Peer Review of the Audit Board of the Republic of · PDF filePeer Review of the Audit Board of...

Peer Review of the Audit Board of the Republic of Indonesia

Algemene Rekenkamer

(Netherlands Court of Audit)

Lange Voorhout 8

P.O. Box 20015

2500 ea Den Haag

phone +31 70 342 43 00

fax +31 70 342 41 30

www.rekenkamer.nl

Design

Corps Ontwerpers, The Hague

Photography

ANP

Print

OBT, The Hague

The Hague

August 2009

Audit team

Roy Ferouge (Project Manager)

Egbert Jongsma

Ton Kok

p e e r r e v i e w o f t h e a u d i t b o a r d o f t h e r e p u b l i c o f i n d o n e s i a�

Contents

Preface 4

Part1 Conclusions,recommendationsandresponse 5

1 AboutthisPeerReview 6

2 Conclusionsandrecommendationsforfurtherimprovement 7

2.1 Whereisbpknow? 7

2.2 Whereshouldbpkbeheading? 8

2.2.1 Politicalenvironmentofbpk 8

2.2.2 Accountabilityandtransparencyrisks 8

2.2.3 Newstrategicfocus(‘umbrella’) 10

2.3 Conclusionsandrecommendationsonkeyfactorsofbpk’sQualityManagement

System 11

2.3.1 Reporting 11

2.3.2 Communication 12

2.3.3 Continuousimprovement 13

2.3.4 HumanResourcesManagement(hrm) 14

2.3.5 Auditstandards/Guidelines 15

2.3.6 CodeofEthics/integrity 16

2.3.7 Institutionalsupport 16

3 Responseofbpk 18

3.1 IntroductionandtheImportanceofthePeerReview 18

3.2 bpk’sCommitmentonQualityControlsandAssurance 18

3.3 bpk’sAppreciationonPeerReviewConclusionsandRecommendations 19

3.4 bpk’sImmediateActionPlan 19

3.5 bpk’sNextStrategicPlan 19

3.6 bpk’sBureaucraticReform 20

3.7 TheRedCarpetTreatment 20

3.8 ClosingRemark 20

Part2 Findings 21

1 Qualitycontrolatinstitutionallevel 22

1.1 QualityManagementSystemrequirements 22

1.2 Independenceandmandate 22

1.2.1 AuditfunctionintheRepublicofIndonesia 22

1.2.2 Mandate 23

1.2.3 bpk’sbudget 23

1.2.4 Accesstoallnecessarydocumentationandinformation 23

1.3 LeadershipandInternalGovernance 24

1.4 HumanResourcesmanagement 28

1.4.1 hrminstruments 29

1.4.2 Personneldirectly/indirectlyinvolvedinaudit 29

1.4.3 Newpersonnelassessment 30

1.4.4 AssessmentCentre 30


1.4.5 Rewards/punishments 30

1.4.6 Staffrotation 31

1.4.7 Training 31

1.5 AuditStandardsandGuidelines 32

1.6 Institutionalsupport 34

1.6.1 Financialresources 34

1.6.2 Infrastructure 34

1.6.3 Technology 34

1.6.4 ElectronicWorkingPapers/Teammate 35

1.6.5 Supportservices 35

1.7 Continuousimprovement 35

1.7.1 Strategicqualityofaudits 35

1.7.2 Impactaudits 36

1.7.3 Overlystrictseparationofaudittypes 36

1.7.4 Qualitycontrols 36

1.7.5 QualityAssurance 37

1.8 Externalstakeholderrelations 38

1.9 Results(impactassessment) 38

2 Individualauditatengagementlevel 39

2.1 Introduction 39

2.2 Financialaudit 39

2.2.1 Generalconditions 39

2.2.2 Planningfinancialaudit 40

2.2.3 Fieldwork 41

2.2.4 Reporting 42

2.3 Performanceaudit 43

2.3.1 Mainfindings 44

2.3.2 Generalconditions 44

2.3.3 Auditplanning 45

2.3.4 Auditimplementation 45

2.3.5 Reporting 45

2.3.6 Qualitycontrol 45

2.4 Specialpurposeaudits 46

2.4.1 Mainfindings 47

2.4.2 Investigativeaudits 47

3 FollowuptotheNewZealandPeerReview 49

AppendixI MethodologyusedinthePeerReview2009oftheAuditBoardoftheRepublic

ofIndonesia 51

AppendixII Overviewofauditsreviewed 52

AppendixIII Generalinformationbpk 53

AppendixIV SuggestionsforfurtherimprovementsinthePerformanceAuditing

ImplementationGuidance 55

AppendixV HumanResourcesManagement 58


Preface

ItiswithgreatpleasurethatIoffertheAuditBoardoftheRepublicofIndonesia(bpk)

thefinalresultsofthePeerReview2009.bpk,liketheNetherlandsCourtofAudit,isa

SupremeAuditInstitution.Itisdedicatedtosafeguardinggoodgovernancebyensur-

ingthetransparencyandaccountabilityofthepublicsectoroftheRepublicof

Indonesia.TofunctionasaSupremeAuditInstitutionitmustsafeguarditsindepend-

ence.Independencerequiresresponsibility,aresponsibilitytobetransparentand

accountable.Thatiswhywe,asmembersoftheInternationalOrganisationof

SupremeAuditInstitutions(intosai),conductPeerReviewstoassessthequalityof

ourinstitutions.HoweverauniformmodelforconductingPeerReviewsofSupreme

AuditInstitutionsisnotyetavailable.Atpresentintosai’sCapacityBuilding

CommitteeispreparingaChecklistofPossiblePeerReviewIssues.ForourPeer

ReviewofthebpkwecouldusechecklistsalreadydevelopedbytheAsianandAfrican

OrganisationofSupremeAuditInstitutions(asosaiandafrosai).

ThisPeerReviewmarksanimportantpointinthehistoryofbpk.bpkhastransformed

itsorganisationintoamodernSupremeAuditInstitutionwithlegallyembedded

independence,astrongmandateandqualifiedstafftorealiseitstasksandobjectives.

OurPeerReviewfoundthatbpkhadlaidstrongfoundationstofunctionasaSupreme

AuditInstitution.Webelievethatbpkhasplayedanimportantroleinenhancingthe

transparencyandaccountabilityoftheIndonesianpublicsector.Weareconfidentthat

itwillcontinuetodoso.Wehopeoursuggestionswillbeofvaluetofurtherimprove

thefunctioningofbpkandthebenefitsofitsactivitiesfortheIndonesianpopulation:

itsmostimportantstakeholder.

IwouldliketoexpressmygratitudetothecurrentBoardforitscooperationand

friendshipandIwishtowelcomethenewBoardasmembersofourcommunityand

hopeforacontinuationofourcooperationandfriendshipintheperiodtocome.

OnbehalfofthePeerReviewteamIwouldalsoliketoexpressourgreatappreciation

forthewarmhospitalityandfullsupportgivenbytheAuditBoardanditsstaffduring

thisPeerReview.

SaskiaJ.Stuiveling

PresidentoftheNetherlandsCourtofAudit

TheHague,July2009

PartI

Conclusions,recommendationsandresponse


1 AboutthisPeerReview

ThisreportpresentstheresultsofthePeerReviewoftheAuditBoardoftheRepublic

ofIndonesia(bpk)asperformedbytheNetherlandsCourtofAuditin2009.

ThePeerReviewteamconductedareviewof:

1 bpk’squalitycontrolsystemtoassesswhetherornotithadbeendesignedand

implementedintheorganisationalstructuresoastosupporttheaimsofproviding

adequateassurancethatbpk(a)hasappliedandcompliedwiththeStateFinance

AuditStandard(spkn)and(b)hasadequatelyappliedandcompliedwithauditing

policiesandprocedures.

2 bpk’sprogressandon-goingeffortstoimplementtherecommendationsgivenby

thepreviouspeerreviewer,theAuditorGeneralofNewZealand.

Qualitycontrolswerereviewedatinstitutionallevelandatengagementlevel.Intotal

14individualauditengagementswereselectedforreview.

Thecriteriausedtoassessqualityassuranceandqualitycontrolatbpkaresetoutin

thefollowingdocuments:

• intosai’slimaandMexicoDeclaration;

• intosaistandardsandguidelines;

• afrosaistandardsandguidelines;

• asosaistandardsandguidelines;

• bpk’sownstandardsandguidelines.

Inadditiontoanalysingtranslateddocumentsandinterviewingseveralunits(coreand

supportunits),wereviewedeightfinancialaudits,threeperformanceauditsandthree

specialpurposeaudits.

Inpart1ofthisreportwepresentourconclusionsandrecommendationsforfurther

improvement.Part2ofthisreportcontainsthefindingsofthePeerReview.Findings

onqualityassuranceandqualitycontrolatentitylevelaredescribedinchapter1.

Theresultsofthereviewofselectedauditsarereportedinchapter2.Thefollow-upto

thePeerReviewperformedbytheAuditorGeneralofNewZealandisconsideredin

chapter3.


2 Conclusionsandrecommendationsforfurtherimprovement

bpkhasputinanimpressiveamountofwork.Since2004ithaslaidstrong

foundationstofunctionasaSupremeAuditInstitution.Ithasopened33regional

officesandrecruitednewstaff.bpkhasalsodevelopedamulti-yearstrategybasedon

keyperformanceindicatorsforinternalandexternalobjectives.AlthoughthePeer

Reviewteamhasmademanyrecommendations(meantforfurtherimprovement)the

overallconclusionisclearlyverypositive.

Besidesorganisationalandpolicyimprovements,wehaveidentifiednecessary

improvementsinthestrategicplanningandfocusofbpk’sactivities.Webelievebpk

shouldexploitthemomentumoftheupcomingchangesintheBoard’scomposition

andthefinalisationofitscurrentstrategicperiodtoimplementtheseimprovements

inclosecooperationwithitsrelevantstakeholders,beingparliamentandgovernment

atbothnationalandlocallevel.

Inthischapterwesetoutourfindingswithregardtotheentitylevel,engagementlevel

andthefollow-uptothepreviousPeerReview.Section2.1containsthemain

conclusionsofthePeerReview.Thestrategicimprovementswebelievearenecessary

forthecomingperiodarepresentedinsection2.2.Conclusionsandrecommendations

regardingthekeyfactorsofbpk’sQualityManagementSystemidentifiedbythePeer

Reviewteamareclusteredandreportedinsection2.3.

2.1 Whereisbpknow?

WeconcludethatbpkhaslaidstrongfoundationstofunctionasaSupremeAudit

Institution.Ithasputinanimpressiveamountofworksince2004.

Wefoundthatbpk’sroleasabpkisnowsecurebecausenearlyallcrucialelements

ofLawNo.152006havebeeneffectuated.Inpractice,however,bpkhasencountered

onemainobstacletocarryingoutitsmandate,namelyitslimitedaccesstoinformation

ontheTaxationOffice’srevenues.ThissituationmeansthattheAuditBoard’sLaw

No.15isnotcompliedwith.Italsogoesagainstintosai’sLimaDeclaration1977as

confirmedintheMexicoDeclaration2007.1intosaistatedinprinciple4that

unrestrictedaccesstoinformationisnecessaryfortheproperdischargeofthe

statutoryresponsibilitiesofsais.

Wealsofoundthattheauditmanualframework,consistingofrulesandregulations,

manualsandguidelines,complieswithinternationalstandards.Moreover,aquality

controlsystemisinplaceandaqualityassurancesystemhasbeendesigned.

Wefurtherfoundthattheresponsibilitiesofallactorswereclearandthattheright

checksandbalanceswereinplaceintheauditprocess.Theauditsreviewedhadbeen

performedincompliancewithbpk’sauditmanualframework.Allqualitycontrol

elementsidentifiedbythebpkwereevidentintheauditprocessreviewed.1INTOSAI (�00�), Mexico Declaration on SAI Independence (ISSAI 10).


Furthermore,wefoundthattheworkperformedbytheselectedauditteamsprovided

reasonableassurancetoexpressanopinion.Theauditorsinterviewedhadaverygood

knowledgeoftheirauditsubject,auditobjectiveandauditmethodology.Theyfollowed

internalguidelinesandwereabletoprovidethesupportingauditdocumentation.

Finally,wefoundthatbpkhadfolloweduptherecommendationsmadebytheAuditor

GeneralofNewZealand.

2.2 Whereshouldbpkbeheading?

2.2.1 Politicalenvironmentofbpk2009willseechangesinbpk’spoliticalenvironment:the2009generalelectionswill

produceanewparliamentandanewgovernment.Moreover,thecompositionofbpk

willchangeassevenofthenineBoardmembersendtheirtermandarereplacedby

newmembers.ThesechangesneedtobeproperlymanagedbytheAuditBoardandits

stafftosecuretheachievementsreachedsofarandtoexploitthemomentumfor

furtherimprovementinitsperformanceasaSupremeAuditInstitution.

2.2.2 AccountabilityandtransparencyrisksBesidesthepoliticalchangesandrenewaloftheAuditBoard,threemainriskshave

beenidentifiedwithregardtotheaccountabilityandtransparencyofthepublicsector

intheRepublicofIndonesia.Theserisksneedtobeaddressedinthenextstrategic

period:

1 bpk’slimitedaccesstoinformationonrevenuesandforeignaid;

2 weakfinancialmanagementincentralandlocalgovernment;

3 thepersistenceoffraudandcorruptioningovernmentandsociety.

Tobeabletoaddresstheserisks,bpkshouldformulateastrategicplanthatcanbe

implementedinthepoliticalenvironmentinwhichitoperates.Cooperationand

communicationwithpeople’srepresentativesatnationalandlocalleveland

governmentatnationalandlocallevelareessential.Onlythencantheseissues,which

areaproblemforthewholeoftheRepublicofIndonesia,trulyberesolved.The

relevantpoliticalenvironmentcanbevisualisedasfollows:

Local governmentPeople’s representatives

at local level

Audit Board of the Republic of Indonesia (BPK)

National governmentPeople’s representatives

at national level


Below,wesuggesthowbpkcouldaddressthethreerisksinitspoliticalenvironment,

consistingoftheinteractionbetweenpeople’srepresentatives,governmentandbpk.

Risk1:Limitedaccesscontrarytointernationalrulesandpractices

Asnotedinsection2.1bpkhasencounteredaseriousobstacletoitscarryingoutits

mandate,namelyitslimitedaccesstoinformationontheTaxationOffice’srevenues.

Inaddition,bpkhasbeenexcludedfromauditingforeign-fundedprojectsbecausethe

governmentanddonors/creditorsagreedtouseaninternalgovernmentagency

(bpkp).

bpkhasalreadytakenupthesetwoissuesoflimitedaccess.bpkraisedtheissueof

accesstorevenueswiththeConstitutionalCourt.TheCourthasnotgrantedbpkfull

accesstotherevenuesoftheRepublicofIndonesia.Nevertheless,thereseemstobean

openingattheMinistryofFinance,whichhasallowedbpksomeaccesstoits

informationforitsaudit.Withregardtoauditingforeign-fundedprojects,thelackof

accesstoforeign-fundedprojectsiscontrarytothestandardpracticeatmanybilateral

andmultilateraldonors.bpkhasdiscussedaccesswithgovernmentandforeign

donorsbutwithoutanyconcreteresult.

Risk2:Weakfinancialmanagement

Atpresent,financialmanagementinalllayersofgovernmentisweak.bpkhasalready

startedseveralactivitiestoraisegovernmentawarenessandtosetoutaroutefor

improvementbydemandingactionplansfromnationalandlocalgovernmentthatlead

toappropriatefinancialmanagementinduecourse.bpkhasaroletoplayasexternal

auditorbutitisnotresponsibleforfinancialmanagement.Theimprovementofpublic

financialmanagementshouldbeajointeffortbygovernmentandthepeople’s

representativesatnationalandlocallevelandbybpk.

Atpresent,thereisnostronginterestinparliamenttoaddresspublicfinancial

managementandbpk’sauditfindings.Webelievebpk’seffectivenessasasaicould

bestronglyenhancedthroughtheappointmentofaPublicAccountsCommitteein

parliament.Furthermore,aPublicAccountsCommitteecouldplayacrucialrolein

enhancingpublicfinancialmanagementintheRepublicofIndonesia.

We recommend that bpk give the highest priority to the full implementation of its mandate with

regard to revenues and foreign funds and start an open and constructive dialogue with the

Minister of Finance, foreign donors and parliament.

We recommend that bpk give the highest priority to the full implementation of its mandate with

regard to revenues and foreign funds and start an open and constructive dialogue with the

Minister of Finance, foreign donors and parliament.

We recommend that bpk develops a common strategy together with government (including

internal control and audit units) and the people’s representatives to raise public financial

management to a structurally adequate level within a realistic but ambitious timeframe.

We also recommend that bpk coordinate all action plans of lower tiers of government.

We recommend that bpk retain a strong focus on financial auditing by selecting important

elements of public financial management, such as the internal audit function, asset management,

revolving funds and contract management.

We recommend that bpk develops a common strategy together with government (including

internal control and audit units) and the people’s representatives to raise public financial

management to a structurally adequate level within a realistic but ambitious timeframe.

We also recommend that bpk coordinate all action plans of lower tiers of government.

We recommend that bpk retain a strong focus on financial auditing by selecting important

elements of public financial management, such as the internal audit function, asset management,

revolving funds and contract management.

p e e r r e v i e w o f t h e a u d i t b o a r d o f t h e r e p u b l i c o f i n d o n e s i a10

Risk3:Fraudandcorruption

Atpresent,Indonesiansocietyisstilltroubledbyfraudandcorruption.Althoughbpk

hasputalotofeffortintosettingupandconductinginvestigativeaudits,webelieve

bpk’seffectivenessliesnotsomuchindetectingfraudandcorruptionbutin

preventingitsoccurrencebyanalysingthecausesandeffectsoffraudandcorruption:

howdoesithappenandhowshoulditbemadeimpossible?

2.2.3 Newstrategicfocus(‘umbrella’)Giventhevastauditfieldandthelimitationsonbpk’sauditcapacity,awell-balanced

strategyisrequired.Themulti-yearstrategybpkhasdevelopedisagoodbasistoset

theagendaforpublicdiscussions.

Webelievebpk’snextstrategicplanshouldbebasedonthefive-yeargovernment

planningcycle.Thiswouldenableamorestructuredevaluationofthegovernment’s

performanceattheendofitsterm.ThestartofthenewBoardcoincideswiththestart

ofthenewgovernmentandprovidesanopportunitytotailorbpk’splanningtothatof

thenewgovernmentandtooptimiseitsinfluence.Toenhancetheimpactofitsaudits,

bpkshouldfocusitsmulti-yearstrategyonalimitednumberofmajorpolicyissues

overaperiodofseveralyears(forinstanceeducation,health,infrastructure,securityor

theenvironment).Theseissuescanthanserveasaframeworkfortheannualaudit

selections.

Startingwithadescriptionofexpectedoutcomes,themesandsectorsofitsmandate,

bpkcoulddefineitsmulti-yearauditplan(its‘umbrella’)byspecifyingobjectivesit

wouldliketoattain.Suchobjectiveswouldguidebpkduringitsannualselectionof

auditsorotheractivities.Thesuccessofgovernmentpoliciesishardtomeasureby

meansofasingleauditbutaclusterofinterrelatedauditscangivebetterproofof

policysuccessorfailure.bpkcoulddeveloplesscapacity-consuminginterventionsto

increaseitscoverageoftheauditfield.Findingsandrecommendationsfromoneaudit

(casestudy)couldbeused,forexample,tomakerecommendationsinsimilar

situationsoratsimilarentities.Thesystemofkeyperformanceindicatorsthatbpkhas

developedandimplementedisahelpfulinstrumenttoensuretherealisationofthis

strategy.

Furthermore, we consider the appointment of a Public Accounts Committee of crucial importance

and therefore recommend that bpk actively promote the appointment of such a committee.

Furthermore, we consider the appointment of a Public Accounts Committee of crucial importance

and therefore recommend that bpk actively promote the appointment of such a committee.

We recommend that bpk focus more on the causes and effects of fraud and corruption and not

solely on the misconduct of individuals. We suggest that bpk use its investigative audit results in

combination with international and national knowledge to identify trends and the underlying

structure that facilitates fraud and corruption. We also suggest that bpk exchange knowledge and

experience with sais from other countries in the region that have comparable problems. This

would further improve its approach to combating corruption and sharing its own valuable

experience.2

We recommend that bpk focus more on the causes and effects of fraud and corruption and not

solely on the misconduct of individuals. We suggest that bpk use its investigative audit results in

combination with international and national knowledge to identify trends and the underlying

structure that facilitates fraud and corruption. We also suggest that bpk exchange knowledge and

experience with sais from other countries in the region that have comparable problems. This

would further improve its approach to combating corruption and sharing its own valuable

experience.2

2The Netherlands Court of Audit issued a study report, ‘Signals of Fraud’, on 11 March �00�. This report is based on experiences in the Netherlands, Europe and a number of international cases. The report contains information on vulnerable activities/processes, red flags (circumstances that increase the risk of fraud) and indications of fraud.


