Implementation of Fraud Risk Assessment To Mitigate The Fraud Risk in Tax Audit Process

Qomarudin Alfatah,Nicholas Agustinus L Tobing

doi:10.47312/aar.v4i02.181

Abstract

The emergence of a variety of fraud schemes, ineffective internal controls, and the number of fraud cases that occur in the taxation sector, encourage researches related to fraud risk assessment, especially in tax audit activities. This study aimed to identify potential fraud schemes risks, evaluate risk controls and discuss anti-fraud strategies using a case study at the Directorate General of Taxes in Indonesia. With a sequential mix method approach through a combination of quantitative and qualitative research, and by using rational choice theory, this research extends the literature of previous studies by providing evidence that fraud can be prevented by increasing the probability to detect fraud scheme. This study fills out the gaps related to fraud risk assessment research in the tax audit process which have been rarely performed in the literatures.The results concluded that of the 20 fraud scenarios identified, there were 7 fraud scenarios categorized as high level of residual fraud risk, 9 fraud scenarios at the medium level, and the rest at low levels. This study discussed appropriate controls to mitigate the residual fraud risk to be maintained at the level of organizational risk appetite. In addition, this study also discussed anti fraud strategies that are relevant to the organization, through evaluating anti-fraud strategies that have been previously implemented and anti-fraud strategies that have never been implemented

Highlights

Tax reform at the Directorate General of Taxes (DGT) was carried out as a manifestation of good governance implemented through reform in the field of taxation policy and tax administration
Based on the background described, this study aimed to answer three research questions including, 1) What fraud schemes might occur in tax audit activities at the DGT? 2) How should the fraud risk assessment be implemented on tax audit activities? 3) How were the relevant anti-fraud programs to mitigate the fraud risk?
The purpose of this study was to discuss the identification of schemes/fraud scenarios that may occur in the business process cycle, analyze the implementation of the fraud risk assessment and evaluate the implementation of anti-fraud programs implemented and discuss anti-fraud programs that are appropriate and relevant for the organization based on the fraud risk assessment conducted

Summary

Introduction

Tax reform at the Directorate General of Taxes (DGT) was carried out as a manifestation of good governance implemented through reform in the field of taxation policy and tax administration. This reform aimed to lead good and corruption-free organization to achieve optimal state revenues. Optimal tax revenue will increase the credibility of state budget, so that the function of stabilization, allocation and budget redistribution becomes optimal. Data on the realization of tax revenues from 2014 to 2018 has increased along with the increase in GDP. If the tax ratio is maintained at a more optimal level, the tax revenues will be higher

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