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The Implementation of E-procurement System: Indonesia Evidence

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Indonesia has implemented e-procurement system to struggle fraud in the procurement process. The purpose of this research is to examine e-procurement in a relationship for reducing fraud. This research uses quantitative approach by distributing questionnaires to 159 employees, 100 usable. The main finding suggests e-procurement system has a positive relationship and significant to fraud prevention that emerging expectation to eradicate fraud in the procurement process. The research gives a knowledge to the government to use e-procurement in all of procurement processes in order to prevent fraud.
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The Implementation of E-procurement System:
Indonesia Evidence
Aditya Pandu Wicaksono1,*, Dekar Urumsah1, and Faishal Asmui1
1Accounting Program, Faculty of Economics, Universitas Islam Indonesia, Yogyakarta
Abstract. Indonesia has implemented e-procurement system to
struggle fraud in the procurement process. The purpose of this
research is to examine e-procurement in a relationship for reducing
fraud. This research uses quantitative approach by distributing
questionnaires to 159 employees, 100 usable. The main finding
suggests e-procurement system has a positive relationship and
significant to fraud prevention that emerging expectation to
eradicate fraud in the procurement process. The research gives a
knowledge to the government to use e-procurement in all of
procurement processes in order to prevent fraud.
Keywords: fraud, e-procurement, Indonesia.
1 Introduction
Information technology has changed rapidly institution’s behavior in buying and selling the
goods and services. In the digital era, the Indonesian government has adopted technology
for many purposes including procurement process. E-procurement is an online system that
can streamline the procurement process [1]. The potential benefits of e-procurement are
greater transparency and improve accountability [2] and reducing corruption risks [3]. The
Indonesian government in 2008 has created INAPROC (Indonesia Procurement), a national
e-procurement system to procure and deliver goods and services electronically [4]. Then,
Presidential Regulation No 54/2010 has been issued to regulate procurement processes are
executed electronically. The purposes are to improve effectiveness, transparency,
accountability, and the procurement process can be accessed by stakeholders.
However, the fact in Indonesian public sector, many cases of corruption have taken
place in the procurement process. According to Indonesia Corruption Watch (ICW), in
2015, Indonesia suffered Rp. 3.107 trillion (US$ 230 million) loss caused corruption in
procurement process [5]. The Corruption Eradicate Commission (KPK) reports corruption
in procurement is the second largest type of corruption in Indonesia [6]. Indonesia
government focuses on combating corruption in the procurement process. Presidential
Instruction No 7 Year 2015 has issued to prevent corruption in all government levels.
* Corresponding author: aditya.pandu@uii.ac.id
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© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the
Creative
Commons Attribution
License 4.0 (http://creativecommons.org/licenses/by/4.0/).
Indonesia government wants to advance e-procurement system for better monitoring
procurement process. He reminds that building a good, effective, and comprehensive
system is important and help to be corruption prevention [7] .
Research has been conducted on Indonesian e-procurement. According to [8], the
implementation of e-procurement was visible but not accountable. It gives an opportunity to
conduct fraud such as corruption and bribery, because e-procurement system is not
implemented effectively. Therefore, internal audit and internal control are necessary to
complete the fraud prevention [9]. Internal audit is established to monitor the activities of
organization and to control irregularity actions. Internal control is ensuring the procurement
process is performed in compliance with statutes and regulations [10]. This paper is
organized with the following structure. The following part describes the literature review
and development of hypotheses. The next part contains research methodology, then
explains the results and research discussions. The last part is the conclusion, implication,
and future research suggestion.
2 Literature review and hypotheses development
2.1 Fraud and Prevention in Procurement
Fraud in public procurement is increasing especially in developing country including
Indonesia. As stated by Transparency International Report, Huge sum of money from
taxpayer’s are spent by governments to procuring goods and services with so much money
changing hands. Hence, government activities offer temptations and opportunity to fraud
[11]. Indonesia is ranked as one of the most corrupt countries in South East Asia with
corruption in public procurement as a serious problem. Procurement fraud is established by
perverting awarding public contract and tenders. At bidding process, the bidders have used
coercive power to win the process. The bidders can not submit bidding documents and be
ignored by public official because of bidder’s influence. According to [3], public official
and bidders involve directly or indirectly to create a monopoly power in procurement
process. According to KPK, ineffective budget and collusion emerge fraud in government
procurement process [12].
