The research, based on data from 150 MSME owners and financial managers across Indonesia, demonstrates that ethics in day-to-day accounting is not just a moral ideal. It functions as a practical safeguard in businesses that often lack formal internal controls. The findings matter because MSMEs form the backbone of Indonesia’s economy, contributing heavily to employment and national output while remaining highly vulnerable to financial misconduct.
Why Fraud Prevention in MSMEs Matters
Indonesia’s MSMEs account for the vast majority of businesses nationwide and play a central role in economic resilience. Yet many operate with limited accounting literacy, informal record-keeping, and minimal oversight. These conditions create fertile ground for fraud, ranging from manipulated financial records to misuse of business funds.
Globally, small businesses face higher fraud exposure than large corporations because they rely on trust-based systems and concentrated decision-making. In Indonesia, these risks are intensified by rapid digitalization, uneven governance standards, and resource constraints. Policymakers and business mentors have often focused on technical fixes such as audits or compliance rules. This study highlights a complementary solution: strengthening ethical values among those who manage MSME finances.
How the Research Was Conducted
The study used a quantitative explanatory design to examine how accounting ethics influence fraud prevention. Data were collected through structured questionnaires distributed to MSME owners and financial managers who had been operating for at least two years and maintained regular financial records.
Key features of the methodology include:
· Sample size: 150 MSME financial decision-makers
· Data collection: Structured questionnaires using a five-point agreement scale
· Ethical dimensions measured: Integrity, objectivity, transparency, accountability
· Analysis method: Multiple linear regression using SPSS
This approach allowed the researcher to test whether variations in ethical accounting practices could statistically explain differences in fraud prevention behavior.
Clear Evidence: Ethics Reduce Fraud Risks
The results show a strong and consistent relationship between ethical accounting practices and fraud prevention. All four ethical dimensions had a positive and statistically significant effect.
Key findings include:
· Accountability showed the strongest influence on fraud prevention, highlighting the importance of responsibility in financial reporting and fund management.
· Integrity significantly reduced opportunities for manipulation and dishonest reporting.
· Transparency improved openness in financial records, limiting concealment of irregularities.
· Objectivity supported fair and unbiased financial decision-making.
Together, these ethical factors explained over 50 percent of the variation in fraud prevention outcomes among surveyed MSMEs. This indicates that ethical behavior is not peripheral but central to financial governance in small businesses.
Ethics as Practical Governance Tools
In large corporations, fraud prevention often depends on layered internal controls, audits, and compliance departments. MSMEs rarely have access to such systems. The study shows that in these environments, ethics function as value-based internal controls.
Sabubun explains that in owner-managed enterprises, financial decisions are highly personal. When ethical values are internalized, they act as a moral filter that discourages rationalization of fraudulent behavior. This finding aligns with international evidence that fraud in small firms is often driven more by moral justification than by opportunity alone.
As the study notes, ethical accounting “functions not only as a normative framework but also as a practical mechanism to strengthen fraud prevention efforts” at the MSME level
Implications for Policy, Training, and Business Practice
The findings carry important implications for multiple stakeholders:
· Policymakers can integrate ethics-based accounting education into MSME development programs.
· Business associations and mentors can emphasize integrity and accountability alongside technical bookkeeping skills.
· Financial institutions may use ethical governance indicators when assessing MSME risk profiles.
· MSME owners gain evidence that ethical practices directly protect business sustainability.
Rather than relying solely on external enforcement, the study suggests that long-term fraud prevention depends on embedding ethical values into everyday financial behavior.
Author Insight
Reflecting on the findings, Amatus Venantius Sabubun of Universitas Terbuka emphasizes that ethics are not abstract ideals for small businesses. He argues that when MSME owners and managers consistently apply integrity, transparency, objectivity, and accountability, ethical accounting becomes a frontline defense against fraud, even in the absence of complex control systems
Author Profile
Amatus Venantius Sabubun holds a graduate degree in accounting and is affiliated with Universitas Terbuka, Jakarta, Indonesia. His academic expertise focuses on accounting ethics, financial governance, and fraud prevention in micro, small, and medium enterprises, particularly within developing economies.
Source
Article title: Ethical Accounting Perspectives on Fraud Prevention within Indonesia’s MSMEs Ecosystem
Journal: Formosa Journal of Science and Technology
Publication year: 2026
DOI: https://doi.org/10.55927/fjst.v5i1.380
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