Media Ekonomi dan Manajemen, Volume 35 Issue 1, January 2020, 112-127

THE EFFECT OF INTERNAL CONTROL, INDIVIDUAL MORALITY AND

ETHICAL VALUE ON ACCOUNTING FRAUD TENDENCY

Fernanda Fernandhytia
STIE Malangkucecwara
Email: [email protected]

Muslichah
STIE Malangkucecwara
Email: [email protected]

Received: December 2019; Accepted: December 2019; Available online: January 2020

Abstract

In general, this study aims to determine the effect of Internal Control, Individual Morality,
and ethical Value on Accounting Fraud Tendency. This study was conducted on Start-Up
Businesses. One hundred eighty-eight respondents participated in this study. The result of this
study showed that internal control has a significant negative effect on accounting fraud
tendency. In other words, an increase in Internal Control will decrease the tendency of
accounting fraud in a company. Individual morality also has a significant negative effect on
accounting fraud tendency. An increase in individual morality, which could be done by
implementing the right morals in daily activity, will prevent the action of fraudulent behavior.
Furthermore, ethical value also has a significant negative effect on accounting fraud tendency.
A proper professional ethic code will increase moral value in an individual's professionalism,
which will minimize the action of fraudulent behavior. This research is done in the hope of
contributing to theory and practice. This study contributes to the subject related to internal
control, individual morality, ethical value, and accounting fraud tendency. Furthermore, for
Start-Up Businesses, this research can be used to prevent accounting fraud.

Keywords: Internal Control, Individual Morality, Ethical Value, Accounting Fraud

Tendency.

Abstrak

Secara umum, penelitian ini bertujuan untuk mengkaji pengaruh pengendalian internal,
moralitas individu, dan nilai etis terhadap kecenderungan kecurangan akuntansi. Penelitian
ini dilakukan pada Start-Up Businesses. Seratus delapan puluh delapan responden
berpartisipasi dalam penelitian ini. Hasil penelitian ini menunjukkan bahwa pengendalian
internal berpengaruh negatif signifikan terhadap kecenderungan kecurangan akuntansi.
Dengan kata lain, peningkatan Kontrol Internal akan mengurangi kecenderungan
kecurangan akuntansi dalam suatu perusahaan. Moralitas individu juga memiliki pengaruh
negatif signifikan terhadap kecenderungan kecurangan akuntansi. Peningkatan moral
individu, yang dapat dilakukan dengan menerapkan moral yang benar dalam aktivitas sehari-
hari akan mencegah tindakan perilaku curang. Selain itu, nilai etika juga memiliki pengaruh
negatif yang signifikan terhadap kecenderungan kecurangan akuntansi. Kode etik profesi
yang tepat akan meningkatkan nilai moral dalam profesionalisme individu, yang akan
meminimalkan tindakan perilaku curang. Penelitian ini dilakukan dengan harapan dapat
berkontribusi pada teori dan praktik. Penelitian ini berkontribusi pada subjek yang berkaitan
dengan kontrol internal, moralitas individu, nilai etika, dan kecenderungan kecurangan
akuntansi. Selanjutnya bagi Start-Up Businesses, penelitian ini dapat digunakan untuk

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Media Ekonomi dan Manajemen, Volume 35 Issue 1, January 2020, 112-127

mencegah terjadinya kecurangan akuntansi

Kata Kunci: Pengendalian Internal, Moralitas Individu, Nilai Etis, Kecenderungan

Kecurangan Akuntansi.

How to Cite: Fernandhytia, F., & Muslichah. (2020). The Effect of Internal Control, Individual Morality and Ethical Value
on Accounting Fraud Tendency. Media Ekonomi dan Manajemen, 35(1), 112-127. doi: http://dx.doi.org/10.24856/
mem.v35i1.1343.

