Survey Results and Comments on the Objectivity and Credibility of Audit

4.3.2 Survey Results and Comments on the Objectivity and Credibility of Audit

Reports

The survey on the objectivity and credibility of BPK audit reports resulted in various perceptions that are described in the following sections.

Positive Results and Comments

Figure 4.3 (below) presents respondentperceptions regarding the objectivity of information in BPK audit reports. There were significant positive responses from respondents regarding the objectivity of information provided by BPK in audit reports. Overall, sixty-two per cent of the respondents agreed the information was objective, while among the auditor group, 80 per cent of the 78 BPK auditors responded positively.

Figure 4.3 Survey Results of ‘Information in BPK Audit Reports is Objective (Using Appropriate Audit Techniques and Professional Judgment)’

s ntage

0 0 1 1 0 1 Strongly Agree

Strongly Disagree

Pe rce ptions

Auditors

Auditees

Members of Parliament

Overall responses

Source: Fieldwork survey from 5 th November 2006 to 25 th March 2007 in Indonesia

For Legislative Members, 64 per cent ‗agreed‘, while from the total of 55 auditees,

70 per cent ‗agreed‘ and 12 per cent ‗strongly agreed‘. The responses from the Legislature Members are spread only between two categories, 64 per cent ‗agree‘ and 36 per cent had

a ‗neutral‘ perception. These two variations of perception among the Members of the Legislature may be because they come from different commissions and have a different experience regarding the objectivity of BPK audit reports. The overall positive response from auditors reflects significant optimism that they can uphold their objectivity as they feel secure to uncover the audit findings and have protected by laws and regulations. This means that auditors can readily deal with sensitive issues faced in their findings and can a ‗neutral‘ perception. These two variations of perception among the Members of the Legislature may be because they come from different commissions and have a different experience regarding the objectivity of BPK audit reports. The overall positive response from auditors reflects significant optimism that they can uphold their objectivity as they feel secure to uncover the audit findings and have protected by laws and regulations. This means that auditors can readily deal with sensitive issues faced in their findings and can

From my own perspective and experience as an auditor, so far, the audit report of BPK is sufficiently objective. There is no problem in this matter. In the rare event that some matters could be said to be lack of objectivity, these would have been dropped only if the reasons were strong. Even if a matter has to be dropped we have strong reasons. For example, after a discussion with the audit team, we have decided that this situation just arose from a misunderstanding. But I have heard from another AKN (the group of state finances auditors) that its audit findings are no longer available following their arrival at the top of an institution. But this situation has been changed gradually, especially, since the fall of President Soeharto in 1998.

This excerpt indicates optimism that auditors have been able to maintain their objectivity since the reform of BPK and the new commitment to uphold transparency and accountability to the public in this Reformation Era that is very different from the authoritarian government in the past.

Moreover, a positive response also came from acentral government auditee who said:

In the New Order Era, after BPK reported the audit findings, these reports became confidential documents. So, the public could not evaluate objectively the audit findings that were reported to DPR (Parliament). In contrast, since the audit reform, BPK is braver to uncovercorruption practice, mark-ups and misuse of state finances. We can read these reports every semester. These reports are also reported to DPR or

we can read in the printed media or in BPK‘s website. This statement indicates significant optimism that the provision of objective information in

audit reports is improving. After reform, media publications and public participation have supported BPK in its efforts to uncoverKKN (collusion, corruption and nepotism), which had long been rooted in the Indonesian bureaucracy.

Figure 4.4 Survey Results of ‘Information in BPK Audit Reports is Credible (Trusted by S takeholders)’

s ntage rce

Strongly Agree

Strongly Disagree

Pe rce ptions

Auditors

Auditees

Members of Parliament

Overall responses

Source: Fieldwork survey from 5 th November 2006 to 25 th March 2007 in Indonesia.

Figure 4.4 (above) presents responses regarding the question about the credibility of information in BPK audit reports. The respondents, consisting of auditors, auditees from central and local governments and Members of the Legislature, mostly responded positively.