In order to tackle fraud in procurement, Indonesia government concern to governing
public procurement process which emphasize on transparency and accountability. Indonesia
has created procurement online system namely e-procurement to prevent collusion and
corruption in procurement process. E-procurement covers electronically bidding process
which provides real-time information for the bidders to check their status, approval, or
rejection reason. E-procurement system offers the clean procurement process which close
opportunity to collusion and corruption [13]. To complete procurement fraud prevention,
Indonesia government needs to increase surveillance at procurement process. Nowadays,
Lack of surveillance in procurement process has been easily used by corrupt public official
and outside parties.
2.2 E-procurement
Procurement is the acquisition of goods or services by an organization [1]. Prior to e-
procurement is implemented, the procurement process is executed traditionally. The
government and the vendors or suppliers can meet physically to deal for buying goods and
services. This condition has a weakness that emerge fraud occurs in the government. The
weakness can be used by vendors/suppliers to bribe the public official to select or appoint
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their company as a vendor that provide goods or services. It makes the procurement system
is not transparent and accountable [3].
The reformation on procurement system has been conducted after many cases of
procurement create fraud opportunities. The procurement process should be done
transparently and can be monitored. E-procurement is a new way to procure the goods and
services electronically. E-procurement is also described as a procurement automation
process which improves competition among the suppliers or providers. The implementation
of e-procurement can improve the effectiveness and efficiency over traditional process [4].
E-procurement is also implemented to reduce the opportunity of occurrence of fraud in
government area [3].
As regulated by Presidential Regulation No 54-2010, there are three types of electronic
procurement in Indonesia, they are e-tendering, e-catalog, and e-purchasing. E-tendering is
process to select suppliers, conducted transparently and all of the suppliers have a chance to
offer their goods and services via online. E-catalog is electronic information system which
contains information about the product in detail. E-purchasing is process to purchase goods
and services through e-catalog system. The procurement process is conducted through the
National Procurement Agency (LKPP) and supervised by National Development Planning
Board (Bappenas).
Research in procurement system finds that e-procurement system is the good way to
struggle fraud. As explained by [3], government must create and implement e-procurement
system to combat several fraud issues such as monopoly power of government and
information asymmetry. Transparency, accountability, and trust are the main issues. People
need to understand the cycle process how to procure goods and services in government
area. Lack of transparency and accountability create more opportunities for public official
and vendors to break the rule for corruption purposes. Through e-procurement system,
people understand the process and oversee procurement process to be free from fraud.
Specific for the bidders, they want a transparency in bidding process, fairness of
competition, fixed-price contract. E-procurement system provides electronically bidding
process known all the bidders which mean selecting the bidding winner is known all the
bidders. Therefore, the public official and vendors can not perform collusion in
procurement.
H1:E-procurement system is positively associated with fraud prevention of procurement.
2.3 Internal control and internal audit
Internal control can be described as policies and procedures established to provide
reasonable assurance that the specific entity objectives will be achieved [14]. Internal
control is expected to ensure integrity, accountability, and transparency in the procurement
process. Internal control is commonly regarded as a key deterrent of fraud [15]. The
effectiveness of internal control is always evaluated to ensure there is no hole or weakness
that can emerge fraud behavior [16]. Internal control should be suitable and compliance
with regulations and policies to combat fraud. In contrast, internal control weakness
provides an opportunity to commit fraud [14].
The Association of Certified Fraud Examiners (ACFE) in their report found that a lack
of internal control leads to fraud activities [17]. In this context, the government is mandated
to create an internal control that reduces the opportunity in the procurement process. Today,
the procurement process in Indonesia should be executed electronically under LKPP’s
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supervision. For the government, implementing e-procurement system help them to monitor
and control the quality of the procurement process. For the suppliers, they can monitor
bidding process online at anytime [4].