INTRODUCTION corporate control that creates an

opportunity for someone to conduct
The issue of fraud, the threats, and
fraudulent behavior that can harm an
various practices of it has been going
agency or institution. With the existence of
around, creating chaos for centuries.
adequate internal controls, it is expected to
Although a billion efforts and many
minimize fraudulent accounting activities
creative preventive methods have been
in an agency or institution. Disclosure of
done throughout the years, the threat of
internal control had become one of the
fraud still is the biggest concern when it
main focuses in business for the last few
comes to run a business. According to the
years after a repetitive case and threat of
Indonesia Corruption Watch (ICW)
accounting fraud, and thus became a
(2014), out of a total of 19 institutions in
determining factor in decision making.
Indonesia, educational institutions occupy
the fourth position with 28 corruption Meanwhile, on the topic of indi-
cases. While social institutions come with vidual morality and accounting fraud,
31 corruption cases, regional finance with studies were done once again by Putri and
60 corruption cases, then comes first, the Irwandi (2016) and Setiawan (2018). They
infrastructure institution with a total of 102 stated that individual morality positively
corruption cases. The evidence shows that affects accounting fraud. The morality
corruption cases are concerningly high. level an individual has could impact their
Actions that are often carried out as actions and behavior, and this will prevent
corruptive behavior including a significant them from committing a fraudulent act.
amount of fraudulent activity, such as According to experts, Liyanarachchi and
removal of documents, manipulation of Newdick (2009), who explained that the
evidence in the form of documents, level of individual moral reasoning would
intentional errors of recording, and mark most likely influence their ethical behavior.
up that impact significant losses on the People who have a low level of moral
country's economy (Adelin & reasoning behave differently from people
Fauzihardani, 2013). who have a high level of moral literacy
when they face ethical dilemmas. The
Regarding internal control of
higher the level of one's moral circulation,
accounting fraud, prior studies concluded
the more likely the individual is to do the
that internal control system plays a
right thing. Individuals at a specific moral
significant role to prevent the actions of
level will also view their interests as the
fraudulent behavior (Suh, Nicolaides and
main thing in acting.
Trafford, 2019; N’Guilla, Basiruddin,
Mohammad & Rasid (2018), 2018; Prior researchers explained that
Nawawi and Salin, 2018; Putri and ethical value relates to accounting fraud in
Irwandi, 2016; Zakaria, Nawawi, & Salin, a certain way (Nwayanwu, 2018; Suh et al.,
2016; Siregar and Tenoyo, 2015; 2018; Smith, 2016; Shawver, Clements &
Ionescu,2010). A poorly designed Internal Sennetti, 2015; Siregar and Tenoyo, 2015;
Control System can result in a weak Abdolmohammad and Owhoso, 2000).

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Professional accountants follow specific knowledge for educational purposes and,

ethic codes, which applies differently in hopefully, a solution for corporations and
different countries and varies from each companies.
company based on the type of institution
and business that is running. Generally, LITERATURE REVIEWS
though, Accounting Ethics Codes are
pretty much similar and created for the Internal Control
same purpose, which is to maintain the Internal Control is the process of
quality and professionalism of a credible monitoring an accounting system/account-
accountant. The codes correlate to ing information system in an active
fraudulent behavior a lot, considering that company or organization. Internal control
proper professional accountant wouldn't so aims to keep away companies from risks
much go against the already existing and and threats that could potentially harm or
known rules in their profession. Going create damage in the company or
against the rules and regulations could organization. According to AICPA,
create damage to their careers and affect the internal control is a process that is
future of their profession. Seeing influenced by the board of commissioners,
professionalism of a company or an management personnel, and other business
institution regarding their ethical codes and units, which are designed to obtain
how they take actions into it affect adequate confidence in achieving goals in
employees in the long run — creating a the following matters: effectiveness and
properly well-managed work environment efficiency of operations, reliability of
increasing awareness in fraudulent beha- financial reporting, compliance with laws
vior, and self-awareness of carrying the and applicable regulations. Internal
professionalism in the workplace accounting controls are designed in such a
(Jaijaram, 2018). way as to maintain the wealth of the
This research focuses mostly on organization, examine the accuracy and
Start-Up Business responses against reliability of accounting data, encourage
accounting fraud tendency, judging the operational efficiency, encourage compli-
performance of a Start-Up company at ance with management policies.
handling and preventing fraudulent To understand the internal control
behavior in their institution or company. system, it is necessary to understand what
Many Start-Up Businesses have yet to a system is before anything else. Control
effectively use proper internal control, covers all methods, organizational
which creates a lot of loopholes and policies, and procedures that ensure the
opportunities for anyone to take advantage safety of assets of the company, along with
of the lack of security. In other words, a the accuracy and the reliability of the data
company or institution, creating an open management and other management
space for anyone to commit a fraudulent operations standards (Susanto, 2013).
action that could potentially harm and Control as managerial activities works to
cause damage to the institution or company monitor the implementation of the plan and
(Jackson, Holland, Albrecht & make improvements following the
Woolstenhume, 2010). To prevent requirements (Hansen, Sato, Kharecha,
accounting fraud tendencies, we need to and Schuckmann, 2011).
understand deeper the key leading factors
towards this fraudulent actions. This
research is done purposely to look deeper
into the issue of internal control, individual
morality, and ethical value aspect in the
business. This study has a contribution of

