PEER REVIEW REPORT
ON THE SUPREME AUDIT BOARD
OF THE REPUBLIC OF INDONESIA
– BADAN PEMERIKSA KEUANGAN –
www.nik.gov.pl
Table of contents
Foreword
I.
Executive Summary ...1
II.
General Overview ...3
C
ONSTITUTIONAL FRAMEWORK...3
B
OARD...3
S
IZE...4
Y
OUNG STAFF...4
T
HE CAPITAL AND REGIONS...4
C
IVILS
ERVICE...5
III.
Independence and Mandate ...7
P
OSITION OF THESAI’
SH
EAD AND APPOINTMENT OF THEBPK
B
OARD...8
C
ONTENT OFBPK
AUDITS–
CALCULATION OF STATE LOSS...9
Relations with law enforcement agencies ...9
R
EPORTS’
AVAILABILITY... 10
R
ESOURCES... 11
Financing ... 11
Human resources ... 12
Recruitment
... 12
F
OLLOW-
UP... 13
A
CCESS TOM
OF
TAX DATA BASE... 14
IV.
Leadership and Governance ... 15
S
TRATEGIC PLANNING... 15
A
NNUAL PLANNING... 16
I
MPACT ASSESSMENT... 16
Seeking feedback ... 16
Expert methodology ... 17
BPK’
S IMPROVED IMAGE... 18
Communicating audit results ... 18
Audit reports’ readability ... 20
STAFF ... 23
Proportions ... 23
Rotation ... 23
IT SYSTEMS TO SUPPORT BPK AUDITS ... 25
Development ... 26
IT audits ... 27
V. Auditing Standards and Methodology ... 29
TRANSLATING STANDARDS ... 29
FINANCIAL AUDITS ... 30
Materiality ... 30
PERFORMANCE AUDITS ... 31
SPECIAL PURPOSE AUDITS ... 33
Corruption and fraud detecting ... 34
RISK ANALYSIS ... 34
VI.
Audit Performance ... 37
QUALITY ASSURANCE ... 37
ITAMA ... 37
AUDITORS’ SPECIALISATION... 38
AUDIT COST MONITORING... 39
RELATIONS WITH AUDIT CLIENTS AND FINDINGS VIS-À-VIS
RECOMMENDATIONs ... 40
ENTITIES COVERED BY AUDIT ... 41
TIMING ... 41
VII.
About the peer review ... 43
TEAM ... 43
METHOD ... 43
Attachment 1. Follow-up of ARK Recommendations
Attachment 2 Persons interviewed
Attachment 3: Audits analysed
Foreword
I am honoured to present to the Audit Board of the Republic of Indonesia
the peer review report, which has been developed by a team of my
colleagues from the Polish Supreme Audit Office.
Peer reviews carried out among SAIs within the INTOSAI community are of
ever greater importance as a tool used to assure quality of our work and
compliance with the ISSAI framework.
The aim of this peer review was to examine whether the BPK had prepared
and implemented the quality control system in order to provide compliance
with the State Finance Auditing Standards (SPKN) and to assess the extent
to which the recommendations formulated during the previous peer review
carried out by the Netherlands Court of Audit in 2009 had been executed.
This concerned in particular the issues of: Independence and Mandate,
Leadership and Internal Governance, Auditing Standards and Methodology,
and Audit Performance.
Our societies expect to receive more comprehensive information on the
functioning of the state, which is financed by taxpayers. That is the why the
role of SAIs becomes even more significant. Our task is to inform societies
on how the executive authorities fulfil their duties towards the citizens. We
may execute this function by conducting professional and thorough audit
studies and by informing about their results. Therefore, in this report we
paid much attention to communicating the results of audits carried out by
the BPK to the society and other main stakeholders.
I am pleased to compliment the BPK’s staff on their impressive
involvement, which was repeatedly witnessed by the peer review team, on
various organizational levels, aimed at continuous development of the
institution in which they work.
While presenting this report I hope that the suggestions and
recommendations included therein will prove useful in further
improvement of the BPK’s functioning.
On behalf of the whole peer review team I would like to thank the BPK for
providing most excellent working conditions during the team’s stays in your
review team to fulfil their duties in a relatively short time dedicated for the
implementation of this project.
I would like to stress that during this peer review we have gathered a lot of
valuable experience and observations, which we will certainly use in our
work back at home in the Polish Supreme Audit Office, as the “mutual
experience benefits all”, as the INTOSAI motto goes.
I would like to wish the BPK every successes and satisfaction from the
implementing of their difficult mission of the state auditor for the sake of
the well-being of the people of Indonesia.
Krzysztof Kwiatkowski, President of the Supreme
Audit Office of Poland
1
I .
Ex e cu t iv e Su m m a r y
Since t he previous peer review conducted in 2009 t he BPK has put a great deal of effort t o develop it s procedures, st andards, guidelines and a system ic, richly docum ented st rategic approach. I n t he Reviewer’s opinion, t his approach has been necessary and fruit ful, especially in a count ry so big and internally so diverse as I ndonesia. They can be proud of t heir st rong m ethodological fram ework and of t he devoted and professional t eam they have built .
The BPK’s procedures and pract ice are in accordance w it h the I nt ernat ional Standards of Suprem e Audit I nst itut ions ( I SSAI ). What should be part icularly appreciated is st rong em phasis put by t he BPK on effect ive qualit y cont rol system im plem entat ion w ith special role given t o t he Principal I nspect orate ( I TAMA) .
At the sam e t im e, furt her im provem ent and increasing of the BPK’s potent ial and its audit s’ professional qualit y are st ill possible, and t hey are t he general aim of detailed recom m endat ions presented in this report . The Reviewer paid special at t ent ion t o find solut ions for:
- furt her possibilit ies t o consolidat e t he BPK’s independence in a w ay w hich w ould not harm t heir good cooperat ion w it h t he I ndonesian Governm ent ,
- direct ions of I nform at ion Technologies’ applicat ion,
- a m ore determ ined st rategy, and first of all: fast developm ent of t he BPK’s perform ance audit s and focusing them on t he m ost im portant cross-sect ion audit t opics,
- bett er com m unicat ion w it h key stakeholders and
- m ore efficiency in applying t heir rich set of internal procedures.
2
The Reviewer w ould also like t o underline t he BPK’s st rengt hs w hich seem t o be specially valuable in t he fulfilm ent of it s m ission:
BPK STREN GTH S
Young, w ell-educat ed and open-m inded st aff
Discipline and respect for procedures – w ell-est ablished in t he BPK’s organisat ional cult ure
St rong IT unit and w ell-designed IT development st rat egy, including t he e-audit init iat ive
Valuable findings – in various t ypes of audit s
Financial audit – highly appreciat ed by t he nat ional Parliam ent and regional legislat ive assem blies
Forensic audit – valued by law -enforcem ent agencies as effect ive support for t heir invest igat ions3
I I . Ge n e r a l Ov e r v ie w
In t he Review er’s opinion t he current legal framew ork and pract ices adopt ed in Indonesia wit h regard t o it s SAI, fulfil t he recognized int ernat ional st andards and allow t he BPK t o im plement it s m andat e in an effect ive w ay for t he sake of t he sound m anagem ent of t he count ry’s public finance.
C
ONSTITUTIONAL FRAMEWORKThe Suprem e Audit Board (Badan Pem eriksa Keuangan or BPK) is t he suprem e audit inst it ut ion (SAI) of t he Republic of Indonesia. The Const it ut ion of t he Republic of Indonesia st at es in Chapt er VIIIA t hat t here shall be a Suprem e Audit Board, free and independent , w it h it s m ain t ask t o audit m anagem ent and account abilit y of st at e finances. According t o t he Const it ut ion M em bers of t he Board shall be elected by t he House of Represent at ives (Dew an Perw akilan Rakyat or DPR) aft er get t ing considerat ion from t he Regional Represent at ive Council (Dew an Perw akilan Daerah or DPD), and form ally appoint ed by t he President , and t hat t he leadership (Chairm an and Vice-Chairman) of t he Board shall be elect ed by and from am ong it s M em bers. The 2006 Law on t he BPK specifies t hat t here shall be 9 M em bers, w hose t erm of office shall last 5 years, and t hat t hey can be reelect ed only once.