After the internal control works, Internal auditing should be held to ensure there is not
an unusual behavior. The role of internal auditing is to review the effectiveness of internal
control and to understand what the system works properly. Internal auditing has been used
to help all government areas execute their responsibility effectively with gives the objective
analysis, judgment, recommendation, and opinion associated with the works have been
reviewed. Internal auditing helps the government to prevent, detect, and investigate fraud in
the procurement process [18].
H2: Internal control is positively associated with fraud prevention of procurement.
H3: Internal auditing is positively associated with fraud prevention of procurement.
3 Research method
A quantitative apporach is conducted in this research. This research explores the potential
of e-procurement system, internal control, and internal auditing to reduce corruption in the
procurement process. A survey is used for collecting data using a questionnaire that
distributed to participants. To select the participants, a convenience sample design is
adopted. The participants are the employees of Electronic Procurement Agency (LPSE) and
Procurement Services Unit (ULP) at six districts in West Java, Indonesia. A total of 159
paper-based questionnaires were distributed, 100 returned and usable. The collected data
were analyzed by the smartPLS.
3.1 Measurement
This measurement scale in this research uses six-point Likert scale ranging from 1=
strongly disagree to 6= strongly agree to measure all the items. E-procurement variable is
measured by 3 item questions [19], while each of internal control [20], [21] and internal
auditing [22], [23] are measured by 4 item questions. Fraud prevention is measured by 5
items [24].
4 Results and discussion
4.1 The measurement model
The research model is tested through two steps: first, the validity and reliability of the
measurement model; second, the structural model for testing the hypotheses. Validity
requires average variance extracted (AVE) to be greater than 0.5 [25]. Reliability requires
internal composite reliability (ICR) to be greater than 0.7 [3]. The result of measurement
model is shown in Table 1 indicates that validity and reliability is met, which means all the
variables are different from each other and reliable to use in this research.
Table 1. AVE and ICR
AVE
ICR
EP
0.782
0.915
IC
0.644
0.879
IA
0.696
0.919
FP
0.609
0.885
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4.2 The structural model and test of hypotheses
The bootstrap method is used to test the hypotheses. Table 2 shows the results of path
coefficient and t-statistic. The critical t-value for two-tailed test is 1.96 (significance level =
10 percent) [3]. The results show that H1 and H3 are supported, while H2 is not supported.
The model research explains 31% of the fraud prevention, while 69% is explained by other
variables.
Table 2. Path coefficient and t-value
Hypotheses
Path
Path coefficient
t-value
H1
EP FP
0.242
2.118
H
2
IC FP
0.053
H
3
IA FP
0.374
4.3 Discussion
This research finds the implementation of e-procurement system will prevent and reduce
fraud or corruption in the procurement process. This result supports previous research by
[3],[4]. However, internal control do not influence to fraud prevention of procurement. This
finding is consistent with prior research by [14]. The research result also find that internal
audit has a positive impact to fraud prevention. This result is in line with [18] study.
Looking at website infrastructure, the electronic procurement systems such as e-
tendering, e-catalogue, and e-purchasing is ready at LKPP website (lkpp.go.id). These
systems support all procurement process starts from tendering process until purchasing
process conducted electronically. If these systems are consistently used, fraud in
procurement can be decreased. The procurement process can be transparently established in
bidding process such as selecting the winning bidder. However, classic problem in
developing countries, infrastructure in information technology in government area has a
gap between metropolitan and non-metropolitan city. Combating fraud through e-
procurement system need a strong infrastructure. According to [29], procurement reform in
Indonesia strong association with the geographical location and the wealth of a district.
Therefore, many districts especially on non-metropolitan take partial implementation of e-
procurement.
In addition, according to [4], decentralization policy has made procurement process less
much transparent. Abusing power will slowly eliminate the transparency and accountability
of e-procurement system. Essentially, e-procurement system should prevent and eradicate
vertical and horizontal collusion. Vertical collusion is an official action that selects vendor
because he or she has close relationship with the vendor. Public official abuses their power
to appoint a vendor because their relationship with vendor. Other reason, public official
may get personal benefit from vendor if vendor win the bidding process. Another collusion
type namely horizontal collusion is committed among vendors by ignoring objective
requirements and will be selected responsively to supply goods and services to government.
