Religiosity, ethical leadership and local wisdom in moderating the effect of fraud risk management on asset misappropriation: evidence from local government in Indonesia

Abstract

Purpose This study aims to examine the effects of religiosity, ethical leadership and local wisdom on the relationship between fraud risk management and asset misappropriation in Indonesia. Design/methodology/approach Data were collected using a set of questionnaire surveys administered to the head office, local government internal auditors (inspectorate) and local government employees in Indonesia. Sample selection used purposive techniques and obtained 151 respondents who became research data. The dependent variable was asset misappropriation. The independent variable was fraud risk management. The moderating variables for this study were religiosity, leader ethics and local wisdom. The analysis technique applied the structural equation model-partial least square (SEM-PLS). Findings Fraud risk management has a significant negative effect on asset misappropriation. In addition, this study finds evidence that religiosity, ethical leadership and local wisdom increase fraud risk management against asset misappropriation. Research limitations/implications This study proposes an integrative model that enables local governments to understand fraud risk management. By integrating religiosity, ethical leadership and local wisdom, managers can design strategies to prevent asset misappropriation. Originality/value This research has the advantage of proposing an integrative model for mitigating asset misappropriation. Research on asset misappropriation is limited. Therefore, this study provides insights into fraud risk management, particularly in Indonesia’s local governments. In addition, this study adds ethical aspects such as religiosity, leadership and local wisdom to complement the weaknesses of fraud risk management and reduce the potential for asset misappropriation.