The legal fram ew ork gives t he BPK a st rong posit ion wit hin t he hierarchy of st at e aut horit ies of Indonesia and can be com pared t o sim ilar arrangem ent s in m any ot her dem ocrat ic count ries.
B
OARD4
for a period of four years. The Parliament also appoints one of t he Audit ors General as t he Chairm an and t he m ain execut ive officer of t he Riksrevisjonen.
A sim ilar arrangem ent as in Indonesia concerning t he elect ion of t he President from am ong t he Board’s M em bers by M em bers t hem selves is quit e frequent in t he SAIs of a cour t t ype. For exam ple in Spain t he Tribunal de Cuent as is governed by a 9-m en-st rong Boar d appoint ed by t he Parliam ent for a t erm of 9 years, w here t he M em bers appoint t he President and Vice-President from am ong t hem selves for a t erm of 3 years .
S
IZEBPK w it h it s over 6000 em ployees can be perceived as a big SAI, w hen com pared w it h it s count erpart s in ot her count ries, e.g. t he UK NAO – 860 or Polish NIK – 1700. The im pression changes w hen one com pares t he t ot al num ber of t he count ry’s inhabit ant s t o t he SAI st aff’s num ber, w hich m akes Polish NIK alm ost t w ice bigger (t he respect ive ratio reflect ing t he SAI’s size for Indonesia and Poland is like 2.5 t o 4.5). The perspect ive changes even m ore, w hen diversit y and com m unicat ion realit ies are t aken int o account . As t he fourt h biggest st at e on Eart h, t he quickly developing Indonesia – w it h it s t hree t ime zones and m ore t han 17000 islands – is a very dem anding subject of st at e audit ing. When one adds specific t asks, am ong t hem obligat ory financial audit s of about 3100 ent it ies each year and t he dut y t o calculat e st at e losses, it can be concluded t hat t he need for furt her grow of t he BPK’s st aff num ber seem s just ified.
Y
OUNG STAFFIn t he course of t he peer review , t he Review er had a chance t o m eet and t o t alk t o m any of t he BPK’s st aff , of various professional posit ions and locat ions. In our opinion it is it s people w ho are am ong t he BPK’s great est asset s. The BPK’s st aff are young, dedicat ed and bet t er and bet t er educat ed. The BPK em ploys over 6136 (in 2013) people in all Indonesia, about 2200 of w hom are non-audit ors. The st aff are very young: as m uch as 62 per cent of t hem are below 36 years of age and only less t han 1 percent are over 55!
T
HE CAPITAL AND REGIONS5
offices in all provinces of Indonesia. The BPK is required by t he Const it ut ion t o have a represent at ive office in each province; t he 34t h represent at ive office in t he new ly est ablished province of Nort h Kalim ant an is going t o be set up soon.The regional st ruct ure of SAIs is a w ell-know n, t hough not very frequent , pat t ern also in ot her count ries, including t he part ner SAI of t his peer review , Poland, but also for exam ple France, M orocco or Slovakia (cent ralised t o a various ext ent ). Different degrees of cent ralisat ion and legal basis exist in t his regard, e.g. t he BPK is required by t he Const it ut ion t o est ablish an office in each province, w hile in Poland t he regional st ruct ure is regulat ed by a low er act , nam ely by t he NIK’s Organisat ional Chart er, signed by t he Speaker of t he Sejm (t he low er cham ber of t he Polish parliam ent ).
C
IVILS
ERVICE7
I I I . I n d e p e n d e n ce a n d M a n d a t e
Suprem e Audit Inst it ut ions play a crucial role in supplying t ransparency and int egrit y t o public m anagem ent . In t he General Assem bly’s resolut ion of 2011, t he Unit ed Nat ions st ressed t he im port ant role of SAIs in prom ot ing efficiency, account abilit y, effect iveness and t ransparency of public adm inist rat ion, w hich is essent ial in order t o achieve nat ional, as w ell as int ernat ional developm ent object ives and goals.
To be able t o fulfil t his role SAI needs an appropriat e degree of independence in carrying out it s dut ies, as independence ensures t he proper perform ance of it s funct ion. The aspect s of SAI independence have been laid dow n in t he basic st andards, nam ely t he Lima Declarat ion of 1977 and t he M exico Declarat ion of 2007. The Lim a Declarat ion st at es t hat Suprem e Audit Inst it ut ions can accom plish t heir t asks only if t hey are independent of t he audit ed ent it y and prot ect ed against ext ernal influence. It is also experience of Suprem e Audit Inst it ut ions of t he w orld t hat independence is st rict ly connect ed w it h m andat e, and bot h decide about real im pact of SAI on public m anagem ent .
M oreover, according t o t he INTOSAI Code of Et hics (ISSAI 30) special care should be applied t o any form s of polit ical involvem ent by SAI st aff and m anagement :
Paragraph 20: It is import ant t o maint ain bot h t he act ual and perceived
polit ical neut ralit y of t he SAI. Therefore, it is import ant t hat audit ors
maint ain t heir independence from polit ical influence in order t o discharge
t heir audit responsibilities in an impart ial way. This is relevant for audit ors
since SAIs w ork closely w it h t he legislat ive authorit ies, t he execut ive or
ot her government ent it y empow ered by law t o consider t he SAI’s report s.
Paragraph 21: It is import ant t hat where auditors undert ake, or consider
undert aking, polit ical act ivit ies t hey bear in mind t he impact w hich such
involvement might have - or be seen t o have on t heir ability t o discharge
t heir professional dut ies impart ially. If audit ors are permit t ed t o part icipat e
in polit ical act ivit ies t hey have t o be aware t hat t hese act ivit ies may lead t o
professional conflict s.
8
Const it ut ion and Law No. 15 Year 2006. The Const it ut ion st at es t hat t he Audit Board of t he Republic of Indonesia shall be a free and independent inst it ut ion, w hich is obliged t o audit t he m anagem ent and account abilit y of st at e finance.
The legal base of t he BPK’s funct ioning grant s t hen it s broad aut onom y in all aspect s of public finance audit ing. In t he Review er’s opinion t he SAI of Indonesia has sufficient com pet ence in t he audit process planning, conduct ing, and ident ifying audit subject s.
The aim of t he follow ing rem arks is t o support fur t her st rengt hening of t he BPK’s independence:
P
OSITION OF THESAI ’
SH
EAD AND APPOINTMENT OF THEBPK
B
OARDThe Board, w hich com prises of nine mem bers, w ho enjoy t he st at us of st at e officials, has a firm posit ion given by t he const it ut ional m andat e and due t o t he fact t hat it plays an im port ant role wit hin t he organizat ion. That is w hy prescribed specific professional com pet ence and et hical requirem ent s for candidat es for Board M em bers w ould be desirable.
During t he m eet ings w it h ext ernal st akeholders t he Review er repeat edly m et w it h opinions t hat t he M em bers of t he Board should not be involved in current polit ical act ivit ies. Taking int o account t he st andards laid dow n by INTOSAI (ISSAI) and exist ing pract ice of m any SAIs w e recom m end:
Recom m endat ion 1.
A pot ent ial Board Mem ber should be required to resign from m em bership in any polit ical organizat ion and w it hdraw from any polit ical act ivit y for t he durat ion of t heir m andate, after being elect ed by t he Parliam ent and prior t o appointm ent by t he President and taking t he oat h. I f a Mem ber decides t o st and for elect ion or get involved in any other polit ical act ivit y, he or she should resign or suspend the m em bership in t he BPK Board (e.g. for t he t im e of t he elect ion cam paign) .
