Financial Fraud in Indonesia

Abstract: The following blog aims to cover the aspects of misappropriation caused by the Indonesian Insurance Company Pt. Asuransi Jiwasraya which has been in the business for more than a century but due to the unethical management it has resulted in a loss of more than 13 Trillion Rupiah which translates to 6000 crores of Indian Rupees. The essence of this fraud has emerged from the derailment of their venture “JS Saving Plan” which guaranteed the rate of return to 9% – 13%. Financial Mismanagement has been considered to be the cause of this catastrophe in the Jakarta range. The Supreme Audit Agency (BPK) stated the misappropriation has been carried out since 2006.

Introduction:

PT Asuransi Jiwasraya being an insurance company indulged in malpractices that led to the auditors to scrutinise till this day. This insurance firm has failed to make payments to consumers who purchased the “JS Saving Plan” investment product. Jiwasraya has been around for 160 years, having been founded in 1859. In 2017, the total number of assets possessed was 45.70 trillion rupiahs, the total amount of debt was 40 trillion rupiahs, the total amount of equity was 5.6 trillion rupiahs, and the net profit was 328.4 billion rupiahs. However, the reality is that management was overly aggressive in investing in order to meet the company’s profit objectives and target payment commitments to all consumers who purchase investment products. This removes the notion of caution, and as a result, high-profit ambitions will always be associated with high risks, which the corporation is presently experiencing.

Execution of scam:

Jiwasraya addressed the root causes of the challenges associated with the issuing of saving plan products between 2013 and 2018. The first error committed by the previous administration was in the establishment of product prices, sometimes known as mispricing. During the 2013-2018 period, with the payout method used every year, product saving plans were given through bancassurance, which means that insurance products were given through banking institutions, with average yields or returns of 9-13 percent. With a guaranteed return that is now higher than the increase of the Composite Stock Price Index and bond rates and providing the benefits of redeeming every year, Jiwasraya remains subject to market risk. Jiwasraya made a lot of risky investments in stocks and mutual funds in order to maximise its profit. Unfortunately, this hasty expenditure is mistakenly attributed to accounting engineering and cooking of financial statements, and inflating the profit numbers. This is analogous to being exposed to the Supreme Audit Board’s (SAB) Audit Report in 2016 for handling Jiwasraya’s insurance, investment, income, and operating expenditures in 2014-2015.

The Supreme Audit Agency’s Audit Report also noted Jiwasraya’s investment issues in PT Trikomsel Oke Tbk (TRIO), PT Sugih Energy Tbk (SUGI), PT Eureka Prima Jakarta Tbk (LCGP), and PT Inti Agri Resource Tbk (IIKP). Jiwasraya invested in 14 mutual funds held by IIKP, where the indirect ownership in the shares of the private firm exceeds the maximum placement limit for one share. The SAB’s audit of 14 IIKP mutual fund portfolios has the potential to contribute to Jiwasraya’s loss of at least 601.88 billion rupiah. Jiwasraya possesses IIKP shares worth up to 6.04 trillion rupiahs in the corporation active in fisheries, trading, industry, and plantations. The IIKP audit financial reports for December 31 2015, and 2014 similarly indicated losses of 16.31 billion rupiahs and 11.95 billion rupiahs, respectively.

In a meeting with elected members of Delegates of the Republic of Indonesia, the current Director of Jiwasraya, Hexana Sasongko, highlighted four reasons for Jiwasraya’s deteriorating financial conditions. First, mistakes in the creation of JS Saving Plan services that promised to deliver a return of 9% to 13% from 2013 to 2018, Second, flaws in investing strategies that reduce firm liquidity. Third, accounting engineering or also known as cooking of books of accounts to show investors that Jiwasraya is making a profit even though it wasn’t since 2013. Fourth, the JS Saving Plan product’s liquidity strain, which has a negative influence on client confidence.

Conclusion:

Jiwasraya management’s use of customer funds to invest in high-risk products without proper computations is unacceptable and inexcusable behaviour. Jiwasraya management actions that aim to falsify financial figures in order to appear productive and prosperous are illegal crimes that must be punished severely. Jiwasraya management, which offers the insurance scheme JS Saving Plan, which turned out to have been covered in investment, is committing fraud and should face serious legal consequences. Jiwasraya’s management and the whole board of directors must accept responsibility for the numerous activities that resulted in a loss of funds from the Republic of Indonesia.

By Aryan Manwani

 

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