METHODOLOGY RELEVANT REGULATIONS INTRODUCTION

A S S E S S M E N T O F H O S T C O U N T R Y F I N A N C I A L S Y S T E M I N M A N A G I N G F O R E I G N G R A N T 16 actually managed this process for years and revisiting it is considered necessary to assess the associated timeframes and any accompanying complications. The inancial reporting mechanism used at the lowest units of government or non-government organizations will be assessed, and comparison made between the existing relevant regulations and actual performance. This aims to determine the exact timeframe required to complete, and contents of, reports produced as part of the government periodic reporting system. Samples will be taken to ensure that the quality of information submitted is suficient. Monitoring and evaluation activities with regard to government-funded programs will be assessed for effectiveness through an examination of available reports and documents, this will include related follow-up activities. Monitoring and evaluation methodologies and tools will also be assessed to see whether any additional approaches can be adopted. Auditing and oversight processes include both the internal and external auditing of government- funded activities, including those implemented at the district level. The inancial auditing system will be visited to evaluate the adequacy of its technical aspects. This will include an analysis of audit report samples, along with an assessment of auditor competency and supervisory mechanisms. Performance auditing is conducted with regard to activities funded by the annual government budget. This component of the auditing program along with related reports will be analyzed to assess the suficiency of technical aspects. Follow-up of results will also be focused on as a critical element in the auditing process. Finally, conclusions will be made on the adequacy of existing government inancial and performance auditing practices and whether additional auditing is needed.

B. METHODOLOGY

In the initial stages, this assessment was conducted as a desktop study, which was then followed by interviews with related oficials. Afterwards, a series of structured interviews were undertaken with oficials related to the topics in question, followed up by further research with reference to relevant written material. This assessment involved key personneloficials from the MMAF, including: the Directorate of Areas and Fish Species Conservation Directorate of KKJI; the Secretariat Ofice of the Directorate General of Marine, Coastal, and Small Islands KP3K; the Finance Bureau; and the Inspectorate General. Personneloficials from the Ministry of Finance interviewed included those from the Directorate of Budgeting Systems and the Directorate of Loans and Grants, while personneloficials from the Financial and Development Supervisory Agency BPKP included those from the Directorate of Foreign Loan and Grant Surveillance. A S S E S S M E N T O F H O S T C O U N T R Y F I N A N C I A L S Y S T E M I N M A N A G I N G F O R E I G N G R A N T 17