The LegislatureMembers from the different commissions responded in a narrower median range that the other groups as their perceptions were only in two categories, ‗agree‘ and ‗neutral‘. Seventy per cent of them responded positively. Dr. Harry Azhar Aziz 49 , argued that the effective implementation of the Audit Law (GOI 2004b) and the

Law on BPK (GOI 2006b), which stipulates the responsibilities of auditors and auditees in providing credible information, is important. He stated:

Basic Reformation on the management and accountability of state finances system started from the arrangement and implementation of the law framework. Complete Laws consist of three laws on state finances plus the Law on BPK (2006) can provide transparency in management and accountability of state finances. However,

experience proved that ‗the devil is in the implementation.‘ Consequently, it is relevant for us to ask: How far had we collectively implemented these laws for the same goals to provide good government and governance in Indonesia?

49 Dr. Aziz, a Member of Parliament from Commission XI (Finance, Banking and Development Planning) and his statement was made during a presentation at the One Day Seminar on Public Sector Auditing to

commemorate the 60th Anniversary of BPK in Jakarta on 9 th January 2007.

This excerpt sends a message about the importance of implementing the laws on state finance and the Law on BPK. Dr. Aziz argued the trustworthiness of the audit process and subsequent audit reports depends on how effectively the audit laws are implemented.

Eighty-five per cent of auditors responded positively, agreeing that information in BPK audit reports is credible. BPK reforms in its regulations, institution, management, personnel, and audit quality standards provoked optimism from respondents about the credibility of audit reports. A high official of BPK argued as follows:

We have new state finance auditing standards this year as tools for measuring the quality of BPK audit reports. Starting from 2007, BPK‘s quality of auditing will be reviewed by SAI from other countries; is audited by an independent KAP; is

assessed by peer review; and is controlled by the Honorary Board of Code of Ethics to assure credibility of information in BPK audit reports.

This quotation presents another view that other institutions and independent reviewers also evaluate BPK‘s credibility. For examining its financial accountability, BPK is audited by

KAP. In terms of the quality of audit reports, they are peer reviewed by another SAI. In addition, a Member of Parliament believed that the new regulations and audit standard scan support BPK in providing credible information in its audit reports.

Respondents fro m the auditees‘ group responded positively with 70 per cent ‗agreeing‘ and 10 per cent ‗strongly agreeing‘ that BPK provided credible information in

audit reports. A high official and internal auditor of a state-owned enterprise (Interview A1) supported this view as follows:

BPK had a better performance after the audit reform, which gradually becomes more mature and experienced in auditing. BPK auditors know the problems better and deeper. As a result, the auditing systems and materials provide more focused and sharper findings. This condition helps us to provide corrections based on BPK audit reports.

This statement indicates optimism and confidence regarding the performance of BPK. The informant also found that BPK auditors were competent in identifying the problems of public sector agencies and in analysing the findings for providing opinions and recommendations for improved public administration.

In addition, a Member of Parliament from Commission I (Interview C4) provided a positive response about the objectivity and credibility of BPK reports as follows:

Since the audit reform in 2001, BPK has shown a lot of progress and more power to reform the government auditing system, including willingness to be an independent audit institution free from outside influences. Further, BPK has shown its power as an audit institution. If the performance of BPK was unsatisfactory, DPR warned BPK. Consequently, BPK had to maintain its performance in providing credible and objective audit reports.

This statement implies that the Member of Parliament respects some of BPK‘s efforts to reform its institution in performing their audit roles and functions, including reforms in providing credible and objective audit reports. The Parliament Member s appreciated the desire of BPK to be objective and credible and to audit without political or other interference.

Negative Results and Comments

Besides the positive responses, this study also revealed a few negative responses on the objectivity of information in BPK reports. From the total respondents, 14 per cent were ‗neutral‘, 6 per cent ‗disagreed‘ and 1 per cent ‗strongly disagreed. From the auditor group,

13 per cent were ‗neutral‘ and 6 per cent ‗disagreed‘. Auditors who audited local government complained that they had problems in reporting objectively due to pressurefrom the Regent (the head of a district) or the Mayor (the head of a city) who may have been involved in KKN and fraud (Interview B21, an auditor of AKN IV). This 13 per cent were ‗neutral‘ and 6 per cent ‗disagreed‘. Auditors who audited local government complained that they had problems in reporting objectively due to pressurefrom the Regent (the head of a district) or the Mayor (the head of a city) who may have been involved in KKN and fraud (Interview B21, an auditor of AKN IV). This

 “The objectivity of BPK audit reports depended on the objectivity of the auditors

themselves. In some cases, the auditors could not conduct the audit fully objectively ” (Interview B 20).

