is not significant. The fifth hypothesis (H5)
influence performance accountability value contributes to the detection of fraud
amounting to 0.255
Key words: procurement of goods and services, internal control systems, performance
accountability of government agencies and cheating.
Dian Nurlina, Syaikhul Falah and Meinarni Asnawi
http://www.iaeme.com/IJM/index.asp 30 editor@iaeme.com
Cite this Article: Dian Nurlina, Syaikhul Falah and Meinarni Asnawi, The Effect of
Procurement System and Internal Control System on Accountability of Instant
Performance in Preventing Fraud. International Journal of Management, 9 (4), 2018,
pp. 24–28. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=4
1. INTRODUCTION
1.1. Background
Currently, many mass media are preaching corruption cases in the ministries. When viewed
from a number of corruption cases in Indonesia, corruption cases handled by the Corruption
Eradication Commission (KPK) are mostly (77%) cases of corruption related to goods and
services procurement (Kurniawan, 2009). The Supreme Audit Agency (BPK) in 2012 there
are 15 ministries indicated to harm the country, one of which is the Ministry of Religious
Affairs which caused losses of the state of 79 billion with 572 cases. In 2011, there was a case
involving the procurement of goods/services in the Ministry of Religious Affairs. The
Corruption Eradication Commission (KPK) report on corruption in the procurement of
computer labs for the 2011 fiscal year and the procurement of the Koran in the Ministry of
Religious Affairs was attributed to bribery by three companies in an attempt to win the project
tender (KPK, 2013). Cases of corruption that occurred in the Office of the Ministry of
Religious Affairs involve elements of the Regional Office of the Ministry of Religious Affairs
of Papua who made suspected alleged corruption funds APBN 2012 amounted to 6.7 billion
rupiahs. This alleged corruption is associated with the rehabilitation project of dozens of
school buildings in Jayapura City, Jayapura District, Sarmi, Nabire, Keerom and Merauke.
Implementation of the regulation has been applied as well as possible but fraud in the field
of procurement of goods/services is still often occurring in ministries and other agencies.
Fraud can actually be minimized if internal control within the ministry or other agencies is
adequate. Implementation of the control system well, then all forms of abuse can be identified
as early as possible, then all forms of corruption efforts can be avoided (Andarisman, 2008).
The procurement system of goods and services is an internal control system of the
procurement process that refers to the use of the Internet as a means of information and
communication (Croom & Brandon-Jones, 2007). The procurement process of goods and
services by the system of procurement system and services utilizes the facilities of
communication and information technology used to support electronic public tender process.
In the year 2010, there are 48 government agencies in Indonesia both in central and in regions
that have implemented a system of the procurement system of goods and services (LKPP,
2009). The application of goods and services procurement system is expected to bring
benefits to its users such as the standardization of the procurement process, the realization of
transparency and better procurement efficiency, the availability of special unit price
information within the internal and support the accountability of the procurement process.
According to Panayiotou, Gayialis, & Tatsiopoulos, (2004), reported that the procurement
system could also reduce supply cost (average 1%), reduce cost per tender (20% cost per
tender), lead time savings (4.1 bualan - 6.8 month for open tender and 7.7 months - 11.8
months for limited tender). In its development, the system of procurement of goods and
services is expected to be an application capable of supporting the implementation of better
performance embodiments among internal government agencies and third parties, and can
help create a clean government (Good Governance).
Through the system of procurement of goods and services also either directly or indirectly
can minimize fraud or misappropriation that occurs so as to cause state losses. (Pemana,
2009) states the internal control system as a process, which is designed to provide adequate
The Effect of Procurement System and Internal Control System on Accountability of Instant
Performance in Preventing Fraud
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guarantees regarding the achievement of corporate objectives. An internal control system
should be an integral part of managing the organization. The pattern of control of each
organization varies depending on the type and characteristics of the organization. Business
organizations because of their profit-oriented nature, their controls relied more heavily on a
negotiated bargain, although this varied for each organization and management level.
Meanwhile, public sector organizations because of their lack of profit and great political
influence, the means of control are more bureaucracy (Nor, 2012).