TosecuretheachievedresultsandgivethenewBoardmembersaflyingstart,we

believetheAuditBoardanditsstaffshouldgivethenewBoardmembersthe‘red

carpettreatment’.Itwouldcompriseafamiliarisationcourseforthenewlyelected

membersandprovideinformationontheAuditBoarditself,technicalaspectsand

products.ThenewmembersshouldhaveanopportunitytoobserveBoardmeetings

andthewaythemembersworkwitheachother.Acoachcouldbeappointedto

accompanythenewmembersandofferthemguidanceduringthisfamiliarisation

phase.

2.3 Conclusionsandrecommendationsonkeyfactorsofbpk’sQualityManagementSystem

bpk’sQualityManagementSystemisbasedoninternationallyacceptedstandards.

bpk’squalitycontrolissupportedbythefollowingkeyfactors:

1 IndependenceandMandate;

2 LeadershipandInternalGovernance;

3 HumanResourcesManagement;

4 AuditStandardsandGuidelines;

5 InstitutionalSupport;

6 ContinuousImprovement;

7 ExternalStakeholderRelations;

8 Results;

9 AuditEngagementPerformance.

ThePeerReviewteamreviewedthedesignandimplementationofbpk’squality

controlsystemandcametothefollowingclusteringofconclusionsand

recommendations.Thedetailedfindingsforeachkeyfactorarepresentedinpart2of

thisreport.

2.3.1 ReportingThequalityofauditreportsisakeyfactorintheeffectivenessofaSupremeAudit

Institution.Thereportswereviewedwereverylong,containedmanyfindingsand

referredinmostcasestoshortcomingsonly,nottocausesandeffects.

Possibleimprovements

Theauditorsshouldhaveabetterunderstandingofthescopeoffinancialauditin

comparisonwithperformanceaudit.Somefinancialauditobjectivescouldalsobe

definedasperformanceauditobjectives.Assessinginternalcontrolsystemsand

We recommend that bpk develop a multi-year strategy based on a limited number of topics that

are aligned with the new government policy programme. The strategy should address the three

risks we identified earlier (limited access to information, weak financial management and fraud

and corruption).

We suggest that the current Board provide the newly elected Board members with a familiarisation

course to enable them to make a flying start. We also recommend that the Board ensure that the

new members incorporate this report’s recommendations in the new strategy and annual working

programmes.

We recommend that bpk develop a multi-year strategy based on a limited number of topics that

are aligned with the new government policy programme. The strategy should address the three

risks we identified earlier (limited access to information, weak financial management and fraud

and corruption).

We suggest that the current Board provide the newly elected Board members with a familiarisation

course to enable them to make a flying start. We also recommend that the Board ensure that the

new members incorporate this report’s recommendations in the new strategy and annual working

programmes.

p e e r r e v i e w o f t h e a u d i t b o a r d o f t h e r e p u b l i c o f i n d o n e s i a1�

compliancewithlawsandregulations,forinstance,hassomeaspectsofperformance

audit.Theutilityofbpk’sreportstoitsstakeholderswouldbeimprovedifthecauses

andeffectsoffindingsandopinionswereclarified.

bpkshouldprovidemorehistoricalanalysesofitsfindingsandrecommendationsand

alsotheresponsetothem.Monitoringthefollow-uptorecommendationscouldbe

moreeffective.bpkshouldpaymoreattentiontotheimpactofitsrecommendations

andnotonlytocompliancewithrecommendations.Thiswouldalsomakeitpossible

tolearnfromtheeffectivenessofrecommendationsmade.

2.3.2 Communicationbpkusesacommunicationmixandhasalreadylauncheditsownwebsite,hasheld

consultativemeetings,publicdialogues,stakeholdersurveysandhasprovidedannual

awardstoauditeeswhodemonstratedsubstantialtransparencyandaccountability

improvements.bpkrecentlyorganisedatwo-monthtvseriestoprovidean

explanationofseveralauditreportstothegeneralpublic.

Wealsofoundthatbpkisveryactivewithinthecommunityofsais(intosai,asosai

andbilateralcontacts).Althoughwerealisetheaddedvalueofinternationalcontacts

forauditingcross-borderissues,capacitybuildingandsharingofknowledgeand

experience,wealsoseeariskregardingtheburdenofanactiveinternationalroleof

bpkforitsscarcestaffcapacity.Atpresent,bpkdoesnothaveastrategyendorsedby

theBoardthatfocusesitsinternationalactivitiesinrelationtoitsnationalstrategicgoals.

To increase the effectiveness of its reports, we recommend that bpk report more concise with a

strong focus on causes, effects and solutions and not merely on findings. Furthermore, we

recommend that bpk enhance the attractiveness of its reports by using communication experts

and more visualisations to present its analysis and conclusions.

In view of the Peer Review team’s findings, bpk’s auditors should broaden their understanding,

views and skills to disclose issues and develop audit reports. They need to look behind the

financial figures and clarify to parliament and auditees the causes and effects of the findings.

Attention should be paid to their ability to monitor and understand the environment of bpk and to

use that knowledge for assessing relevant risks and for designing and conducting audits.

To increase the effectiveness of its reports, we recommend that bpk report more concise with a

strong focus on causes, effects and solutions and not merely on findings. Furthermore, we

recommend that bpk enhance the attractiveness of its reports by using communication experts

and more visualisations to present its analysis and conclusions.

In view of the Peer Review team’s findings, bpk’s auditors should broaden their understanding,

views and skills to disclose issues and develop audit reports. They need to look behind the

financial figures and clarify to parliament and auditees the causes and effects of the findings.

Attention should be paid to their ability to monitor and understand the environment of bpk and to

use that knowledge for assessing relevant risks and for designing and conducting audits.

We recommend the fast approval of bpk’s international relations strategy once its development is

completed in order to focus its international activities.

Besides technical guidelines we recommend that bpk develop effective scenarios for responses/

interventions to counter auditees’ resistance to change. One example is selecting the right

moment to publish reports so that they have the highest impact. Although this is not possible for

the annual financial audits, it will improve the effectiveness of special purpose audits and

performance audits.

We recommend that bpk build up a strategic network of relevant stakeholders at international,

national and regional level.

Although not required by law, we recommend that bpk develop and issue an annual report on

bpk’s performance and financial management. This annual report could serve as an example for

transparency and accountability in the public sector of the Republic of Indonesia.

We recommend the fast approval of bpk’s international relations strategy once its development is

completed in order to focus its international activities.

Besides technical guidelines we recommend that bpk develop effective scenarios for responses/

interventions to counter auditees’ resistance to change. One example is selecting the right

moment to publish reports so that they have the highest impact. Although this is not possible for

the annual financial audits, it will improve the effectiveness of special purpose audits and

performance audits.

We recommend that bpk build up a strategic network of relevant stakeholders at international,

national and regional level.

Although not required by law, we recommend that bpk develop and issue an annual report on

bpk’s performance and financial management. This annual report could serve as an example for

transparency and accountability in the public sector of the Republic of Indonesia.


2.3.3 ContinuousimprovementQualitycontrolandqualityassurancearepreconditionsforcontinuousimprovement.

bpkhasfulfilledthebasicrequirementsforqualityassurancebymeansofseveral

instruments.Tobeeffective,however,theroleandfunctionofallactorsand

instrumentsmustbeclear.Anoverallvision,descriptionoftheactorsandthe

relationshipbetweentheinstrumentswillhelptoensurecontinuousimprovement.

Qualityassurance(itama)

Thecombinationofinternalaudit/inspectiontaskswithqualityassurancetasksinone

unit(itama)doesnotimprovethequalityassuranceenvironment.Thecombination

ofwhatisseenaspunishingandlearningatthesametimeshouldbediscouraged.

Qualitycontrolactivitiesneedexperiencedauditors

Itisessentialthatonlyveryexperiencedauditorswithacertainauthorityandteaching

skillsareplacedinitama.Itwouldthenbecomeanhonourtoworkforitama.The

currentitamastaffshouldbeclearlyinformedabouttheirrole,tasksandrequired

performanceassoonaspossible.Theyshouldalsoenjoythesupportofbpk’ssenior

managementandhavesufficientbudgettodothejob.Asufficientnumberofsenior

auditorsshouldjointheqainspectorateeverytenyearsforaperiodofthreeyears.

Fromproceduralcontrolstosubstance

Wearepositiveaboutthemulti-yearstrategyitamapresented.Intheinitialyears,

itamadoesnotpayattentiontothestrategicandtechnicalqualityofauditreportsbut

concentratesoncompliancewithprocedures.itamastarteditsqualityassurance

workin2008byconsideringtheexistenceandcompletenessofauditworkingpapers.

Althoughformalitiesareimportanttheydonothavethehighestaddedvalueor

learningeffectforbpk.Qualityassuranceshouldseekbestpractices(whatwentwrong

andwhatwentright?)andsuggestimprovementstotheteaminvolvedormanagement

onsuchaspectsastraining,manualsandlinecontrol.

We recommend the development of a description of the vision, tasks, actors and relationship

between the instruments necessary for quality assurance.

We recommend the development of a description of the vision, tasks, actors and relationship

between the instruments necessary for quality assurance.

We recommend that bpk separate the inspection task from quality assurance. Moreover, we

recommend that bpk define the role of itama in more detail in relation to:

• the evaluation unit (epp);

• internal review teams;

• hot review teams in the audit units.

bpk recently took the first steps to prepare project charters to clarify each function’s use as a

quality assurance instrument. We recommend that itama be able to use the findings (errors) of

the other units’ summarising/verifying activities. Furthermore, we recommend that only itama

should report relevant findings and lessons to the management of bpk.

We recommend that bpk separate the inspection task from quality assurance. Moreover, we

recommend that bpk define the role of itama in more detail in relation to:

• the evaluation unit (epp);

• internal review teams;

• hot review teams in the audit units.

bpk recently took the first steps to prepare project charters to clarify each function’s use as a

quality assurance instrument. We recommend that itama be able to use the findings (errors) of

the other units’ summarising/verifying activities. Furthermore, we recommend that only itama

should report relevant findings and lessons to the management of bpk.

We recommend that the Board and management give their full support to the development of

itama and ensure there are enough experienced auditors within itama to assess the quality of the

work done by bpk’s auditors.

We recommend that the Board and management give their full support to the development of

itama and ensure there are enough experienced auditors within itama to assess the quality of the

work done by bpk’s auditors.


2.3.4 HumanResourcesManagement(hrm)Thequalityofthepeoplewhoworkatbpkformsthebackboneofbpk’sperformance.

Strongleadershipisnecessarytoputtheprofessionalskillsofbpk’sstafftoitsoptimal

use.bpkisthereforeaveryimportantaspectofqualitycontrolatentitylevel.Although

itmightbeaslowprocess,improvingstaffqualityneedsbpk’sfullattentioninthe

comingyears.Thebpkunitshouldhaveastrongerrelationshipwiththelinemanagers

toconvincethemoftheurgencyofusingallbpkinstruments.

Feedbackandgoodperformanceneedtoberewarded

bpk’scurrentstaffclassificationandremunerationsystemisingeneralstillbasedon

itsformerranksandqualificationperiodssystemratherthanonstaffperformance.

Astrongperformanceappraisalcycleconcentratingontherelationbetweenmanager

andemployeeisneededinwhichfeedbackinbothdirectionsisamust.Resultsofthe

appraisalsmustbediscussedatahigherlevertogetabetterpictureofdevelopments

inaparticularunit.

Professionalismandknowledge

asosaisupportsouropinionthatprofessionalsshouldbeappointedtopositions

wheretheyareneeded.Thiswouldmakebpklessdependentonexternalspecialists

andconsultants.Theprevailingopinionatbpkisthatbylawitcanrecruitonly

auditors,evenfornon-auditpositions.Inouropinionthisisamisinterpretation.

Staffrotationisimportanttoexchangeexperiencesandremaindispassionate.bpkhas

decidedtoassessitsentirestaff.Wewonderwhetheritwouldbebettertowaituntil

theindividualperformancemeasurementsystemisreadysothatbothattitudeand

performancecanbemeasuredsimultaneously.

We recommend that the strategy be revised so that more qualitative assessments of bpk audits

and products can be started in the near future rather than wait another two years. Step by step

itama must develop a strategy to generate added value for bpk. What should it learn first and

what afterwards?

We recommend that the strategy be revised so that more qualitative assessments of bpk audits

and products can be started in the near future rather than wait another two years. Step by step

itama must develop a strategy to generate added value for bpk. What should it learn first and

what afterwards?

We recommend that bpk create more awareness amongst managers regarding the importance of

human resources management and the available hrm policies and instruments. Furthermore, we

recommend that bpk maximise the potential of its operational flexibility and ability to promote

and reward talented people. Finally, we recommend that bpk involve line management in selecting

new staff and putting the right person in the right place.

We recommend that bpk create more awareness amongst managers regarding the importance of

human resources management and the available hrm policies and instruments. Furthermore, we

recommend that bpk maximise the potential of its operational flexibility and ability to promote

and reward talented people. Finally, we recommend that bpk involve line management in selecting

new staff and putting the right person in the right place.

We recommend that more attention be paid to good performance, feedback between manager

and employee in both directions and selective rewards.

We recommend that more attention be paid to good performance, feedback between manager

and employee in both directions and selective rewards.

We recommend that the present uncertainties in bpk’s recruitment rules be evaluated. We recommend that the present uncertainties in bpk’s recruitment rules be evaluated.


Coachinganddevelopmentofskills

bpkshouldbeawarethatauditorsneedfrequentguidanceandcoachingfromtheir

managersaswellastraining.Managers,however,alsoneedextratrainingand

attentiontokeeppacewithdevelopmentsthataffecttheirroleandattitude.Managers

shouldgiveguidanceanddrawonthecreativityandknowledgeoftheirpersonnel

becausealotoftheirpotentialiscurrentlyunused.

2.3.5 Auditstandards/Guidelinesbpk’slistofauditmanualsandguidelinesiscomprehensive.Generalprinciplesare

definedandmorespecificcriteriaandapproachesaresetoutinguidelinesforthe

variousphasesoftheauditprocess(planning,fieldwork,reporting,follow-upand

evaluation).

Withregardtofinancialauditweconcludedthatthegeneralauditapproachcomplies

withinternationalstandards.Someguidelinesarebeingdeveloped,however,that

couldbequiteusefultobpk’sauditorsatthismoment(forinstancetechnical

guidelinesonauditriskandsampling).

Withregardtoperformanceauditweconcludedthattheapproachcomplieswith

internationalstandardsbutthereissomeroomtoimprovethemanual’spracticalvalue

totheauditors.bpkonlyrecentlyintroducedperformanceauditingandhasmetsome

difficulties.Intheappendixweoffersomesuggestionsregardingperformanceaudits.

Amanualaloneisnotenough.Ittakestimetodevelopanauditprogrammebecauseit

isacreativeprocessthatrequiresstraightforwarddefinitionsoftheauditobjectiveand

design.Theauditormustcontinuallyaskhimselfhowhecanhavethegreatestimpact

withtheleasteffort.Itisimportanttomakeclearwhattheauditsubjectis.Isitthe

performance(complianceorefficiency)ofanentity,asystem,aprocessorisitthe

effectivenessofpolicy?

Given the three-year compulsory rotation and the recent opening of the new regional offices, we

recommend that not all staff be changed at once as institutional knowledge would be lost.

Given the three-year compulsory rotation and the recent opening of the new regional offices, we

recommend that not all staff be changed at once as institutional knowledge would be lost.

We recommend that the skills managers need be assessed and managers be offered specific

training in how to work with professionals.

Given the importance of coaching new employees, we recommend that a form of mentorship

be introduced.

We recommend that the skills managers need be assessed and managers be offered specific

training in how to work with professionals.

Given the importance of coaching new employees, we recommend that a form of mentorship

be introduced.

We recommend that more awareness be developed of the complexity of performance audit and

the diversity of the types of audit that can be performed under the general heading of perform-

ance audit. To this end, bpk could develop courses on public administration and policy analysis

with universities and public entities. A carefully performed performance audit of the effectiveness

of policy, moreover, takes time: it cannot be completed in a couple of days.

We recommend that more awareness be developed of the complexity of performance audit and

the diversity of the types of audit that can be performed under the general heading of perform-

ance audit. To this end, bpk could develop courses on public administration and policy analysis

with universities and public entities. A carefully performed performance audit of the effectiveness

of policy, moreover, takes time: it cannot be completed in a couple of days.


bpk’sBoardapprovedthemanualforspecialpurposeauditsinFebruary2009.The

manualcomplieswithinternationalstandards.However,wefoundthatitdoesnot

clarifywhattypeofauditshouldbeusedwhenorexplaintheproceduraldifferences

betweenthethreetypesofspecialpurposeaudit.Recommendationsshouldbemade

inthereport,exceptinthecaseofinvestigativeaudits.Asmentionedabove,bpkwould

havemoreaddedvalueifitcombinedallauditfindings,analysedthemanddrew

conclusionsandmaderecommendationsontheunderlyingsystem.

Onthewhole,weconcludethatthemostessentialdocuments,includingStateFinance

AuditStandard(spkn),areformallyimplementedandareinfullforce.Wearepositive

aboutthespecifictechnicalguidelinesdevelopedforspecifictopicssuchasthe

rehabilitationofforestandland,hospitalwaste,airpollution,etc.Additionalmanuals

areintheprocessofformalimplementation.

2.3.6 CodeofEthics/integrityIndependencefromtheentitiesauditedisimportantatalllevelsofbpk.Thisisstated

ingeneraltermsintheCodeofEthicstheBoardadoptedon21August2007.bpkhas

trainedseniorauditorsandinternalisedtheCodeofEthics.Ineveryauditengagement,

theauditorsmustsignastatementofindependenceandbpkhasestablishedan

HonoraryCouncilofCodeofEthicstoenforcetheCode.TokeeptheCodeofEthics

alive,bpkshouldperiodicallyreiterateitsvaluesandprinciplesinvariouswaysfor

bothnewcomersandestablishedemployeesandforbothseniorandjuniorstaff.In

additiontoaCodeofEthics,aself-assessmentmethodforsaiscouldimprove

awarenessamongbpk’spersonneloftheirownintegrityrisks.

Breachesofintegrity

GiventhehighintegrityrisksintheRepublicofIndonesia,registeringandmonitoring

breachesshouldbepartofbpk’smanagementinformationsystem.Suchanoverview

couldalsobeusedforlearningpurposes.

2.3.7 InstitutionalsupportApartfromgoodhrm,theremustbesufficientinstitutionalsupportintheformof

financialresources,infrastructureandtechnology.

Managementcontrol

Thecentralmanagementcontrolsystemcouldbeimprovedbyintroducingthe

positionofcontrollertomonitortheorderlinessofbudgetspendingandotherkey

performanceindicatorssuchasthedevelopmentofdirecthoursrelativetoindirect

hours(likeamodernChiefFinancialOfficerwhomakesuseoffinancialandnon-

financialinformation).

We recommend that bpk reiterate its values and principles periodically and use the Intosaint tool

to assess its own integrity. This could also facilitate the introduction and use of this tool at bpk to

help its auditees perform self-assessments.

We recommend that bpk reiterate its values and principles periodically and use the Intosaint tool

to assess its own integrity. This could also facilitate the introduction and use of this tool at bpk to

help its auditees perform self-assessments.

We recommend introduction of the central registration of breaches of integrity within bpk.We recommend introduction of the central registration of breaches of integrity within bpk.


Inspectiontasksthatarecurrentlyperformedbyitamacouldalsobearesponsibility

ofthecontroller.Acontrollercouldhelpimproveinstitutionalsupportbyanalysing

managementinformationonkeyperformanceindicatorsandinformingmanagement

whenactionisneeded.

Informationtechnology

bpk’sitsystemisdevelopedandisimproving.However,itisstillnotstable,works

slowlyandsuffersfromviruses.itpersonnelcomplainabouttheirlackofinvolvement

instrategicdiscussionsatbpk.Asteeringcommitteecouldimprovecommunication

betweentheBoardandtheitdepartment.Theitissueneedsmoreattentioninthe

nextstrategicperiod.

We recommend that a controller be appointed within bpk.

We recommend that a new target ratio be set for direct versus indirect working hours spent on

auditing and that compliance with it be monitored. A standard would enable bpk to improve its

resource management and mitigate the risks of inefficiencies.

We recommend that a controller be appointed within bpk.