 “Institutionally, BPK was an independent institution, but not personally. The auditors did try hard to be objective. Yet, there were some limitations that affected them and consequently objectivity was limited ” (Interview B16, an auditor of AKN II).

The first statement indicates that the objectivity of reports can depend on the auditors personally, in other words it ismuch related to the professionalism and integrity of those conducting the audit. The second excerpt indicates that objectivity in reports not only depends on the auditors, but also the often strong influence presented by auditees and audit offices.

In addition, during the interview, some auditors expressed their feelings of insecurity when they should disclose bad or poor findings from their auditees who come from the local governments in the audit reports (Interview B21, an auditor of AKN IV).This indicated a lack of clear guidance to protect auditors when they objectively uncovered bad practices and poor performance by the government. Besides, there is a lack of immunity and protection for auditors who uncover criminality, corruptionand fraud, and this has affected the objectivity of auditors in providing audit information.

Two auditors revealed impartial views by BPK auditors who audited the central government and which affected objective information being presented in their audit reports:

 “The BPK audit reports were sometimes not objective, because auditors were neither independent nor objective. ”(Interview B15, an auditor of AKN III)  “A few auditors had a political relationship with auditees.” (Interview B23, an

auditor of AKN V) These two statements indicate that auditors cannot provide objective information in the

reports because their independence was compromised by the influence of auditees and political parties.

Moreover, an auditor of the Ministry of National Education raised the issue that audit reports have been altered and were not based on real facts:

Some audit reports did not provide objective information, because they had been altered. The objectivity of the audit report depends on who are the auditors and the auditees, however, there were a few audit reports that were influenced by outsiders (Interview B14).

Similarly, a BPK high official explained the practice of altering reports during the New Order Era 50 :

BPK and other high state institutions, including Parliament , was only a ‗rubber stamp‘ for the government. Before being submitted to Parliament, BPK audit reports were sent to the government office, in this case the State Secretary‘s office, to be altered. If these reports could influence national stability, the issues raised could not

be mentioned in BPK‘s reports. That was the practice in the New Order Era. These two excerpts explain that BPK audit reports were altered which indicates that the

reports were not objective. In the past, audit findings from BPK that had potential influence on national stability were altered by the State Secretary office before they were

50 This is presentation from one high official of BPK for visiting economic faculty students of Gajah Mada University to BPK in the Pola Room of BPK office, Jakarta.

submitted to Parliament. BPK was not free of influence from the Indonesian government. Although this practice is much reduced compared with the past, it seems that BPK still alters some reports. An auditor who audited the Ministry of the Defence of the Republic of Indonesia revealed this, describing a situation where audit findingsdisappeared after they arrived at the top management level of BPK and before they were published (Interview B13, an auditor of AKN I):

I conducted an audit of the Ministry of the National Army. As an auditor, I did my best to provide an objective auditing report based on the real conditions. Then, I reported my audit findings and discussed them with my audit team. This audit report had to be signed and approved by a supervisor of the audit team, the Chief Auditor of State finances and a Board Member of BPK before it was published or was sent to the audited entity and Parliament. However, we found that some of these findings that were quite sensitive and may influence the performance of this Ministry for the public did not appear in the audit report. I think the Board Members of BPK were not brave enough to publish these findings. So, the objectivity of the audit report in my case also depends on the Board Members.

This statement implies that after audit reform in 2001, some BPK audit reports were still being altered by the Board Members of BPK, for example, as in the case of audited entities strongly involved with aspects of security and national stability, such as at the Ministry of Defence, the Air Force, the Navy and the Police. The reason for altering these audit findings is likely due to concerns of public security and safety or other political reasons. However, a high official of BPK from AKN I (Interview B12) argued that the information was not publicly disclosed does not necessarily mean the reports lacked objectivity. He (Interview B12) explained that the unpublished findings in this case were due to the Board Members of BPK choosing not to make the poor performance of the Ministry open to the public.