C. RELEVANT REGULATIONS

There are a variety of regulations relevant to the government inancial system and grants. They are as follows: 1. Law No. 25 of 2004 on the National Development Planning System. This law sets out development planning procedures, including the production of long-term, mid-term, and annual development plans for implementation by national and local levels of government with the involvement of the community. 2. Law No. 17 of 2003 on State Finance. This contains the deinition of state inance, and asserts the President’s authority over the management of state inancial matters, including the preparation and decreeing of the statelocal government budgets. It also provides direction on the inancial relationship between national and local levels of government, the implementation of the statelocal government budget, and accountability with regard to state inancial management. 3. Government Regulation No. 10 of 2011 on Procedures for the Procurement of Foreign Loans and Receipt of Grants. This sets out, among other matters, the receipt of grants through two alternatives planned and direct, through trust funds and through foreign grants that can be lent or forwarded on to local governments, or lent to State-Owned Enterprises BUMN. 4. Government Regulation No. 2 of 2012 on Grants to Local Governments. This emphasizes, among other matters, that foreign grants to local government should be chanelled through the national government via a grant-forwarding mechanism. 5. Government Regulation No. 90 of 2010 on the Preparation of MinistryGovernment Agency Work and Budgets Plans RKA-KL. This sets out the processes and timeframes for the preparation of RKA-KLs within the framework for the development of the Draft State Budget RAPBN. 6. Presidential Decree No. 80 of 2011 on Trust Funds. This regulates the mechanism for the chaneling of grants through trust funds established by a ministry through a ministerial work unit. 7. State Minister for National Development PlanningHead of the National Development Planning Agency Regulation No. 4 of 2011 on Procedures for Planning, Proposal Submission and Assessment, and Monitoring and Evaluation of Activities Funded by Foreign Loans and Grants. This sets out processes with regard to planning, proposal submission and evaluation, monitoring and evaluation, and performance reporting in relation to the implementation of activities funded by foreign loans and grants. A S S E S S M E N T O F H O S T C O U N T R Y F I N A N C I A L S Y S T E M I N M A N A G I N G F O R E I G N G R A N T 18 8. Minister of Finance Regulation No. 191PMK.052011 on Grant Management Mechanisms. This regulates the procedures for verifying direct grants received by the government, both in the form of cash and goodsservices. 9. Minister of Finance Regulation No. 230PMK.052011 on the Grant Accounting System. This sets out accounting procedures with regard to grant income and expenditure. It appoints: the Directorate General of Debt Management DJPU as the supporting accounting unit for the State General Treasurer for managing grants; the Directorate of Accounting Evaluation and Settlement as the accounting unit for the Proxy Budget User - State General Treasurer KPA-BUN for grant income and expense transactions; and the Directorate General of Fiscal Balance as the Proxy Budget User Accounting Unit - State General Treasurer UAKPA- BUN for grant expenditure transactions to local governments. 10. Minister of Finance Regulation No. 151PMK.052011 on the Procedures for Foreign Loan andor Grant Withdrawal. This sets out the ive methods for withdrawing foreign grants planned grants. 11. Minister of Finance Regulation No. 169PMK.052011 on the Procedures for Forwarding Grants to Local Governments. This appoints the Director General of Fiscal Balance as the Proxy Budget User KPA for the provision of grants to local governments, the preparation and validation of the Annual Budget Allocation Document DIPA, and the channeling of grants to local governments. 12. Director General of Treasury Regulation No. 81Pb2011 on the Procedures for Validating Direct Grants in the Form of Cash and for the Submission of Records on Direct Grants in the Form of GoodsServicesSecurities. This regulates the forms used for direct grants of cash, goods, services andor securities. Based on the above list of laws and regulations, a grant is deined as government income in the form of cash, goods, services andor securities provided by a donor that does not need to be repaid, and that can derive from a domestic or foreign source. The government can directly beneit from such grants through their allocation as support for the basic tasks and functions of ministriesgovernment agencies, or can forward them on to local governments, State-Owned Enterprises BUMN, and Local Government-Owned Enterprises BUMD. In brief, grants can be classiied into two major types: 1. Planned grants 2. Direct grants A planned-grant is a grant that is obtained through the planning mechanism. This process requires the submission of activities to be funded by a grant, their inclusion in Bappenas’ Planned Activities for Grant Funding List DRKH, the signing of the grant, its inclusion in the State Budget APBN and related budget documents including grant registration, funds disbursement through the A S S E S S M E N T O F H O S T C O U N T R Y F I N A N C I A L S Y S T E M I N M A N A G I N G F O R E I G N G R A N T 19 Planned grants include according to Article 48, Paragraph 2 of Regulation No. 10 of 2011: 1. A grant provided as a precursor andor a counterpart to a loan 2. A grant that has been listed in a planning document mutually agreed upon by the government and the donor 3. A grant requiring a counterpart fund 4. A grant implemented by non-government organizations through the government 5. A grant provided under a cooperation scheme between agencies and foreign donors, such as a sister city From the explanation provided above, it is clear that planned grants are accommodated in the government inancial system. However, USAID cannot provide these types of grants directly to the Government of Indonesia, therefore it assigns contractors, either companies or non-proit organizations, for implementation purposes. The marine conservation project the Coral Reef Rehabiliation and Management Program COREMAP is one example of a planned grant that was part of the government inancial system, including its procurement of goods and services activities. In contrast, a direct grant is a grant that is received directly and does not pass through the planning cycle, nor does it follow the state budget cycle. These grants can be provided by a donor to ministriesgovernment agencies any time and their funds are not disbursed via the State Treasury Service Ofice KPPN. A grant that is included in the planning process, but is not disbursed via the KPPN, is also categorized as a direct grant. In order for the process of grant receipt and use by a ministrygovernment agency to align with the State Budget APBN mechanism, the ministrygovernment agency is required to register the grant, request permission to open an account, revise the Annual Budget Allocation Document DIPA, and then validate it. Direct grants include according to Article 48, Paragraph 3, Government Regulation No. 10 of 2011: 1. A grant for the management of natural disasters, non-natural disasters, and social disasters 2. A grant under technical cooperation between a ministrygovernment agency and foreign donors for such things as workshops, training and seminars 3. A grant submitted directly to a ministrygovernment agency on the request of the donor Both types of grants are currently implemented in the government inancial system. The differences between planned grants and direct grants are provided in the table overleaf: A S S E S S M E N T O F H O S T C O U N T R Y F I N A N C I A L S Y S T E M I N M A N A G I N G F O R E I G N G R A N T 20 No Description Planned Grants Direct Grants 1 Grant Agreement Signing Minister of Finance or the as- signed oficial Minister leader or oficial grantees designated 2 Type of grants Moneys Money, goods services, letter valuable 3 Grant disbursement - Through KPPN on treasury - Cannot be disbursed before DIPA or RKAKL is endorsed - Can be disbursed upon ap- proval of account opening - Not through KPPN off treasury - Can be disbursed before DIPA or RKA-KL is en- dorsed - Can be disbursed before approval of account opening 4 Follow planning mecha- nism Yes No. For Grant which follows planning mechanism, but its disbursement is not through KPPN grouped into this grant type 5 Goodsservices procure- ment Ministryagency receiving grant using government procure- ment mechanism Ministryagency receiving grant 6 Time required from initia- tion to implementation Longer Shorter 7 Accountability Higher, registered in Central Government Financial Report LKPP and conforming to government price standard Lower, registered at LKPP, price standard used may be from either donor or government Table 1: Differences between Planned Grants and Direct Grants A S S E S S M E N T O F H O S T C O U N T R Y F I N A N C I A L S Y S T E M I N M A N A G I N G F O R E I G N G R A N T 21 Development planning is mandated by Law No. 25 of 2004 on the National Development Planning System. National development plans consist of Long-Term Development Plans RPJP 20 years, Mid-Term Development Plans RPJM 5 years, and Annual Development Plans or Government Work Plans RKP. These consist of an integrated development plan prepared by ministriesgovernment agencies and local governments. The RPJM and RKP will be referred to in the preparation of ministrygovernment agency strategic plans and work plans. Likewise, local government will also refer to both documents for activities performed through Local Government Work Units SKPD. The ‘RPJM II’ aims to stabilize the restructuring of Indonesia in all ields through emphasizing efforts to improve the quality of human resources, including providing capacity building in the ields of science and technology, and through the strengthening of economic competitiveness.

CHAPTER II PLANNING