The deal has been reached among vendors to decide who to be supplier in one government
project.
According to [26], fraud still happens because of internal control weaknesses. Although
the bidding processes are conducted electronically, the winning bidder has been selected in
some cases for creating a benefit not only for individual but also organizational purposes.
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The decentralization policy may not unsuitable for developing country such as Indonesia
that has wide range of human resource capability. According to [4], In most of non-
metropolitan area there is a problem at government’s human resource that impede the
implementation of e-procurement system in Indonesia. The civil servants have not ability to
conduct procurement process through the technology. Indonesia government should aware
that civil servant in government are getting “shock” because the changes of procurement
process. To heal it, government creates a training program to improve civil servant’s skill
when faced with technology like e-procurement. In technology acceptance theory [28],
training is an important influence to ensure an information technology can be operated by
people. In this case, Bappenas with non-government institutions has held many training
programs to introduce a new system and train civil servant how to use e-procurement
system.
Although the government provide training program, the main challenge is the public
official does not have intention or willingness to be a procurement official. It is reasonable
if a civil servant rejects this position. First, to be procurement official, public official should
pass a very complicated exam to achieve certification of procurement official. Hence, much
public servant fail to pass the test and never be procurement official. It is will be very hard
if e-procurement system applied without a competent user to operate it. Now, appointing
procurement official does not consider their qualification and tend to be formality reason.
Without a competent procurement official, procurement process risks to be abused and
fraud committed. Second, procurement official position contains very high risk and
pressure with low incentives. This is the main reason why civil servant does not want to be.
Civil servant does not want to involve in fraud behavior. The temptation comes when
vendors have no doubt to give money or privilege in order to influence procurement official
to select their product. Then, if government official abusing their power to appoint a vendor
as bidding winner, procurement official does not have choice and reason to reject it. It is
why procurement official is not comfort position for civil servant. Actually, Indonesia
government require a lot of procurement official to carry out e-procurement in the right
track and fraud in procurement going down. Although e-procurement applied, with high
risk and pressure for procurement official may difficult to prevent fraud in procurement
process.
This research finds positively significant between internal auditing and fraud
prevention. This finding is supported by the Regulation of Minister of Home Affairs No. 71
Year 2015 that should be applied to enhance the surveillance all of the province and local
governments. The inspectorate has been mandated to supervise internal activities and speed
up the good government governance. The Inspectorate’s role should be maximized to
monitor and control procurement activities in order to prevent the occurrence of fraud. The
Inspectorate will complement the role of Bappenas for monitoring procurement process. In
other words, the procurement process need to be audited by the internal body. In fact,
internal audit does not prevent fraud procurement yet. It may be caused that internal audit
focuses on big amount of procurement transaction.
5 Conclusion
The implementation of e-procurement process empirically will prevent and reduce the
procurement fraud. But, the implementation of e-procurement in government areas is under
questions. The fact shows the procurement fraud is still high, seems like this system is
unemployed. Decentralization policy which to make a transparency procurement process is
not good choice. It contains a big risk because of additional power of official province or
local government to procure their own needs. Then, the decentralization emerges the
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flexible interpretations among government level which makes e-procurement
implementation is not effective. Central government need to rethinking its policy to
decrease fraud with decentralization. Indonesia may need to bring back centralized
procurement process with e-procurement system to complete the process. It is better than
give the freedom to province and local government to anticipate power abuse.
Human resource in government area do not support to execute e-procurement system. It
is not easy to appoint a competent user for this system. Higher risk, complicated
certification exam, and uncomfort position make the procurement official position not
interesting. It is becoming a challenge to get permanent officials in dealing with
procurement [4]. Then, the most important is to increase integrity of procurement official to
execute e-procurement process clear from fraud.
Internal control and internal auditing need to conduct in order to complete the
prevention of fraud. The Minister of Home Affairs aware the importance of monitoring
process in the province and local governments. Although applied in 2016, Regulation of
Minister of Home Affairs No. 71 Year 2015 is the one step ahead to enhance monitoring
and evaluating procurement process by the government.