9
and t o not draw ing enough on t he synergy effect . Therefore, t he Review er finds it appropriat e for t he BPK t o find w ays t o evaluat ed t he effect iveness and efficiency of t he current arrangem ent .C
ONTENT OFBPK
AUDITS–
CALCULATION OF STATE LOSSOne of dut ies im posed on t he BPK by t he law is calculat ion of St at e loss. It is handled as part of BPK audit s or as a separat e t ask. In t he pract ice of ot her SAIs, losses incurred by t he St at e in part icular ent it ies are also oft en calculat ed. The difference is t hey are part of part icular audit t asks and t he decision t o calculat e t hem is t aken by SAIs. What is m ore, t he freedom t o decide on t he cont ent (and t im ing) of audit report s is one of t he principles of SAI independence1 . In t he Review er’s opinion, t he obligation t o calculat e
st at e loss can creat e expect at ions by t he law enforcem ent agencies t ow ards t he BPK, even if no SAI should be t reat ed as subordinat e t o Governm ent agencies.
Recom m endat ion 2.
Consider broader discussion on the BPK’s obligat ion t o calculate st ate losses, t aking int o account t he necessit y of giving t he SAI freedom t o decide w hen and t o what extent t hey should be calculat ed.
Relations with law enfor cement agencies
One of t he at t ribut es of SAIs’ independence is freedom t o set up t heir ow n w ork plan and choose t he subject s and ent it ies t o be audit ed. In som e of t he INTOSAI m em ber count ries t he legislat ive bodies are ent it led t o im pose dut ies on SAIs. But especially a sit uat ion in w hich inst it ut ions of execut ive pow er, t herefore audit ed by t he SAI, have a similar com pet ence m ay raise doubt s.
The Review er has learnt t hat law enforcem ent inst itut ions like t he Police, t he Prosecut or’s Office, t he KPK (Corrupt ion Eradicat ion Comm ission) can dem and audit by t he BPK. In pract ice, only dem ands com plet ely im possible t o fulfil are reject ed. We t hink t hat observat ions and suggest ions from law enforcem ent inst it ut ions can be very helpful w hen developing t he SAI’s w ork plan, how ever t hey should not be obligat ory for t he BPK as t he
1
10
suprem e audit instit ut ion of t he st at e. On t he ot her hand, t he law enforcem ent inst it ut ions t hat receive from t he BPK inform at ion on a possible case of fraud, corr upt ion or ot her crim inal act ivit y, are not obliged by t he law t o inform t he BPK about result s of t heir proceedings in t he case.
Recom m endat ion 3.
Est ablish pract ice, in w hich suggest ions by Governm ent inst it ut ions are t reated as valuable inform at ion, but t he final decision about perform ing an audit ( or not ) , it s content and t im ing, is alw ays at t he BPK’s discret ion.
Discuss w it h the Parliam ent a change in t he law obligat ing law enforcem ent agencies and the Prosecut or’s Office t o prom pt ly inform t he BPK about result s of proceedings t riggered by t he inform at ion delivered by BPK.
R
EPORTS’
AVAILABILITYWell est ablished independence of a Suprem e Audit Inst it ut ion is relat ed t o it s m andat e w hich in t he dem ocrat ic st at e environment depends not only on appropriat e relat ions w it h ot her St at e aut horit ies but involves t o a great ext ent t he public opinion. The significance of t he follow ing t w o aspect s should be em phasized:
1) t he m ore easily SAI report s are available for t he public opinion, t he bigger pot ent ial num ber of it s readers is;
2) t he m ore plain language used (especially in report s’ sum m aries), t he m ore real recipient s of t he SAI w ork’s and t he m or e int erest of t he m ass m edia in t he SAI’s report s.
In t he Review er’s opinion, in bot h of t hese aspect s t he BPK’s im pact on public opinion is lim it ed at present , w hich can also indirect ly w eaken t he pract ical applicat ion of t he Board’s independence. The BPK’s w ebsit e provides t he broad public only wit h audit report s’ sum m aries. The access t o t he full version is given only on request and regist ered.
[For descript ion of t he problem from t he point of view of governance and for
11
R
ESOURCESFinancing
According t o t he provisions of law , t he BPK’s budget shall be allocat ed t o a separat e part in t he St at e Budget and shall be subm itt ed by t he BPK t o t he DPR t o be discussed in t he prelim inary discussion on draft St at e Budget2 . At
t he sam e t im e t he budgeting processes and financial account abilit y of t he BPK have t o com ply wit h t he regulat ions obligat ory for all minist ries and public inst it ut ions in Indonesia3.
The Review er has learnt t hat in pract ice t he first draft of t he BPK’s budget is discussed w it h t he M inist ry of Finance before being subm it t ed t o t he Parliam ent . While t alking about t he BPK’s budget ary process w it h t he M inist ry of Finance, t he Direct orat e of Budget , t he Reviewer w as t old t hat t he Direct orat e deals w it h 86 m inist ries and t he BPK is t reat ed as just one of t hem . The ceiling of resources is set by t he M inist ry, even if t he BPK usually suggest s a higher am ount . Following t hat , t he draft agreem ent is joint ly discussed w it h t he M inist ry of Nat ional Developm ent Planning as w ell.
The Review er w ishes t o em phasize, t hat t he legal framew ork grant s t he BPK aut horit y t o subm it t heir proposal, even if not previously agreed on wit h t he m inist ries, t o t he Parliament , i.e. t he body t o decide on t he nat ional budget . This is in com pliance w it h t he M exico Declarat ion on SAI Independence4. It is also t o be em phasized t hat bot h t he BPK and t he
M inist ry of Finance are sat isfied wit h t he cooperat ion on t he BPK budget . How ever, it should be not iced t hat t he recent years’ econom ic grow t h in Indonesia support s t his cooperat ion. If t he econom ic sit uat ion get s w orse, t he BPK’s independence w it h regard t o it s resour ces can be put at risk. Anot her issue relat ed t o t he budget concerns t he f reedom of allocat ing funds w it hin t he assigned budget . The review er has learnt t hat shifting funds by t he General Secret ary from one part t o anot her w it hin t he BPK’S budget needs approval of t he M inist ry of Finance. This procedure result s from t he regulat ion of t he M inist er of Finance, i.e. one of t he BPK’s audit ees.
2
Art. 23 Law 15/2006. 3
Pursuant to the provisions of UU No. 17 2003 concerning State Finance, UU No. 1 2004 concerning State Treasury, UU No. 15 2004 concerning Audit of Management and Accountability of State Finance and other relevant regulations.
4
12
Recom m endat ion 4.
Consider lim it ing t he role of m inist ries in t he budget negot iat ion process in order t o reduce t he influence of t he BPK’s auditees on the BPK’s resources .
Human r esour ces
Employment
As far as t he hum an resources m anagem ent is concerned, t he BPK is subject t o t he governm ent al regulat ions on t he Civil Service, w hich in fact hinders a sovereign HR policy t hat w ould com ply w it h t he BPK’s needs. The Civil Service is supervised by t he M inist er of St at e Apparat us and Bureaucrat ic Reform . The Review er did not com e across any cases of reducing t he BPK’s independence in t his aspect . Risks, how ever, are visible. An exam ple m ay be t he fact , t hat BPK had t o w ait for several m ont hs for t he Final Assessment Team t o appoint a principal audit or or t o issue it s int ernal regulat ions concerning it s st aff and int ernal organisat ion. The possibilit y t o prom ot e em ployees also depends on limit s set for t he w hole civil service in a given year.