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Individual Morality fraud tendencies.
According to Bertens (1993: 7), Liyanarachchi & Newdick (2009)
morality (from Latin moralist adjectives) then goes on to explain that ethical
has a meaning that is the same as "moral," behavior is influenced by individual moral
we speak "morality of an act" means that reasoning. Individuals who have different
the moral aspect is a good or bad deed. levels of moral reasoning will have
Morality is the moral/overall nature of different behavior in dealing with ethical
principles and values relating to good and dilemmas. If someone has a good moral
bad. The moral is the term humans refer to level, the more likely that person is doing
humans or other people in actions that the right thing. Individual actions are
have a positive value. Salam (2002: 2) divided into three stages. The first stage is
explained similarly, racial morals, from also called the pre-conventional stage. At
other words, mores. Mores come from the this stage, individuals will take appropriate
word mos, which means morality, action because of their fear of existing
character, or behavior. Meaning that laws/regulations. In the next step, the
morals can be interpreted as decency. conventional stage, individuals use norms
Budiningsih (2004: 24) stated that morality that apply in society as a basis for carrying
occurs when people take good because out their actions. In the final, post-
they are aware of their obligations and conventional stage, the individual bases
responsibilities and not because they seek his actions on the interests of others and
profit. So morality is an attitude and good universal law.
deeds that are truly selfless. According to
Amin (1992: 52), the reason behind Ethical Value
management fraud is that managers do not Ethics are the principles and moral
care about morals (unscrupulous), such as values that govern the behavior of people
helping conflicting interests. By knowing or groups related to what is right or wrong.
the nature and characteristics of humans Ethics determines the extent to which
who are most likely to commit fraud, the something in behavior and decision
company can reduce the possibility of making is considered right and wrong,
accounting fraud. good and bad (Hifayat & Rifa’i, 2018;
Liyanarachchi and Newdick (2009) Fauziah & Murharsito, 2019). Ethics looks
said, in an organization, fraudulent actions at human behavior, moral principles, and
can occur because of a lack of positive the effort to separate good from the bad.
employee awareness of the wrongdoing, The accounting profession plays a vital
even being seen as usual or pretending not role in the community. In the code of
to know it. Positive awareness of the work ethics, accountants not only have
environment is needed in building a strong responsibilities towards clients who pay
ethical behavior and organizational them but also have responsibilities to the
culture. The low level of caring and low public. The public will expect accountants
morale fosters acts of fraud, which in the to fulfill their obligations properly and
end, can damage and even destroy the following the professional code of ethics.
organization. Wilopo (2006) also said Accountants' compliance with shared
management equity is also related to values is reflected in the code of ethics.
accounting fraud tendencies. The more Several values need to be held by
management pays attention to universal professional accountants, including inte-
interests than the interests of the company, grity, accountability, reliability, ethics,
especially the personal interests, the higher moral reasoning, honesty, trust, and
the morality of management so that confidentiality. These values play an
management tries to avoid accounting essential role and help ensure that

