Survey Results and Comments on Scope of BPK

4.1.3 Survey Results and Comments on Scope of BPK

This section describes perceptions of respondents from this study on the information in the content of BPK reports in terms of the scope of auditing. Figure 4.1 (below) indicates that in general, respondents significantly agreed that BPK reports This section describes perceptions of respondents from this study on the information in the content of BPK reports in terms of the scope of auditing. Figure 4.1 (below) indicates that in general, respondents significantly agreed that BPK reports

reports from before and after audit reform. However, most respondents focused only on the scope of financial and/or compliance audits in line with the application of new government accounting standard, rather than performance audits, which had not been implemented effectively.

Figure 4.1 Survey Results of ‘BPK Reports Provide Clear Information for Audit Scope and O bjectives’

s en tage

Strongly Agree

Pe rce ptions

Auditors

Auditees

Overall responses

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

In the overall responses, this survey recorded 12 per cent of participants ‗as neutral‘ and 3 per cent whom ‗disagree‘. For the auditors‘ group, only 9 per cent of respondents indicated ‗neutral‘ and 4 per cent ‗disagree‘. On the other hand, about 15 per cent of the auditees‘ group responded ‗neutral‘ and 3 per cent ‗disagree.‘ Some of the negative views

revealed comments and statements during interviews of BPK auditors included:

 “BPK had limited the scope of auditing” (Interview B17, an auditor of AKN I).  “BPK only audited the huge or big budget items in state finances” (Interview B21,

an auditor of AKN IV).  “BPK did not cover auditing for all SOEs” (Interview B23, an auditor of AKN V).

 “BPK could not audit tax income” (Interview B13, an auditor of AKN I).  “Overlapping auditing among auditors with internal auditors at the same time

and the same entities had reduced BPK’s scope of auditing” (Interview B11, an auditor of AKN III).

 “Before audit reform, under the former of Law on BPK (1973), BPK only audited implementation of state budget for central government ” (Interview B24, an auditor of AKN V).

 “Limitation of BPK’s scope of auditing hindered this audit institution from

carrying out its roles and functions in examining the accountability of state finances ” (Interview B16, an auditor of AKN II).

These excerpts indicate the auditors‘ disappointment on the limitation of the auditing scope, which demonstrated the incapacity of BPK to scrutinize the accountability of the Indonesian public sector. Moreover, auditors also indicated pessimism regarding the scope of BPK audits for tax revenues and SOEs. BPK could not examine the compliance of taxpayers and the accountability and transparency of the taxation office as stipulated by the tax law. Therefore, BPK never evaluated the performance of tax administrators. In addition, a Board Member of BPK commented on the issue of SOEs in a national magazine, as follows:

The problem of SOE is the problem of ‗pie‘ auditing, like a struggle to obtain a fortune. SOEs manage the state finances, don‘t they? Is it right that each cent of the

state finances has to be audited by BPK? There are no exceptions. In principle, all of the state finances have to be audited by an audit institution, called BPK (Forum 17 th

December 2006:32). The above statement indicates problems facing BPK to audit SOEs. In 2008, BPK submitted files for proposing a judicial review of the tax and SOEs laws that impede its

roles and functions. This means that the authority of BPK to cover the entire scope of state finances of Indonesian public sector agencies is still impeded.

There are two examples of non-compliance cases were found by BPKthat was published in national newspapers. Under the funding of Banten Province budget of 2004- 2005, there were 19 projects were not comply with the government regulations. (Koran

Tempo th 27 June 2006). The auditee claimed that there was a miscarriage of justice by BPK which had audited the projects before 20 th December 2005 and concluded that the projects

were not finished by the scheduled date, thus making them seemingly in breach of the law. The vice head of the project argued, ―We still have 10 days to complete all these projects, but BPK had judged it an illegal act

‖ (Koran Tempo 27 th June 2006). The statement indicated that auditee found unfairness on the BPK reports that the project was not

completed on time, before the end of the financial year. In accordance with the requirement for auditors to report auditees‘ non-compliance with laws and regulations, this

argument from the auditee seemed bias. To prepare a non-compliance report and to present findings with regard to fraud, violations of provisions of laws and regulations, the auditor had applied proper auditing procedures. The complaint by the auditee was subjective and indicated a lack of transparency and accountability.

Furthermore, some auditors have pointed out common findings regarding non- compliance with laws and regulations in auditees‘ financial statements:

 “Some procedures of management state finances were not based on the provisions of laws and regulations and financial statements were not accordance to the new government accounting standard ” (Interview B21, an auditor of AKN IV).

 “Ineffective procedures of verification, income reconciliation, grants and purchases in managing state finances ” (Interview B20, an auditor of AKN III).