Recr uitment
All BPK st aff are recruit ed in open com pet it ions for Civil Servant s organised by t he M inist ry of St at e Apparat us and Bureaucracy. To fill vacancies t he BPK applies t o t he M inist ry for st aff needed, specifying t heir num ber and required qualificat ions. How ever, in recent years t he M inist ry has not recruit ed as m any st aff as t he BPK required. At t he m om ent t he BPK est im at es it s st aff short ages t o am ount t o over 1.300 jobs (vs. 6.136 of t he BPK’s st aff em ployed), w hich m eans t hat t he organisat ion w orks under great hum an resources pressure in order t o provide the required result s of it s w ork.
Pr omotion
As civil servant s t he BPK st aff are prom ot ed also according t o t he regulat ions on Civil Servant s issued by t he governm ent . To be prom ot ed a m em ber of st aff needs t o m eet specific crit eria, including w ork experience and com pet encies. Individual decisions are m ade by a board t hat consist s of t he BPK’s t op civil servant s called Baperjakat (Badan Pert imbangan Jabat an dan Pangkat ) and prom ulgat ed by t he BPK Secret ary General.
Remuner ation
13
pay rise t ool in order for exam ple t o com pensat e som e of t heir st aff for w orking in difficult condit ions and/ or in rem ot e areas of t he count ry.Recom m endat ion 5.
Consider ways in w hich BPK’S m anagem ent policy, as w ell as recruitm ent , prom ot ion and ot her HR- related processes could be conduct ed m ore independent ly from t he Governm ent .
I nsur ance
Indonesia is a huge and diverse count ry. The level of developm ent of it s various part s differs som et im es very significant ly. The BPK st aff’s w orking condit ions vary respect ively. Som e of t hem w ork in or t ravel t o rem ot e and/ or less developed, even dangerous areas, follow ing t he public resources t hat need t o be audit ed. The Reviewer w as st ruck, in t he posit ive sense of t he w ord, by t he BPK’s st aff’s underst anding of t hat sit uat ion and dedicat ion t o pursue w it h t heir w ork w herever it is needed. M any of t he BPK’s st aff int erviewed by t he Reviewer st ressed how ever t he pressing need on t heir part and on t he part of t heir fam ilies for life and healt h insurance. Such a need seem s t o be perfect ly underst andable.
How ever, solving t his problem is not only relat ed t o financial const raint s but also t o t he issue of t he BPK’s independence. The BPK in it s current legal fram ew ork has t o follow t he general rules of t he Civil Service, on w hich it has no influence as it is regulat ed by t he Governm ent .
Recom m endat ion 6.
As t his issue seem s t o be com m on in the w hole Civil Service, t he BPK could consider carrying out an audit in t his field and proposing som e im provem ent s in that respect to t he governm ent .
F
OLLOW-
UP14
t he real im plem ent at ion of recom m endat ions. The BPK is aw are t hat t he current follow -up m onit oring syst em ’s capacit y should be enhanced in fut ure.
A
CCESS TOM
OF
TAX DATA BASE15
I V. Le a d e r sh ip a n d Gov e r n a n ce
S
TRATEGIC PLANNINGThe BPK developed a st rat egic approach for t he years 2011-2015, w hich is based on: t hree st rat egic goals, 10 st rat egic object ives, 20 key perform ance indicat ors (KPI) and 32 st rat egic init iat ives , w hich are follow ed by furt her list s of act ivit ies and out put s.
The t hree goals are of high-level st rat egic nat ure and can be described as follow s:
1. Good public finance m anagem ent . 2. High qualit y and useful audit report s. 3. M odern m anagem ent of t he BPK.
St rat egic Goal 1 encom passes one st rat egic object ive, St rat egic Goal 2 encom passes five st rat egic object ives, and St rat egic Goal 3: four of t hem. Specific act ions planned in order t o obt ain t he st rat egic object ives and goals are described in 32 st rat egic init iat ives.
Grouping of t hese init iat ives t urns at t ent ion: most of t he st rat egic object ives (8 out of 10) are t o be reached by m eans of one or t w o st rat egic init iat ives. The except ions are:
St rat egic Object ive 2. Enhancing t he Funct ions of Audit M anagement – planned t o be im plem ent ed t hrough 14 init iat ives.
St rat egic Object ive 8. Enhancing Human Resources Compet ency andM anagement – 5 init iat ives.
16
Recom m endat ion 7.
A short list of t he highest priorit ies am ong st rategic init iat ives w ould help in focusing the BPK’s effort on t he goals which are considered as t he m ost crucial.
A
NNUAL PLANNINGThe BPK’s annual w ork plan is int egrat ed wit h it s annual budget . It m akes t he BPK budget ary decisions st rict ly relat ed t o it s w ork plans. E.g. during a m eet ing wit h t he Indonesian Public Account s Com m it t ee (BAKN) t he M Ps t old t he Review er t hat it w as t he Com m it t ee t o decide about 15 per cent of t he BPK’s perform ance audit s planned for 2014.
In t he 2014 Annual Audit Plan, t he BPK design t o publish 265 perform ance audit report s or 20% from it s t ot al audit report produce, it is exclude audit on assist ance t o polit ical part ies.
All audit s are planned in a t w o-years perspect ive, w hich is st rict ly relat ed t o t he plan’s connect ion w it h budget ary planning. In t his process t he audit universe concept is applied t o ent ities rat her t han t o t he hierarchy of audit subject s.
I
MPACT ASSESSMENTThe 2009 peer review report recom m ended developing m ore effect ive scenarios t o publish BPK report s and building up a st rat egic alliance wit h relevant st akeholders. The expect ed out put of t he recom m endat ions’ im plem ent at ion described in t he follow -up act ion plan foresaw t he developm ent of a st rat egic plan covering t hose issues. The relevant St rat egic Plan 2011-2015 w as approved by a decision of t he BPK Secret ary General in Sept em ber 2013.
Seeking feedback
Wit h reference t o it s public percept ion in t he years 2011 and 2012 t he BPK ordered ext ernal surveys, w hich were conduct ed by consult ing firm s and report s on t heir findings w ere developed. The object ive of t hese surveys w as t o assess how t he public opinion found BPK audit report s, as w ell as t he BPK’s public relat ions and com m unicat ion. The groups of respondent s w ere: audit ees from t he previous t w o sem est ers, M Ps5 , law enforcem ent
5
17
agencies6 and t he nat ional m edia . The t ot al num ber of respondent s w as367 for 2011 and 362 for 2012.
It is very posit ive t hat t he BPK seeks feedback fr om it s st akeholders. How ever, in neit her of t he above m entioned surveys w ere t he public (cit izens) included. In t he Review er’s opinion t he public are am ongst t he m ost im port ant of t he SAI’s st akeholders and t herefore it w ould be advisable t o seek for a feedback also direct ly from cit izens. SAIs need t heir high public profile for assuring t heir recomm endat ions’ bet t er im plem ent at ion, t herefore it is very im port ant t o find w ays t o reach w it h t he result s of audit w ork t o t he societ y and in t he long-t erm t o deserve an im age of a reliable provider of official inform at ion on t he St at e’s affairs. To fulfil t his account abilit y funct ion and assure underst anding of it s role and effect ive use of audit result s it is im port ant t hat t he BPK develops and sust ains a reliable im age am ong it s st akeholders including t he public.
Recom m endat ion 8.
Cont inue regular surveys on t he BPK’s percept ion by its st akeholders, also including the cit izens, as the public is am ongst t he SAI ’s key st akeholders.
The BPK is also planning t o t ake som e act ions t o enhance t he public aw areness of t he BPK: event s such as road show s, m ini advert ising, event s, social event s and w orkshops are foreseen. Quit e recent ly t he BPK has also used som e aid funds t o m ake 3 short film s present ing t he findings and conclusions of it s audit s in t he areas of st r ong public int erest . The film s are going t o be show n on TV and in cinem as and t heir main aim is t o increase t he public aw areness of t he BPK’s cont ribut ion t o t he im provem ent of t he public sect or’s act ivit y in Indonesia.
