Examining the role of sharia supervisory board attributes in reducing financial statement fraud by Islamic banks

Indah Anisykurlillah,Umi Widyastuti,Hasan Mukhibad,Prabowo Yudo Jayanto

doi:10.21511/bbs.15(3).2020.10

Indah Anisykurlillah, Umi Widyastuti + Show 2 more

Open Access

https://doi.org/10.21511/bbs.15(3).2020.10

Copy DOI

Abstract

Sharia Supervisory Board (SSB) plays an important role in implementing Islamic law in Islamic banks, including fraud prevention. This ungodly act, also known as haram, is highly forbidden in Islam, as evidenced in the holy book of Al Qur’an. Therefore, this study was conducted to provide evidence on the role of SSB attributes (number of members, expertise, cross-membership, educational level, attendance of meeting, tenure) in preventing fraud. This study used 11 Islamic banks in Indonesia as research samples that were observed during 2014–2018. Data were analyzed using the ordinary least squares (OLS) method. The research findings from this study showed that the number of members, cross-membership, education level, attendance of meetings, and SSB tenure were not proven to reduce fraud. SSB’s expertise in accounting/finance had a negative influence on financial statement fraud. The implication of the study is that SSB’s expertise helps banks to effectively carry out their duties, namely detecting financial statement fraud. SSB acts as an independent control mechanism that states that all bank activities are in line with Islamic law and also avoid financial statement fraud.

Highlights

The occurrence of fraud in Islamic banks is very unfortunate due to the use of Islamic law as an operational guideline
Supervisory Board (SSB)’s expertise in accounting/finance had a negative influence on financial statement fraud
This study focused on the role of SSB in reducing financial statement fraud of Islamic banks by measuring its role with attributes such as number of members, cross-membership, expertise, level of education, and meeting attendance

Summary

Introduction

The occurrence of fraud in Islamic banks is very unfortunate due to the use of Islamic law as an operational guideline. Similar cases occurred in Indonesia, such as fraud cases at Bank Syariah Mandiri, Bank Jateng Syariah, and Bank Jabar Banten Syariah (Astuti, Rozali, & Cakhyaneu, 2019; Mukhibad, 2017). The occurrence of fraud in Islamic banks has become a topic of debate, with common questions, such as “Does fraud occur in Islamic and conventional banks?”, generally asked (Fathi, Ghani, Said, & Puspitasari, 2017). Assuming that the conditions are similar, this is very ironic, because an Islamic bank tends to promote fidelity, openness, and transparency on its performance towards all of the stakeholders. The rapid growth of banks tends to attract fraud (Vania, Nugraha, & Nugroho, 2018)

Objectives

Methods

Findings

Conclusion