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accountants follow strict internal rules that rationalization is proxy by the gap in
govern the way they do work every management integrity and bad relations
day. between managers and auditors. Besides,
the presence of opportunities can cause the
The nature of the work carried out
perpetrator to commit fraud freely. The
by accountants and auditors requires a high
fraud can occur because of the weak
level of ethics. Shareholders and other
internal control system within the govern-
users of financial statements are very
ment agency.
dependent on the company's annual
financial statements because they can use International Internal Audit State-
this information to make investment ment on internal audit also defines fraud as
decisions. They rely on the opinions of irregularities and illegal actions carried out
accountants who prepare reports, as well as intentionally for personal or group
auditors who examine and then provide purposes. Such actions cause detriment to
opinions about the financial statements. the organization. Also, the internal audit
Knowledge about ethics can help guideline (I.A.G) defines fraud as a type of
accountants and auditors to resolve ethical irregularity that can cause deceit with the
dilemmas, enabling them to make the right intention of obtaining an illegal advan-
choice, even though it may not benefit the tage.
company, will benefit the public who The above definitions have, there-
depend on the accountant/auditor's report. fore, fully incorporated what fraud is all
Accountants, whose priority is ethics, can about. Legally, therefore, fraud may
easily handle ethical dilemmas, areas that
constitute embezzlement on larceny or
are not black and white. They feel both. It may be a misdemeanor or a felony,
comfortable dealing with gray areas. and it is always a crime or a tort. Fraud is
an action that involves the use of deceit and
Accounting Fraud seeks to alter the truth to deprive a person
Fraud in accounting can occur due to of something which he is entitled to.
several conditions, as explained by
Cressey (1953) in Tuanakotta (2007: 207),
which is called a Fraud Triangle Theory. Hypotheses Development
The theory state that corruption is caused
by the existence of 3 factors, namely The Effect of Internal Control on
pressure, opportunity, and rationalization. Accounting Fraud Tendency
Generally, accounting fraud is related to
corruption. In corruption, actions that are According to Ansori, Evana, and
commonly carried out include bribery, Gamayuni, (2018), internal control is the
conflicts of interest, unauthorized key to an organization in achieving its goal.
gratitude, and economic extortion. The With internal control running effectively, it
Theory of Triangle Fraud explains fraud creates the certainty of an organization
behavior. Someone cheats because of being prevented from various forms of
pressure, opportunity, and rationalization. deviations and frauds that will obstruct the
According to Dorminey, Fleming, course of the organization wheel. Joseph et
Kranacher, and Riley (2012), rationaliza- al. (2015) in their study also recommended
tion and pressure factors are characteristics that the policy and procedure of effective
of the perpetrators of accounting fraud that and efficient internal control shall be
cannot be observed. It is impossible to applied correctly to prevent fraud in an
know what the perpetrators are thinking organization. The fraud can quickly occur
when going to commit accounting fraud. in an organization that has a weak and
According to Lou and Wang (2009), this ineffective internal control system.

