The Role of Internal Auditor in Minimizing Risk Factor in Banking Industry (Case Study at BPD West Sumatra).
The Role of Internal Auditor in Minimizing Risk Factor in Banking Industry
(Case Study at BPD West Sumatra)
THESIS
Submitted as Partial Fulfillment of the Requirement for Undergraduate Degree in Economic
By:
M Lizardi Hidayat K
0810534024
ACCOUNTING DEPARTMENT
ECONOMIC FACULTY
ANDALAS UNIVERSITY
PADANG
2014
No Alumni
Universitas
M LIZARDI HIDAYAT K
No Alumni Fakultas
BIODATA
a). Tempat/Tgl Lahir : Pekanbaru / 16 Juli 1990 b). Nama Orang Tua :
Kismanwardi c). Fakultas : Ekonomi d). Jurusan : Akuntansi e). No.Bp :
0810534024 f). Tanggal Lulus : 21 Juli 2014 g). Predikat lulus : Memuaskan
h). IPK : 3.00 i). Lama Studi : 5 Tahun 9 Bulan j). Alamat Orang Tua: Jl
Belut no11 Pekanbaru, Kecamatan Payung Sekaki, Kotamadya Pekanbaru,
Riau
The Role of Internal Auditor in Minimizing Risk Factor on Banking Industry (case
studied at BPD West Sumatra)
Thesis By: M Lizardi Hidayat K
Thesis Advisor: Drs. Amsal Djunid, M.Bus, AK
ABSTRACT
Internal Auditor as a division in a company take an important role to keep the company run
well as planned. Internal Auditor assists the company by providing many services, aim to gain
advantages to make a company grow from inside, and outside. This research purposed to gain an
understanding of the role of Internal Auditor in minimizing risk factor that facing by the
company in banking industry by using Soft System Methodology (SSM) that refers to Peter
Checkland (1970). Soft System Methodology help in guidance to compare current regulation by
Bank of Indonesia about role of Internal Auditor in managing risk, and actual practice in the
company.
By conducting this research in BPD West Sumatra, it found that BPD West Sumatra
applying current regulation of Bank of Indonesia about role of Internal Auditor in managing risk
in their current practices.
Keywords: Internal Auditor, Managing Risk, Risk Factor, Bank Indonesia Regulation,
BPD West Sumatra
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND
Globalization era will sharpen rivalries that need more critical thinking on optimal
utilization of various sources of funds and the use of existing resources. The increasing of
complexity, the size of organization and the expansion in business operations is affecting the
need for the complex control system, both control of financial and business operational that
make the role of audit became important thing, especially the internal audit who has involved
day to day operational of organization.
Internal audit is an activity involved in an organization that provides input on how best to
achieve organizational goals. Internal audit include the utilization of a systematic methodology
for analyzing business processes or organizational problems and provide an alternative solutions
to these problems. Internal audit activities includes ensuring the operational run effectively and
efficiently, prevent and investigate fraud, security of assets, and compliance with laws,
regulations, policies, and procedures applicable in the organization (Wulandari: No Year).
Based on the definition of internal auditimg issued by IIA’S Board of Directors, the main
purpose of internal auditing is to assist management in achieving organizational goals. But, there
are risks that might impede management to achieve organization goals. According to the IIA,
risk is defined as a possibility that an event will occur, which will impact an organization’s
achievement of the objectives ( the professional practices framework 2004)
In general bank have three main activities, they collect the fund from the peoples,
channels the fund to the peoples in form loan or credit for variety purposes, and give other bank
services. These three activities can be done if bank and its customer have trust each other’s. The
customers want to save their money in bank, because they believe the bank will not misuses and
their money will be managed well and they can withdraw the money any time they want. In other
hand, bank wants to channel the fund to debtor or the peoples because trusts exist. The Bank
believe that debtor will not misuses and manage the loan fund well, debtor have ability to pay
and return their credit or loan and other liabilities at due date.
The loan or credit was given by bank to its customer usually has short term or long term,
the credit used to run their business or other needs. In giving the credit bank must concern so
many aspects of the customer, such as business prospect, debtor performance, and ability to pay.
To ensure this activities running well, the bank need good internal audit division to
minimize any risk, and increase and improve the system in management. In former, internal
auditor was the enemy to management because they act as “watch dog” for every single policy that
had been made by management. However, internal auditor in the present has become a partner and
they work not only to examine the mistakes but also give another contribution. So that the process
will run well from planning, implementing, and evaluating and bank can achieve their goals.