We recommend that a new target ratio be set for direct versus indirect working hours spent on

auditing and that compliance with it be monitored. A standard would enable bpk to improve its

resource management and mitigate the risks of inefficiencies.

To assess the level of it support for the business processes (it business alignment) and the steps

necessary to improve this support, we recommend the use of the it Self-assessment tool.

To assess the level of it support for the business processes (it business alignment) and the steps

necessary to improve this support, we recommend the use of the it Self-assessment tool.


3 Responseofbpk

3.1 IntroductionandtheImportanceofthePeerReview

Firstofall,theAuditBoardoftheRepublicofIndonesia(bpk)wouldliketoexpress

itsgratitudetotheNetherlandsCourtofAuditfortheexcellentreviewofbpk’squality

controlandassurance.Thepeerreviewisveryimportantforbpk’sendeavourtofulfil

itsmandateontheConstitution,tocomplywiththeLawNumber15Year2006

concerningbpkaswellaswithauditingstandards,andtoprovidereasonable

assuranceforbpk’sstakeholderswithregardtoenhancingtransparencyandassuring

accountabilityoftheIndonesianpublicsector.

bpkhastakensignificanteffortsinupgradingtheIndonesianpublicsectorauditing.

First,bpkrestoreditsindependenceintermsoforganisation,finance,personnel,and

auditreportsassecuredbytheLawNumber15/2006concerningbpk.Second,the

ConstitutionandLawNumber15/2006givesmandatetobpktoauditallactivitiesof

thestateatthethreelevelsofgovernmentinIndonesia:central,provincialandsub-

provincial,aswellasstateownedenterprises,quasi-governmentagenciesand

affiliatedinstitutions.Third,bpkleadsbyexampleinupholdingprofessionalism,

integrity,transparencyandaccountabilitybyestablishingacouncilofhonourand

ethics,providingbpk’sfinancialreportswhichwereauditedbyindependentpublic

accountantfirmsappointedbyParliament,andbeingreviewedbyindependent

supremeauditinstitutionsmembersofintosai,whichwasapprovedbyParliament.

Inspiteofthoseefforts,bpkhasalsotakenimportantinitiatives,whicharebeyondthe

callofitsduty.First,bpkrequiredallauditedentitiestosubmittheirmanagement

representationletter.Second,bpkencouragedthegovernmenttoadoptthetreasury

singleaccount.Third,bpkclarifiedtheroles,functions,andresponsibilitiesofstate

institutionsatalllevelsofgovernment,includingschools,hospitals,airports,ports,

communitytrusts,foundations,state-ownedenterprises,andbusinessactivitieslinked

tothemilitaryandpolice.Fourth,bpkrequiredallauditedentitiestoprepareaction

plansforimprovingtheirtransparencyandaccountability.Fifth,bpkarrangedpublic

dialoguestodiscussandtosolveproblemsregardingtransparencyandaccountability.

Thepublicdialogueswereattendedbyallhighofficialsofauditedentitiessuchas

ministries,governors,andmayors,membersofcentralandlocalparliaments,aswell

asacademicianandpublicfigures.Sixth,bpkencouragedandproposedthe

establishmentofapublicaccountcommitteewithinParliament.

3.2 bpk’sCommitmentonQualityControlsandAssurance

Regardingthequalitycontrolandassuranceinpublicsectorauditing,bpkhasbeen

payingmoreattentionandtakensomerelevantandsignificantefforts.First,bpk

followed-uppreviouspeerreviewrecommendationsgivenbytheOfficeofAuditor

GeneralofNewZealand(oag-nz).Second,bpkdevelopedaqualityassurance

guideline,approvedinMarch2009.Third,bpkhascommittedandparticipated

activelyinanasosai-idiprojectonqualityassurance.Fourth,bpkinvitedthe


NetherlandsCourtofAuditasamemberofintosaitoperformthispeerreview.All

aboveeffortsconfirmbpk’scommitmenttohavesoundandeffectivequalitycontrol

andqualityassurance.

3.3 bpk’sAppreciationonPeerReviewConclusionsandRecommendations

WearepleasedthattheNetherlandCourtsofAuditreachedtheoverallverypositive

conclusiononbpk’squalitycontrolandassurance.WevaluetheNetherlandsCourtof

Audit’srecognitionofbpk’sendeavourtobuilditsqualitycontrolsandassuranceas

wellastoimprovegovernmenttransparencyandaccountability.Inaddition,weare

satisfiedthattheNetherlandsCourtofAuditremindedchangesinthebpk’spolitical

environmentwithregardtonewparliamentandgovernmentasresultsofrecent

generalelections.Moreover,wearealsogratefulfortheidentificationofthreemain

risksconsistingofinformationaccesslimitation,weakfinancialmanagementin

centralandlocalgovernment,andthepersistenceoffraudandcorruptionin

governmentandsociety.Thesethreeriskshavebeenchallengingbpkforplayingits

rolesinimprovingtransparencyandaccountabilityoftheIndonesianpublicsector.

WealsoappreciatetheNetherlandsCourtofAudit’sconstructiverecommendations

forbpk’sfurtherimprovement.Therefore,wewilldevelopanactionplantocarryout

therecommendations,includingaligningbpk’scurrentbureaucraticreformandbpk

nextstrategicplanwiththerecommendations.

3.4 bpk’sImmediateActionPlan

Inlinewithourinitiativetorequirebpk’sauditedentitiestoprovideanactionplanto

respondtobpk’sauditreports,wewilldevelopanactionplanwithintwomonthsafter

bpkreceivesthefinalpeerreviewreport.Theactionplanconsistsofourrelevant

activitiestofollowuptheNetherlandsCourtofAudit’srecommendationstogether

withcleartimescheduletoaddresstheweaknessesdisclosedonthepeerreview

report.Theactionplananditssubsequentimplementationwillbecommunicatedto

theNetherlandsCourtofAuditandalsoreportedtoParliament.

3.5 bpk’sNextStrategicPlan

bpk’scurrentstrategicplanwillendin2010.Wethinkthatitisthebesttimeforusto

developournextstrategicplannotonlybyconsideringtheresultsofassessmentofthe

currentstrategicplanimplementation,butalsobyincorporatingthepeerreviewreport

andrecommendations.Forinstance,thenextstrategicplanhastobebasedoncentral

andlocalgovernmentmedium-termdevelopmentplans,thusbpkhasastructured

approachtoassesstheeffectivenessofdevelopmentplansattheendoftheirterms.

Inaddition,thestrategicplanhastotakeintoaccountvariousfactorssuchaschanges

inthebpk’supcomingpoliticalenvironmentandthethreemainrisksregarding

transparencyandaccountabilityidentifiedonthepeerreviewreport.Furthermore,the

nextstrategicplanningwillbeusedasaguidetomakeannualselectionofbpk’saudit

plansandtopreparerelevantsupportingresources.

p e e r r e v i e w o f t h e a u d i t b o a r d o f t h e r e p u b l i c o f i n d o n e s i a�0

3.6 bpk’sBureaucraticReform

bpkhascurrentlybeenimplementingabureaucraticreformsince2004asapartof

Indonesianbureaucraticreform.Thebpk’sbureaucraticreformconsistsoffour

strategicprogramsnamelyhumanresources,businessprocesses,institutional

development,andinfrastructuresincludingtheinformationtechnology.Sofar,the

bpk’sbureaucraticreformhasbeenrecognisedasthemostsuccessfulprogramofthe

Indonesianbureaucraticreform,althoughthereisstillroomforimprovement,some

ofwhichhavebeenidentifiedbythePeerReviewTeam.

Manyareasinbureaucraticreformhaveinter-relationandinter-sectionwiththepeer

reviewrecommendations.Therefore,wewillincorporatetherecommendationsinto

ourbureaucraticreformprogrammesandensurethealignmentoftherevised

bureaucraticreformprogrammeswithourimmediateactionplanandthenext

strategicplan.

3.7 TheRedCarpetTreatment

Thepeerreviewreportaswellasthenecessaryactionsmentionedaboveisimportant

fornotonlythecurrentbpkmembersandmanagement,butalsobpknewmembers.

Therefore,aninductionprogrammeforbpknewmemberswillbepreparedand

provided,includingcommunicationofthepeerreviewreportandourfollowup

actions.WeareverygratefulthattheNetherlandsCourtofAuditremindeduswiththe

‘redcarpettreatment’.

3.8 ClosingRemark

Finally,onbehalfofallbpkmembers,managementandstaff,IthanktheNetherlands

CourtofAudit,especiallythePeerReviewTeam,foritscompetence,professionalism,

andconstructiveapproachtothisimportantengagement.Wehopeourrelationship

willbestrengthenedinthefuture,notonlyinmonitoringrecommendationsofthe

peerreviewbutalsoinimprovingourcapacitiesandqualities.

Jakarta,July2009

TheAuditBoardoftheRepublicofIndonesia

Chairman,

Prof.Dr.AnwarNasution,mpa

PartII

Findings

p e e r r e v i e w o f t h e a u d i t b o a r d o f t h e r e p u b l i c o f i n d o n e s i a��

1 Qualitycontrolatinstitutionallevel

1.1 QualityManagementSystemrequirements

Accordingtoasosai,asaishouldhaveaQualityManagementSystemdesignedto

provide‘reasonableassurance’inthelightofthelikelihoodandmagnitudeof

potentialrisks,thatitconductsaudits,bothregularityandperformance,inaccordance

withapplicablelegislativerequirements,rulesandregulations,auditstandards,policy

manuals,guidelinesandprocedures.SuchaQualityManagementSystemsupports,

maintainsandimprovesasai’srole,functionandresponsibilitytofulfilitsmandate

appropriately.Allelementsmustbelinkedtoeachothersothattherightchoicescan

bemadeinaQualityControlSystem.Qualitycontrolissupportedbythefollowingkey

factors:

• IndependenceandMandate;

• LeadershipandInternalGovernance;

• HumanResourcesManagement;

• AuditStandardsandGuidelines;

• InstitutionalSupport;

• ContinuousImprovement;

• ExternalStakeholderRelations;

• Results;

• Auditengagementperformance.

Wesetoutourfindingsoneachkeyelementinthefollowingsections.

1.2 Independenceandmandate

SAI’sgenerallyrecogniseeightcoreprinciplesthatcontributetoindependence.

TheprincipleswerefirstsetintheLimaDeclarationandareconfirmedintheMexico

Declaration(issai10).ThePeerReviewteamassessedbpk’scompliancewiththe

MexicoDeclarationonthebasisofapplicablelaws.

TheindependenceofbpkisclearlydefinedinArt.23e(1)oftheConstitution1945of

theRepublicofIndonesiaandsection2ofLawNo.15Year2006.Itsmandateisfurther

specifiedinthefollowinglaws:

• LawofStateFinance(LawNo.172003);

• LawofStateTreasury(LawNo.12004);

• LawofAuditofStateFinancialManagementandResponsibility(LawNo.152004);

• NewbpkLaw(LawNo.152006).

1.2.1 AuditfunctionintheRepublicofIndonesiaTheenactmentoftheLawofStateFinanceclearlyseparatesthefunctionsofinternal

controlandexternalauditorinpublicsectorauditinIndonesia.Government

RegulationNo.602008emphasisesbpkp’sfunctionasinternalcontrolunit,incontrast

withbpk’sfunctionastheonlySupremeAuditInstitutionoftheRepublicofIndonesia

toauditstatefinances.


WithreferencetotheAuditorGeneralofNewZealand’srecommendationin2004,

bpk’sroleasasaiisnowsecured.Nevertheless,furtherarrangementswithinternal

controlunitssuchasbpkpandBawasdasareneededtoclarifyeachother’srolesand

responsibilities.bpkwillbeabletoperformitsspecificroleasasaiifitcanfullyrely

onthequalityoftheirreports.Fromourfact-findingwelearnedthatfinancial

managementattheministriesandespeciallyatlocalgovernmentlevelisstillfarfrom

adequate.Accordingtobpkthisisduetoalackofqualifiedpersonnel(knowledgeof

financialmanagementandaccounting).

1.2.2 MandateIntroductionoftheNewbpkLawNo.152006wasthefinalstepinadulyprepared

legislativeprocesstowardsafreeandindependentbpkwithauthoritytoprovidethe

HouseofRepresentatives(dpr),theRegionalRepresentativeCouncils(dpd)andthe

regionalHousesofRepresentatives(dprd)withtheresultsofauditsofstatefinancial

managementandaccountability.Itsgovernment-widemandatecoverscentral/regional

government,otherstateinstitutions,BankIndonesia,stateownedenterprises,

regionallyownedenterprises,publicserviceagencies,foundations,institutionsor

otheragenciesrequiredduetothenatureoftheirrespectiveduties.Toenforceits

constitutionalmandateunderLawNo.152006,bpkneedstoexpandandimproveits

institutionalcapacity.Inthepastthreeyears,bpkhasestablishednewregionaloffices

andrecruitedgraduatesfromavarietyofeducationalbackgrounds,applyinga

competitiveselectionprocesstooptimisethequality,integrityanddedicationofnew

employees.bpkhasflexibilitytorecruitnewstaffandplaceandpromotestaff.

Toensureprofessionalismandhighqualityoversight,bpkhasrecruitedexpertsand

high-rankingofficialsfromotherinstitutions.bpkhasalsoenhancedthecapabilityof

itsstaffthroughvariouseducationandtrainingcoursesatthebpkTrainingCentre.

1.2.3 bpk’sbudgetbpk’sbudgetisallocatedtoaseparateheadinginthestateBudget.Theannualbudget

isbasedonbpk’sauditandsupportactivitiesplan.Itisdiscussedbybpk’sSecretary

Generalwitharelevantparliamentarycommittee,theMinistryofFinanceandthe

NationalPlanningAgency/Bappenas(inaccordancewiththemechanismprovidedfor

inLaw172003ofStateFinance).Onlyinbudgetexecutiondoesbpkhavetofollowa

governmentmechanism.Inconsequence,bpkhastosubmitapaymentordertothe

governmenttreasurytoexecutethebudget.

1.2.4 AccesstoallnecessarydocumentationandinformationAsfaraswecandeterminebpkcomplieswiththeprinciplesoftheMexicoDeclaration.

InaccordancewithPrinciple8,forinstance,bpkhasfinancialandmanagerial

autonomyandsufficienthuman,materialandmonetaryresources.Therearethree

majordeficienciesregardingPrinciple4though.AccordingtoPrinciple4,saisshould

haveadequatepowerstoobtaintimely,unfettered,direct,andfreeaccesstoallthe

necessarydocumentsandinformation,fortheproperdischargeoftheirstatutory

responsibilities.Inthesamespiritsection9ofLawNo.152006formallygrantsbpk

unrestrictedaccesstoinformationandtherightandobligationtoreporttheresultsof

itsauditwork.Thisincludesitsrighttoaudittheregularityandeffectivenessoflevying

staterevenueorotherincomewithoutanyrestriction.Wefoundthatbpkdoesnothave

unrestrictedaccesstoalldocumentsandinformationnecessarytoaudit(1)statetax

revenueand(2)administrativefeeschargedbytheSupremeCourt.However,wedonot

considerbpkresponsibleforthissituation.IthastakentheseissuestoCourtandheld


discussionswiththeHouseofRepresentatives,sofarwithoutsuccess.bpkshould

continuetoseekpublicity,supportfromparliament,publicopinionandothersais.

Itshouldemphasiseitsrightofunrestrictedaccesstothetaxationsystemandany

otherorganisationintheRepublicofIndonesiathatcanimposeleviesorimpostsin

ordertoassesstheirregularityandeffectiveness.Small,negotiatedstepstogainaccess

totheTaxationOfficemightcreatetrustandperhapsanopeningtobreaktheimpasse.

Astepwasrecentlytakentoaccessalimitedamountoffinancialinformationon

incometaxreceiptsandtaxreceivables.Weconsiderthisagoodstartonthewinding

roadtofullaccesstotheTaxationOffice.Afollowingstepcouldbeaccesstothefiles

ofregisteredtaxpayerswithoutlookingintotheirtaxreturns.Theotherdeficiencybpk

facesis(3)thefactthatbpkhaslimitedaccesstoconductfinancialauditsofforeign-

fundedprojectsbecausegovernmentandcreditorsagreedtouseaninternal

governmentagency(bpkp).

bpkhasalreadytakentheseissuesoflimitedaccesstotheConstitutionalCourtand

discussedthemwithcreditors.bpkhassofarfailedintheConstitutionalCourtbutits

discussionwithcreditorsisstillinprocess.Nonetheless,bpkhasstartedalimited

auditoftaxrevenues.

RegardingauditlimitationontheSupremeCourtandforeignfundedprojectsbpk

informedus,that:

• TherewasanewlegislationaboutSupremeCourtpassedinJanuary2009,which

givesbpkaccesstoalldatanecessaryregardingadministrativefeescharged.

• OnJune12,2009,theDirectorateGeneralofDebtManagementoftheMinistryof

FinanceinformedtheWorldBankthattheyhavenoobjectiontotheinitiativeofthe

possibilityofrequestingbpktoauditsomeselectedforeign-fundedprojects.

1.3 LeadershipandInternalGovernance

Consideringthevastgeographicalandfunctionalareaofbpk’smandate,leadership

andinternalgovernancearevitaltoqualityassurance.

Theqcselementsofleadershipandinternalgovernancecomprise:

a LeadershipandDirection;

b Strategic&OperationalPlanning;

c OversightandAccountability;

d CodeofEthics;

e InternalControl(seeContinuousImprovement);

f QualityAssurance(seeContinuousImprovement).

a LeadershipandDirection

TheBoardsetstheorganisationaldirectionofallbpk’sunitsandauditors.bpkhas

developedamulti-yearstrategybasedonkeyperformanceindicatorsforinternaland

externalobjectives.OntheintroductionofNewLawNo.152006bpkhaddifficulty

initiatingthenecessaryactivitiesforthechangesitrequired.Inmid-2007anew

approachbythePrincipleDirectorateofPlanning,Evaluation,Researchand

Development(r&d)andTraininggavebpk’sleadershipastrongergriponthis

process.TheuseofaBalancedScoreCardsystembasedonkeyperformanceindicators

tomonitortheprogressandperformanceofeachunitseemstobecomingmore


acceptedandeffective.Supportedbyseniormanagementandtheplanningand

evaluation,r&dandtrainingunits,theBoardtakesdecisionsandsetsachievement

indicatorsfordeliverablesandhighprofessionalstandards.bpk’strainingcentreis

wellorganisedandhasaclearstructurefocusingonthetransferofknowledgeto

auditors.bpkmustbeawarethataswellastraining,auditorsneedfrequentguidance

andcoachingbytheirmanagers.Managers,however,alsoneedextratrainingand

attentiontokeeppacewithnewdevelopmentsthataffecttheirroleandattitude.More

informalhorizontalandvertical,top-downandbottom-upcommunicationispartof

suchmodernisation.Itwillincreaseknowledge-sharingandraiseawarenessofbpk’s

strategy,visionandprioritiesthroughouttheorganisation.Managementwillinturn

havemoreinsightintowhatishappeningontheshopfloor.

b Strategic&OperationalPlanning

Allbpk’sunitsandauditorsareinvolvedintheselectionofauditobjectsandtopics,

riskassessment,investigativeaudits,manualsandmeasurestoassureauditpolicy

implementation.bpk’sstrategicplanispartofthedesiredlong-termachievement.

bpkhasdevelopedkeyperformanceindicatorstomakethestrategyspecificand

measurable.bpk’sstrategicplan2006-2010focusedmainlyonimprovingthe

organisation.Thisplanprovedsuccessful.Nowthatthefinalstageofthisstrategic

periodisinsightthenextstrategicplanshouldconcentrateonthedirectioninwhich

bpkwouldliketotakeitsassuranceproductsinthenextfiveyears.

Whilepreparingthenewstrategicplanbpkshouldaskwhat changes are needed in central

government to improve the delivery of public services.bpkmusttherefore:

• beawareofwhatishappeningaroundbpkinsocietyandthepublicsector;

• knowwhatparliamentwantsandcanunderstand;

• introducefocusthroughstrategicplanning;

• notonlyidentifyproblemsbutalsohelptosolvethem.

ThePeerReviewteamoftheAuditorGeneralofNewZealandrecommendedin2004

thatbpkshouldhaveastrategicauditplanningprocessinplacethat:

• identifieskeyissuesacrossthepublicsectorbymeansofenvironmentalscanning;

• identifieskeyissueswithinsectors,forexamplethehealthorlocalgovernment

sectors;

• identifiesthekeyrisks;

• outlinesarangeofauditinterventionstoaddresstheserisks;

• comparesauditinterventionsonsomekindofriskandpayoffbasis;

• presentsthisinformationinacoherent,credibleandlogicalform;

• formsthebasisforbpk’sworkprogramme;

• communicatesthisinformationtoauditors.

asosairequiresauditingstandards,policiesandprocedurestobedesignedtoensure

thatasaiundertakesauditworkthatiswithinitsauditjurisdictionandauthorityand

managestherisksinvolvedinperformingthatworkinanefficientandeffective

manner,includinganyrisksthatmaybeinvolvedingainingaccesstotherecordsfor

carryingouttheauditwork.ThePeerReviewteamobservedthewellorganised

developmentandrolloutofmanualsandguidelinesintheorganisation.