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 Meanwhile, Mirinaviciene (2014), in in their workplace.
her study, stated that the low or lack of
internal control could result in problems H2: There is an effect of individual mora-
and losses for a business. Companies need lity on accounting fraud tendency.
to analyze the needs of internal controls
that fit their needs and conduct employee The Effect of Ethical Value on
training on the implementation of these Accounting Fraud Tendency
controls. Dimitrijevic, Milovanovic, and
Stancic (2015), in their study, stated that In his study, Nwayanwu (2018)
that the internal control techniques applied stated that consequently, a fraud control
by the company could facilitate the model was developed, highlighting the
detection of fraud. The determination of national value system factor in fraud
these techniques is an essential part of the management. The people's behavioral
overall process of developing internal patterns and philosophy anchored on
control. If the method used is appropriate, ethical considerations should reflect
then certainly fraud that occurs within the honesty, integrity, and value of
company is most likely to be detected. knowledge. Meanwhile, Smith (2016), in
her study, explained the relations of
H1: There is an effect of internal control Ethical Value and Accounting Fraud. They
on accounting fraud tendency. state that the accountant's professional
code of ethics was made as a guideline for
The Effect of Individual Morality on accountants in carrying out their work so
Accounting Fraud Tendency that they avoid unethical behavior. In the
code of ethics, there are ethical contents
Junaidi and Ubaidillah (2018), in that are basically to protect the interests of
their study, explained the importance of the people who use professional ser-
individual morality and the importance of vices.
morality because it affects an individual's
action that's taken within. They also stated Jaijaram (2017) emphasizes the need
that individual with high-internalized for ethical values to prevent accounting
moral norms is less likely to commit fraud. He further stated that to avoid
fraud. On the contrary, an individual with potential conflicts of interest, ethical
low internalized moral norms is more guidelines must underlie the behavior of
likely to commit fraud. Based on their accountants in carrying out the tasks
developed theory, individuals develop assigned to them. The moral values held
opinions about ethical issues according to by accountants can prevent accounting
their innate view of wrong/right, opinions fraud, for example, financial misstatement.
of influencing individuals around them, Ethical values can prevent accountants
and opinions of others through the from harming themselves and others. The
individual’s perception and experiences in fraud does not only damage the reputation
expected outcomes. of the organization, but also the reputation
of the accounting profession, the level of
Meanwhile, Putri and Irwandi (2016), customer satisfaction, and investor
explained the importance of morals in each confidence in the company.
individual could easily prevent fraudulent
behavior. The moral value will help an H3: There is an effect of ethical value on
individual seeing what's right and wrong accounting fraud tendency.
in different situations. Proper
implementation of morality in each indi-
vidual supports the company or corporation
to prevent damage by an accounting fraud

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RESEARCH METHODS background of the respondents, ranging

from diploma degree up to a master's
The subjects used in this research are
degree, shows that 1.6% of the respondents
the accounting employee of Start-Up
were certified with a diploma degree or
Businesses operating in Jakarta, Indonesia,
31.9 % with a bachelor's degree and 62.2%
in which use a computerized accounting
with master degree. Aside from that,
information system to operate, with the
respondent's work experience was also put
criteria as such: have at least ten
into consideration, resulting in 16.5% with
accounting staffs and have been working
the experience of more than 10 years, 25%
with the computerized accounting system
ranges from 6 to 10 years, 31.9% from 3 to
for minimum five years. Data collection in
5 years, and 26.6% of 1-2 years
this study used a closed questionnaire; this
experience.
is done to gather detailed answers with
minimum time. The population used in this
research is the Start-Up companies client
Validity Tests
of PT Metacific Consultant, Indonesia, as
of 2015 to 2018 with a total of 282 The validity instrument test can be
companies. In this case, the target calculated using the correlation formula,
sampling for this study is based on each which is based on the Pearson Product
company's response, meaning one person Moment. Tables 2 through Table 5 show
will represent each company as a the validity test of the items used in this
respondent. As formulated by the Slowin study. The validity of an item is approved
Formula, the minimum samples required as valid if the value of r count > r table,
for this research are 165 samples. One based on the tables above, with the r table
hundred eighty-eight (188) respondents of 0.142 (significant rate of 5% with n
participated in this study. This study uses =188), it is easily concluded that all the
snowball sampling, in this type of data are considered valid and usable for
sampling, participants will be asked to further analysis.
identify or provide recommendations for Reliability Test
other companies that, according to the
criteria in the study. Snowball sampling is Table 6 shows the
used besides random sampling in the case reliability test results using Cronbach's
of the lack of respondents, with the hope alpha. A variable is considered reliable if
that by getting recommendations, the the Cronbach Alpha values more than 0.6,
proper amount of respondents to conduct which in this research has proven to be
this research can be achieved. The data true. All four variables score more than 0.6
analysis method used is the multiple linear making every single one of the constructs
regression, which is used to determine the deemed reliable.
effect of internal control, individual
morality, and ethical value on accounting
fraud tendency. Classical Assumption Tests
Multicollinearity Test
RESULTS AND DISCUSSION
The presence or absence of
Respondents Description
multicollinearity can be seen from the
Based on Table 1, 62.2% of females, large Tolerance Value and Variance
37.8% of males. The age ranges from 21- Inflation Factor (VIF). If the value of
29 years old with a percentage of 67%, Tolerance Value is ≥ 0.10 or equal to VIF
from the age of 31-39 years old of 28.7%, value ≤ 10, then multicollinearity does not
and 40-49 years old with a percentage of occur. Based on Table 7, all independent
4.3%. Meanwhile, the educational variables have a Tolerance value of ≥ 0.10

