DETECTING FINANCIAL FRAUD IN INDONESIAN ISLAMIC BANKS

Abstract

This study aims to analyze the influence of financial targets, financial stability, external pressure, ineffective monitoring, the nature of the industry, and auditor changes on financial statement fraud in Islamic banks in Indonesia over the period 2014–2023. Financial statement fraud is measured using the Modified Beneish M-Score. The sample was selected using purposive sampling. The research data consist of financial statements from nine Islamic Commercial Banks over ten years, resulting in a total of 90 observations. Logistic regression analysis was performed using EViews software. The results indicate that financial targets and ineffective monitoring have a positive and significant effect on financial statement fraud, while financial stability has a negative and significant effect. In contrast, external pressure, the nature of the industry, and auditor changes show no significant effect on financial statement fraud. These findings support the Fraud Triangle Theory, particularly highlighting pressure and opportunity as key drivers of fraud. The study underscores the importance of robust Sharia-compliant oversight systems and advocates for the adoption of the Beneish M-Score model as an early detection tool for financial statement fraud in Indonesia’s Islamic banking sector.