Besidestechnicalguidelinesbpkmustdevelopeffectivescenariosforvariousreactions/-

interventionstocounterresistancefromauditees.Interventionsshouldbetailoredto

haveoptimaleffectineachcase.bpk’sclaimtounlimitedaccesstotheTaxationOffice,

forexample,canbesupportedbycombinedactivitiesinthefieldofpublicity,reports,

negotiationsandsuggestionsforless-threateningsmall-scaleauditactivities.

ThePeerReviewteamfoundthreehighstrategicrisksintheRepublicofIndonesia:

1 limitedaccesstorevenuesoftheTaxationOfficeandSupremeCourt;

2 weakfinancialmanagement;

3 fraudandcorruption.

1 Limited access to revenues of the Taxation Office and Supreme Court.

asosai’sguidelineunderlinesbpk’srealisticclaimtounlimitedaccesstotheTaxation

OfficeandanyotherorganisationintheRepublicofIndonesiathatcanimposelevies

ortaxesinordertoaudittheirregularityandeffectiveness.Althoughthenewbpklaw

isclearaboutbpk’sunlimitedauthority,bpk’saccesstotheTaxationOfficeisinfact

severelylimited.Asaresultthereisaseriousriskregardingthelawfulcollectionof

taxesintheRepublicofIndonesia.Wehavealreadyconsideredthisinsection1.2.

Atstafflevel,bpkandtheMinistryofFinancereachedagreementonaccessto

informationfromtheTaxationOfficeonrequest.TheBoarddecidedtogotoCourtto

getajudicialdecisiononitslegalmandatetoaudittheTaxationOffice.TheCourtdid

notgivethedesiredjudgementbuttheMinisterofFinanceagreedtoprovide

informationtobpk.NegotiationsbetweenbpkandtheMinistryofFinanceledtoan

instructionfromtheMinisterofFinancetoprovidebpkwithinformationonaccounts

receivableandincometax.bpkthereforehaslimitedaccesstotheTaxationOffice.

bpk’sstaffsaidaccessdependedonwhetherornotthepersonsinchargeatthe

MinistryofFinanceandtheTaxationOfficeusedtaxlawtopreventbpkauditing.

PublicityandsupportaswellasgoodrelationswiththeMinistryofFinanceandthe

TaxationOfficewillbecrucialtoresolvethisissue.Thesameappliestothedispute

aboutaccesstotheSupremeCourt’srevenues.

2 Weak financial management

Thesecondhighriskwithapermanentcharactertobpkisweakfinancialmanagement

inalllayersofgovernment.bpkshouldwonderwhetheritswishtofocusmoreon

performanceauditsisjustifiedgiventhepresentstateoffinancialmanagementand

regularityingovernment.

AccordingtotheBoardandstaff(seealsohalf-yearreports)publicsectorfinancial

managementinIndonesiaisimprovingasthenumberofdisclaimeropinionsis

decreasingandthenumberofqualifiedandunqualifiedopinionsisincreasing

(figuresarepresentedinthetableinappendixIII).TheBoardandstaffhavediscussed

theimprovementoffinancialmanagementwithlocalgovernments.Morethan50%

oflocalgovernmententities(295outof475)havepreparedanactionplantoimprove

financialmanagementsothatunqualifiedopinionsaregiven.

Aswellasanopinion,moreattentionshouldbepaidtomanagementandefficiency.

Ifthisleadstoexplanationsofthefindings’causesandeffects,bpk’sauditswould

havehigherlearningcontent.

3 Fraud and corruption

Corruptionisthethirdhighriskandhasbeenanalmostineradicablephenomenonin

thegovernmentoftheRepublicofIndonesiasincetimeimmemorial.Supplementary


auditstoexposeunnecessarybureaucracy(amajorcauseofcorruption)wouldhelp

reducecorruption(forinstanceatauthoritiesthatissuepermitsordecideonthe

purchaseofvaluablegoods).Corruptioncasesmustbeprosecutedonlyinclose

cooperationwiththepolice,theOfficeoftheAttorneyGeneralandkpk.Forlearning

purposesbpkcouldseekinternationalsupportfromcomparablecountriestoanalyse

itsapproachtofightingcorruption.

bpkcurrentlycooperateswiththepoliceandAttorneyGeneralonthebasisof

protocols.bpkwillorganiseaconferenceonitsroleincurbing/fightingcorruption.

TheBoardaskedthePeerReviewteamwhatitshoulddoregardingfraudand

corruption.Werepliedthatbpkshouldnotfocussolelyonincidents(conductof

individuals)butalsoontheircausesandeffects.Itshouldaskhowtheywerepossible,

whattheconsequenceswereandhowtheycouldbepreventedinthefuture.

c OversightandAccountability

bpkhastoprovideitsannualfinancialstatements,whichareauditedbyan

independentauditore.g.apublicaccountingfirmappointedbytheparliament.

Regardingthisrequirement,the2006and2007bpk’sfinancialstatementswere

auditedbyanaccountingfirmandobtainedqualifiedandunqualifiedopinions

respectively.

bpk’sSecretaryGeneralsubmittedaperformancereport.

bpkdoesnotissueanannualreportonitsperformanceanddevelopmentsinthepast

yearbecauseitisnotrequiredtodosobylaw.Suchareport,however,mighthelp

createtransparencyaboutthedevelopmentofbpk’sperformanceovertheyears.

Thiscouldcreatemoregoodwillamongthegeneralpublic.bpk’sslogan‘Leadingby

example’canbeputintopracticeifitvoluntarilyissuesannualreports.bpkcanbean

exampletoothergovernmentalinstitutionsandcontributetogoodgovernance.

AnnualreportscanalsoincludestatementsbytheBoardthatitsmembersdonothold

otherpositionsand/ordetailsoftheirpersonaladministrativecosts.

d CodeofEthics

Incompliancewithintosaistandards1998,bpkhasdevelopedacomprehensive

CodeofEthicsforBoardmembersandauditors.Anadvisorycouncilenforcesthe

Code.bpkhastakentheinitiativetoensurethatallitsauditorsarefamiliarwiththe

valuesandprinciples.Moreover,independenceandintegrityaretwoofbpk’score

competencesforauditors.TokeeptheCodealive,bpkmustreiteratethesevaluesand

principlesagainandagainandinmanywaysforbothnewcomersandestablishedstaff

andforbothseniorandjuniorstaff.InadditiontoaCodeofEthicsaself-assessment

methodforsaiscouldimproveawarenessamongbpk’spersonneloftheirown

integrityrisks.

To prevent corruption and fraud a tool called Intosaint could be helpful. Intosaint is a method

for audit offices in the field to assess their own integrity (prevention of corruption and fraud).

It is based on the saint instrument designed and successfully used in the Netherlands. Intosaint

is presented at a workshop for employees at strategic positions in the organisation. It gives insight

into the organisation’s general and specific vulnerabilities, the maturity of the Integrity Control

System and remaining risks. The results are presented to management together with suggestions

for improvement.

To prevent corruption and fraud a tool called Intosaint could be helpful. Intosaint is a method

for audit offices in the field to assess their own integrity (prevention of corruption and fraud).

It is based on the saint instrument designed and successfully used in the Netherlands. Intosaint

is presented at a workshop for employees at strategic positions in the organisation. It gives insight

into the organisation’s general and specific vulnerabilities, the maturity of the Integrity Control

System and remaining risks. The results are presented to management together with suggestions

for improvement.


e/f InternalControl/QualityAssurance

Thesesubjectsarediscussedundertheheading‘ContinuousImprovement’.

1.4 HumanResourcesmanagement3

bpk’smandatecoversavastrangeofauditeesandstakeholders.Tofulfilitsmandate

bpkneedssufficientwell-educatedandwell-trainedpersonneltoperformtimelyaudits

ofthequalityrequiredbyasosai.Principle8oftheMexicoDeclarationunderlines

sais’financialandmanagerial/administrative autonomyandtheavailabilityofappropriate

human,material,andmonetaryresources.Regardingbpk’sownemployment

conditions,the2004PeerReviewreportoftheAuditorGeneralofNewZealandstates:

‘Ideally,partofanyauditsectorandorlegislativereformwillbetogivebpkgreater,ifnot

complete,controloveritsmanagementofhumanresources,inordertogiveitgreater

operationalflexibilityandtheabilitytopromoteandrewarditstalentedpeople.’

NewLawNo.152006section9(g)gavebpksuchflexibility.bpkshouldtrytomake

optimaluseofit.bpkhassuccessfullyrecruitedalotofyoungpersonnelsince2007.

Thereviewteamnotedthatqualityimprovementamongbpk’solderpersonneldidnot

havethesamepriority.bpk’sexistingstaffclassificationandremunerationsystem,

however,isingeneralstillbasedonitsformerrankingandqualificationperiods

systemratherthanstaffperformance.Althoughitmightbeaslowprocess,improving

thequalityofpersonnelneedsbpk’sfullattentionthecomingyears.

Inparagraph3.2oftheGuidelines on Audit Quality Management Systems(asosai,2004)

asosaistates,‘Generally,strategiesofhumanresourcesmanagementshouldbe

designedtocreateadiverseworkforcewithknowledge,skills,andabilitiesneededto

supporttheachievementofthesai’svision,mission,thecorevaluesandthestrategic

goals.’Inparagraph3.10asosaicontinues,‘Recruitmultidisciplinarypersonswith

suitablequalificationsandexperience.Itshouldincludeprofessionalsqualifiedin

theirfieldsandbringarichmixofacademicdisciplinesandexperience.’

Atbpk,however,criticalspecialistfunctionsareheldbyauditors.Wefoundmanyof

theminsupportunitssuchashrm,training,r&dandfinance.Theasosai

guidelinessupportouropinionthatprofessionalsshouldbeappointedtopositions

wheretheyareneeded.Thiswouldmakebpklessdependentonexternalspecialistsor

consultants.Theprevailingopinionatbpkisthatbylawitcanrecruitonlyauditors,

evenfornon-auditpositions.Inouropinionthisisamisinterpretationofsection34

(3)ofLawNo.152006,whichstates,‘Inperformingauditdutiesbpkshallemploy

auditors’.Experts,however,canberecruitedundersection9(1)(g).Sincethereisa

differenceinremunerationbetweentheauditsectorandthesupportsector,moreover,

supportunitsdonotattractambitiousauditors.Theseunits,however,fulfilavery

importantroleinthefieldofr&dandQualityControlandAssurance.Inthelong

term,supportstaffwillnotcomeuptoexpectations.

Intosaint was designed specifically for national audit organisations but could easily be adapted for

use by auditees. Parts of the content of the self-assessment workshop are also suitable for use in

audits. For instance the inventory of vulnerabilities can be the basis for risk analysis and the

Integrity Control System can be used as a standards framework for good integrity policy.

Intosaint was designed specifically for national audit organisations but could easily be adapted for

use by auditees. Parts of the content of the self-assessment workshop are also suitable for use in

audits. For instance the inventory of vulnerabilities can be the basis for risk analysis and the

Integrity Control System can be used as a standards framework for good integrity policy.

3In appendix V we look into greater detail at our suggestions to improve HRM.


1.4.1 HRMinstrumentsbpk’sstaffhasincreasedsubstantiallyanditsmandatehasexpandedsignificantly.

bpk’shrmunithasdevelopedavarietyofmoderninstrumentssuchas:

• anationalplacementpolicybasedoneducationalbackground;

• bpk-sponsoredstudies;

• aperiodicrotationpolicybetweenregionalofficesandheadoffice;

• apromotionsystembasedoncivilservicecriteria,competenceevaluation,educa-

tion,experienceandinputaboutactualperformance;

• acareerdevelopmentprogrammeinwhichthereisequalopportunitytoworkin

auditandnon-auditunits.

Asnotedabove,bpk’sexistingstaffclassificationandremunerationsystemisin

generalstillbasedonitsformerrankingandqualificationperiodssystemratherthan

onemployeeperformance.Amajorsuccessisthatpromotionisnolongerbasedon

seniority.FurthernegotiationswiththeMinistryofCivilServantEmpowermentare

takingplacetomodernisebpk’semploymentconditions.bpkhasalreadyenhancedits

potentialflexibilitybyallowingearlyretirementincombinationwithearlypension/a

goldenhandshake.Sincemanybpkinstrumentsarerelativelynewthemeasuresand

otherprovisionsforensuringstableandqualifiedpersonnelarenotfullyinplaceand

effectiveyet.

Managersareexpectedtoprovideguidanceandchallengethecreativityandknowledge

oftheirpersonnel.Alotofpotentialiscurrentlyunused.Coachingnewemployeesis

veryimportant.Furthermore,astrongperformanceappraisalcycleconcentratingon

themanager/employeerelationshipisneededwherebyfeedbackinbothdirectionsisa

must.Appraisalresultsmustbediscussedatahigherlevertogainabetterpictureof

developmentsinaparticularunit.Groupsessionsaboutthetargetssetineachunit’s

BalanceScoreCardwillcreatemoreawarenessandmotivationforthedirectionin

whichtheunithastogo.

bpkhasdecidedtoassessitsentirestaff.Echelonsiitoivwillbeassessedfirst.We

wonderwhetheritwouldbebettertowaituntiltheindividualperformance

measurementsystemisreadysothatattitudecanbemeasuredtogetherwith

performance.Wearecuriousaboutthecriteria(integrity,knowledgeandbehaviour)to

beused.Theprocesswillbeoutsourcedalmostfullytoexternalconsultants.We

considerthissub-optimal.Externalconsultantsarelessawareofthespecificskillsand

historyofeachstaffmember.hrmshouldatleastbeinvolvedintheassessment

project.bpkhasrespondedthatitshrmnowhastrainedinternalassessors.

Accordingtobpk’sstaffeveryonewillbeassessedandthenreceiveextratraining,take

earlyretirementorbeorderedtostayathomewithlossofpay.Wenoticedthathigher

echelonsseemtobemoreconservativethanloweronesandthattheygenerallydonot

maximisethepotentialoftheirjuniorsandauditresults.Wewonderwhatactionbpk

willtakeifthisisconfirmedbytheassessments.

1.4.2 Personneldirectly/indirectlyinvolvedinauditAccordingtoinformationsuppliedbytheHumanResourcesBureautheratioofbpk’s

supportstafftostaffdirectlyinvolvedinauditisalmost40/60.Althoughthereisno

generaltargetfigureforthisratioitmightberewardingtoevaluatetheactualneedfor

suchapercentageofsupportstaff.Weadmitthatthereisnoclearlinebetweendirect

andindirectactivitiesbutwecanimaginethatgivenbpk’smanychallengesthecurrent

ratioisnotoptimal.


Forawell-balancedpersonnelmixbpkneedsmoreinsightnotonlyintothestaff ’s

educationalbackgroundbutalsointotheirpotentialandpracticalexperience.

Knowledgeabouttheiremployabilityattherightlevelandrightplaceinbpkisalso

veryimportant.Itwouldpreventpersonnelbeingemployedsub-optimallyatthe

expenseofbpk’sprimaryprocess:audit.

bpk’shrmunitstatesthatitcannotsolvethissituationowingtothestaff ’sstrong

legalpositionbasedongovernmentalregulations(creatingalifetimeemployment

guarantee).Whereasbpklawno.152006givesbpkstrongindependence(section2),

section9(g)and(h)allowsbpktorenew/tailoritsemploymentconditionstoits

presentneeds.

1.4.3 NewpersonnelassessmentForrecruitmentpurposestheMinistryofCivilServantEmpowermentdeterminesthe

formation;however,bpkhasitsownrecruitmentmethod.Itisfreetodeterminethe

maximumageandeducationalbackgroundofcandidates.bpkhiresaconsultancyfirm

toconductrecruitment.Thisfirmhasexpertiseandcompetencetomeasurea

candidate’sprofile,forexamplebyconductingatpatest(equivalenttogmat/

GraduateManagementAdmissionTest).Thehrmunitalsoconsiderstheconsultancy

firmtobemoreobjectiveandindependent.Themethodusedhasbeenenhancedyear

byyear.Inthepasttwoyears,centralstaffhasplayedaroleininterviewingcandidates.

ThePeerReviewteamrecommendsreducingtheextentofoutsourcingofrecruitment

activitiesstepbysteptoavoidoverdependenceonconsultants.Moreover,hrmwill

otherwisenotgainexperiencetoperformthistask.Independenceinsidebpkshould

besafeguardedbycompliancewiththeCodeofEthics.Furthermore,hrmshould

organiseathoroughcheckofthequalificationsofaccountantsthatsignreportsand

determinewhetherdelegationbyBoardmembersisappropriate.

1.4.4 AssessmentCentrebpk’sassessmentproceduresaimtocompareindividualcompetenceswithrequired

competences.Since2004thehrmunithasrecruitednewcivilservantsbyusingan

AcademicPotencytestoftheirlanguagecapabilitiesandpsychologicalstatus.In2007

bpkstartedtoperformcompetencetestsof578seniorauditorsforthepositionof

TeamLeader,followedin2008byanassessmentof480auditorsonthestandard

competencesforTeamMemberandTeamLeader.Intotal,1,058(66%)outof1,598

auditorswithoutapermanentpositionweretested.

bpkiscurrentlydevelopinganAssessmentCentrefundedbytheAsianDevelopment

Bank(adb)withtheuseofspecialiststoprovideobjectiveinputaboutthecompetence

profilesofcandidates.Thecentreissupposedtohaveastaffof100permanent

positionsandseniorauditors.AnAssessmentCentreisavaluableinstrumentfora

saithesizeofbpk.

1.4.5 Rewards/punishmentsasosaistatesinparagraph3.14that‘Peoplearethemostvaluableassetsofanaudit

institution.Soundhumanresourcesmanagementshouldprovideemployeesa

rewardingandprofessionalenvironment,aswellasmaintainingandenhancingthe

capabilitiesofthepeople.’bpk’shrmunitandtrainingfacilitiescontributetothe

fulfilmentofthisstatement.4Guidelines on Audit Quality Management Systems (ASOSAI, �00�).


Althoughstandardprocedurestorewardemployeeachievementare yet to be written into

bpk’sperformancemanagementsystem,extraordinaryachievementasdeterminedby

theEmploymentAdviserOfficialisrewardedwithaspecialriseingradelevel.Along

withtheriseingradelevel,theemployeeispromotedtoahigherposition.

Inaddition,bpkhasasystemofhonoursymbolstorewardemployeesfordedication.

Thehonoursymbols,intheformof‘Satya Lencana medals’,areawardedinaccordance

withLawNo.41959onthegeneralstipulationofthehonoursymbols.

Employeeswhobreakthelaw,stipulationsorregulationsoncivilservantsorthebpk

CodeofEthicsintheconductoftheirdutiesarepunishedaccordingly.The

punishmentprocedureisconsistentwiththeapplicableregulationondiscipline.

Wenotedthatthereisasystemofrewardsandpunishments.Theverylownumberof

applicationsindicatesthatmanagementrarelyusesitinpractice.Afractionofthe

auditorswerepunished.Somemanagersdidnotpunishoffendingauditorsin2007.

Theremightalsobearegistrationproblem.Giventhehighintegrityrisksinthe

RepublicofIndonesia,registeringandmonitoringviolationsshouldbepartofbpk’s

managementinformationsysteminordertogainanoverviewandforlearning

purposes.AlthoughtheCodeofEthicshasbeenrolledoutitshouldbekeptaliveby

repeatingitsmessage.Rewardsaregenerallyintheformoffastercareerdevelopment.

Undertherewardandpunishmentsystemfivepersonswererewardedin2007.This

alsoindicatesthattheinstrumentisrelativelyunknown.Wenotedsomecasesof

placingauditpersonnelinsupportpositionsasakindofreward.Torewardpersonnel

werecommendasystemofpromotion,bonusesorotherbenefitswithinexisting

careerpaths.Itisimportantnottowaitanylongerinformalisingbpk’sperformance

managementsystem.

1.4.6 Staffrotationasosairecommendsprovidingopportunitiestogainworkexperienceatotherpublic

orprivatebodiesoroverseasauditoffices–inparticularbyestablishingreciprocal

exchangearrangementswithsaiofficialsinotherasosaicountries(adaptedfrom

anaopractice).Inadditiontosecondingsaistafftootherbodiestoacquireandshare

knowledgeandexperienceandgaininsightsintotheoperationofpeers,saismay

offertemporaryassignmentstostafffromotherbodiesandlegislativesecretariatsto

enhancetheirawarenessandunderstandingofansai’sroleandresponsibilities.