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and VIF ≤ 10. Thus it can be concluded versely, if there is no clear pattern, and the
that multicollinearity did not occur in all points spread, then the indication is that
independent variables in this study. there is no heteroscedasticity. As seen on
Figure 1, dots that spread randomly, do not
Normality Test
form a definite pattern and are spread both
The normality test aims to test above and below the number 0 (zero) on
whether in the regression model, the the Y axis, this indicates no classical
dependent variable, the independent assumptions of heteroscedasticity in the
variable, or both have a normal distri- regression model made.
bution or not. A good regression model is
to have normal data distribution or the Hypothesis Testing
distribution of statistical data on the As seen in Table 9, the significance
diagonal axis of the normal distribution of the t-test can be seen by comparing the
graph (Ghozali, 2001). There are two t-count in the table with the t-table value at
methods in approaching this test through df (n-k-1) = 184 and a = 5% which is
the Kolmogorov-Smirnov testing in which equal to 1.65318. The amount of t-count
the asymp. Significance should score more for the independent variable of internal
than 0.05. The normality test in Table 8 control is -5.126, higher than the t-table of
shows scores of 0.200 on the Kolmogorov- 1.65318, and significance level less than
Smirnov test, indicating that the data 0.05. With the results, it is decided that the
distribution is normal. first hypothesis which reads there is an
Heteroscedasticity Test effect of internal control on accounting
fraud tendency is proven correct. There-
The heteroscedasticity test aims to fore H1 is accepted. The value of t-count
test whether the regression model variance
for individual morality is -2.558, higher
occurs from one observation to another.
than the t-table of 1.65318, and
The way to detect it is to see whether there
significance level less than 0. The results
is a specific pattern on the Scatterplot
show that personal morality has a
chart between SRESID and ZPRED,
significant partial effect on accounting
where the Y-axis is Y that has been
fraud tendency. Thus, H2 is accepted. The
predicted, and the x-axis is residual (Y
value of t-count for ethical value is -3.910,
prediction - Y actually) that has been
higher than t-table of 1.65318, and
standardized (Ghozali, 2001).
significance level less than 0,05. The
If there are certain patterns on the results show that moral value has a
SPSS Scatterplot Chart, such as points that significant partial effect on accounting
form a regular pattern (wavy, diffuse, and fraud tendency. Therefore H3 could not be
then narrow), it can be concluded that rejected.
heteroscedasticity has occurred. Con-

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Table 1. Respondents’ Profile

Description Frequency Percentage (%)

Gender
Male 71 62.2
Female 117 37.8
Total 188 100
Age
21-29 years 126 67.0
30-39 years 54 28.7
40-49 years 8 4.3
Total 188 100
Education Level
Bachelor 125 66.5
Diploma 60 31.9
Master 3 1.6
Total 188 100
Work experience
< 3 years 50 26.6
3 - 5 years 60 31.9
6 – 10 years 47 25
> 10 years 31 16.5
Total 188 100

Table 2. Validity Test of Internal Control

Items r count r table Status

Organization structure 0.435 0.142 Valid
Management Competency. 0.368 0.142 Valid
Performance Accountability. 0.385 0.142 Valid
Effectivity. 0.753 0.142 Valid
Frequency 0.632 0.142 Valid
Accuracy 0.583 0.142 Valid
Activity assessment 0.603 0.142 Valid
Internal audit functions. 0.586 0.142 Valid
Internal control structure 0.552 0.142 Valid

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 Table 3. Validity Test of Individual Morality