From the auditees‘ group, 11 per centindicated ‗neutrality‘, 6 per cent ‗disagreement‘ and 1 per cent ‗strong disagreement‘ regarding the objectivity of information in audit reports. The most frequently expressed concerns were about the lack of objectivity of information in the reports due to questions or doubts about auditor impartiality. There was skepticism among auditees as indicated by the following negative

views 51 :

 “The auditors are normal humans so they cannot be free from pressure” (Interview A14).  “Sometimes, BPK auditors were influenced by other parties or were not conducting auditing in an objective manner’ (Interview A13).  “There were self-interest factors influencing auditing” (Interview A16).  “The audit reports were not fully objective, because BPK was not a fully

independent institution” (Interview A4). These comments indicate subjectivity in BPK reports due to a lack of auditor

independence created by influence from auditees, political parties, or self interest and a lack of support from the audit office. Similarly, auditees at the local level also criticized

the objectivity of information in BPK audit reports 52 :

 “Not all the BPK audit reports contained the truth” (Interview A20, with an

auditee from Local Government of Bandung City).  “The auditors were not independent or objective, I hope this will end and will not happen in the future ” (Interview A25, with an auditee from Local Government of

Jambi Province 53 ).

These statements indicate that local government auditees have found bias and a lack of objective information in BPK audit reports.. They expected more objective information in the report.

51 This is based on short interviews with auditors during the fieldwork survey from 5 th November 2006 to 26 th March 2007 in Jakarta regional office of BPK and Bandung regional office of BPK, Indonesia.

52 This is based on interviews and comments from respondents during the fieldwork survey 5 th November 2006 to 26 th March 2007 in Jakarta and Bandung.

53 As also a postgraduate student of STIA LAN Bandung.

Parliament Members come from different Commissions also flagged the lack of objectivity in BPK audit reports:

 ‘The BPK audit reports were not objective, because they were not based on real facts or real conditions ” (Interview C3, from Commission VI).  “Some audit reports were objective but some were still questionable, such as the audit reports of BPPN ” (Interview C7, from Commission XI).  “Auditors and auditees of BPK had a principle of a ‘win-win’ solution” (Interview C2, with Commission VII).  “The objectivity of audit reports was only in terms of auditing procedures and

the financial system, but not in terms of the report contents ” (Interview C9, with a Member of Kuningan regional Parliament, Commission C).  “There were still some auditors who were not independent and objective, because they accepted bribe s” (Interview C10, with a Member of West Java Province Regional Parliament).

These statements indicate that auditees found BPK auditors do not perform objectively. There is also such a sense of pessimism from auditees toward objectivity of BPK report because there are easily bribed. Besides, practice of negotiation also common, that resulting in the audit reports of BPK do not show the actual audit findings. Although the negative and neutral responses from Members of the Legislature interviewed were not statistically significant, the negative views expressed by Parliament Members of the different commissions and groups of political parties were considered.

In terms of the credibility of information in audit reports, from the survey results12 per cent of auditors were ‗neutral‘ and 3 per cent ‗disagreed‘. Thirty-six per cent of the Members of the Legislature had a ‗neutral‘ response; and 11 per cent, 8 per cent and 1 per cent of the auditees surveyed responded with neutrality, disagreement and strong disagreement, respectively. Two BPK managers and a Member of Parliament made the following criticisms:

 “Credibility of the BPK audit reports was about 65 per cent; but I had doubts

about 35 per cent ” (Interview B4).

 “The audit reports were not credible, because BPK auditors were not independent ” (Interview B10).  “Some audit reports were not objective; as a result, they were also not credible” (Interview C1).

The above negative statements indicate significant doubt about the credibility of audit reports, even when the statement comes from a BPK informant. The informants also found that the lack of credibility in audit reports is due to the BPK auditor‘s lack of independence and objectivity.

In conclusion, this study revealed both positive and negative responses and comments on the objectivity and credibility of information in BPK audit reports. However, the survey revealed largely positive perceptions of the information in audit reports and optimism regarding the reforms designed to provide objective and credible audit reports. Survey supported by respondents from BPK, auditees and Members of Parliament. However, criticism and negative views have showed that these claims were overly optimistic. Some negative comments presented during the interviews provided more open and honest statements, which reduces the overall optimism to some degree. The key informants doubt the objectivity and credibility of audit reports due to BPK‘s lack of independence. The study revealed that BPK auditors faced considerable pressure fromhigh officials or elected people who were not acting responsibly to the public. For example, at the local level the pressure from the Regent or Mayor. In addition, audit reports on the Ministry of the National Army were altered. These negative views presented a more balanced viewpoint and showed that there is still room for BPK to improve the objectivity and credibility of its audit reports.

Chapter 5