Based on the bank’s characteristics and functions, banking industry is identical to the
risk. Therefore, the availability of a system and procedures to control and manage risk is a
fundamental requirement for each bank, thus banks avoid losses both material and non-loss
material such as deteriorating the image or reputation of a bank in the public.
Based on the background of the above problems, the authors are interested in doing
research with the title: "The Role of Internal Auditor in Minimizing Risk Factor in Banking
Industry"
1.2
PROBLEM DEFINITION
Based on background above, existence internal audit function in a company is required to
control the business activity so that the trust from community can be maintained. In order to
implement the basic internal control components and to produce reliable information for
company’s stakeholders takes effectiveness role of internal auditors.
Based on the background above, the writer proposed the questions as follows :
1.3
1.
How is internal audit function and practice in Bank Nagari?
2.
How is the role of internal auditor in minimizing risk factor in Bank Nagari?
RESEARCH OBJECTIVE
The objective of this research are :
1.
To describe the function of internal audit in Bank Nagari?
2.
To describe and analyze the role of internal auditor in minimizing risk factor in
Bank Nagari?
1.4
RESEARCH BENEFIT
The benefit that expected in this research are:
1.
For writer, to get better understanding about the role of internal auditor in
minimizing risk factor in Bank Nagari
2.
For company, expected this research can be used as an input in improving the
internal audit function in minimizing risk factor in Bank Nagari
3.
For accounting knowledge and next research, expected that this research can
give input for accounting knowledge and inspiration for further research that
more deeply in the future.
1.5
WRITING SYSTEMATICAL
The systematical of the research, is divided into five sections, which consist of: Chapter 1
INTRODUCTION
This section describes the background of the problem, problem definition,
research objective, research benefit, scope of research, and writing systematic.
Chapter 2
THEORITICAL FRAMEWORK
This chapter includes the literature surveys of any related theories and opinions of
the experts gathered from different sources, such as text books, the results from
previous research, journals, and internet based content and information.
Chapter 3
RESEARCH METHOD
Second chapter discusses the various kinds of research data, and describes the
methods and techniques used to analyze the data and any information needed for
the thesis.
Chapter 4
RESULT AND ANALYSIS
This chapter will describe the result of the research based on the data and
information gathered related to the questions on problem definition.
Chapter 5
CONCLUSION
This chapter will conclude all the result of research presented by the previous
chapter, feedback in from of suggestions, and also discuss the limitation of
research.
(Case Study at BPD West Sumatra)
THESIS
Submitted as Partial Fulfillment of the Requirement for Undergraduate Degree in Economic
By:
M Lizardi Hidayat K
0810534024
ACCOUNTING DEPARTMENT
ECONOMIC FACULTY
ANDALAS UNIVERSITY
PADANG
2014
No Alumni
Universitas
M LIZARDI HIDAYAT K
No Alumni Fakultas
BIODATA
a). Tempat/Tgl Lahir : Pekanbaru / 16 Juli 1990 b). Nama Orang Tua :
Kismanwardi c). Fakultas : Ekonomi d). Jurusan : Akuntansi e). No.Bp :
0810534024 f). Tanggal Lulus : 21 Juli 2014 g). Predikat lulus : Memuaskan
h). IPK : 3.00 i). Lama Studi : 5 Tahun 9 Bulan j). Alamat Orang Tua: Jl
Belut no11 Pekanbaru, Kecamatan Payung Sekaki, Kotamadya Pekanbaru,
Riau
The Role of Internal Auditor in Minimizing Risk Factor on Banking Industry (case
studied at BPD West Sumatra)
Thesis By: M Lizardi Hidayat K
Thesis Advisor: Drs. Amsal Djunid, M.Bus, AK
ABSTRACT
Internal Auditor as a division in a company take an important role to keep the company run
well as planned. Internal Auditor assists the company by providing many services, aim to gain
advantages to make a company grow from inside, and outside. This research purposed to gain an
understanding of the role of Internal Auditor in minimizing risk factor that facing by the
company in banking industry by using Soft System Methodology (SSM) that refers to Peter
Checkland (1970). Soft System Methodology help in guidance to compare current regulation by
Bank of Indonesia about role of Internal Auditor in managing risk, and actual practice in the
company.
By conducting this research in BPD West Sumatra, it found that BPD West Sumatra
applying current regulation of Bank of Indonesia about role of Internal Auditor in managing risk
in their current practices.