Sufficient internal control, any faults, fraud, and other actions that could harm the
company can be kept as low as possible (Pemana, 2009). The existence of internal control
structure through the implementation of system procurement system of goods and services
procurement of goods/services so that this activity can be implemented effectively and
efficiently and the results can be accounted for.
The achievement of effective, efficient, transparent and accountable state financial
management, ministers/heads of institutions, governors, and regents/mayors shall exercise
control over the conduct of government activities. The responsibility of the board of directors
to internal control is primarily involving supervision, authorization, and leadership ethics
(Chianese, Haimoff, McSwain, & Wiseman, 2008).
In addition to the responsibility for planning and determining the internal control system,
management must also supervise the internal control system that is running. In the event of a
deviation, the leader must act quickly to redirect to a defined goal called control so that
control should be able to provide reliable data, using assets and records, encourage
operational efficiency, and encourage compliance with the policy set by management.
2. LITERATURE REVIEW
2.1. Adaptation of Contracts through Arbitration
In Indonesian procurement regulations the settlement of disputes is regulated through
deliberative deliberation and if not achieved through arbitration, alternative dispute resolution
or trial. Thus the preferred mechanism in dispute resolution of procurement contracts is
through deliberation. However, such a provision is ineffective because conceptually there is
no theory underlying, and moreover there is no empirical data showing the use of this
mechanism by the parties to contract adaptation. Thus procurement regulations should further
encourage the use of arbitration mechanisms for dispute resolution of procurement contracts
than other mechanisms including alternative dispute resolution and courts. In accordance with
the theory of transaction costs of dispute settlement through the arbitration, the institution is
considered more optimal than other mechanisms. The arbitration mechanism is also one of the
safeguards in the procurement contract.
Arbitration allows dispute resolution to remain in the control of the parties, as the parties
may elect their own arbitrator. In addition, arbitrators also come from professionals who have
special expertise in the field of procurement. Arbitration, on the other hand, has litigation but
is facilitated by simplification of procedures. Arbitrators (tribunals) have specialists who
understand the technical complexity of a transaction and are knowledgeable about the norms
laid down in the contract either explicitly or implicitly. The arbitrator may verify the almost
imperceptible aspects of the quality and adequacy of a work component (Dixit & Hall, 2003).
Instead, the judiciary should review the entire range of civility and have no special skills or
knowledge about a job. Although judicial institutions have access to expertise, court
institutions should still interpret expert information based on thought and their own very
limited knowledge of a procurement job.
Dian Nurlina, Syaikhul Falah and Meinarni Asnawi
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Countries that intensively use arbitration agencies to settle procurement disputes
(particularly construction works) are Malaysia. The United States and France also use
Arbitration but after the use of Alternative Dispute Resolution, others are deemed
unsuccessful. In Indonesia, the provisions on the implementation of alternative dispute
resolution outside the arbitration in procurement are not regulated in detail and the existence
of existing arbitration institutions has not been considered a trustworthy institution that can
meet the expectations of the parties. The aspect of secrecy in the arbitration process is one of
the reasons why arbitration agencies have not been widely used to deal with public
procurement disputes. The parties ultimately tend to choose more court institutions as the best
breakers in resolving procurement disputes. While based on the transaction cost theory
perspective, the court institution is considered unable to resolve disputes efficiently. This
means that we tend to choose mechanisms that are inefficient
2.2. Institution Performance Accountability System
The Government issues regulations to regulate the performance accountability of agencies
with Presidential Regulation No. 49 of 2014 on Performance Accountability System of
Government Agencies. This regulation as a follow up of the provisions of Article 20
paragraph (3) of Government Regulation Number 8 the Year 2006 concerning Financial
Reporting and Performance of Governmental Affairs. The Government Agency's Performance
Accountability System, hereinafter abbreviated as SAKIP, is a systematic set of activities,
tools and procedures designed for the purpose of establishing and measuring, collecting data,
classifying, summarizing and reporting performance on government agencies, in the context
of accountability and performance improvement government agencies.
Performance is the output/outcome of activities/programs that have been or are to be
achieved in connection with the use of budgets with quantifiable quantities and quality. While
output (output) is goods or services generated by activities undertaken to support the
achievement of goals and objectives of the program and policy. An outcome is anything that
reflects the functioning of the output of activities in a program.
