The Independence of BPK

6.1.1 The Independence of BPK

This section compares the independence of BPK before audit reform, under the original 1945 Constitution, and BPK after audit reform, under the third amendment of the 1945 Constitution. Moreover, it evaluates the implementation of new policies on audit independence that are influencing the content and communication of information in BPK audit reports.

The Independence of the BPK before the Reform

Before audit reform, Article 23, Paragraph 5 of the ‗sacred‘ (sakti) 1945 Constitution stipulated the independence of BPK. The desire for BPK to be an independent and free audit institu tion was developed by the ‗founding fathers‘ of the Republic of

Indonesia at the time of Independence, Soekarno and Hatta. The Member IV of BPK (Interview B2) explained that the historical establishment of BPK occurred at the same time

as the legalisation of the 1945 Constitution on 18 th August 1945. He emphasised that the existence of BPK under the Constitution is a social contract between the Indonesian people

and the government made at the time the state was formed. This means the existence of BPK was mandated by people of the Republic of Indonesia.

However, despite the government understanding this message of the Constitution it did not carry out the mandate as the public expected. The power of the President to influence most bureaucratic offices, including BPK, removed the genuine autonomy mandated by the Constitution. BPK had no power to be free from the Executive government ‘s direction and BPK audit reports were tailored to suit the government‘s interests. An official of BPK (8 th December 2006) underlined the government‘s control of

BPK, because during the authoritarian regime of the New Order, all BPK reports had to be BPK, because during the authoritarian regime of the New Order, all BPK reports had to be

During the New Order Era, Indonesia applied guided democracy. In this situation, all personnel in the bureaucracy had to be loyal to the President and his interests. The Soeharto regime ignored people who gave opposing opinions or open criticism. BPK could not scrutinise the accountability of the government, because it had insufficient freedom to access all relevant information in public sector agencies. For example, BPK could not examine the accountability of government in managing public resources, including natural resources (such as coal, crude oil, gold, forest, lead, copper, and natural gas), national banks, electricity, telecommunications, transportation and logistics. The monopoly market of public goods and services under government authority without control from BPK and the

Legislature resulted in the absence of ‗checks and balances‘ in state finances. The Chairman of BPK explained why BPK lacked independence in the past to a business magazine (Eksekutif January 2007:18-23), as follows:

The Suharto era in the past was an authoritarian regime. No one was brave enough to say ‗No‘ at that time or you would be ‗dipetrus‘ (shot mysteriously). In the past, BPK

was under the control of the government. What was happening had to be permitted by the Ministry of Empowerment Apparatus (MENPAN). Control also extended to the employees and all the personnel of BPK, because all were public servants. In the past there was also control over the budget of BPK. Then all the audit results had to be discussed first with the government to prevent the national instability. In the case of the objects of the audits, none of the material assets at that time could be audited or touched by BPK, including the National Oil Company (Pertamina),the Central Bank (theBank of Indonesia), state banking and also BULOG (Logistic Agency). Thus, BPK did not disturb national stability.

This statement implies that during the authoritarian regime, BPK and its resources were under government direction. The government interfered with the independence of auditors, including selecting the auditees and sample objects of BPK audits. Soeharto‘s leadership was authoritarian and compelled all the bureaucracy to abide with his rules. All state companies that provided enough income and strategic benefit for the nation were audited by BPKP (as a part of the Executive), instead of by BPK.

The Independence of BPK after Audit Reform

Since audit reform, the independence of BPK has been bolstered by the Constitutional mandate. BPK is confirmed to be the only independent external body to audit state finances in the Republic of Indonesia. The amended Constitution has legally embedded BPK as an independent SAI and to have a major function in improving the transparency and accountability of the public sector. Furthermore, the Audit Law (2004) and the Law on BPK (GOI 2006b) stipulate the independence of BPK in terms of its budgeting, personnel and other aspects of auditing. Besides, after the audit reform, the appointment, tenure, and reappointment ofBoard Members of BPK are also stipulated under the Audit Law (2004) and Law on BPK (2006), to maintain BPK ‘s independence.