Exper t methodology
The im pact of t he BPK’s audit s on t he St at e affairs is not current ly assessed. The above m ent ioned surveys can help in bet t er recognit ion of t he BPK’s public percept ion and t hey can support , but not replace, expert evaluat ion. In t he sam e w ay, it can be com plem ent ed by qualit y assessment s and evaluat ions conduct ed by ITAM A or EPP, as w ell as by audit ees’ surveys.
6
18
Recom m endat ion 9.
Consider elaborat ion of t he BPK’s own expert m et hodology t o assess your audits’ im pact on t he St at e’s funct ioning, which w ould be com plem ent ary to t he above m ent ioned opinion surveys.
BPK’
S IMPROVED IMAGEAs t he Review er found t hrough int erviews w it h t he BPK’s st akeholders, it is regarded as a st rong, independent and professional organisat ion. It is agreed t hat it s audit report s aim t o deliver an object ive and valuable opinion concerning t he m anagem ent of public funds.
Communicating audit r esults
The basis t o share audit s result s - not only wit h audit ees and cent ral or local level aut horit ies but also wit h t he m edia and t he public – are audit report s. ISSAI 300 reads: “ Dist ribut ing audit report s widely can support t he credibilit y of t he audit funct ion”7 .
Till 2011 all of t he BPK’s audit report s w ere published on it s Int ernet w ebsit e. This syst em w as discont inued in t he at t em pt t o avoid m isreading and m isuse. This decision w as t aken following cases of blackm ail and t hreat received by officials on t he basis of inform at ion from t he BPK’s audit report s. At present each repor t is present ed t o t he public in t he form of an execut ive sum m ary published on int ernet . If one w ant s t o get access t o a full report , one has t o subm it a request . The BPK runs a regist er of such request s.
How ever, it seem s t hat t his new approach has not pr event ed t he BPK form facing t he problems know n from t he past . Rest rict ed access t o inform at ion leaves an open door for leakage of inform at ion, m isunderst anding of only part ially disclosed dat a and m isint erpret at ion of t he BPK’s findings and recom m endat ions.
The st akeholders of t he BPK – represent at ives of t he local and cent ral Governm ent and t he m edia have em phasized t he need for m ore open access t o t he BPK’s report s, provided w it h necessary explanat ion and clarificat ion concerning t he findings (for exam ple their m at erialit y). This should limit opport unit ies for im proper use of audit result s.
7
19
Recom m endat ion 10.
Ensure full and t im ely access t o t he BPK’s audit reports, including publicat ion of full report s on t he BPK’s w ebsite, t ogether w it h auditees’ com m ent s and if necessary w it h BPK’s replies t o them .
The m ain role of t he BAKN and t he DPD Account ing Com m it t ee is t o review t he BPK findings and discuss t heir follow -up. They can also provide feedback t o t he BPK concerning it s annual audit plan and qualit y of audit report s. In t hat cont ext assuring report s’ readability is crucial. In M Ps’ opinion t he m ajorit y of t he BPK report s delivered t o Parliam ent cont ain a great am ount of inform at ion, and at t he sam e tim e they do not em phasize t he m ain issues or t he m ost im port ant findings, w hich m akes t hem very difficult t o analyse. How ever, t he Comm it t ees admit t hat t he qualit y of t he BPK’s audit report s have im proved significant ly in t he last years. The m ain issues rem aining t o be urgent ly addressed in t heir opinion are:
The BPK’s give different recom m endat ions despit e similar findings.
Som e report s lack clear explanat ion on t he grounds for opinions.
Despit e st at e loss generat ed by som e ent it ies, t hey receiveunqualified opinions from t he BPK.
The BAKN also t urned t he Reviewer’s at t ent ion t o t he exist ence of a bureaucrat ic barrier t hat inhibit s t he BAKN st aff and expert s t o com m unicat e w it h t he BPK audit ors in relat ion t o the BPK audit report s. Som e BAKN expert s being not civil servant s are not allow ed t o com m unicat e freely w it h t he BPK officials or audit ors. The Reviewer finds it part icularly im port ant t o rem ove any form al and pract ical obst acles in com m unicat ing result s t o t he Parliam ent w hen t he audit report is ready.
Recom m endat ion 11.
20
Audit r epor ts’ r eadability
It is t he t im ing and t he w ay of present ing audit findings and recom m endat ions t hat m ake t he valuable inform at ion included in t he report s useful. Report s w rit t en in a t ransparent and open m anner and prom pt ly published w ill support t he BPK in it s effort s t o keep and even st rengt hen it s im age of a t rust w ort hy public organizat ion.
In it s audit report s t he BPK uses a specific t echnical language. What is m ore, t he report s, especially t hose concerning t he financial st at em ent s, cont ain a lot of t ables and figures w hich are just ified from t he professional point of view , but w hich m ake report s m ore difficult t o be underst ood by st akeholders, t he m edia and t he public.
As ment ioned above, t he BPK’s st akeholders need m ore clarificat ion and explanat ion regarding t he audit crit eria used by t he BPK t o assess t he regularit y and soundness of t he public funds m anagem ent . In all t he w orld, one of t he m ost frequent m isunderst andings regarding t he int erpret at ion of audit result s is caused by t he fact t hat t he out side reader is not fam iliar w it h t he language of audit opinions and generally w it h t he language of audit report s. For exam ple, w hich w as signalled t o t he Review er several t im es, som e readers do not underst and w hy in spit e of an unqualified opinion regarding t he entit y’s financial st at em ent s, it is st ill prone t o irregularit ies and even corrupt ion.
Executive summar ies
The Review er analysed execut ive sum m aries of 16 BPK audit report s from t he years 2011-2013. The review ed sam ple of execut ive sum m aries are very diverse as regard t heir layout , st ruct ure and volum e.
Execut ive sum m aries of financial st at em ent s audit s are relat ively m ore ext ensive t han ot hers. They consist of part s regarding t he financial st at em ent it self, t he ent it y’s int ernal cont rol syst em and it s com pliance w it h law s and regulat ions.
Som et im es t he lead-in part of t he sum m aries is sim ply a det ailed reference t o t he audit ’s legal basis, w hich is im port ant but not necessarily at t he very beginning of t he t ext w here readers w ould usually expect t o find t he m ost essent ial informat ion regarding t he audit result s.
21
det ailed reference t o t he legal basis of t he audit and relevant st andards. They are follow ed by present at ion of t he general assessm ent support ed subsequent ly by disclosed irregularit ies wit h indicat ion of t heir im pact and explanat ion w hy t hey have occurred. At t he end t he recom m endat ions are list ed.The layout of t he docum ent is form al and not reader-friendly. It does not support t he significance of syst em ic conclusions or part icularly im port ant findings, e.g. t hose having im pact on st at e finance or t ransparency and int egrit y of public m anagem ent .
These const rains are shared also by t he m edia’s represent at ives w ho suggest ed t hat in order t o avoid confusion regarding t he language used by t he BPK, w orkshops for journalist s could be organized. Having m ore aw are recipient s of t he BPK’s repor t s could cert ainly help t o increase t he m edia’s int erest in t hem .
Recom m endat ion 12.
Enhance readabilit y of audit reports, paying special at tent ion to short, clear, at t he sam e t im e fully reliable and explanat ory execut ive sum m aries.