2.3. Cheating Procurement of Goods and Services
Fraud in the procurement of goods/services can occur at every stage in the procurement of
goods/services ranging from planning, the establishment of the procurement committee,
procurement process, contract formulation, to the execution of the contract. However,
generally Cheating in the procurement of goods/services is related to quantity, quality, time,
and place. Fraud occurs when there is a deliberate act of making quantity, quality, time, and
place of procurement of goods/services deviate from the provisions of legislation resulting in
financial losses of the state.
Fraudulent consultant services, among others, occur in the form of false recommendations
that are not based on a process agreed upon in the contract. In the event of a conspiracy
between the procurement committee or the service user and the consultant, it may occur that
the acceptance criteria of the consultant's work are made bias. Falsification of field data can
also occur to cover the non-performance of the process in accordance with the contract. The
thing that often happens is to do plagiarism or a system that is generic in the contract as if
tailor made so that the cost is very expensive.
2.4. Procurement System of Goods and Services Against Institution Performance
Accountability
The high intensity of fraudulent practices, fraud and embezzlement that occurs in a public or
private institution, in all its modes, from simple to very sophisticated and complex, should
The Effect of Procurement System and Internal Control System on Accountability of Instant
Performance in Preventing Fraud
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awaken all parties to build a commitment to the implementation of good governance
consistently and extensively all layers because in the absence of awareness and commitment
will result in not achieving agency performance.
Research Udoyono, (2012) who conducted a procurement system research on
accountability in Yogyakarta. The results of the study found that E-Procurement's
procurement of goods and services to realize accountability is feasible but not accountable.
This is evidenced in accordance with field findings, namely: First, the dimension of the
feasibility must meet the feasibility of such a regulation that ensures the implementation of E-
Procurement, the support of E-Procurement institutionalization, the support of stakeholders on
the implementation of E-Procurement, and the support of the community towards the
implementation E-Procurement. Second, the dimension of accountability includes the lack of
regulatory responsibility from the procurement process of goods and services, political
accountability is still internal government, and financial accountability is still closed
Research conducted by (Kurniawan, 2009) found empirical evidence that fraud prevention
can occur if there is an effective supervision of the management process, especially on
financial statements and preventing fraud in the management of state finances more
effectively than repressive efforts on Fraud, so that the results of this study explain that one of
the most powerful ways to improve performance in the government and private sphere is the
prevention of procurement cheating, all of which must be supported by good procurement
systems. Based on these descriptions then developed hypothetical
H1: There is the influence of the procurement system of goods and services on the
performance of government agencies
2.5. Internal Control Against Institutional Performance Accountability
Kurniawan, (2009) argues that one strategy that can be done to combat fraudulent actions is to
improve the system by regulating discretion and accountability. The weakness of the internal
control system and non-compliance with the provisions of legislation indicates a low level of
performance accountability. A strong level of performance accountability is believed to
contribute to efforts to reduce corrupt practices (Safaat, Widjajabrata, 2004). This means that
weak accountability is believed to have an effect on increasing corruption. Based on the
explanation, the hypothesis developed is
H2. There is an influence of internal control on the performance accountability of government
agencies
2.6. Procurement System of Goods and Services on Fraud Prevention
Research conducted by (Udoyono, 2012) results in empirical evidence that a good
procurement system will affect fraud prevention. According to him, the system is able to
reduce the cost of procurement of goods and services in terms of users, work units and
providers of goods and JSA and improve the qualifications of goods and services produced by
providers of goods and services. With this system, the results of work packages in the
procurement system of goods and services to be optimal and the target of the government of
Yogyakarta in the provision of government goods and services are met.
H3: The procurement system for goods and services affects fraud prevention
2.7. Internal Control of Fraud Prevention
The results of this study in accordance with an opinion (Tuanakotta, 2013), 2013), that the
effort to prevent cheating starts from internal control. Similarly, (Adetiloye, Olokoyo, &
Taiwo, 2016), to minimize the likelihood of fraudulent financial statements in companies and