Todate,bpkhasmadelimiteduseoftheseopportunities(mainlyothersaisfromthe

UnitedStatesofAmerica,Australia,NewZealandandFrance).

Allauditorsshouldrotatepositioneverythreeyears.Wealsoreceivedsignalsthatthe

increaseinyoungofficersincombinationwithhighmobilitypreventsthebuild-upof

institutionalmemoryandexpertise.

1.4.7 TrainingAccordingtoasosai:5

• ‘3.15asaishouldestablishatrainingfunctionwithitsresponsibilitytodevelop,

establishandmonitortrainingpolicy,conductannualneedassessment,planand

scheduletrainingactivities.Thesaishouldmaintainaninventoryofskillsofper-

sonneltoassistinplanningofauditsaswellastoidentifyprofessionaldevelop-

mentneeds.’

• ‘3.16Trainingshouldbeacontinuingprocessandshouldbeadaptedtotheneeds

ofthesaissothatemployeescancontinuouslyupgradethemandbeintunewith

5Guidelines on Audit Quality Management Systems (ASOSAI, �00�).


thelatesttechnologicaldevelopmentsandchangesinauditmethodologies,tech-

niquesandtools.’

bpk’strainingiswellorganisedinaclearstructuredirectedatthetransferof

knowledge.Tomodernisetheattitudeofbpk’spersonnelafundamentalchangemust

bemade,startingwithlesscontrolanddominationandmorepersonalmotivationand

responsibilityforeachemployeewithaviewtodevelopmentandresults

(professionalisation).Normallythereshouldbeastandardrangeofcoursesthatevery

auditorisobligedtotake(includinganintroductioncourse).Inthenextstep,specific

coursescanbegiventomeetpersonalneeds.Eachbpkauditorhastocompleteatleast

80traininghourstoenhancetheirprofessionalauditcompetences.Wewouldremind

bpknottooverlookitsstaff ’spersonaldevelopment.saipersonnelshouldbe

encouragedtoprepareindividualdevelopmentplansinconsultationwiththeir

performancemanagersinordertoidentifyahandfulofspecificcompetencesthat

addressindividualneeds.Approvedplansshouldbeaction-oriented.

Auditorsshouldbecapableofandresponsiblefordeterminingtheirowntrainingand

developmentneeds.Theirmanagersmustprovidethemwiththenecessary

opportunities.

1.5 AuditStandardsandGuidelines

From1995until2006bpkusedtheGovernmentAuditStandard(StandarAudit

Pemerintahan,sap)asguidanceforitsoperationandduties.Inlinewiththe

developmentofaudittheoryandtheprinciplesofgoodgovernance,whichinsiston

transparencyandaccountability,bpkfeltthatsapwasoutofdate.InJanuary2007,bpk

thereforepublishedbpkRegulationNo.12007concerningtheStateFinanceAudit

Standard(spkn).spknwillbecontinuouslymonitoredandupdatedtokeepupwith

currentdevelopments.

spknlaysdownprofessionalrequirementsforauditors,auditqualityandaudit

reports.Itsaimistobethequalitybenchmarkforauditorsandauditorganisations

investigatingthemanagementandaccountabilityofstatefinance.Itisbindingonbpk

andinstitutionsthatconductstatefinanceauditsfororonbehalfofbpk.

Besidesspkn(StateFinanceAuditStandard)asguidanceforauditorsandaudits,bpk

nowalsohasanAuditManagementGuideline(pmp)onthemanagementofand

accountabilityforstatefinance.Itcontainsauditproceduresthatmustbeperformed

tosatisfyspkn’srequirements.Theproceduresarelinkedtothestagesofanaudit:

AuditPlanningPhase,AuditExecutionPhase,ReportingPhase,MonitoringPhaseand

EvaluationPhase.

Thefirsteditionofpmp(publishedin2002)wasmadeobsoletebythedevelopmentof

thebpkorganisationandnewregulations.bpkthereforerevisedpmpin2008.

ThePeerReviewteamtookstockofbpk’slistofauditmanualsandguidelinesto

establishwhatproceduresprovidereasonableassurancethatauditsareperformedin

accordancewithprofessionalstandardsandregulatoryandlegalrequirements.The

listiscomprehensive.Theprimarydocuments,includingspkn,havebeenformally

implementedandareinfullforce.Additionalmanualsareintheprocessofformal

implementation.Inadditiontogeneraldocumentationbpkproducesmanythematic

guidelinesandmanualsforspecificauditobjects.


BoardmemberIGustiAgungMadeRai,forinstance,shares40yearsofhisexperience

intheauditingsectorinhisbookPerformanceAuditforthePublicSector,Concept,

TechniqueandCasestudy.Itisanessentialreferenceworkfornewcomerswhowantto

understandtheessenceofbpk’sperformanceaudits.

Thetablebelowshowstheoverallframeworkfortheauditmethodologyandthestatus

ofthedifferentparts.ThedarkfieldshavebeenfinalisedandacceptedbytheBoard.

1945 constitution

State finance audit laws and regulations

General Manual spkn

(�/�/�00�)

pmp

(1�/�/�00�)

Code of Ethics

(�1/�/�00�)

Audit Guidelines 100 financial audit

(1�/5/�00�)

�00 performance audit

(5/�/�00�)

�00 special purpose

audit (��/�/�00�)

�00 quality assurance system (�5/�/�00�)

500 audit report

�00 audit documentation

Technical Guidance 100.001

Understanding and

evaluation internal

control of financial

audit

�00.001

Determining Key Area

�01.000

Investigative audit for

indication of

corruption

(��/1�/�00�)

100.00�

Understanding and

evaluation of audit risk

�00.00�

Determining criteria

�0�.001

Hospital waste rsup/

rsud

(�1/�/�00�)

100.00�

Audit materiality

(�0/5/�00�)

�01.000

Rehabilitation of forest

and land

(�1/�/�00�)

�0�.00�

Audit of air pollution

control

(�1/�/�00�)

100.00�

Sampling method

�0�.000

Goods and services

procurement audit

101.000

lkpp and lkkl audit

(�1/�/�00�)

�0�.000

Electricity subsidies

audit

10�.000

lkpd audit

(�1/�/�00�)

�05

Food subsidies audit

10�.000

Central bank audit

�0�.000

pnbp pad

�00.001 audit reviews

�01.000 electronic format of audit working paper

Themanualsareappropriateandexplainthedifferenttypesofaudit.Theydefine

generalprinciplesandsetmorespecificcriteriaandapproachesforthephasesinthe

auditprocess(planning,fieldwork,reporting,follow-upandevaluation).

Wecomparedtheauditmethodologywithinternationalauditingstandardsand

concludedthatitwascompliant.


Experiencebasedknowledgesharingandgroupdiscussionareheldinorderto

enhancetheunderstandingofcertainnewlyguidelines/guidance.

Weconcludedthatthegeneralapproachtofinancialauditcomplieswithinternational

standards.Someguidelinesarebeingdeveloped,however,thatcouldbequiteusefulto

bpksauditors(forinstancetechnicalguidelinesonauditriskandsampling).

Weconcludedthattheperformanceauditmanualcomplieswithinternationalstandards

butthereissomeroomforimprovementtomakeitmoreusefultotheauditors.

bpk’sBoardapprovedthespecialpurposeauditmanualinFebruary2009.Themanual

complieswithinternationalstandards.However,wefoundthatitdoesnotadequately

clarifywhattypeofauditshouldbeusedwhenortheproceduraldifferencesbetween

thethreetypesofspecialpurposeaudit.Recommendationshavetobemadeinall

auditreportsexceptinvestigativeauditreports.Asmentionedabove,bpkwould

generatemoreaddedvalueifitcombinedallauditfindings,analysedthem,drew

conclusionsandmaderecommendationsonunderlyingsystems.

1.6 Institutionalsupport

1.6.1 Financialresourcesasosaipromotesoptimalbudgetexecutiontoprocureandprovidetheinfrastructure

andmaterialsupportrequiredforthevariousfunctions.bpk’sbudgethasbeen

increasedsignificantlyafteralongperiodofshortages.Remarkably,bpkseemsunable

tospenditsentirebudget.In2007Headquartersdidnotspend36%,TrainingCentre

12%andRegionalOffices10%oftheirbudgets.In2008thebudgetunderspend

averaged15%.Budgetspendingstartslateintheyear.Accordingtobpk,budget

underspendwasduetoreorganisationandthecancellation,suspensionordelayof

programmes.Insomecasesbudgetholdersstartedpreparingprojectstoolate.

Regionalofficessometimeslackexperienceonhowtomanageabudget.Abetter

centralmanagementcontrolsystemheadedbyacontrollerwhoregularlymonitors

orderlybudgetspendingandprovidesadvicewouldbehelpful.Thisisanimportant

elementofbpk’saccountabilitybecausebpkwilldecideontheauditunits’2010audit

work,staffingandfundinginmid-2009.

1.6.2 InfrastructureAsaishouldhavesufficientinfrastructure(officebuildings,workingspace,furniture

andfittings,electricityandwatersupply,trainingfacilities,library,etc.)toenableits

stafftoperformtheirdutiessatisfactorily.Generally,bpkhasinvestedagreatdealin

sufficientinfrastructure.

1.6.3 TechnologyTechnology(telecommunication,it:internet,intranet,generalofficesupport

software,informationanddecision-makingsystems,softwareforauditplanning,

documentationandreporting,etc.)shouldfunctionefficientlyandeffectively.

bpk’sitsystemisdevelopedandisimproving.However,itsitnetworkisstill

unstable,worksslowlyandsuffersfromviruses.itpersonnelcomplainabouttheir

lackofinvolvementinstrategicdiscussionsatbpk.


To assess the level of it support for the business processes (it business alignment) and the neces-

sary steps to improve this support we recommend a tool called it Self-assessment.

The method has been designed for use by Supreme Audit Institutions (sais) and is based on

cobit,6 the widely accepted framework for managing and auditing it.

The assessment considers two domains:

1 The business processes (users). Which are the 10 to 15 key business processes to achieve the

sai’s goals? What is the importance of it support for these processes? What is the quality of the

present it support?

� The �� cobit processes (IT department). Which are the most important IT processes? What are

the maturity levels of these IT processes?

it self-assessment should take the form of a workshop and be undertaken by a group of � to � per-

sons from different disciplines within the sai: a mixture of users, IT staff and managers. The neces-

sary time varies from 1 to 1.5 days.

The group needs the guidance of a moderator. He or she will introduce the group to the method

and provide guidance on cobit and on the maturity levels.

1.6.4 ElectronicWorkingPapers/TeammateAninterviewwiththeitunitrevealedthatbpkisdevelopingitsownTeammate

applicationwithintroductionplannedfor2010.ThiscontradictsaBoardstatement

thatbpkwillbuyTeammateassoonasfundsareavailable.Thisseemstobeproofof

theweaknessinbpk’sstrategicdecision-makingonit.

1.6.5 SupportservicesSupportservicesincludesecretarialassistance,security,transport,etc.Asstated

above,thenumberofsupportstaffneedsseriousevaluation.

1.7 Continuousimprovement

Thequalityofasai’sinterventionsshouldbecontinuouslyassessedintermsoftheir

impactonthesai’senvironment(relevantstakeholderssuchasauditeesandrelated

institutions).Thereviewteamassessedwhatqualitycontrolswereinplaceand,

subjecttothescopeofthePeerReview,themonitoringofthefollow-uptobpk’s

conclusionsandrecommendationstoensurethatlessonsarelearned.

Manypeopleareinvolvedinqualitycontrolactivitiesinorbetweenthemanagement

layers.Formalitiesandtechnicalitiesaresubjecttoappropriateverification.Thefocus

onresultsislimitedtotheauditassignmentandisbasicallycorrect.However,the

utilityofbpk’sreportstoitsstakeholderscouldbeimprovedbyclarifyingthecauses

andeffectsfindingsandopinions.

1.7.1 StrategicqualityofauditsHotreviewspayhardlyanyattentiontothestrategicqualityofbpk’sassurance

products.Theeppunitmakeshandysummariesforbpk’shalf-yearreportbutitisnot

mannedbycommunicationspecialists.Theirtimingisalsoimportant.Half-year

publicationshaveadvantagesanddisadvantages,especiallyforperformanceand

specialpurposeaudits.bpkcansometimesacttooearlyortoolatetoinfluenceits

stakeholders.Auditorshavedifficultyputtingtheauditmessageacross.Findingsand

6COBIT – Control Objectives for Information and related Technology. This is a widely known and generally accepted framework for managing and auditing IT. For more information see http://www.isaca.org.


opinionsarerarelyexpressedasconsequencesandimpactonsocietyandcausesare

rarelyinvestigated.Auditorstendtofocusoninternalcontrolweaknessesandreport

onassetsbutforget,forexample,foodsupplyrisksbecausestate-ownedfarmland

mightbelost.bpkshouldprovidemorehistoricalanalysesoffindings,

recommendationsandsolutions.Accordingtostaff,thisinformationwasrecently

includedinbpk’shalf-yearreport.

1.7.2 ImpactauditsUnderthelaw,publicentitiesmustfollow-upbpk’srecommendationswithin60days

andreportonthefollow-up.Whatfollow-upmeanshasnotbeendefined:anaction

planorfullimplementationofthenecessarycorrectivemeasures?bpktakesaccountof

thetimeauditeesneedtoimplementmeasures.Ifmeasuresneedmoretimebpkstates

thattherecommendationhasbeenfollowed-upbutnotfinishedandexplainswhynot.

Thefollow-upisscoredinthreecategories:notfollowed-up,followed-up,followed-up

butnotfinished.

Thefollow-uptorecommendationscouldbemonitoredmoreeffectively.bpkshould

paymoreattentiontotheimpactofitsrecommendations,notonlytocompliancewith

recommendations.Thiswouldalsomakeitpossibletolearnfromtheeffectivenessof

recommendations.

Accordingtostaff,theresultsofauditfindingsarepresentedindpr(bytheChairman

ofbpk)orinlocalparliaments(bytheHeadofRegionalOffice).

Parliament(dpr)generallyhasonlyalimitedinterestinbpk’sreports(accordingto

staff ).Regionalparliaments,also,showlittleinterestinthembecausetheyaretoo

technicalandtherearenosanctionsforlocalgovernments:theycancontinuebusiness

asusualdespitebpk’sfindings/opinion.

Toenhancetheimpactofitsreports,bpkshouldpermanentlyseeknewwaystoinform

parliamentsandthegeneralpublicaboutitsauditsandrole.bpkrecentlyorganiseda

two-monthtvseriestoprovideanexplanationofseveralofitsauditreports.

1.7.3 Overlystrictseparationofaudittypesbpkstronglybelievesthatanythingotherthanfinancialstatementsbelongsto

performanceorspecialpurposeaudits.Thisnarrowviewpreventsauditors

commentingonthecausesandimpactonsocietyoftheirfinancialauditfindings.

1.7.4 QualitycontrolsEchelonIandallcentralandregionalauditofficesholdacoordinationmeetingin

Jakartatwiceayear.Duringthemeeting,manualsandguidelinesareexplainedanda

workplanisdiscussedforthenextperiod.

AhelpdeskandreportingteamhavebeeninstalledforeachAuditorate.Principal

auditorspermanentlymonitorandreviewtheirauditteams.

Furthermore,internalreviewteamshavebeenappointedatseveralregionalandcentral

auditofficestoperformhotreviewsofauditreports.


1.7.5 QualityAssuranceThecombinationofinternalaudit/inspectiontaskswithqualityassurancetasksin

itamadoesnotimprovethequalityassuranceenvironment.Thecombinationofwhat

isseenaspunishingandlearningatthesametimeshouldbediscouraged.itamadoes

notconsiderthestrategicandtechnicalqualityofauditreports,onlycompliancewith

procedures.Thisapproachdoesnothaveanylearningbenefitforbpk.

Werecommendthatanimplementationplanbedrawnuptodefineitama’srolein

relationto:

• Evaluationunit(epp);

• internalreviewteams;

• hotreviewteamsintheauditunits.

bpkrecentlytookthefirststepstoprepareprojectcharterstoclarifyeachfunction’s

useasaqualityassuranceinstrument.

itamashouldbeabletousethefindings(errors)ofthoseotherunits’summarising/

verifyingactivities.Onlyitamareportsrelevantfindingsandlessonstothemanagement

ofbpk.Qualityassuranceshouldlookforbestpractices(whatwentwrongandwhat

wentright?)andsuggestimprovementstotheteaminvolvedormanagementonsuch

aspectsastraining,manualsandlinecontrol.Stepbystepbpkmustdevelopastrategy

basedonaddedvalue:Whatshoulditlearnfirstandwhatlater?Forlearningpurposes,

adeepreviewcouldfirstbecarriedoutof,forinstance,methodology,followeduplater

byrecommendationsandconclusions.Furthermore,veryexperiencedauditorswitha

certainauthorityandteachingskillsshouldbeplacedinitama,sothatitbecomesan

honourtoworkforit.itama’scurrentstaffshouldbeclearlyinformedabouttheir

role,tasksandrequiredperformanceassoonaspossible,enjoythesupportofbpk’s

seniormanagementandhavesufficientbudgettodothejob.AccordingtotheBoard,

bpkrecentlystartedtorecruitexperiencedauditorsforitama.

Twounitsevaluateauditreports(coldreviews).Bothsufferfromlackofadequate

capacityandpoorcommunication.Insemesteriiof2007,the33-manstaffofthe

Evaluationunit(epp)evaluated821finalreports(lhp)containing7,052findings.

Theyfoundthat3.4%ofthe821finalreportsdidnotcomplywithbpk’sinternal

criteria.Thefindingsshouldimproveaccuracyandthelogicalrelationbetween

findingsandrecommendations,preventmisinterpretationandincreasecompliance

withauditingstandards(spkn).eppproduceshalf-yearlycompilationsofextracts

fromreportssubmittedtoparliament.Filesarenotreviewed.However,thePrincipal

Inspectoratesupervisesadministrativesupport,disciplineandauditactivitiesat

AuditoratesatHeadquarterandregionaloffices.Italsoperformsqualityassuranceby

reviewingthetechnicalqualityofasmallselectionofauditsusingauditfiles.These

reviewsaredesignedtoincreaseinternallearning.Asbpk’snewqamanualhasalmost

beenadoptedthisistherightmomenttostreamlineqaactivitiesinasingleunit.This

willenhancetheproductionandqualityofqaactivities,whichisnecessaryinviewof

theextraworkloadcomingfromregionaloffices.Furthermore,werecommendthat

theaforementionedinspectionofadministrativemattersbeseparatedfromauditqa

activitiesbecausetheydonotimprovetheqaenvironment.Wenoticedthatauditors

arebarelyinterestedinaqainspectionfunctionowingtoitsnegativeimage.


1.8 Externalstakeholderrelations

Thereviewteamassessedthequalitycontrolsinplaceandbpk’sabilitytogather

informationfromitsmainstakeholderswithregardtoriskassessment,auditobject,

topicselectionandevaluationoftheeffectsofassuranceproducts.

bpk’sstakeholdersarenotnamedinlawsandregulations.But,bystudyingand

analysingthelaws(bpkandauditLaws),bpkhasidentifieditsstakeholdersas:

a parliaments(dprcentralanddprdlocal);

b regionalrepresentativecouncils(dpd);

c governments(centralandlocalgovernments);

d AttorneyGeneral’sOffice,PoliceDepartment,andAnti-CorruptionCommission;

e managementofstate-ownedenterprisesandotherauditedentities;

f internationalorganisationsorinstitutionssuchasintosai,asosai,WorldBank,

AsianDevelopmentBank,andothersais;

g thepublic,includingthemedia.

Thequestioniswhetherbpk’scommunicationstrategyachievesitsgoals.bpkhas

developedacommunicationstrategybuthasnotyetformallyadoptedit.bpkhas

approacheditsmanystakeholdersmainlythroughpresentationsofitsreportsand

summaries.Italsoorganisesconsultativeforawithparliaments,coordinationand

follow-upmeetingsandpressconferences.In2009aweeklytvmagazinewas

broadcastfortwomonthstomaketheresultsofspecificauditsaccessibletothe

public.GiventhehugechallengefacingtheRepublicofIndonesiatoimproveits

widelydecentralisedadministrationandfinancialmanagement,bpkshouldprioritise

itsstakeholderrelationsandissues,preferablyselectinghigh-riskissuesinitsown

countryandtheSoutheastAsiaregion.

Inaddition,webelievebpk’seffectivenesscanbeenhancedthroughtheappointment

ofaPublicAccountsCommitteeinparliamenttoactasafocalpointforbpkandits

auditresults.APublicAccountsCommitteecouldalsosupportbpk’seffortsto

enhancefinancialmanagementintheRepublicofIndonesia.

