Independence in Budgeting

6.1.2 Independence in Budgeting

This section analyses the independence of the BPK in managing its budget as an essential resource for auditing the Indonesian public sector. Budgeting independence is crucial to maintain the independence of an external audit institution from the influence of other parties. The following sections describe the new legal basis of BPK budgeting, compares independence in budgeting pre and post audit reform, and analyses data and information from respondents and key informants about the independence of BPK in budgeting.

Independence in Budgeting Pre Audit Reform

Before reform, BPK ‘s budget was funded from the State Annual Budget (APBN) and determined by the government (the Ministry of Finance). Government reduced the functions of BPK by providing a very limited budget to support its roles and functions as a state audit institution. This situation resulted in a limited budget for BPK to improve its auditor numbers and quality, to increase the welfare and professionalism of its personnel, and to acquire modern office stationery and information technology. The government in the Before reform, BPK ‘s budget was funded from the State Annual Budget (APBN) and determined by the government (the Ministry of Finance). Government reduced the functions of BPK by providing a very limited budget to support its roles and functions as a state audit institution. This situation resulted in a limited budget for BPK to improve its auditor numbers and quality, to increase the welfare and professionalism of its personnel, and to acquire modern office stationery and information technology. The government in the

Independence in Budgeting Post Audit Reform

Since audit reform, Chapter VIII on Budget, Article 35 of the Law on BPK provides for the jurisdiction of the BPK‘s budget to be funded separately from the state budget, to be

proposed by BPK to Parliament (DPR), to be discussed in the introductory discussion of the state budget plan, and to be conveyed to the Minister of Finance in determining BPK‘s

budget estimates. In addition, Article 32 of the Law on BPK stipulates that BPK has to be audited by a public accountant annually to examine its accountability in managing budget. The public accountant must be appointed by Parliament (DPR) based on the proposal of BPK and the Minister of Finance, with each of them having to propose three names. Additionally, the selected accountant must not have performed any duty for or on behalf of BPK or provided any service to BPK during the last two years. The audits coming from the public accounting office should be presented to Parliament and be sent to the government.

The above provisions regulate the budget resources of BPK to maintain its independence from the government and to provide its budget according to state audit needs. Since the application of the BPK Law (2006), the budget of BPK is no longer under the direct control of the Executive, because the BPK budget is directly determined by Parliament after reporting to the Minister of Finance. Moreover, the BPK Law (2006)

stipulates the process for examining BPK accountability in managing its budget 83 .

83 This was presented by Dr. Omo Dahlan, the Head of Auditama IV, on Seminar on Sosialisasi of BPK on 6 th

Since reform, the budget resources of BPK have been separated from the annual state budget of government. The budget is approved by Parliament after a discussion with BPK and the Ministry of Finance, based on the budget proposal from BPK. Besides, for specific purpose audits, such as the Bank of Indonesia and IBRA (the Indonesian Bank Restructuring Agency), BPK obtains a special budget allocation through the Ministry of Finance after getting approval by Parliament.

Figure 6.2 BPK Budgeting Resources

Appointed (5)

An Independent Public Audit Office

Audited and Published (6)

Budget Proposal (1)

Budget of

Parliament

BPK

Approved Budget (2)

Informed (3) Annual State

Minister of Finance

Budget Plan

Inserted (4)

Source: Adapted from Article 35 of the Law Number 15 of 2006 (GOI 2006b).

The increasing budget independence of BPK is due to good coordination with the Ministry of Finance and Parliament (DPR). Figure 6.2 (above) illustrates the process of getting budget resources and the auditing accountability of BPK‘s budget. Three main state institutions are involved in this process, Parliament, the Ministry of Finance and BPK. To maintain independence in budgeting, four steps are followed. First, BPK‘s planned budget is separated from the state budget plan and the proposed budget plan is submitted for approval from the Parliament after a discussion about the need for state audit activities. Second, after the budget is approved, Parliament informs the M inistry of Finance of BPK‘s The increasing budget independence of BPK is due to good coordination with the Ministry of Finance and Parliament (DPR). Figure 6.2 (above) illustrates the process of getting budget resources and the auditing accountability of BPK‘s budget. Three main state institutions are involved in this process, Parliament, the Ministry of Finance and BPK. To maintain independence in budgeting, four steps are followed. First, BPK‘s planned budget is separated from the state budget plan and the proposed budget plan is submitted for approval from the Parliament after a discussion about the need for state audit activities. Second, after the budget is approved, Parliament informs the M inistry of Finance of BPK‘s

An example of the budget process for BPK was the case of auditing the basic costs for the supply of electricity and an increased electricity tariff proposed by the National Electricity Company (PLN) in 2006. BPK accepted an official letter about requesting aBoard Memberof BPK to lead audit work at PLN with the assistance of 30 auditors, from Parliament and the Chairman of BPK After Parliamentary approval was sent to BPK and the Ministry of Finance, the Director General of Treasury provided an audit budget for this

specific audit (Koran Tempo 3 rd February 2006).

During the fieldwork, this study found different points of view from the respondents and key informants about the independence of the BPK in budgeting. Before the independence of BPK in budgeting was clearly defined by the Law on BPK (2006), its budgeting was determined by the Ministry of Finance, which affected BPK ‘s independence. Two BPK auditors (17 th October 2006) argued that although judicially independent, BPK

was still not entirely financially independent as its budget was still included in the central government budget from the Ministry of Finance. They complained about limitations in resources, including salaries, remuneration and training for auditors. Because of these conditions, they admitted receiving money from auditees to support their work, including for transportation, accommodation and meal costs during auditing. Auditees used the financial weaknessof BPK auditors to influence the objectivity of audit results. The

statements from informants about practice of bribery and lack of BPK auditors‘ independence are indications lack objectivity of findings. This practice had been running statements from informants about practice of bribery and lack of BPK auditors‘ independence are indications lack objectivity of findings. This practice had been running

Moreover, a Member of Parliament worried that the authority of BPK meant the audit institution became a ‗super body‘, because no other institution examines BPK‘s budget accountability (Koran Tempo 6 th February 2006). However, this concern cannot be acceptedbecausean independent KAP now audits BPK‘s transparency and accountability. This is also controlled by the Parliament and the public after the KAP audit results are publishedand are reviewed by SAIs from other countries as mandated by the Law on BPK (2006).