Items r count r table Status

Rationalism 0.441 0.142 Valid
Individual Reasoning 0.332 0.142 Valid
Moral Knowledge 0.560 0.142 Valid
General Moral Implementation 0.714 0.142 Valid
Moral Judgements 0.682 0.142 Valid
Criticalism 0.640 0.142 Valid
Positive Perceptions 0.390 0.142 Valid

Table 4. Validity Test of Ethical Value

Items r count r table Status

Perception of Norms 0.467 0.142 Valid
Normative Induced Behavior 0.612 0.142 Valid
Profession Ethics 0.437 0.142 Valid
Professional Attitude in Workplace 0.607 0.142 Valid
Integrity 0.633 0.142 Valid
Attitude 0.525 0.142 Valid
Etiquette 0.442 0.142 Valid
Individual Judgements 0.501 0.142 Valid

Table 5. Validity Test of Accounting Fraud

Items r count r table Status

Individual Intentions 0.376 0.142 Valid
Action Reasoning 0.496 0.142 Valid
Bad Moral / Ethical Value 0.516 0.142 Valid
Financial Issue 0.703 0.142 Valid
Ambitions 0.375 0.142 Valid
Personal Reasons 0.583 0.142 Valid
Jealousy 0.269 0.142 Valid
Envy 0.657 0.142 Valid
Hate / Dislike 0.492 0.142 Valid

Table 6. Reliability Test

No. Variable Cronbach Alpha Criteria Status

1 Internal Control 0.704 0.6 Reliable
2 Individual Morality 0.601 0.6 Reliable
3 Ethical Value 0.632 0.6 Reliable
4 Accounting Fraud 0.626 0.6 Reliable

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Table 7. Multicollinearity Test

No Variable Tolerance Value VIF Status

1 Internal Control (X1) 0.481 2.078 Multicollinearity not proven
2 Individual Morality (X2) 0.630 1.587 Multicollinearity not proven
3 Ethical Value (X3) 0.487 2.055 Multicollinearity not proven

Table 8. Normality Test with Kolmogorov-Smirnov Test

Standardized Residual
N 188
Normal Parameters a,b Mean .0000000
Std. Deviation .31991079
Most Extreme Absolute .059
Differences Positive .046
Negative -.059
Kolmogorov-Smirnov Z .059
Asymp. Sig (2-tailed) .200c,d

Figure 1. Heteroscedasticity Test with Scatterplot

Table 9. Regression Result

Unstandardized Coefficients Standardized Coefficients t Sig

B Std. Error Beta
Internal Control -0.830 0.162 0.345 -5.126 0.000
Individual Morality -0.635 0.248 0.195 -2.558 0.011
Ethical Value -0.808 0.207 0.310 -3.910 0.000

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Discussion The effect of Individual Morality on
Accounting Fraud Tendency
The Effect of Internal Control on
Accounting Fraud Tendency Based on the results, we can
conclude that individual morality has a
The results of multiple linear
negative impact on accounting fraud
regression analyses show that internal
tendency. An increase in the Individual
control has a negative effect on accounting
Morality variable will result in a decrease
fraud tendency. The finding indicates that
in the accounting fraud tendency. The
an increase in internal control will result in
statement means that the level of
a decrease in the accounting fraud
individual morality will affect decision-
tendency. By the rise of internal control, it
making activities in an individual's life.
means increasing and strengthening acti-
Furthermore, for actions that require moral
vity control, increasing management
considerations such as considering the
access, and increasing overall control of
right or wrong options. The finding proves
the management in said company, will
that the higher the level of an individual,
potentially result in a decrease in
morality will decrease the level of
accounting fraud tendency in the company
accounting fraud tendency in a company
or organization. This result is caused by
and minimize the intention of employees to
the effectivity of internal control and the
commit fraudulent behavior.
proper implementation of it. This will
prevent and minimize opportunities for A similar result was done by
employees to commit fraud that can Setiawan (2018) that individual morality
potentially damage and harm the company. has a negative effect on accounting fraud
tendency. Setiawan (2018) also stated that
The result of this study is consistent
individuals with low morality do not
with the research conducted by Putri and
question the existence or absence of
Irwandi (2016). They found that the higher
internal control in committing fraud. High
the internal control, the lower the
morality individuals, when faced with
accounting fraud tendency. The resulting
conditions of internal control, fraud is
state that adequate internal control in a
carried out, tends to be lower than the state
company or an organization can minimize
of no internal control. Meanwhile, Putri
the tendency of accounting fraud. Internal
and Irwandi (2016) also acquired a similar
control narrows the loopholes that could be
result of a negative effect of internal
taken advantage of by people who do not
control on accounting fraud tendency.
have good intentions for the company.
They concluded that the prevention of
Meanwhile, a similar result was also
accounting fraud tendencies could be done
obtained by Setiawan (2018) with a
by applying good morality on mana-
negative effect of internal control on
gement. Morality will lower the intention
accounting fraud tendency. Setiawan
to commit fraudulent behavior within a
(2018) also stated that the existence of
company or an organization.
internal control prevents the subject from
behaving fraudulently. In the context of a
company or organization, the presence of
The effect of Ethical Value on Accoun-
internal controls can ensure that company
ting Fraud Tendency
assets can be better maintained than if
internal controls are not implemented The results of multiple linear regres-
properly. sion analysis show that ethical value has a
negative impact on accounting fraud
tendency. The findings indicate that an
increase in the moral value will result in a
decrease in the accounting fraud tendency.