1.9 Results(impactassessment)

ThePeerReviewteamreviewedaselectionof14auditsconductedbybpkin2007-2008

toassesstheperformanceofqualitycontrols.Theresultsarepresentedinthenext

chapter.Theselectioncoveredbpk’sthreeaudittypes:eightfinancialaudits,three

performanceauditsandthreespecialpurposeaudits.

Presentationsgivenbytheauditteamsontheirapproach,supportedbydocuments,

gaveusageneralimpressionoftheeffectivenessofbpk’squalitycontrolsystem.

Theresultsalsoenabledustofocusourreviewoninstitutionalissuesbyinterviewing

specificunitswithinbpk.


2 Individualauditatengagementlevel

2.1 Introduction

ToassesstheadequacyofqualitycontrolsatindividualengagementlevelthePeer

Reviewteamselectedfourteenauditsdividedoverthethreetypesofaudits(financial

audit,performanceauditandspecialpurposeaudit).Wereviewedeightfinancial

audits,threeperformanceauditsandthreespecialpurposeaudits.Weperformedthe

followingactivitiesforourassessment:

• Assessmentoftheauditmanualandguidelines;

• Familiarisationwiththeperformanceoftheauditbymeansofapresentationby

theauditteamtogainabriefoverviewofitsauditactivities,auditresultsandqual-

itycontrolmeasureswithinthethreemainstagesoftheaudit(planning,fieldwork

andreporting).

• Interviewswiththeresponsibleauditteamduringandafterthepresentation.

• Areviewoftheauditfiles,selectedkeydocumentsandtranslationstoanalyseper-

formanceinmoredetail.

Inthenextsection(2.2)wedescribeourfindingsconcerningfinancialaudit,followed

byperformanceaudit(2.3)andspecialpurposeaudit(3.4).

2.2 Financialaudit

2.2.1 Generalconditions

Financialauditmethodology

Toperformafinancialauditinaccordancewithbpk’srulestheauditorneedstobe

acquaintedwith:

• Statefinanceauditstandard(spkn);

• Financialauditimplementationguidelines;

• Technicalguidelinesonauditsoffinancialreports(centralgovernment,ministries,

governmentagenciesandregionalgovernment).

bpk’sfinancialauditmethodologycomplieswithinternationalstandardsissuedby

ifac,intosaiandasosai.Themanualfollowsthethreestepsofauditing(planning,

fieldworkandreporting);eachstepisworkedoutindetail.Theplanningphaseis

dividedinto10stepsfromunderstandingtheauditobjectiveandauditexpectationto

settingtheauditprogrammeandindividualworkingprogramme.Thefieldphaseis

dividedintosevenstepsfromanalyticalteststoreportingauditfindingstotheauditee.

Thereportingphaseconsistsoffivestepsfromcompilingthedraftauditreportto

reportingtheauditresultandcompilingthefinaldraft.

Responsibilities,checksandbalances

Alltheactors’responsibilitiesareclearlydescribed.Therightchecksandbalancesare

inplaceinthedesign.Supervisionispartoftheprocessandthefilesshowedusthatit

iseffective.Supervisionisperformedatdifferentlevels.Reviewsarealsoperformedby

theactorsthatperformqualitychecks.


Auditperformanceanddocumentation

Theauditsperformedcomplywithbpk’smanualandguidelines.Theelementsof

qualitycontrolasidentifiedbybpkwereallevidentintheauditprocess.Thefollowing

elementsofqualitycontrolareinplace:

• clearrules;

• mandateandindividualengagement;

• workedoutworkingpapers;

• supervisionandinternalreview;

• communicationoffindingswiththeentityaudited.

Theworkingpaperswereviewedweresufficienttopreparetherightauditactivities.

Thefileswerealsosystematicallystructuredandgaveagoodviewoftheaudit

procedures,theauditfindingsandevaluationofthefindings.Wefoundevidenceof

internalcontrolactivities,suchassignaturesofthereviewersduringthesuccessive

stepsoftheauditperformance.

Professionalsandknowledge

Theauditorsinvolvedintheselectedauditsshowedgoodknowledgeoftheiraudit

subjectandobjective.Theyfollowedinternalguidelinesandshowedthe

documentationoftheaudit.Theyalsotookvarious(update)courseslastyear.

Independenceofauditors

Measuresareinplacetoensuretheauditors’independence.Auditorsareobligedto

signaform,forinstance,declaringthattheyareindependent.Besidesthese

proceduralcontrols,bpkalsoidentifiesrisksconcerningpaymentsbytheauditeeto

coverbpk’scosts,suchastransportandfoodcosts,andtakesactioninsuch

situations.Auditeesarenotallowedtopaybpk’sauditcosts.

2.2.2 PlanningfinancialauditTheplanningofallthefinancialauditswereviewedfollowedthestepsrequiredinthe

planningprocess.Wehavesomeremarksonthefollowingelements:

• systembasedapproach;

• riskassessment;

• assessmentoftheinternalcontrolenvironment;

• materiality;

• sampling.

Systembasedapproach

Ingeneral,bpk’sapproachissystembased.Routineactivitiesareperformedasstated

inthemanualandworkingpapers.Thereisroomforimprovement,however.Tosome

extent,thestepsintheplanningphaseareseenasdistinctratherthaninterrelated

elements.Atkeymomentsinasystembasedapproachusingriskanalysisitis

importanttogobacktoanearlierstep.Forinstance,iftestsofcontrolsconcludethat

assessmentoftheinternalcontrolriskwastoonegative,themodelcanbeadapted

(acr=ihr*icr*dr)andfewersubstantivetestsneedtobeperformed.Wenotedthat

atechnicalguidelineforauditriskisbeingprepared.

Riskassessment

bpkisawareoftheneedtohaveariskassessmentmanual.Atechnicalguidelinefor

auditriskassessmentisinpreparation.Fortheselectedauditsreviewedatengagement


level,specificriskanalyseshavebeenperformedwithoutsuchaguideline.

Nevertheless,wewereimpressedbythewaybpk’sauditorsworkedouttheirrisk

analyses.Theyperformedastructuredriskanalysisandidentifiedthemainrisks.

Assessmentoftheinternalcontrolenvironment

bpkusescosoorcomparablemodelstoassesstheauditee’sinternalcontrol.We

noticedthatinsomecasesthequestionnairewassenttotheauditeetofillin.It

becamequiteclearfromtalksthattheteamwasawarethatthiswouldgivetoopositive

aviewofrealityandtolduswhattherealsituationwas.Theytookthisintoaccountin

theaudit.Weadvisedthemtomaketheevaluationmorequalitativeandusetheirown

judgementnexttimeandtodocumentthisintheworkingpapers.Inothercaseswe

foundthatthemodelwasusedtooinstrumentally.Theyansweredthequestionsbut

didn’tgiveanoverallanalysisandconclusiononthekeyelementsofthecosomodel.

Itshouldbeunderstoodthatthecosomodelisintendedprimarilyforanentity’s

managementtomakeakindofself-assessmentandimplementcontrolstomitigate

riskstotheorganisation’sobjectiveandgoals.Theauditorscanalsousethemodelof

coursebuttheymustbeawarethatithasanotherfunctionforthem:tobecomebetter

acquaintedwiththeentityperformanceofinternalcontrolanddevelopanappropriate

auditprogramme.Furthermore,theauditorneedstobecreativeandthinkfurtherthan

solely,What is the meaning of this element of the coso model and why is it important?

WefoundthatauditorslookeduponthequestionWhy didn’t they recognise some elements

of integrity risk?asbeingmoreappropriatetoperformanceaudit.Wealsofoundthis

duringtalkswithotherteams.Weagreethatsomefocusbyusingthecosomodelis

necessarybutthereisusuallyarelationshipbetweenperformanceandfinancialaudit.

Broadeningthescopecanhelpimproveafinancialaudit’seffectivenessandstrengthen

themessageofafinancialaudit.

Materialityandsampling

Theauditteamstartsbydefiningmaterialitytocalculatetheplanningmaterialityfor

eachaccount.Afterthissteptheauditorsselectsamplesonthebasisofprofessional

judgement.Nostatisticalmethodsareusedbuthighrisksareselected.Inonehigh-

riskcasesubstantivetestingwasperformedon48%ofthetotalfinancialamount.This

issimilartothe20/80rule(auditing20%ofthepopulationcancheck80%ofthetotal

amount)butitisnotentirelysystembased.Inonecasethematerialitywaschanged

afterayear.Thissituationreflectsbpk’sguidelines.Materialitycanbehigherifthe

auditeehasshownsomeimprovement(inthespecificcasetherehadbeen

improvementandmaterialitywasraisedfrom0.5%to1%).Thischange,however,had

noeffectonthenumberofsubstantivetests.Thefactthattheopinionstillcontaineda

disclaimerandthechangehadnoeffectonthelevelofcomplianceornumberof

substantivetestsmadethisdecisionopentoquestion.bpkwilladdressthisissuewhen

thetechnicalguidelinesonauditriskandsamplingmethodarecompleted.

2.2.3 FieldworkInthesectionongeneralconditionswedescribedsomegeneralfindingsofthePeer

Reviewofthefieldwork.Ingeneralwearepositiveaboutthefieldworkperformedby

theauditteamswereviewed.Theyfollowedtheguidelinesandusedtheworking

papers.


Thedifficultiesfacedbybpk’sauditorsare:

• toolittletimeavailabletoperformtheaudit;

• itsystemsarenotalwaysreliable;

• lackofqualifiedinternalauditorsattheministriesmakescooperationandreliance

ontheworkofinternalauditorsdifficult;

• shortcomingsinthefinancialmanagementofentities.

2.2.4 ReportingThenumberofunqualifiedopinionsremainedlowin2006,2007and2008,whereas

thenumberofdisclaimersdeclinedinfavourofqualifiedandadverseopinions.The

developmentandprogressofopinionsisshowninthefollowingtable.

Figures and content of opinions given by bpk

2006 2007 2008 Remarks

Financial audit, ministers

a Unqualified (emphasis of matter) opinion � 1� ��

positive

developmentb Qualified Opinion �� 1 �0

c Disclaimer opinion �� 1�

d Adverse Opinion 0 1 0

Total opinions given by bpk 82 83 82

Financial audit, local government

a Unqualified (emphasis of matter) opinion � � 0

positive

development

b Qualified Opinion �� 0

c Disclaimer opinion 10� 1�0 �

d Adverse Opinion �� 5� 5


Financial statements other than central and local government

- To be received according to regulation 15� 1�0 1�� serious

problem- Actually received (on time) 1� 10 �

Financial audit, bpk

a Unqualified (emphasis of matter) opinion 10 � �

no conclusion

possible

b Qualified Opinion � 1 1

c Disclaimer opinion � � 0

d Adverse Opinion 1 0 0


Attentionshouldbepaidtominorinaccuraciesintheopinions.Theteamsusedthe

formatsintheguidelines.Auniformtoolshouldbeavailabletoevaluatebpk’sopinions.

Wereviewedonlyafewopinionsbutthinkitwouldbeusefultohavedifferentaudit

teamsdiscusstheevaluationandconclusionsontheauditfindings.Letteamspresent

theirfindingsandevaluationstoeachothertoexpressanauditopinion.Itisnot

necessarytoarrangeworkshopsonalltheauditopinionsgiven,buttoselectafew

differenttypesofopinion(unqualified,qualified,disclaimerandadverse).Peoplewill

learnfromeachotherandopinionswillimprove.Abpk-widecomparisonofopinions

wouldalsobeusefultoidentifydifferences.Weunderstandthataworkinggroup

discussesallopinionswiththeauditors.Wethinkthiswouldbeaveryeffectivecontrol

measureandthatotherauditorsandevenitamacouldusetheoutcome.

7There are less financial statements in �00� because the rest of entities are being audited by BPK.


Itbecameclearfromtheinterviewsthatthequalityofinternalauditatministriesand

regionalgovernmentisstillproblematic.bpkfacesachallengetochangethissituation

andestablishclosecooperationamongallactorsinthefield.Butitwillmakebpk’s

roleasaSupremeAuditInstitutionfareasierinthefutureandallowittospendmore

timeonperformanceaudits.

Reasonableassurance

Althoughthereareopportunitiesforimprovement(finishingthemissingtechnical

guidelinesandworkinginaccordancewiththem),weconsidertheauditswereviewed

tobeadequate.Itisnotverydifficulttodrawthisconclusionbecausemostofthe

opinionsweredisclaimersorqualifiedandtherewasoneadverseopinion.Itbecame

clearthatinternalcontrol(accountingandfinancialmanagement)atthegovernmental

entitieswasweak.Thesituationwouldbemorecomplexanddifficultifthesystems,

includingtheinspectorate,werebetterandthetrendwastowardsmoreunqualified

opinions.

Thefinancialauditreportscontainmuchinformationbutarealsoverylongand

difficulttoreadfornon-financialexperts.Thesummaryisalsowrittenverytechnically.

Togiveanexample:

One of the main problems addressed by the audit team is the valuation of fixed assets. This is a serious

problem but it is quite technically reported. For parliament and others with a lack of financial expertise

the consequence is not clear and they will probably take no action. We recommend helping the stake-

holders by making clear that this means that the balance sheet gives a far too positive picture of the

quality of, for instance, fixed assets. If the equipment is obsolete either (1) it has no value and it cannot

be sold, or (2) the equipment cannot be used in operations and needs replacement or maintenance. This

key message needs to be quite clearly reported in the summary of the audit report.

2.3 Performanceaudit

Step-by-step,bpkwantstoincreasethenumberofperformanceauditsinthecoming

years.bpkconducted22performanceauditsin2007and2008.Aspartofitsaudit

manualframework,ithasdevelopedanImplementationGuidancedocumenton

performanceauditthatwasapprovedon5June2008.Theperformanceauditsin2007

and2008wereconductedbeforetheImplementationGuidancewasformallyadopted

anddistributedtobpk’sauditors.

ToassessthequalityoftheImplementationGuidanceandtheselectedperformance

auditsweusedcriteriafromintosaiandasosai’sperformanceauditguidelines.

Wealsousedourownexperienceandmanualsasareferencetoreviewthequalityof

thePerformanceAuditImplementationGuidanceandtheselectedaudits.Toassess

whethertheImplementationGuidancecompliedwithapplicablelawsandregulations

weusedcriteriafromActNo.152004onStateFinanceManagementand

AccountabilityAudit,ActNo.152006ontheAuditBoardoftheRepublicofIndonesia,

bpkRegulationNo12007onStateFinanceAuditStandard,bpkDecreeNo.1/k/i-xiii,

2/2/2008,onAuditManagementGuidance,bpkChairmanDecreeNo.34/k/i-viii,

3/6/2007,onbpk’sOrganisationStructure,bpkDecreeNo,39/k/i-viii,3/7/2007,on

Organisationandbpk’sInvestigatorWorkOrder.


2.3.1 MainfindingsOurmainfindingwasthatthePerformanceAuditImplementationGuidancecomplied

withapplicablelawsandregulations.Italsoagreedwithintosaiandasosai

guidelines.TheImplementationGuidanceprovidesauditorswithaclearstep-by-step

approachfromplanningtoreporting.Itclearlystatestherelationshipbetweenthe

variousactivitiesintheauditprocessandthedocumentsusedtoreportfindings,

conclusionsandrecommendationsandestablishanaudittrail.TheImplementation

Guidanceprovidesandsecuresasystematicapproachthatenablesuniformityand

qualitycontrolmeasurestofunctionproperly.TheImplementationGuidanceprovides

generalinformationonwhatperformanceauditingisanditsaims.Italsogivesabrief

descriptionofimportantconceptssuchaseconomy,efficiencyandeffectiveness,

illustratedwithexamples.TheImplementationGuidancedescribesthebasic

competencesthatperformanceauditorsshouldhave.Eventhoughtheselected

performanceauditswereconductedbeforetheImplementationGuidancehadbeen

formallyadopted,theycompliedwiththerequirementsoftheImplementation

Guidance.

However,webelievetheImplementationGuidanceshouldbefurtherimprovedwith

regardtothescope,methodologyandchallengesofperformanceauditingtobetter

supportbpk’sauditorswhenconductingperformanceaudits.Thissupportisneeded

inouropinionbecauseperformanceauditingisarelativelynewactivitynotonlyforthe

auditorsbutalsoforbpk’smanagementandBoard.Ourreviewoftheselected

performanceauditsfoundthattheauditorsusedthefinancialauditmethodologyand

theauditdesignandfieldworkfocusedoncomplianceratherthanachievementof

policygoals.Supervision,qualitycontrolsandqualityassurancesalsodidnot

encouragetheauditorstofocusontheperformanceofgovernmentandonthefinal

impactontheIndonesianpopulation.Inappendixivwelookingreaterdetailatour

suggestionstoimprovetheImplementationGuidancefurther.

Inthefollowingsectionswepresentmoredetailedfindingsregardinggeneral

conditions,planning,fieldworkandreportingofperformanceaudits.

2.3.2 GeneralconditionsTheImplementationGuidancedescribesandillustratestheobjectiveofperformance

auditing,importantconceptssuchaseconomy,efficiencyandeffectivenessand

techniquesfordatacollection.Wefoundthatthedescriptionsdidnotprovideenough

informationandknowledgefortheauditorstoconductaperformanceaudit.The

descriptionsofeconomy,efficiencyandeffectiveness,forinstance,providedtoomany

examplesfromtheprivatesectoranddidnotprovidesufficientinsightintohowthe

conceptswereappliedinthepublicsector.Theinformationondatacollecting

techniqueswasalsoinsufficienttolearnhowtousethesetechniquesinpracticeand

whattheiradvantagesanddisadvantagesare.

Theauditorsweinterviewedhadgoodanalyticalskillsandunderstoodtheirauditees.

Ontheotherhandtheyhaddifficultyautomaticallyidentifyingallcausesandeffectsof

theirfindingsandrelatingtheirfindingstotheobjectivesofthegovernmentandfinal

beneficiaries(Indonesianpopulation)eventhoughwebelievetheyhavethepotential

todoso.Wealsofoundthattheauditorsweinterviewedwerecreativeintheconduct


oftheirauditsandpresentationoftheirfindings.Thiscreativitywasnotusedtoitsfull

potentialinthereportingphase.

Theselectionofauditteammemberswasclearlythoughtoutintermsofskillsand

knowledgeneeded.Duringourinterviewstheteamsraisedconcernsabouttheregular

movementofauditorsbetweenauditprojectsandbetweenregionalofficesand

headquarters.Thishighturnoverofauditorsledtodifficultiesexecutingtheauditand

tolossofknowledgeabouttheauditeeandkeyareasoftheaudit.

2.3.3 AuditplanningWefoundthatthescopeoftheselectedperformanceauditswaslimitedmainlyto

compliance.ThecurrentImplementationGuidancefocusesstronglyonidentifying

risksintheinternalcontrolsystemand‘cheatingrisks’;bothrisksarederivedfrom

thefinancialauditmethodology.TheselectedauditsandImplementationGuidance

paytoolittleattentiontotheproblemsfacingtheRepublicofIndonesiaandits

populationandthemeasurestakenbypublicentitiestosolvethem.Webelievethis

relationshipshouldbeafocalpointtodefinetheproblemandkeyareasoftheaudit.

WealsofoundastrongbiasintheselectedauditsandtheImplementationGuidance

towardsentitiesratherthanpolicies.Webelievethefocusoninternalcontrol,

‘cheating’andentitieslimitsthescopeofperformanceauditsandthusprevents

auditorsassessingtheeconomy,efficiencyandeffectivenessofgovernmentmeasures.

Italsolimitstheaddedvalueofperformanceauditstoparliamentandgovernment.

Wewouldalsostressthatdesigningandconductingthefieldworkforagood

performanceaudittakestime.Wethereforerecommendthatbpkreservesufficient

timeespeciallyforthisphaseascapacityhastobebuiltup(30daysisnotenough).

2.3.4 AuditimplementationWefoundthatthebpkauditorsweintervieweddonotautomaticallyanalysethecauses

andeffectsoftheirfindings.Thisisevidentintheauditreports,inwhichaudit

findingsaredescribedbutnotcausesandeffects.Reportingonlyfindingsreducesthe

addedvalueandimpactofperformanceaudits.Webelieveananalysisofcausesand

effectsenhancesthelearningprocessofthepublicentity(ies)concernedandfocuses

parliament’sattentiononthemeasuresthatshouldbetaken.TheImplementation

Guidancepayslittleattentiontohowcausesandeffectscanbeanalysed.