These statements are examples of non-compliance with laws and regulations that were found by auditors. The Chairman of BPK also revealed in a national seminar 45 other

examples of non-compliance found by BPK:

BPK found the irregularities in government‘s management of state finances. For example: the procedures of verification and income reconciliation of tax and non-tax, the management of government account statements at the Central Bank of Indonesia (BI) and state-owned banks, account management of the investment budget and regional development, asset management in SOEs and state management assets from the incomplete BPPN re-structured program.

This excerpt indicates that the government failed to demonstrate that they had managed public resources responsibly. This situation can reduce trust and confidence in government to govern transparently, efficiently and effectively. In addition, several articles about BPK findings of central and local governments‘ non-compliance were scrutinised and written by journalist of some national newspapers and magazines. For example, articles on irregularities in non-tax state revenue management, such as the payment of a traffic ticket at the high court (Riyadi and Barus 14 th June 2006), unreported non-tax revenue in 11 ministries (Hudiono 17 th May 2006), and non-tax charges or tariff in local government (Bisnis Indonesia 3 rd June 2006).

Additionally, a journalist was written about BPK findings on incorrect counting and reporting the actual value of aid fundsfor Tsunami victims in Aceh and Nias (Taufiqurrahman 2006). Another example is an article about ineffective procedures in 17 departments regarding the purchase of goods and services, with state losses valued at Rp.137.63 billion (Bisnis Indonesia 17 th May 2006; Suara Pembaharuan 16 th May 2006).

45 Prof. Anwar Nasution in keynote speech at a National Seminar, titled ‗Accountability of State Finance Management as Effort to Combat Corruption‘, Brawijaya Accounting Fair 2006, Economic Faculty of

Brawijaya University, Malang, 3 rd June 2006.

A final example is reports of the inefficiencies and losses in government investment funds managed by SOEs (Hudiono 17 th May 2006). All these cases revealed many irregularities,

such as misuse and graft in public funds. All the irregularities occurred since the New Order Era, but still existed in the early Reformation Era.

The duplication problem of roles and functions between BPK and BPKP wasgetting clear, since the audit reform of 2001 as BPK has mandated as the only external audit institution in Indonesia. The Chairman of BPKP, Didi Widiyadi, stated that ―BPK is an external audit institution based on the 1945 Constitution, while BPKP is an internal audit institution based on Presidential Decree. This is designed for checks and balances ‖. (Suara Pembaharuan 5 th December 2006 and Tagukawi 2006). Since then, BPK has significantly increased its scope of financial auditing in terms of quantity and it is also preparing for performance auditing in the near future.

Six respondents expressed their opinions regarding performance and specific purpose audits as follows:

 “BPK is not ready yet to conduct performance audits” (Interview B10).  “BPK is still looking for the techniques, procedures and shape of performance

audits that are suitable and appropriate for this type of auditing ” (Interview B5).  “Opinions and arguments are still developing to decide whether an audit can be

labelled as performance auditing ”(Interview B24, an auditor of AKN V).  “Audited entities are not ready to be audited for performance audits” (Interview

A10).  “Audit’s objectives are mentioned in all audit reports to set the scope of the audit, in particular, on performance audit reports ” (Interview B15, an auditor of AKN III).

 “BPK conducted performance and specific purpose audits only for audited

entities that had actual problematic issues and these were based on demands or orders from the Parliaments ” (Interview B14).

 “BPK conducts compliance audit as a part of performance audit” (Interview B17, an auditor of AKN I).

These excerpts imply that BPK is still looking for the right format for developing performance auditing in its internal organisation. On the other hand, public sector agencies are also preparing performance measurements and indicators for their organisations. This means that BPK is still undergoing a process to examine the accountability of government agencies for their efficiency, effectiveness and equitable conduct.

In summary, as mandated by the Constitution , BPK‘s financial audit scope has expanded extensively for examining the transparency and accountability of all public sector bodies. The workload for BPK has increased in terms of the number of agencies and the audit scope, which includes financial, performance and special purpose audits. However, until 2009, BPK still could not audit tax revenues and some SOEs. Moreover, the lack of competency in government agencies to apply the new government accounting standards(2005) resulted in the late submission of their financial statements, which caused BPK to examine their financial accountability. Although BPK has made significant improvements in increasing the number of audited entities for financial auditing, including compliance audits, the audit scope of BPK is still limited in enhancing accountability as it has not yet focused on actual outcome and performance audits. BPK is still continuing to develop the instruments and measurements to examine the performance of public sector agencies. Specific purpose audits were demanded by Parliament, such as request for investigative audits for caseswith indications of corruption, environmental audits, financial auditsof financial report of head of regional government elections and international aid.