Keywords: Internal Auditor, Managing Risk, Risk Factor, Bank Indonesia Regulation,
BPD West Sumatra
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND
Globalization era will sharpen rivalries that need more critical thinking on optimal
utilization of various sources of funds and the use of existing resources. The increasing of
complexity, the size of organization and the expansion in business operations is affecting the
need for the complex control system, both control of financial and business operational that
make the role of audit became important thing, especially the internal audit who has involved
day to day operational of organization.
Internal audit is an activity involved in an organization that provides input on how best to
achieve organizational goals. Internal audit include the utilization of a systematic methodology
for analyzing business processes or organizational problems and provide an alternative solutions
to these problems. Internal audit activities includes ensuring the operational run effectively and
efficiently, prevent and investigate fraud, security of assets, and compliance with laws,
regulations, policies, and procedures applicable in the organization (Wulandari: No Year).
Based on the definition of internal auditimg issued by IIA’S Board of Directors, the main
purpose of internal auditing is to assist management in achieving organizational goals. But, there
are risks that might impede management to achieve organization goals. According to the IIA,
risk is defined as a possibility that an event will occur, which will impact an organization’s
achievement of the objectives ( the professional practices framework 2004)
In general bank have three main activities, they collect the fund from the peoples,
channels the fund to the peoples in form loan or credit for variety purposes, and give other bank
services. These three activities can be done if bank and its customer have trust each other’s. The
customers want to save their money in bank, because they believe the bank will not misuses and
their money will be managed well and they can withdraw the money any time they want. In other
hand, bank wants to channel the fund to debtor or the peoples because trusts exist. The Bank
believe that debtor will not misuses and manage the loan fund well, debtor have ability to pay
and return their credit or loan and other liabilities at due date.
The loan or credit was given by bank to its customer usually has short term or long term,
the credit used to run their business or other needs. In giving the credit bank must concern so
many aspects of the customer, such as business prospect, debtor performance, and ability to pay.
To ensure this activities running well, the bank need good internal audit division to
minimize any risk, and increase and improve the system in management. In former, internal
auditor was the enemy to management because they act as “watch dog” for every single policy that
had been made by management. However, internal auditor in the present has become a partner and
they work not only to examine the mistakes but also give another contribution. So that the process
will run well from planning, implementing, and evaluating and bank can achieve their goals.
Based on the bank’s characteristics and functions, banking industry is identical to the
risk. Therefore, the availability of a system and procedures to control and manage risk is a
fundamental requirement for each bank, thus banks avoid losses both material and non-loss
material such as deteriorating the image or reputation of a bank in the public.
Based on the background of the above problems, the authors are interested in doing
research with the title: "The Role of Internal Auditor in Minimizing Risk Factor in Banking
Industry"
1.2
PROBLEM DEFINITION
Based on background above, existence internal audit function in a company is required to
control the business activity so that the trust from community can be maintained. In order to
implement the basic internal control components and to produce reliable information for
company’s stakeholders takes effectiveness role of internal auditors.
Based on the background above, the writer proposed the questions as follows :
1.3
1.
How is internal audit function and practice in Bank Nagari?
2.
How is the role of internal auditor in minimizing risk factor in Bank Nagari?
RESEARCH OBJECTIVE
The objective of this research are :
1.
To describe the function of internal audit in Bank Nagari?
2.
To describe and analyze the role of internal auditor in minimizing risk factor in
Bank Nagari?
1.4
RESEARCH BENEFIT
The benefit that expected in this research are:
1.
For writer, to get better understanding about the role of internal auditor in
minimizing risk factor in Bank Nagari
2.
For company, expected this research can be used as an input in improving the
internal audit function in minimizing risk factor in Bank Nagari
3.
For accounting knowledge and next research, expected that this research can
give input for accounting knowledge and inspiration for further research that
more deeply in the future.
1.5
WRITING SYSTEMATICAL
The systematical of the research, is divided into five sections, which consist of: Chapter 1
INTRODUCTION
This section describes the background of the problem, problem definition,
research objective, research benefit, scope of research, and writing systematic.
Chapter 2
THEORITICAL FRAMEWORK
This chapter includes the literature surveys of any related theories and opinions of
the experts gathered from different sources, such as text books, the results from
previous research, journals, and internet based content and information.
Chapter 3
RESEARCH METHOD
Second chapter discusses the various kinds of research data, and describes the
methods and techniques used to analyze the data and any information needed for
the thesis.
Chapter 4
RESULT AND ANALYSIS
This chapter will describe the result of the research based on the data and
information gathered related to the questions on problem definition.
Chapter 5
CONCLUSION
This chapter will conclude all the result of research presented by the previous
chapter, feedback in from of suggestions, and also discuss the limitation of
research.