One of possible w ays t o im plem ent t his recom m endat ion m ay be t he int roduct ion of a w ell-defined execut ive summ ary t em plat e, e.g. no longer t han 1-2 pages w it h a general opinion or rem ark in t he beginning, and no m ore t han 3-5 m ost im port ant findings present ed in a w ay t hat support s underst anding of problem s’ hierarchy. The proper use of edit ing t ools such as: lead paragraph, bolding, subt it les and reference t o det ailed part s of t he report should also be applied, and if necessary, accom panied by addit ional explanat ory not es and a glossary of t erm s. References t o law s and regulat ions could be present ed in furt her part s of t he repor t or in foot not es.
BPK r epor ts’ visibility
22
Som e of t he m edia int erview ed by t he Review er w ere not aw are t hat t he BPK conduct ed not only financial audit s, but also for exam ple forensic audit s and perform ance ones. They adm it t ed t hat t hey w ere not fam iliar w it h ot her t ypes of audit s carried out by t he BPK. The BPK inform at ion pract ice seem s m uch m ore successful on t he cent ral level w here t he access and availabilit y of inform at ion is m ore at hand. This indicat es t he need for up-t o-dat e inform at ion and for a m ore act ive and uniform w ay of sharing audit result s and dist ribut ing it t o t he m edia.
This im plies on t he part of t he BPK bot h t he effect iveness and openness in present ing audit result s in a regular, t ransparent and recipient-friendly w ay. The Review er’s enquiry dem onst rat es t hat t here is a room for a m ore act ive public m edia policy in t hat respect , w hich can ensure t hat t he BPK’s effort s and achievem ent s in financial, perform ance and forensics audit s w ill m eet expect at ions. M ost of int erview ed journalist s st ressed t heir need of m ore frequent m eet ings wit h t he BPK , w here t hey could get t im ely and reliable inform at ion about t he out com e of it s audit s.
During t he t enure of t he previous Chairm an of t he Board w eekly press conferences w ere held. At present t he BPK has com m ercial cooperat ion w it h a popular 24 h Int ernet t elevision. This com m unicat ion channel is used once per year t o present and discuss w it h expert s t he BPK’s annual report . At t he sam e t im e t he BPK provides access t o inform at ion via press conferences and press releases, spokespersons and a w ebsit e. All t he int erview ed journalist s underlined t hat BPK is for t hem t he official source of inform at ion and declared t heir readiness t o use it especially if delivered t im ely and w it h adequat e clarificat ion.
23
Recom m endat ion 13.
Develop a m ore act ive approach t owards t he public including t he effect ive explanat ion of t he role of t he BPK set up in t he legal fram ew ork and it s posit ion am ong other st ate inst itut ions dedicated t o eradicat e corrupt ion. Make your m edia policy definitely m ore proact ive and design an effect ive st rategy for BPK audit report s’ bet t er absorpt ion and prom ot ion by t he m edia.
STAFF
Pr opor tions
Over one t hird of all t he st aff are non-audit ors. Taking int o account t he pressing and urgent need for skilled audit st aff, it seem s reasonable t o look for w ays in w hich t hose proport ions could be im proved in favour of t he audit st aff. In t he Review er’s SAI t he non-audit st aff const it ut es about 23 per cent of all em ployers and in m any ot her SAIs t hat proport ion is even sm aller. It seem s t he easiest w ay t o rest ruct ure t he exist ing and available hum an resources.
Recom m endat ion 14.
Cont inue to increase t he proport ion of t he audit ors’ num ber vs. t o t he non- audit st aff.
Rotation
M ost of t he BPK st aff are locat ed in t he head office in Jakart a and m ost of t hem (over 75 per cent ) act ually originat e from Java, t he m ost populous of Indonesia’s islands. Jakart a and Java in general are considered by m ost of t he BPK st aff as t he m ost at t ract ive places t o live and w ork in .
24
m em ber of t he st aff is expect ed t o be rot at ed every 4-5 years. The sam e approach is also applied by som e Governm ent agencies.
At t he end of M ay and Novem ber each year t he BPK Secret ary General issues an order list ing t he nam es of t he st aff t o be r ot at ed and t heir new locat ions. The order is issued about one m ont h in advance: t he rot at ion t akes place at t he beginning of July and January respect ively.
Recent ly, t he BPK has review ed it s rot at ion schem e, in order t o relieve it s st aff frust rat ion: now each m em ber of st aff declares one province as t heir hom e province, and is guarant eed t hat at least every t hird rot at ion he/ she w ill be t ransferred t o a place close t o his/ her hom e. Also every t hird rot at ion should t ransfer people t o t he head office in Jakart a, w hich offers t he great est variet y of int erest ing and at t ract ive jobs. St aff rot at ed t o t he m ost east ern provinces, generally considered t he m ost challenging and difficult places t o w ork and st ay, are prom ised t o be rot at ed from t here aft er 3-4 years, i.e. sooner t han from ot her locat ions.
The BPK pays for t he t ransport at ion of t he rot at ed st aff, t heir spouse and up t o 3 children t o t he new locat ion, and ensures t hem free locat ion for t he first w eek in t he new place. The rot at ed personnel is paid special allow ances t o cover t he cost s of t he t ransfer and rent ing a flat . How ever, fam ilies of m any of t he st aff rot at ed decide not t o m ove w it h t hem and m any of t he BPK st aff are separat ed from t heir fam ilies, w hich causes frust rat ion and m ay have negat ive influence on t heir professional perform ance.
Out of am ong over 6000 of BPK’s st aff, in 2013 over 900 w ere rot at ed: out of w hich 113 am ong different w orking unit s locat ed in Jakart a, 262 from w orking unit s in Jakart a t o represent at ive offices in ot her provinces, 251 from represent at ive offices in ot her provinces t o w or king unit s in Jakart a, and 284 bet w een various provincial represent at ive offices.
There is a general agreem ent am ong t he BPK st aff t hat a rot at ion procedure is necessary: t he BPK has t o address Indonesia’s great int ernal diversit y and size. St aff also generally agree t hat rot at ion cont ribut es t o t he independence of individual audit ors, and as a result t o t he BPK’s enhanced credibilit y. At t he sam e tim e, how ever, m any of t he BPK’s st aff find t he current syst em not t ransparent and/ or consist ent enough. In t his t he Review er sees some risk of decreasing t he st aff’s m ot ivat ion or even losing som e valuable st aff w hen t hey are faced w it h t he rot at ion in t he current shape.
25
const raint s are a reason for reduced assist ance (t ravel, and goods shipm ent and a w eek of accom m odat ion plus leaving cost s) t o t he relocat ed em ployees. An em ployee is given one m ont h t o arrange his/ her relocat ion. None of t he em ployees int erviewed by t he Review er underm ined t he very idea of rot at ion. St ill, some regions are m ore popular (Java, esp. Jogjakart a and Jakart a) and som e ot her - less developed or w it h a risk of infect ing m alaria – are very unpopular. M ost of t he st aff em phasized t hat t hey need m ore clarit y and cert aint y for how long and w here t hey are going t o be t ransferred. They are also badly in need of m ore t im e t o prepare for m oving t o anot her region of Indonesia – during t he Peer Review it w as about one m ont h from receiving an order t o t he m ove. M oreover, t he fam ily life w as usually point ed t o as t he m ain vict im of t he rot at ion in t he current shape.Recom m endat ion 15.
Make t he rot at ion syst em m ore st aff- friendly: give t he st aff m ore t im e t o prepare for t he t ransfer ( not less t han 3- 6 m ont hs), provide bonuses and prom ot ion perspect ives. Support , if possible, bet ter living condit ions and facilit ate fam ily life condit ions esp. in poorer regions of t he count ry. Provide t he rotat ed staff w it h m ore possibilit ies to st ay w ith t heir fam ilies. Consider addit ional days off for t hose rotated part icularly far aw ay from t heir fam ilies. Regularly evaluat e and review t he system and assess its im pact on t he BPK’s perform ance. I n t he long- term t hink of w ays t o m ake t he rotat ion as voluntary as possible.