5.1 Implication and future research suggestion
The result of this study has practical implications for the governments. E-procurement
system should be implemented in order to prevent the occurrence of fraud. But, the
government needs to ensure that the problems associated with implementation should be
solved first such as human resources and infrastructure. One urgent point of the central
government is to create legal regulation and official system to prevent multiple
interpretations among the province and or local government. This research also suggests to
enhancing monitoring process through internal control and auditing. This research future
suggestion recommends the future research to investigate the acceptance of technology at
province and or local Indonesian government. This is important to measure readiness of
province and or local government to use technology like e-procurement. In Indonesia
phenomena, the adoption of technology strong associated with geographical area and
district characteristic.
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Purpose – The purpose of this study is to develop a novel approach to e-participation, which is based on “passive crowdsourcing” by government agencies, exploiting the extensive political content continuously created in numerous Web 2.0 social media (e.g. political blogs and microblogs, news sharing sites and online forums) by citizens without government stimulation, to understand better their needs, issues, opinions, proposals and arguments concerning a particular domain of government activity or public policy. Design/methodology/approach – This approach is developed and elaborated through cooperation with potential users experienced in the design of public policies from three countries (Austria, Greece and the UK), using a combination of quantitative and qualitative techniques: co-operative development of application scenarios, questionnaire surveys, focus groups and workshops and, finally, in-depth interviews. Findings – A process model for the application of the proposed passive crowdsourcing approach has been developed, which is quite different from the one of the usual active crowdsourcing. Based on it, the functional architecture of the required supporting information and communication technologies (ICT) infrastructure has been formulated, and then its technological architecture has been designed, addressing the conflicting requirements: low response time and, at the same time, provision of sufficiently “fresh” content for policymakers. Practical implications – Taking into account that traditionally government agencies monitor what the press writes about them, our research provides a basis for extending efficiently these activities in the new electronic media world (e.g. newspapers websites, blogs and microblogs, online forums, etc.) to understand better the needs, issues, opinions, arguments and proposals raised by the society with respect to important domains of government activity and public policies. Social implications – The proposed approach provides a new channel for the “voice” of the society to be directly communicated to the government so that the latter can design its policies and activities based on the social needs and realities and not on oversimplified models and stereotypes. Originality/value – Our paper proposes a novel approach to e-participation, which exploits the Web 2.0 social media – but in a quite different way from previous approaches – for conducting “passive crowdsourcing”, and elaborates it: it develops an application process model for it and also an ICT infrastructure for supporting it, which are quite different from the ones of the existing “active crowdsourcing” approaches.
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ABSTRACT Prior research has provided valuable insights into how and why employees make a decision about the adoption and use of information technologies (ITs) in the workplace. From an organizational point of view, however, the more important issue is how managers make informed decisions about interventions that can lead to greater acceptance and effective utilization of IT. There is limited research in the IT implementation literature that deals with the role of interventions to aid such managerial decision making. Particularly, there is a need to understand how various interventions can influence the known determinants of IT adoption and use. To address this gap in the literature, we draw from the vast body of research on the technology acceptance model (TAM), particularly the work on the determinants of perceived usefulness and perceived ease of use, and: (i) develop a comprehensive nomological network (integrated model) of the determinants of individual level (IT) adoption and use; (ii) empirically test the proposed integrated model; and (iii) present a research agenda focused on potential pre- and postimplementation interventions that can enhance employees' adoption and use of IT. Our findings and research agenda have important implications for managerial decision making on IT implementation in organizations.
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The statistical tests used in the analysis of structural equation models with unobservable variables and measurement error are examined. A drawback of the commonly applied chi square test, in addition to the known problems related to sample size and power, is that it may indicate an increasing correspondence between the hypothesized model and the observed data as both the measurement properties and the relationship between constructs decline. Further, and contrary to common assertion, the risk of making a Type II error can be substantial even when the sample size is large. Moreover, the present testing methods are unable to assess a model's explanatory power. To overcome these problems, the authors develop and apply a testing system based on measures of shared variance within the structural model, measurement model, and overall model.
