Budget Participation and Financial Statement Fraud: The Mediating Role of E-Budgeting and Ethical Climate

Abstract

Research aim This study examines the effect of budget participation on financial statement fraud by analysing the mediating roles of e-budgeting adoption and ethical climate in local government budget management. Design/methodology/approach

This study uses a quantitative approach with SEM-PLS analysis. Data were collected from 150 government officials involved in budget management within Regional Apparatus Organizations (OPD) of Pekanbaru City Government, Indonesia.

Findings

The results show that budget participation positively affects financial statement fraud and e-budgeting adoption. E-budgeting adoption also positively influences ethical climate. However, ethical climate does not significantly affect financial statement fraud and fails to mediate the relationship between e-budgeting adoption and financial statement fraud. Conversely, e-budgeting adoption successfully mediates the relationship between budget participation and ethical climate.

Research limitations/implications

This study is limited to a specific local government context and employs a cross-sectional design. Future research is encouraged to include broader institutional contexts and additional governance variables.

Practical implications

The findings highlight the importance of strengthening internal control systems, optimizing e-budgeting implementation, and improving organizational integrity to reduce fraud risk in local governments.

Originality/value

This study extends Agency Theory and Fraud Hexagon Theory by integrating budget participation, digital governance, and ethical climate into a single framework to explain financial statement fraud in the public sector.