I T SYSTEMS TO SUPPORT BPK AUDI TS
BPK has developed t he IT st rat egy and has a st rong int ernal IT t eam – about 50 em ployees, including about 20 program m ers, and addit ionally t w o or t hree IT expert s in each represent at ive office. The follow ing t hree big project s are current ly being developed :
e-Audit – aimed t o enable BPK audit s t o be perform ed ent irely or part ially
26
Audit management (SM P) – from planning, t hrough evaluat ion t o follow -up.
e-Working Papers (SiAP) – declared t o be ready t o use for financial audit s in
2014. A st udy visit t o t he Aust ralian Nat ional Audit Office has been used t o help t o design t he syst em. A pilot is expect ed t o be launched in April 2014. The m ost difficult part can be problem s of infrast ruct ural nat ure, e.g. in less developed East ern part s of Indonesia. For t he time being, t he SiAP is focused on financial audit. An approach t o special purpose audit s and perform ance audit s is planned t o be a sim plified one – because of less st andardised procedure st eps – and is t o be applied in t he second part of t he year.
Development
All audit ors asked by t he peers about burden of adm inist rat ive support – relat ed t o docum ent ing, m onit oring and supervising audit s – w ere pinning t heir hopes on t he IT docum ent m anagement syst em e-Working Papers, during t he peer review being st ill under developm ent . Also according t o t he IT unit t he syst em should reduce t he burden of procedural w orkload put on audit ors, by providing t hem w it h everyt hing t hat is needed in one elect ronic w orkspace: access t o int ernal and ext ernal dat a, form s, list s, t em plat es, m et hodological support , w orking papers and ot her useful t ools.
The business archit ect ure and business process m odelling w orks (for w ork-flow purposes) of t he syst em are st ill in progress. Problem s occur w it h regular and up-t o-dat e supply of docum ent s and dat a t o t he syst em . The issue of t he syst em ’s ow nership is also considered an im port ant problem . It should be rem inded t hat in m ost cases, problem s w it h IT syst em s st em from organisat ion not t echnology.
Recom m endat ion 16.
I T proj ect s should be cont inued, w it h aim t o build up the professional pot ent ial of t he BPK in it s m ore and m ore digitalised audit environm ent . Organisat ional part of I T proj ects should be especially t aken care of and the Board’s support should be convincingly dem onst rated.
27
inform at ion t echnology t o support t he BPK m anagem ent , t he Review er not es t hat som et im es, t oo broad scope of inform at ion m ay m ake it difficult for t he m anagers t o f ocus on relevant dat a. In som e cases t here is a st rong need for graphical present at ion of key dat a t hat could boost t heir readabilit y.Recom m endat ion 17.
Furt her developm ent of t he m anagem ent I T dashboard should focus on a short list s of t he m ost useful inform at ion t hat could be presented t o various levels of m anagem ent. Close cooperat ion w it h and reliable feedback from t he m anagem ent w ill be necessary for a success.
IT audits
The BPK’s IT audit s are t reat ed m ainly as financial audit ’s support . There is no IT audit unit gat hering IT audit ors and support ing t he IT com ponent in non-IT audit s. It means t hat m ore am bit ious t opics relat ed t o IT cannot be conduct ed. At t he sam e t im e, SAIs of t he w orld t end t o use IT audit s not only as aut onom ous audit project s but com bine t hem effect ively w it h assessing real value and progress of Governm ent program m es. The audit s are m ore focused t hen on St at e t asks or agencies’ eff ect iveness t han on IT syst em s only. This t rend can be seen e.g. in t he EUROSAI IT Working Group port al: ‘Cont rol Space of e-Governm ent Audit ’ (egov.nik.gov.pl).
Recom m endat ion 18.
Set t ing up a dedicat ed I T team should be considered – w ith an aim t o synergize the qualit y and num ber of I T audits done by t he BPK, as well as expanding t he I T audit com ponent in perform ance and special purpose audit s.
29
V.
Au d it in g St a n d a r d s a n d
M e t h od olog y
The Review er was inform ed t hat BPK form ally decided t o com ply wit h ISSAI. The iCAT self-t est ing t ool, w hich can be a subst ant ive help in evaluat ing t he com pliance wit h ISSAI is current ly being cust om ized t o t he BPK needs. In case of t he perform ance audit , t he evaluat ion process has been com plet ed and is now in t he t ranslat ion process. M ore t im e is necessary t o evaluat e t he com pliance of financial audit .
TRANSLATI NG STANDARDS
As t he Review er w as informed, t he Int ernat ional St andards of Suprem e Audit Inst it ut ions (ISSAI) have not been t ranslat ed int o Bahasa Indonesia from English yet , because t he BPK presum es, t hat first t hey should w ork w it h t hem , t o underst and t heir cont ent in-dept h. The Review er agrees t hat t his m et hod is appropriat e, especially w it h procedural and t echnical st andards or guidance, i.e. ISSAI of level t hree (100 999) and four (1000-9999). How ever, t he basic, high level ISSAIs, like t he Lim a Declarat ion (1) and level 2 ISSAIs (10-40) if dist ribut ed in Bahasa Indonesia w ould probably be helpful t o some st akeholders w ho, as e.g. M em bers of Parliam ent , decide about t he BPK’s posit ion in t he St at e syst em .
Recom m endat ion 19.
30
FI NANCI AL AUDI TS
BPK audit ors use a com prehensive Financial Audit Guideline . The current legal fram ew ork obliges t he BPK t o conduct financial audit each year in all m inist ries (93 in 2012), polit ical part ies, and local governm ent s (alt oget her m ore t han 3000 ent it ies).
The BPK’s opinion is necessary t o proceed w it h t he aforem ent ioned ent it ies’ financial st at em ent s, and t hey cannot be discharged w it hout it . When t he opinion is qualified or low er, t he Parliam ent usually invest igat es furt her on t he account abilit y of a m inist er, agency et c. At t he local level t he Regional Assem bly does t he same. At bot h levels, som e incent ives are budget ed t o ent it ies t hat receive unqualified opinion.
Dat a on financial audit s result s in years 2008-2012 show a st able t endency t o im prove. At t he cent ral level unqualified opinions account ed for 41 per cent of cases in 2008 and for 74 per cent in 2012. At t he sam e t im e, t he cost of t he BPK’s financial audit is kept at t he sam e very high level, involving all available resources in t he first half of t he year and leaving only t he second half for ot her t ypes of audit s.
Recom m endat ion 20.
Re- evaluate t he efficiency of financial audit s and wit h t he help of t he Parliam ent consider redraw ing the current approach – base it on t he risk analysis t o m anage t he resources in a m ore reasonable w ay and to reduce t he cost of t he annual financial st atem ent s’ verificat ion.
Mater iality
During int erview s w it h t he BPK’s audit st aff, t he Reviewer not iced t hat financial audit t eam s underst ood m at erialit y as a purely quant it at ive value. Such an at t it ude corresponds w it h t he BPK’s Financial Audit Im plem ent at ion Guidance . On t he ot her hand, t he Review er found t hat qualit at ive approach is also present in t he BPK’s financial audit guidance . The Review er’s t eam w as t old t hat audit ors prefer t o keep t o t he m ore object ive and verifiable quant it at ive approach even if t he M et hodology Unit encourage t hem t o m ake use also of t he qualit at ive approach.