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Media Ekonomi dan Manajemen, Volume 35 Issue 1, January 2020, 112-127

The increase in ethical values intended is is due to the conclusion that an individual
the actions and attitudes carried out by an with a high moral level will be very
individual in daily activities in the work unlikely to commit fraudulent behavior.
environment based on the professionalism Thus proving the point that accounting
and professional code of ethics that have fraud tendency can be prevented by
been established. The code can be in the implementing moral knowledge in daily
form of discipline, attitudes, and ethical activity and a selective hiring process in a
behavior of an employee, thus can affect company or an organization. Lastly, this
accounting fraud tendency in a company or study also shows that ethical value has a
organization within. negative effect on accounting fraud
tendency. This is due to the conclusion that
The result of this study is consistent
professionalism and professional ethic
with the research conducted by Smith
codes play a significant role in maintaining
(2016) that there is a significant effect of
ethical behavior in the workplace. The
ethical value on accounting fraud
code is a standard guideline of how one
tendency. The study also stated that ethics
should behave in a work environment.
policies and guidelines should be in place
With proper implementation of profes-
in organizations to guide newly hired
sional ethic, codes can help the chances of
workers and accounting employees. These
any employee to commit fraudulent
serve as guides for employee behavioral
behavior that could potentially harm the
and professional action. The existence of
company. Companies, especially start-up
ethics policies demonstrates to new hires
businesses, should implement an internal
that the organization takes ethics seriously.
control system from the very beginning.
During the onboarding and training
Furthermore, they should go through a
process, there should be a separate module
very selectively hiring process with a lot of
or program that emphasizes the ethics
considerations regarding individual
policies and how they should be applied to
morality and ethical value to prevent
daily operations. Meanwhile, a similar
accounting fraud. It is suggested that the
result was also obtained by Jaijaram
next researcher to choose a different study
(2017), which proved that the accountants'
object and a diverse group of respondents
role is dependent on an organization's
to obtain better and detailed data results.
emphasis on culture and accountability.
Therefore it is essential for the government There are two of these studies. First, the
use of self-report measurement to measure
and public governing bodies to advocate
the variables studied suggests potential
and develop ethical practices in accounting
sources of method biases for some of the
firms.
results. Future research should employ in-
depth interviews to investigate the
CONCLUSIONS AND RECOMMEN- respondent's views in greater depth.
DATIONS Second, this research only examines Start-
Up companies' clients of PT Metacific
Based on the results of multiple Consultant. Further research shall enhance
linear regression analysis, we can conclude coverage by including more Start-Up
that internal control has a negative effect businesses.
on accounting fraud tendency. The result is
due to the conclusion that increasing
activity and management control in an
organization or a company will prevent
fraudulent behavior. Furthermore, the
results of this study also show that
individual morality has a negative effect on
accounting fraud tendency. The tendency

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