After gaining independence, BPK has carried out its audit roles and functions to help Members of Parliament, as the most prominent client, to improve the accountability and transparency of government. The public expects their resources to be managed accountably by the government for the prosperity of the people. BPK is improving its

capability to conduct performance audits in accordance with the Lima Declaration 80 and

80 The Lima Declaration is the founding principles of Supreme Audit Institutions (SAIs), issued in the 9 th 80 The Lima Declaration is the founding principles of Supreme Audit Institutions (SAIs), issued in the 9 th

transparency and accountability (Aritonang 2005: 4). The Head of Parliament 82 argued about the strong willingness of the Indonesian

people for BPK to be strong and independence audit institution. He believes that if BPK conducts its audit functions properly and correctly, government efforts to eliminate corruption and reduce poverty. The purpose of the state to achieve the welfare of the Indonesian community, according to the Preamble of the 1945 Constitution, will be achieved faster. For this purpose, BPK continues to reform its internal organisation from conditional independence to substantial independence.

Figure 6-1 Perceptions of ‘BPK is an Independent Audit Institution’

s ntage

1 2 1 Strongly Agree

Strongly Disagree

Pe rce ptions

Auditors

Auditees

Overall responses

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

To further analyse the independence of BPK, this study collected data and information from key informants and respondents, including BPK auditors, auditees, and Members of Parliament. Figure 6.1 (below) shows the survey results indicated positive

years ago, the spirit and the meaning of this declaration are still very important to the system of administration and government.

82 INTOSAI, AFROSAI, ASOSAI and BPK‘s audit standards and guidelines. Keynote spokesman, H.R. Agung Laksono, at the One Day Seminar on Public Sector Audit, on 9 th January 82 INTOSAI, AFROSAI, ASOSAI and BPK‘s audit standards and guidelines. Keynote spokesman, H.R. Agung Laksono, at the One Day Seminar on Public Sector Audit, on 9 th January

cent ‗strongly agreed‘.

Most BPK auditors were aware that the full independence of BPK is essential (Interviews B13-B24). They also show optimistic that under the new Law on BPK, BPK can be independent from the government.The opinions imply on determining the position of BPK as an external audit institution which should behave and act independence as stated in the amended constitution and new laws. However, the most important question is how successful BPK is in performing the independently according to the new laws. An auditee from central government (Interview A10) also expressed this, arguing that how BPK manages its independence and authority is crucial.

This study obtained negative views on the independence of BPK from respondents. In the survey, 20 per cent of auditees responded ‗neutral‘, 5 per cent ‗disagreed‘, and 2 per cent ‗stronglydisagreed‘. Of the auditors surveyed, 9 per cent responded ‗neutral‘, 6 per cent ‗disagreed‘ and 1 per cent stronglydisagreed. They also criticised the lack of BPK‘s substantive independence as follows:

 “BPK is not a fully independent institution” (Interview B23, an auditor of AKN V).  “I am not sure that politically BPK is an independent institution” (Interview A23,

an auditee from Water Drinking Regional Enterprise Sukabumi).  “It is only hope, the fact is not” (Interview B17, an auditor of AKN I).  “BPK is still not independent, as far as BPK still under the same unit of

government ” (Interview B6, a manager of BPK).  “BPK has not been an audit institution that is independent” (Interview A20, an

auditee from Bandung City local government).  “Auditors of BPK can still be bribed” (Interview A11, an auditee from Cianjur

District local government). These comments from different groups of informants, directly argue that BPK lacks substantive independence. This indicates that BPK has not been fully independent from any

parties as expected and mandated by the Constitution and laws. The statements imply there parties as expected and mandated by the Constitution and laws. The statements imply there

a result, pessimism shows from auditors, auditees and Members of Parliament who know bribing practices really happen.

The following sections provide further detailed analysis about BPK ‘s independence in terms of budgeting, board Members and auditors.