2.3.5 ReportingAsstatedabove,wefoundthattheselectedauditreportsconsiderthemainfindings

butnottheircausesandeffects.Wealsofoundthatthereportsconsistofmanypages

inwhichitisdifficulttofindthemessagethattheauditorwantstocommunicateto

theaudience.Thereisnologicalstructureoffindings,causes,effectsandmeasuresto

preventrepetition.TheImplementationGuidancedoesnotprovidesufficient

informationorguidanceonthereportingofauditfindings,conclusionsand

recommendations.

2.3.6 QualitycontrolTheworkingpaperswereviewedaresufficienttoprepareappropriateauditactivities.

Filesweresystematicallystructuredandgaveagoodviewofauditprocedures,audit

findingsandevaluationoffindingsandwewereabletofindevidenceofinternal

control,suchassignaturesofthereviewersinthesuccessivestepsoftheaudit.


Wealsofoundthatqualitycontrolsfocusedmoreonproceduresanddidnotleadtoa

broaderscopeinperformanceauditingthanincomplianceauditing.

Performance audits

Performance audits are not about the performance of agencies but about solutions to social

problems in the Republic of Indonesia by its government. They attempt to answer the question:

What should be solved by whom for whom? bpk recognises that performance auditing is still in

its infancy: staff has to gain experience.

The Peer Review team’s comments on weaknesses in performance audit reports are repeated by

anao. In response bpk has started sending its auditors to Australia to take a special training

programme on performance auditing. According to bpk’s staff, bpk has selected a number of

themes (e.g. epidemics) for its performance/special purpose audits. bpk has already worked on

special themes such as education funds (all regional offices conducted an audit and an overall

audit report was published on this theme).

2.4 Specialpurposeaudits

TheconductofspecialpurposeauditsisprovidedforinbpkLawNo.15.bpk

conducted970specialpurposeauditsintheperiod2007-2008,excludinginvestigative

auditsthatarenotpubliclydisclosedforreasonsofconfidentiality.Thenumberof

specialpurposeauditswasevenhigherthanthenumberoffinancialauditsinthesame

period.

Aspartofitsauditmanualframework,bpkhasdevelopedaSpecialPurposeAudit

ManualthatwasformallyapprovedinFebruary2009.Thespecialpurposeaudits

conductedin2007and2008wereconductedbeforethemanualwasformallyadopted

anddistributedtobpk’sauditors.

Weusedcriteriainifac,intosaiandasosaistandardsandguidelinestoassess

whethertheSpecialPurposeAuditManualcompliedwithinternationalstandards.

Toassesswhetherthemanualcomplieswithapplicablelawsandregulationsweused

criteriafrom:

ActNo.152004onStateFinanceManagementandAccountabilityAudit,ActNo.15

2006ontheAuditBoardoftheRepublicofIndonesia,bpkRegulationNo.12007on

StateFinanceAuditStandard,bpkDecreeNo.1/k/i-xiii,2/2/2008,onAudit

ManagementGuidance,bpkChairmanDecreeNo.34/k/i-viii,3/6/2007,onbpk’s

OrganisationStructure,andbpkDecreeNo.39/k/i-viii,3/7/2007,onOrganisation

andbpk’sInvestigatorWorkOrder.

Wealsoselectedthreespecialpurposeauditsforourreview.Weinterviewedthe

investigativeauditunitthathasbeensetupespeciallyforinvestigativeaudits.

Owingtotheconfidentialityoftheinvestigativeauditswedidnotreviewspecific

reportsorrelatedfiles(workingpapers).


2.4.1 MainfindingsWefoundthattheSpecialPurposeAuditManualcomplieswithinternational

standardsandapplicablelawsandregulations.Themanualprovidesastep-by-step

approachforauditorstoselectthetypeofspecialpurposeauditandcarryoutthe

planning,fieldworkandreportingphases.Italsoexplainstherelationshipbetween

thevariousactivitiesintheauditprocessandthedocumentsusedtoreportfindings,

conclusionsandrecommendationsandtoestablishanaudittrail.Themanual

providesandsecuresasystematicapproachthatenablesuniformityandqualitycontrol

measurestofunctionproperly.Italsoprovidesguidanceforspecialpurposeaudits

suchashowtodealwithconfidentialinformation.

However,wefoundthatthemanualdoesnotadequatelyclarifywhattypeofaudit

shouldbeusedwhen.Owingtotheamountofinformationthemanualcontainsitis

alsodifficulttoobtainaclearunderstandingoftheproceduraldifferencesbetweenthe

threetypesofspecialpurposeaudit.Werecommendthatthemanualberestructuredto

provideplanning,fieldworkandreportinginformationbytypeofspecialpurpose

auditinseparatechapters.

TheSpecialPurposeAuditManualstatesinpoint13(b),DetermineTypeofAudit,

‘inspecialpurposeaudits,forexampleinvestigativeaudits,theauditorshouldnot

makerecommendations.’Webelievethisrestrictionlimitstheaddedvalueofspecial

purposeaudits:recommendationsareimportantlearningtoolsandpreventthe

repetitionofnegativefindings(e.g.misconduct).

Theauditorsweinterviewedhadgoodanalyticalskillsandunderstoodtheiraudit

subjectandobjective.

2.4.2 Investigativeaudits

Generalconditions

Atechnicalguidelinewillbedevelopedforinvestigativeauditsaspartofbpk’saudit

manualframework.Thistechnicalguidelinewillalsohelpauditorsoutsidethe

investigativeauditunitconductinvestigativeaudits.Theinvestigativeauditunit

distinguishesthefollowingstepsinitsStandardOperatingProcedure:caseselection,

fieldworkandreporting.Owingtotheauditobject,theinvestigativeauditunittakes

specialmeasurestoselectcases,gatherinformation,evaluatefindingsandreport

findings.Thestepsandmeasurestakenseemlogicalandadequateforthepurposeof

investigativeaudits.

Theinvestigativeauditunitformallyconsistsof17auditors(asat31January2009),

10ofwhomhaveaspecialcertificatefromtheAssociationofFraudInvestigators,and

onesupportofficer.Inpractice,onlyeightauditorscanparticipateininvestigative

auditsfulltime.Otherauditorshavebeenandwillbetrainedinordertoincreasethe

numberwhocanparticipateininvestigativeaudits.Owingtotherisksinherentinthe

fieldworkandthetypeofaudit,theheadoftheinvestigativeauditunitrecruitsstaff

notonlyfortheiranalyticalskillsbutalsofortheirattitude:theyshouldbesuspicious,

investigative,analyticalandriskseekers.Theinvestigativeauditunitisfacinga

numberofdifficulties.Eventhoughinvestigativeauditsareaprioritywithinbpk,they

havenoformalstructureandnostructuralcapacityorbudgetisreservedforthemin


bpk’sannualplan.Moreover,itisdifficulttoretaininvestigativeauditors,torecruit

newonesandtoinvolveauditorsfromotherunitsininvestigativeaudits.

Planning

Investigativeauditsareinitiatedinresponsetosignsoffraudandcorruptionand

thereforehaveadifferent,moreadhocplanningstructurethanfinancialand

performanceaudits,whichhaveanannualcycle.Thesignscomefrombpk’sother

auditsandexternalparties(whistleblowers,theAnti-CorruptionCommission(kpk),

thePoliceForceandtheOfficeoftheAttorneyGeneral).

Auditimplementation

Investigativeauditsneeddifferentinformationsourcesthanbpk’sotheraudits.

Tosecurethenecessaryinformationandexchangeknowledgeandexpertise,bpkhas

agreedMoUsandprotocolswiththeAnti-CorruptionCommission,thePoliceForce,

theOfficeoftheAttorneyGeneralandtheFinancialIntelligenceUnit.

Reporting

Iftheinvestigativeauditunithastodealwithacomplexcase,itseeksadvicefrom

bpk’slegalunit.

Therequirementsforinvestigativeauditreportsareagreedandsetjointlywiththeend

users:thePoliceForce,OfficeoftheAttorneyGeneralandAnti-Corruption

Commission.

Investigativeauditsreportfindingstoendusersonlyanddonotconsiderthecausesof

thefindingsorsolutionstopreventrepetitionoffraud.asosai’sQualityManagement

Framework(paragraph4.146)statesthat‘Reportsonirregularitiesmaybeprepared

irrespectiveofaqualificationoftheauditor’sopinion.Bytheirnature,theytendto

containsignificantcriticisms,butinordertobeconstructivetheyshouldalsoaddress

futureremedialactionsbyincorporatingstatementsbytheauditedentityorbythe

auditor,includingconclusionsorrecommendations.’Accordingtotheinvestigative

auditunitthelackofrecommendationsreflectsthemainconcernofaninvestigative

audit:canitstandupincourt?However,theinvestigativeauditunitrecognisesthelack

ofrecommendationsandsolutionsandwouldliketoincludetheminitsreports.

Qualitycontrolandassurance

Theinternalauditunithasnotyetaskedtheinvestigativeauditunitforaccesstoits

auditfiles;investigativeauditshavethereforenotbeenreviewedbyitama.


3 FollowuptotheNewZealandPeerReview

bpkhasaddressedmostofthepointsmadeintherecommendationsoftheAuditor

GeneralofNewZealand.bpkhasallrecommendedlegal,organisationalandtechnical

facilitiesatitsdisposal.Itmustfamiliariseitselfwithallthesefacilitiestomake

optimaluseofthem.Theaddedvalueofreportsandmanagementlettersneeds

improvement.

1 Unclearandambiguousmandate

Insummary,theConstitutionandlegislationoftheRepublicofIndonesiatoday

provideastrongbasisforbpk’sindependencefromtheexecutivepowerandits

auditees;detailedrulesprotectthesecurityoftenureandlegalimmunityoftheBoard

inthenormaldischargeofitsduties;bpk’smandatecoversallstatefinanceentitiesin

theRepublicofIndonesiaandithasfulldiscretioninthedischargeofitsdutiesasa

sai.Inthefieldofpublicsectoraudit,bpkhasestablishedallplanned33regional

offices;ithasrecruitedgraduatesfromvariouseducationalbackgrounds(basedon

competitiveselection)andexpertstoenhancecapabilitytocomplywithinternational

standardsandincreaseditsstaffby130%overthepastfiveyears;itsbudgetincreased

byalmost635%overthesameperiod.Atthesametimehumanresourcestraining

increasedbytwo-thirds.

2 Shortcominginlegislation

bpk’senablinglegislationcomprisesitsenlargedmandatetoauditcentraland

decentralisedgovernmentalinstitutionsandstate-ownedenterprises,supportedby

enhancedindependencebyhavingitsBoardappointedbyparliamentanditsself-

proposedfundingdeterminedbyparliament.Themandateisclearlydefinedin:

• StateFinancialLaw(No.172003);

• StateTreasuryLaw(No.12004);

• StateFinanceManagementandAccountabilityAuditLaw(No.152004);

• Newbpklaw(No.152006).

3 Lackof(modern)auditingstandards

bpkhasimplementedbpkRegulationNo.12007ontheStateFinanceAuditStandard

(spkn)andAuditManagementGuidelines(pmp;bpkDecisionNo.1/k/i/xii,2/2/2008).

4 Unclearauditmethodology

bpksubsequentlypublishedauditmanualsandguidelinesandseveralmanualsand

guidelinesarestillunderproduction.

5 Needtoestablishauditandaccountingtechnicalcapabilitytodealwithnew

developments

bpkissuedDecisionNo.39/k/i-viii,3/7/2007,whichgavether&ddepartmentthe

powertomeetbpk’sneedfortechnicalcapabilityinaccountingandauditingareas.

Educationandtrainingprogrammeshavealsobeendevelopedforauditors.

6 ShortcomingsinHumanResourcesCapacity

bpkhasrecruitedmanygraduateswithanaccountingbackgroundandallocatedthem

toeveryauditunit.Requiredhoursofeducationandtrainingprogrammesareavailable


forauditors.bpkhassomeflexibilityinthedesignofitsstaffremunerationsystem

basedonformerranksandqualifications.

7 Shortcomingsinspecialistresourcesandfollow-upactionstofightCorruption,

CollusionandNepotism

bpkhasformedaspecialunitforinvestigativeauditsandsignedacooperation

agreementwiththepolice,AttorneyGeneralandAnti-CorruptionCommissionon

follow-upactions.Thenumbersofauditreports,findingsandfindingamountsare

increasing.

8 UnclearQualityAssuranceandInternalAuditsystem

QualityAssuranceguidelineshavebeendeveloped.ABoarddecision(No.39/k/i-viii,

3/7/2007)givesthePrincipalInspectorateaclearmandateandinternalcontrolpowers.

ThePrincipalInspectoratemustreporttotheVice-Chairman.

9 FailureindeliveringAuditPlanningandplanninghowtorespondtotheNew

StateFinanceLawonaccrualaccounting

bpkhasdevelopedastrategicplanthatconsiderschangesinitsenvironmentandits

mandateandcascadesintoitsannualworkingplan.Itstrengtheneditsr&dfunction

todevelopaFinancialAuditGuidelineinanticipationoftheintroductionofaccrual

accounting.

10 Implementationofelectronicworkingpapersandportablepcs

bpkisdevelopinganelectronicworkingpapermanagementsystem;someaudits

alreadyusethesystem.Inthemeantime,48%ofauditorshavelaptops.

11 Lackofeducationandtrainingneedsassessmentandrenewal

bpk’sTrainingCentrehasidentifiedknowledgeneedsandconsideredtheminthe

trainingplan.

12 bpkmustfacethechallengesofaccrualaccountingtofulfilitsmandateandset

reportingstandardsforpublicentities

bpkhasarrangedaccrualaccountingtrainingcourses.Althoughintroductionby

publicentitieshasbeenpostponed,bpkshouldanticipateaccrualaccountingby

settingreportingstandards.

bpkhasassessedthepublicsector’swillingnesstoadoptaccrualaccountinginthe

nearfuture.Byletterof25February2009,itinformedtheMinistryofFinancewhat

kindofaspectsmustbetakenintoaccountfortheintroductionofaccrualaccounting.

13 Lackofpracticemanagementsystemsforresourceplanning,timekeeping,audit

trackinganddocumentmanagement

Thesdmsystemhasbeendevelopedtomonitordataonallbpk’spersonnel;furthermore,

anEntityDataSystemandanAuditManagementSystemhavebeenintroducedto

supportauditplanning.Adocumentmanagementsystemisnotyetavailable.

14 Lowaddedvalueofbpkreportingandmanagementletters

bpk’saddedvalueisamatterofconcern.IfbpkselectsrelevantissuesintheRepublic

ofIndonesiaforitsauditsandpresentstheresultstoitstargetgroupsinanattractive

way,theiraddedvaluewillincrease.ThePeerReviewteammadeseveralsuggestionsin

thisrespect.


AppendixIMethodologyusedinthePeerReview2009oftheAuditBoardoftheRepublicofIndonesia

Thisreportpresentsthefindings,conclusionsandrecommendationsofthePeer

ReviewofbpkconductedintheperiodDecember2008-June2009.Duringthisperiod

wegatheredinformationfromvarioussourcestohonourtherequestofbpkasmadein

theCooperativeAgreementformallysignedon5February2009bytheAuditBoardof

theRepublicofIndonesia(Appendixii).Ourfirstobjectivewastoreviewthedesign

andimplementationofbpk’squalitycontrolsystem.ThePeerReviewshouldcoverall

aspectsofbpk’sQualityControlSystem(qcs)includingqualitycontrolsat

institutionallevelandatindividualauditorengagementlevel.Oursecondobjective

wastoreviewtheprogressmadefollowingupthefirstPeerReviewperformedbythe

saiofNewZealandin2004.

Thecriteriausedfortheassessmentofqualityassuranceandqualitycontrolofbpkare

setoutinthefollowingdocuments:

• limaDeclarationandMexicoDeclaration;

• intosaistandards;

• asosaistandards;

• bpk’sownstandards.

Thereviewteam,consistingofRoyFerouge(teamleader),TonKokandEgbert

Jongsma,conductedtwomissionstotheHeadquartersofbpkinJakarta:onein

JanuaryandoneinMay/June.DuringthesetwomissionsthePeerReviewteam

interviewedbpk’sBoardandmanagementandrepresentativesofauditteamsand

relevantsupportunitsatbpk.Withregardtoreviewingqualitycontrolsatengagement

level,wenotonlyinterviewedauditteamsbutalsoreviewedtheirauditfiles.We

furtherreviewedrelevantdocumentationonbpk’sindependenceandmandate,the

auditprocessitself(e.g.manualsandguidelines),bpk’squalitycontrolsystemand

supportfunctionssuchashrm,it,Finance,prandCommunication.

Adraftofthefinalreportwasdiscussedbyrepresentativesofbpkandthereviewteam

inJune2009.Thefinaldraftreportwasmadeavailabletobpk’sChairmaninJuly2009

forverificationpurposes.Thefinalreportwaspresentedtobpkon18August2009by

thePresidentoftheNetherlandsCourtofAudit.

ThePeerReviewteamwouldliketoemphasisethatitsPeerReviewworkhasbeen

conductedonthebasisoftranslateddocuments(notoriginals).


AppendixIIOverviewofauditsreviewed

ThetablebelowliststheauditsweselectedforourPeerReview.

Financials audits

1 Financial statements, Papua province �00�

� Financial statements, Ministry of Energy and Mineral Resources �00�

� Financial statements, Ministry of Agriculture �00�

� Financial statements, Ministry of Education �00�

5 Financial statements, Ministry of Defence �00�

� Financial statements, Provincial Government of Riau �00�

� Financial statements, Provincial Government of Bali �00�

� Financial statements, Provincial Government of East Kalimantan �00�

Performance audits

� Rehabilitation and construction of the economy and business sector at brr nad-nias in �005

and �00�

10 Pharmacy logistic management effectiveness at Fatmawati hospital

11 Effectiveness of Health Service Activities in Public Health Agency of West Nusa Tenggara for

the fiscal year �00� in Mataram.

Special purpose audit

1� Investigate audit: yppi/bi fund flow case (fraud, etc.)

1� Management of government accountants

1� Cash management


AppendixIIIGeneralinformationbpk

1 Number of employees 4987

- number of auditors

- number of auditors who are formally authorised to express an opinion on

financial statement (registered accountant) �0�5

10�5

2 Number of entities subject to audit mandate 719

Central Government 1

Ministries ��

Agencies �0

Provinces ��

Municipalities ��

Cities �5

Special purposes entities:

- State own enterprise

- Other entities (in central government)

- Other

1�1

10

�

3 Financial figures

Entity Expenditures 2008

(x1 billion rp)

(audited)

Revenues 2008

(x1 billion rp)

(audited)

Opinion

given by BPK

(yes or no)

Ministry ��5,��1 ��1,�0� Y

Local government

- Propinsi

- Kabupaten

- Kota

�,�5�.�5

�,1��.11

-

�,�5�.��

�,00�.��

-

Y

Y

Y

Specific entities

- State-owned enterprises

- Other

�,555.��

��,��.��

�,��.��

�5,��.5�

Y (Not all)

Y


History of BPK’s mandate

The �00� amendment of the 1��5 Constitution of the Republic of Indonesia by the People’s

Consultative Assembly (MPR) changed BPK’s position and role. The amendment provides for a

free and autonomous BPK, the submission of audit reports to DPR, DPDs and DPRDs, and audit

recommendations to be followed up by the agencies and/or Board in accordance with the regula-

tion. Board members are no longer appointed by the President. They are chosen by the House of

Representatives after consideration by the Regional Representative Council. BPK has also played

an active role in supporting the government by being the subject expert in publishing a package

of three regulations, namely Law No. 1� �00� on State Finance, Law No. 1 �00� on the State

Treasury and Law No. 15 �00� on State Finance Management and Accountability Audit, enabling

BPK to play a larger role in supporting the government’s effort to improve the management of

state finances and make them more efficient, economic, effective, transparent and accountable by

In light of the state objectives of national justice and prosperity, as mandated in the Preamble of

the 1��5 Constitution of the Republic of Indonesia, BPK did not think Law No. 5 1�� on the Audit

Board of the Republic of Indonesia contributed to the development of government at either cen-

tral or local level. The House of Representatives and government therefore enacted Law No. 15

�00� on the Audit Board of the Republic of Indonesia.

To fulfil its constitutional mandate under Law No. 15 �00�, BPK needs to expand and improve its

institutional capacity. In the past three years, it has established new regional offices and recruited

graduates from various educational backgrounds, applying a competitive selection process to

optimise the quality, integrity and dedication of new employees. BPK has the flexibility to recruit,

place and promote staff. To ensure professionalism and high quality oversight, BPK has recruited

experts and high-ranking officials from other institutions. It has also enhanced the capability of its

staff through various education and training courses at the BPK Training Centre.