31
Audit Im plem ent at ion Guidance define a m at erial error as one t hat can influence t he judgm ent or considerat ion of a reasonable person.According t o ISSAIs it is a possible influence on decisions (not only judgm ent or considerat ion) t hat is crucial for det erm ining t he m at erialit y:
“ In a financial st at ement audit , a misst at ement is mat erial, individually or
w hen aggregat ed w ith ot her misst at ement s, w hen it could reasonably be
expect ed t o influence t he economic decisions users t ake based on t he
financial st at ement s.”8
They also int roduce a not ion of ‘perform ance m at erialit y’ and em phasise: “ The qualit at ive aspect s of mat erialit y generally play a great er role in t he
public sect or t han in ot her t ypes of ent it ies.”9
Audit t eam s m ay find t he pract ical applicat ion of qualit at ive approach difficult , w it hout addit ional m et hodological support and, w hat is even m ore im port ant , w it hout a clear m echanism of im plem ent ing it int o t heir pract ice. An exam ple of such a pract ical solut ion can be NIK Poland w here a financial audit opinion, init ially calculat ed versus quant it at ive m at erialit y t hreshold, can be low ered or increased one level depending on t he subst ant ial qualit at ive explanat ion.
Recom m endat ion 21.
St rengthen t he qualit at ive elem ent of determ ining the m aterialit y in t he BPK’s financial audits. The I SSAI definit ion of m at erialit y should be applied and a clear m echanism of pragm at ic use suggested t o audit team s.
PERFORMANCE AUDI TS
The analysis of t he BPK’s perform ance audit show ed t hat t here is a subst ant ial im provem ent of t heir qualit y, especially t aking int o account rem arks by previous Review ers. Even if in case of some perform ance audit s it could be said t hat t hey are closer rat her t o t ypical com pliance audit s, t here w ere also exam ples of w ell t hought out and conduct ed perform ance audit s, com plet ed w it h t ypical perform ance recom m endat ions.
8 ISSAI 200, paragraph 66 9
32
Topics for perform ance audit s are usually suggest ed by unit s or Board m em bers, and t he Board decides about t he final list. Governm ent program m es are t aken int o account , priorit ies are applied and part icular t opics chosen. In t he Review er’s opinion, t oget her w it h furt her developm ent of perform ance audit act ivit y, a need for w ell-t arget ed planning will grow. If not , t he BPK w ill risk allocat ing it s resources t o subject s of not sufficient scale or w eight .
The st akeholders w ho w ere int erviewed by t he Review er expect a focus shift by t he BPK t o public service program mes, e.g. educat ion, healt h, infrast ruct ure. For inst ance t he M inist ry of Finance signalled t hat m ainly t ax and cust om s unit s are covered by t he BPK’s perform ance and special purpose audit s. In t he M inist ry’s opinion t here is also an urgent need t o audit asset s m anagement and ot her syst emic subject s. The BPK’s audit on public debt m anagem ent w as st ressed as a good exam ple of a wider, st rat egic level audit .
Recom m endat ion 22.
Consider elaborat ion of system for select ing t opics of perform ance audits, based on cent ralised assessm ent of cross- sect ion risks, and assuring sound balance betw een t op-dow n and bot tom - up flow of ideas.
Anot her visible problem is lack of t im e-flexibilit y - t he perform ance audit s (and special purpose audit s) can be conduct ed only from July t o Decem ber. The rest of t he year has t o be used for financial audit s. Tim e for all perform ance audit s is t hen roughly t he sam e each year, but a variet y of perform ance audit subject s som et im es w ill dem and m ore and som et im es less t im e t o be audit ed properly.
Recom m endat ion 23.
33
Bot h t he BPK t hem selves and all of t heir st akeholders agree t hat perform ance audit should be conduct ed by t he BPK on a m uch larger scale. It is generally considered t o be one of t he great est challenges faced by t he BPK. The BPK’s st rat egy ident ifies an increase in t he num ber of perform ance audit s as one of it s goals. At t he sam e t im e, t he BPK is aw are of t he aforem ent ioned obst acles prevent ing it from reaching t hat goal. How ever, t here is no consist ent plan how t o overcom e t hese obst acles.Recom m endat ion 24.
Elaborate a com prehensive plan t o increase t he share of perform ance audits in t he t otal num ber of t he BPK’s audits and at t he sam e t im e t o im prove t he qualit y of perform ance audits.
SPECI AL PURPOSE AUDI TS
Special Purpose Audit is a specific t ype of audit defined in t he Act as neit her financial nor perform ance . Special purpose audit s can be t riggered by a request (Parliam ent , Governm ent , law enforcem ent agencies) or on t he BPK’s ow n init iat ive.
The Review er found t hat t his t ype of audit is somet im es t reat ed by t he BPK’s audit ors sim ply as a com pliance audit , t hough t here are m any cases w hen it also has a forensic charact er and is carried out as support for invest igat ions conduct ed by law -enforcem ent agencies.
The com pliance t ype of sum m aries focused on a part icular ent it y w as dom inat ing in special purpose audit s analysed by t he Review er – even if t he audit s’ findings needed syst emic or perform ance conclusions and recom m endat ions.
Recom m endat ion 25.
34
Cor r uption and fr aud detecting
One of t he 2009 peer review recomm endat ions w as to shift focus in fraud and corrupt ion cases from individuals t o t he syst em ic background: causes and effect s. In t he BPK a plan emerged t o set up an Invest igat ive Unit as an efficient t ool t o audit fraud and corrupt ion in all regards. The concept w as present ed t o t he BPK Board. Up t o t he t im e of t his peer review t he concept has not been approved. In t he Review er’s opinion such a unit w ill not necessarily solve t he problem , if it s w ork w ill be conduct ed under pressure of current expect at ions. It is an appropriat e m et hodology t oget her w it h organisat ional approach t hat can help in t his regard.
Recom m endat ion 26.
Find a solut ion t hat w ill refocus t he BPK’s audits concerned w it h fraud and corrupt ion from individuals t o causes and effect s.
RI SK ANALYSI S
BPK audit ors use risk analysis approach t o plan all t ypes of audit s. Pot ent ial problem s are evaluat ed in det ail t o select t he m ost im port ant and at t he sam e t ime audit able audit subject s. Translat ing qualit at ive values as high, m edium or low t o digit al equivalent s helps t o calculat e and rank risk sum m aries.
In pract ice t he high value m eans t hat a disadvant ageous event can occur. It m eans t hat t he risk analysis is aim ed t o com pose an audit sam ple but w it hout clearly st at ing w hat t he high risk value means. Pract ical problem s m ay occur w hen risks point ed as high are m at erialized as findings, but st ill t hey do not appear im port ant enough t o im pact t he final audit result .
Recom m endat ion 27.
35
Anot her problem relat ed t o risk analysis is connect ed w it h t he t w o-phase nat ure of BPK non-financial audit s. Aft er a preliminary phase t he risk analysis is conduct ed, based on dat a obt ained. This pract ice helps t o specify pre-audit hypot heses and refine risk analysis. In perform ance audit s, a short list of five m ain risk areas is draw n up at t his st age. Next , t he five areas are analysed in-dept h and only one of t hem is decided t o be audit ed.The analysis is direct ed t o obt ain a set of t he m ost significant audit subject s and t hus t o use audit resources as efficient ly as possible, but som e problem s m ay occur as a result . In one of t he cases analysed by t he Review er, audit result s given by such a ‘funnelling’ of audit subject s w ere visibly effect ive, but t he audit t it le was no longer fully corresponding t o t he narrow ed scope of t he audit . In anot her case, t he BPK Board decided t o deviat e from t he m et hodology and t o focus t he second st age of t he audit not on one but on t hree of five m ain areas .
Recom m endat ion 28.
Consider a m ore flexible m ethodology of t he t wo- phase audit approach. Som et im es it m ay be useful t o change the audit t it le aft er t he first phase or even to abandon the audit if no serious risks have been found. I n ot her cases, reducing audit subj ect s t o j ust one out of five can m ake the audit ’s scope t oo narrow .
37
VI . Au d it Pe r for m a n ce
QUALI TY ASSURANCE
The current audit qualit y assurance procedure has been im plement ed