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Purpose The purpose of this study is to examine the type of internal control weaknesses and its impact that leads to fraud activities in an oil and gas company, which is rarely found in empirical research. Design/methodology/approach A case study approach was taken to investigate and analyse the fraud incidents to the deepest understanding. A mixed method of data collection, specifically document analysis and interviews, was used. Findings The study found that internal control weaknesses can be major contributing factors for fraud to be committed. Poor supervision and improper documentation process provide opportunity to misappropriate the assets, worst off if it includes several people that cooperate to conduct those illegal malpractices. Research limitations/implications The results provide further confirmation of the fraud triangle theory on the causes of the fraud, i.e. opportunity because of weak internal control. It also validates with many prior studies conducted by global professional firms such as KPMG, PricewaterhouseCoopers and Association of Certified Fraud Examiners on fraud and its related causes and implications. This study, however, was conducted on only one company with limited number of interviews. Practical implications This study provides some recommendations to improve weak internal control, which in turn will reduce opportunities of fraud committed in the company. Originality/value This study is original, as it focuses on a company that operates in the highly specialized industry, i.e. oil and gas, which is rare in fraud literature, particularly in developing markets such as Malaysia. It has examined various documents and reports of employee fraud that are generally difficult to be accessed by researchers to be finally published in an academic journal. The findings of this study are inferred from direct access of company documents that are private and confidential.
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Purpose ‐ E-government procurement (E-GP) can improve the traditional government procurement process. E-GP can help decrease corruption. This research aims to present the factors of E-GP that can create good governance in government procurement through e-auction. Design/methodology/approach ‐ A survey was conducted with Thai public managers who are involved in e-government procurement. The sample size is 169 professionals representing 67 government agencies. Findings ‐ There are five factors that enhance governance procurement. These relate to the transparent e-procurement process, committed public managers and political officials, honest vendors, and specific policies and regulations. A transparent e-procurement process has a positive effect on good governance practice, increasing cost effectiveness and accountability, and decreasing collusion among vendors. Vendor honesty has a negative impact on collusion. Supportive policy and regulations requirements improve cost effectiveness, accountability, and law enforcement. Practical implications ‐ E-GP is not a guarantor of enhanced governance and reduced corruption. It requires a dedicated commitment to strong rule enforcement and penalties to achieve successful implementation of e-government procurement. Originality/value ‐ Using a wide range of government agencies, the research addresses the best practices e-government procurement governance and the benefits of good governance in terms of cost effectiveness, accountability, collusion reduction, and stringent law enforcement.
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Purpose – The purpose of this paper is to report on research that evaluates the perceived willingness of potential bidders to adopt public e-procurement for the supply of goods and services to the government of Nepal. The authors have identified anti-corruption attributes through an extensive literature review and developed a theoretical model representing the impact of four latent variables, monopoly of power, information asymmetry, trust and transparency and accountability on the dependent variable, the intent-to-adopt e-procurement (ITA). Design/methodology/approach – Data for this research were obtained by the use of a questionnaire survey of bidders who were officially registered with the Government of Nepal. As part of the fieldwork for this research, the first author collected the perceptions of 220 bidders regarding the potential of public e-procurement to reduce corruption in public procurement processes. Findings – The findings suggest that a high level of the ITA has a positive and significant relationship with the independent variables that might inform the developed and emerging countries to make a decision to adoption of e-procurement to combat corruption in public procurement. Research limitations/implications – This study has some limitations that should be taken into consideration. The evaluation of anti-corruption factors, as they affect the willingness of users to adopt e-procurement on the bidder’s perception research model is relatively new to e-procurement research. A limitation of the research was that it gathered and analyzed data from a single country with a limited number of respondents. More research is needed to identify the anti-corruption factors of e-procurement in reducing corruption, and also need strong empirical test to valid the factors that influence the adoption of e-procurement. Originality/value – This study aimed to contribute to the academic scholar, government agencies and public procurement practitioner in enhancing their understanding of the perceived anti-corruption factors of public e-procurement to reduce corruption.