AppendixIVSuggestionsforfurtherimprovementsinthePerformanceAuditingImplementationGuidance

Introduction

BasedontheresultsofourPeerReview2009(seesection3.3.1)webelievethatthe

guidanceprovidedtoperformanceauditorsshouldbefurtherimproved.Inouropinion

betterguidanceisneededbecauseperformanceauditingisarelativelynewactivitynot

onlyfortheauditorsbutalsoforbpk’smanagementandBoard.Ourreviewofthe

selectedperformanceauditsfoundthatauditorsusedthefinancialauditmethodology

andtheirauditdesignandfieldworkfocusedoncomplianceinsteadoftheachievement

ofpolicygoals.Supervision,qualitycontrolsandqualityassurancedonotencourage

auditorstofocusongovernmentperformanceorthefinalimpactontheIndonesian

population.Wefoundthatbpk’sauditteamsandsupportunits,suchasr&dand

QualityAssurance,haveinadequateknowledgeandexperienceofperformanceaudits.

WerecommendthatbpkfurtherimproveitsPerformanceAuditImplementation

Guidanceasformallyadoptedon5June2008,withregardtoscope,methodologyand

performanceauditingchallenges.Wealsorecommendthatbpkgainknowledgeand

experienceonastep-by-stepbasisbymeansofalimitednumberofauditsoralimited

numberoftopics.Wesuggestthatthisstep-by-stepapproachbetakenbyauditors,

r&d,QualityAssuranceandpossiblyothersfromoutsidebpkwithknowledgeof

performanceauditingand/orpolicyanalysis.Werecommendthatbpkearmark

sufficientdaystoimplementsuchastep-by-stepapproachasperformanceauditsare

complicatedandarenewtothestaff.

Inthisappendixweconsiderourrecommendationstofurtherimprovethe

ImplementationGuidanceingreaterdetail,consideringthefollowingelementsofthe

ImplementationGuidance:generalconditions,planning,fieldworkandreporting.

Generalconditions

TheImplementationGuidancedefinesandillustratestheconceptsofeconomy,

efficiencyandeffectiveness.Webelievethatthedefinitionandillustrationsaremore

relevanttotheprivatesectorthanthepublicsector.

Economy,efficiencyandeffectivenessaremeasuredbyquality,price,outputand

outcome.Quality,price,outputandoutcomearelessstraightforwardinthepublic

sectorthanintheprivatesector,whichmakesmeasuringthemverycomplex.Auditors

shouldbeawareofthecomplexityandshouldbehelpedtodesignauditsthatcandeal

withit.Wethereforesuggestprovidingauditorswithfittingdescriptionsofeconomy,

efficiencyandeffectivenessinthepublicsectorbasedonexamplesfromauditorpolicy

practice.Inadditiontoafittingdescription,werecommendthatbpkprovidemore

informationonhoweconomy,efficiencyandeffectivenesscanbemeasured.We

suggestincludingathoroughexplanationoftheevidence-collectingtechniquesused

inthesocialsciences.Wemakereferencetochapter4ofthefifthasosaiResearch

Project,PerformanceAuditingGuidelinesdocument,October2000,formore

informationonthesetechniques.


Auditplanning

Wesuggestthatproblemidentificationbefocusedmoreonsocietalproblemsin

IndonesiaandthemeasuresthePresidentandhisministersaretakingtocombat

them.Performanceauditingshouldinvestigatetheabilityofpublicentitiestodeliver

goodsandservicestotheIndonesianpublic.Atahigherlevel,thisshouldbedonein

theBoard’sstrategicplanningprocessandtrickledowntothedevelopmentofthe

annualauditworkingprogrammeandindividualauditplans.Thecontributionofeach

audittobpk’sstrategicobjectiveswouldthenbeclear.

Focusingonsocietalproblemsandpolicyareasthataddresstheminsteadoffocusing

onpublicentitiesprovidesanopportunitytogainaninsightintothecomplexityof

policyimplementationinIndonesia.Thecomplexityisduetothemanypublicentities

atvariouslevelsofgovernmentthatplayaroleintheimplementationprocessandto

Indonesia’svastpopulationandgeography.Clarifyingthatcomplexitycouldbeof

addedvaluetobpk’sstakeholders.

Liketheproblemdefinition,keyareadeterminationshouldbefocusedmoreonthe

relationshipbetweensocietalproblemsandthemeasurestakenbypublicentitiesto

tacklethem.ThecurrentImplementationGuidancefocusesstronglyonidentifying

internalcontrolrisksandcheatingrisks,bothofwhicharederivedfromthefinancial

auditmethodology.Webelievethatafocusoninternalcontrolandcheatinglimitsthe

scopeofaperformanceaudittocomplianceandevaluationoftheinternalcontrol

system,thuspreventingauditorsfromassessingtheeconomy,efficiencyand

effectivenessofgovernmentmeasures.Thisisillustratedinappendices4.1,4.2and

4.3,whichprovidechecklistsforthecosomodelandtheevaluationofregulatory

compliance.

WerecommendthattheImplementationGuidanceincludebasicinformationonhow

toanalysepolicytheoryandpolicymeasuresandinstruments.Webelieveperformance

auditsshouldevaluatetheeconomy,efficiencyandeffectivenessofpolicymeasures

andinstruments.Weaknessesintheinternalcontrolsystem(thecauses)couldthen

explainwhymeasuresandinstrumentshavenotledtoacceptableperformanceby

publicentities.Whenselectingthekeyarea,checkwhetherotherinstitutions(suchas

internalaudit/controlunits,universities,etc.)havealreadyevaluatedtheeconomy,

efficiencyand/oreffectivenessofthekeyareainordertodeterminetheaddedvalueof

anauditbybpk.

Withregardtosettingtheauditscopeandauditcriteriawerecommendthatmore

attentionbepaidtothedifficultyofassessingeconomy,efficiencyandeffectiveness

(seealsooursuggestionsinchapter2regardingtheImplementationGuidance).The

examplesprovidedinchapter2aretakenchieflyfromtheprivatesector.Itismore

challengingtoassessthequality,price,outputandoutcomeofpolicymeasuresinthe

publicsector.Wethinkitwouldhelpifbpk’sauditorswereawareofthisbeforethey

decidedontheauditobjectiveandauditcriteria.Furthermore,wethinkconsideration

shouldbegiventothereliabilityandkindofevidencethatmustbecollectedtoevaluate

economy,efficiencyandeffectiveness.Thisisimportanttoassessthefeasibilityofthe

auditobjective.Seechapter5ofthefifthasosaiResearchProject,Performance

AuditingGuidelinesdocument,October2000,forsomeinterestingthoughts.


Wewouldalsonotethatbpk’sBoardandmanagementshouldbeawareoftheirrolein

encouragingauditorstoauditperformancebyfocusingonsocietalproblemsandthe

policymeasurestakentotacklethem.

Auditimplementation

TheImplementationGuidanceclearlystatesthatafterevidenceisgathereditshould

beevaluatedagainsttheauditcriteriasetintheauditdesign.Auditorsshouldthen

analysethecausesandeffectsoftheevaluation’sfindings.Findingscouldindicate

underperformanceiftheoutcomeislessthanexpectedorgoodpracticeifitexceeds

expectations.Werecommendthatmoreinformationbeprovidedonidentifying

thecausesandeffectsofauditfindingsbecausethisdeterminesanaudit’simpact.

Itstimulatesalearningprocessfortherelevantpublicentity(ies)andfocuses

parliament’sattentiononthemeasuresthatshouldbetaken.Inouropinion,

identifyingcausesandeffectsisnotonlyanimportantactivityitisalsoadifficultone

requiringadeepknowledgeoftheauditedkeyareaintermsofthepolicy(theory)

used,theorganisationandexecutionofpolicyimplementationandexternalfactors

thatcaninfluencetheeconomy,efficiencyandeffectivenessofpolicymeasures.

Furthermore,identifyingthecausesandeffectsofauditfindingslaysasolidbaseto

formulaterecommendationsthathelpsolveaproblemifthefindingsarenegativeor

recognisegoodpracticeiftheyarepositive.Chapter4ofthefifthasosaiResearch

Project,PerformanceAuditingGuidelinesdocument,October2000,providesmore

informationonidentifyingthecausesandeffectsofauditfindings.

Reporting

Anauditreportisasai’smainformalinstrumenttoshareauditresultswiththe

auditee,parliament,publicandotherstakeholders.Inadditiontothisaccountability

function,anauditreportisanincentivetoencouragepublicentitiestoimprovetheir

performance.Thereportshouldthereforeconveyastrongandclearmessagetoits

intendedaudience.Themessageshouldconsistofananalysis(performance

evaluation),conclusionsandrecommendations.Onthebasisoftheperformanceaudit

reportswereviewed,werecommendthattheImplementationGuidanceoraseparate

guidancedocumentpaymoreattentiontothereportingofauditfindings,conclusions

andrecommendations.Theperformancereportswereviewedlackedalogically

structuredpresentationoffindings,effectsandcausesandrecommendationsto

preventrepetition.Wewouldalsosuggestthatmoreattentionbepaidtoformulating

specificandrealisticrecommendationsthatauditeescanimplement.

Furthermore,werecommendthatbpk’sguidancedocumentsconsidernotonlythe

formalreportingoffindingsbutalsootherinstrumentsthatcancommunicatethe

messageofitsaudits(e.g.interviews,presentations,articles,conferencesand

meetings).Theseinstrumentscouldbeusedtofurtherenhancetheaudit’simpactand

encouragethelearningprocessatpublicentities.


AppendixVHumanResourcesManagement

Introduction

BasedontheresultsofourPeerReview2009(seesection2.4)webelievethatbpk’s

HumanResourcesManagementshouldbefurtherimprovedwithregardto

recruitmentandplacement,retention,trainingandcapacitybuilding,performance

assessmentandmanagementandcareerdevelopmentinordertohaveawell-educated

andwell-trainedstaffthatcansupportorperformauditsonatimelybasisandtothe

requiredquality.

bpk’sstaffisitskeyassetforittofulfilitsobligations,tasksandobjectives.Tosecure

thiseffectivenessbpkmustmanageitsstaffwell.Givenbpk’snewtasksand

ambitionsandthearrivalofmanynewauditors,webelieveitistherightmomentto

adoptthebasicprinciplesofprofessionalhumanresourcesmanagementandcreate

awarenessofthestaffandmanagementattitudesnecessarytosupportthese

principles.Webelievethatmanagingprofessionalsshouldbebasedonacoaching

conceptofleadership,opportunitytodevelopprofessionalsandawarenessof

individualresponsibility.Wealsobelievebpkshouldenhancecontroloveritshuman

resourcesmanagementbyclaimingitslegalrighttoformulateitsownemployment

conditionsanditsownfunctionalandremunerationschemestoincreaseits

operationalflexibilityandabilitytopromoteandrewardtalentedpeople.

InthisappendixweconsiderourrecommendationstofurtherimproveHuman

ResourcesManagementingreaterdetail,consideringthefollowingelements:

recruitmentandplacement,retention,trainingandcapacitybuilding,performance

assessment,andmanagementandcareerdevelopment.

Recruitment

bpkrecruitedmanynewmembersofstaffin2007and2008tocarryoutitsnew

obligationsandtasks.Weareimpressedbythenumberofstaffbpkwasabletorecruit

inarelativelyshortperiod.bpkhasincreaseditsstaffby130%overthepastfiveyears.

bpkreliedheavilyonexternalassistanceintherecruitmentprocess.Weseethisasa

highriskbecauseitmakesbpkdependentontheexternalassessmentofitsstaff.

Thiscouldeasilyleadtotherecruitmentofunsuitablepersonnelbecauseexternal

partiesgenerallydonothaveagoodunderstandingofwhatittakestobeagood

auditor.Fromourinterviewswithunits,weunderstandthatmanagementwasnotfully

involvedinsettingcriteriaforthenewstafforinfinaldecision-making.Sincebpk’s

staffcontractsdonotfeatureatrialperiod,bpkisunabletotesttherecruitedstaffon

thejobanddecidenottocontinuecontractsifstaffareunsuitableasauditors.

Wethereforesuggestthatbpkincludeatrialperiodortemporarycontractoptionin

thenewemploymentframeworkthatwerecommenditdevelop.

Furthermore,itseemsthatbpkhasrecruitedstaffforauditpositionsonly.Webelieve

thatsupportfunctionsareimportanttoaproperlyfunctioningsai.Supportpositions

shouldbefilledbyprofessionalsintherespectivefields(e.g.hrm,it,Legal,Finance).

Atthemoment,crucialpositionsinsupportunitsareheldbyauditors,whogenerally

lacktheeducationalbackground,professionalexperienceandskillsnecessarytofulfil


thesecriticalfunctionsproperly.Accordingtobpk,itisnotallowedtorecruit

specialisedstaffforsupportfunctions.Wethereforesuggestthatbpkincludethe

abilitytorecruitprofessionalsinsupportpositionsinthenewemploymentframework

thatwerecommenditdevelop.

Placement

Therightpersonintherightplaceisaprerequisiteforaneffectivesai.Onthebasisof

ourinterviewswebelievethatexistingstaffhavenotbeensufficientlyinvolvedin

designingthenewhrmpolicies.Althoughweappreciatethatbpkhasputalotof

effortintorecruitingnewstaff,webelievethattherightpersonintherightplaceis

alsoavalidandimportantprincipleforexistingstaff,particularlyasbpk’sstaff

requirementshavebeenaffectedbyrecentlegalandregulatorychangesandchangesin

theauditprofessionitself(e.g.introductionofoperational,performanceanditaudits).

Wethereforesuggestthatbpkpayappropriateattentiontoexistingstaffinthe

developmentofitshrmpolicies.

bpkhasapolicyofrotatingitspersonnel.Wefoundthatthepolicyisneitherclearnor

clearlycommunicatedtostaff.Thisleadstouncertainty.Wealsolearnedfromour

interviewsthatstaffturnoverishighandthatthereisahighriskofmanyauditors

leavingatthesametime,especiallyatthenewregionaloffices.Thisleadstolossof

knowledgeandexperienceofauditeesandofpolicyareasrelevanttoaudit.Wesuggest

thattheinstrumentstoplacetherightpersonintherightplacebematchedtothe

rotationpolicyandthepolicybecommunicatedclearlytoallmembersofstaffsothat

theyknowwhatisexpectedofthem.Wealsosuggestthatbpkensurethatstaffrotates

betweenheadquartersandregionalofficesandbetweenauditandqualityassurance.

Wealsobelievethatbpkcouldenhanceitsowncapacitybuildingandthatofthe

publicsectoroftheRepublicofIndonesiaifrotationwerepossibleandactivelyused

betweenbpkandotherpublicentities.Thiswouldalsoenhanceawarenessand

understandingofbpk’sroleandresponsibilities.

Furthermore,wefoundthattheratioofbpk’ssupportstafftoitsdirectauditstaffis

almostfifty/fifty.Althoughtherearenogeneraltargetsforthisratioitmightbe

rewardingtoevaluatetheactualneedforsuchahighpercentageofsupportstaff.We

recognisethatthereisnoclearlinebetweendirectandindirectactivitiesbutwebelieve

afifty/fiftyratioisnotoptimalgiventhemanychallengesfacingbpk.Wetherefore

suggestthatbpkdecideonanacceptableratioofsupportstafftodirectauditstaffand

monitorcompliancewithit.Forawell-balancedpersonnelmix,bpkneedsmore

insightnotonlyintotheeducationallevelofitsemployeesbutalsointotheirpotential

andpracticalexperience.

Finally,wesuggestthatbpkorganiseathoroughcheckofthequalificationsof

accountantsthatsignreportsandwhetherdelegationbyBoardmembersiscorrect.

Retention

bpkhastakenanumberofmeasurestoenhancestaffretention,onebeinghigher

salaries.Wefoundthatthereisadifferenceinremunerationbetweenaudit

directoratesandsupportunits.Wealsofoundthatsupportunitsarenotattractiveto

ambitiousauditors.Weconsiderthistobearisktothequalityofimportantsupport

functionssuchasResearch&Development,QualityControlandQualityAssurance.


Wesuggestthatbpkaddressthisriskandtakemeasurestoimprovethequalityofstaff

inResearch&Development,QualityControlandQualityAssurance.

Trainingandcapacitybuilding

bpk’strainingfunctioniswellorganisedandisplacedinaclearstructurethatfocuses

onthetransferofknowledge.Asstatedabove,webelievebpk’shrmpoliciesshould

bebuiltonprinciplesofprofessionalhumanresourcesmanagement:acoaching

conceptofleadership,opportunitytodevelopprofessionalsandawarenessof

individualresponsibility.Webelievethatachangeisneededtowardslesscontroland

dominationandmorepersonalmotivationandresponsibilityforcareerdevelopment

andperformance.Wesuggestthatbpkencourageitsemployeestoprepareindividual

careerdevelopmentplanstoidentifyahandfulofspecificcompetencesthataddress

individualneeds.Theplansshouldbediscussedandagreeduponwiththeresponsible

managerandshouldbeaction-oriented.bpkshouldfacilitatetheimplementationof

individualcareerplansbyofferingtrainingopportunitiesthatmeettheneeds

identifiedinthecareerplan.

Trainingandeducationshouldenhancetheskillsandknowledgeofbpk’semployees

andthustheskillsandknowledgeofbpkasawhole.Tobenefitinfullfromtraining

andeducation,employeesmustbewillingandabletousetheirnewlyacquiredskills

andknowledgeinpracticeinordertodevelopthemselvesfurther.Weconcludedfrom

ourinterviewsthattrainingandeducationeffortsarewastedbecauseemployeesare

notencouragedtouseacquiredskillsandknowledgeintheirdailywork.Wesuggest

thatbpkmakesurethatemployeesusetheiracquiredskillsandknowledgeoncethey

havefinishedtheirtraining.Inourview,training(internalorabroad)shouldbeused

fornootherpurpose(e.g.asareward)thanindividualemployeedevelopmentas

agreeduponinindividualcareerplans.

Performanceassessmentandmanagement

bpk’spromotionsystemisbasedoncivilservicecriteria,competenceevaluation,

education,experienceandinputaboutemployeeperformance.Weunderstandthat

bpk’sexistingstaffclassificationandremunerationsystemisstilllinkedtoitsformer

rankingandqualificationperiodssystemratherthantoemployeeperformance.

Wesuggestthatbpkaddressthiswhendevelopingnewhrmpoliciesandincludeit

inthenewemploymentframeworkthatwerecommendbpktodevelop.

Furthermore,wesuggestthatbpkinvestinastrongperformanceappraisalcycle

concentratingontherelationbetweenmanagerandemployee,withfeedbackinboth

directionsbeingamust.Appraisalresultsshouldbediscussedatahigherlevertogain

abetterunderstandingofdevelopmentsinaparticularunit.Wealsosuggestthat

groupsessionsbeheldaboutthetargetssetineachunit’sBalanceScoreCardinorder

tocreatemoreawarenessofandenthusiasmforthedirectiontheunithastotake.

Becausemanyhrminstrumentsarerelativelynew,measuresandotherprovisionsto

ensurestableandqualifiedpersonnelarenotfullyinplaceandeffectiveyet.

Inviewoftheimportantrolemanagementplaysinimplementinghrmpolicies,we

suggestthatbpkinvestinstrengtheningtherelationshipandcommunicationbetween

linemanagementandthehrmunit.Thiswouldcreatemutualawarenessand

understandingandpromotetheuseofhrminstruments.Webelievethatsuchan


investmentwouldincreasemanagement’sresponsivenesstomaximisingthebenefits

ofbpk’sgreateroperationalflexibilityandabilitytopromoteandrewarditstalented

people.OurPeerReviewfoundthatalotofthestaffpotentialatbpkremainsunused

andweconsiderthisaterriblewaste.Westronglybelievethatmanagersshouldguide

andnourishthecreativityandknowledgeoftheirpersonnel.Giventhenumberofnew

staffthathavejoinedbpk,wesuggestthatinvestmentsbemadeinthecoachingof

newemployeesandasystemofmentorshipbeintroducedinwhichmoreexperienced

employeesactascoachesfornewcolleagues.

Welfareandcareerdevelopment

bpkhastakenmeasurestoincreaseemployeesatisfaction;theyincludegender

specificmeasures.Asweindicatedabove,wesuggestthatbpkclarifyitsplacement

androtationpolicyandcommunicatesittostaff.Webelievesuchclaritywillenhance

thewelfareofbpk’spersonnel.Furthermore,webelievebpk’smanagementshould

investmoreincoachinginordertohelpstaffworktotheirfullpotential.


Algemene Rekenkamer

(Netherlands Court of Audit)

Lange Voorhout 8

P.O. Box 20015

2500 ea Den Haag

phone +31 70 342 43 00

fax +31 70 342 41 30

www.rekenkamer.nl

Design

Corps Ontwerpers, The Hague

Photography

ANP

Print

OBT, The Hague

The Hague

August 2009

Audit team

Roy Ferouge (Project Manager)

Egbert Jongsma

Ton Kok

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