Can Internal Control Prevent Fraud in Managing Village Funds?

In 2015, the Indonesian Government rolled a new scheme of transfer called "Village Fund", based on the Law 6/2014 (known as the Village Law). The scheme requires the Central Government to allocate funding of at least 10 per cent on top of inter-governmental transfers to provinces and districts. Village Funds Program is for the purpose of realizing economic growth and equity of income with priority to finance the development and empowerment of the community. The purpose of this study is to provide empirical evidence regarding to the effects of the internal control system implementation including control environment, risk assessment, control activities, information and communication, and monitoring activities to prevent fraud in managing village funds on Bangka Island. This research was initiated due to number of problems occurred in managing village funds which leads to fraud on Bangka Island. The sample of this study was chosen using purposive sampling method of 108 samples consisted of the village consultative assembly, village companion and experts in 24 villages. Data was collected through questionnaire with a Likert scale which then increased to interval scale using methods of Successive interval. The hypothesis was tested using multiple regression analysis. The results of this study indicate negative influence between the implementation of the Internal Control System in the form of environmental control, risk assessment, information and communication, control and supervision activities of fraud in managing village funds on Bangka Island. The implementation of the internal control system on Bangka Island has also been good, but the reduction in fraud has not yet yielded maximum results. This happens because there are still some weaknesses in the implementation of the internal control system such as low understanding of village government, overlapping rules and changes in the rules for managing village funds. Seeing the influence of the implementation of the internal control system on fraud, Indonesian government should increase the effectiveness of internal control to prevent fraud.