Support for the Implementation of the State Audit Reform Program (STAR -SDP)

Hari Purnomo

Description

TECHNICAL ASSISTANCE COMPLETION REPORT Division: IRM TA No. and Name Amount Approved: $1,300,000.00 TA 4473-INO: Support for the Implementation of the State Audit Revised Amount: $1,300,000.00 Reform Program (STAR-SDP) Executing Agency: Ministry of Source of Funding: Grant TA Amount Undisbursed TA Amount Utilized Finance from the Royal Government 524,540.23 775,459.77 of the Netherlands TA Completion Date Date Original Actual TA Approval TA Signing Fielding of First 31 June 2007 31 December 2007 13 December 2004 31 March 2005 Consultants Account Closing Date 27 January 2006 Original Actual 30 June 2007 27 May 2008 Description The Indonesian public sector audit faces several issues, including unclear legal and institutional framework, inefficient allocation of resources between the institutions and lack of transparency and accountability in the audit process. ADB through the State Audit Reform Sector Development Program (STARSDP Loan No. 2126-INO for $200 million, approved on 17 December 2004) supported the reform undertaken by the Government of Indonesia to improve governance, efficiency, economy, and effectiveness of public sector audit through strengthened audit institutions operating to internationally accepting standards. Of the $200 million program loan, the first tranche of $100 million was released upon loan effectiveness on 17 December 2004. The Technical Assistance (TA) was originally designed to support the Government’s ...

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• Publié par: Enno
• Nombre de lectures: 15
• Langue: English

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TECHNICAL ASSISTANCE COMPLETION REPORT

Division: IRM

Amount Approved:

$1,300,000.00

TA No. and Name

TA 4473-INO: Support for the Implementation of the State Audit

Reform Program (STAR-SDP)

Revised Amount:

$1,300,000.00

Executing Agency

: Ministry of

Finance

Source of Funding:

Grant

from the Royal Government

of the Netherlands

TA Amount Undisbursed

524,540.23

TA Amount Utilized

775,459.77

Date

TA Completion Date

Original

31 June

2007

Actual

31 December 2007

Account Closing Date

TA Approval

13 December 2004

TA Signing

31 March 2005

Fielding of First

Consultants

27 January 2006

Original

30 June 2007

Actual

27 May 2008

Description

The Indonesian public sector audit faces several issues, including unclear legal and institutional framework, inefficient

allocation of resources between the institutions and lack of transparency and accountability in the audit process. ADB

through the State Audit Reform Sector Development Program (STARSDP Loan No. 2126-INO for $200 million,

approved on 17 December 2004) supported the reform undertaken by the Government of Indonesia to improve

governance, efficiency, economy, and effectiveness of public sector audit through strengthened audit institutions

operating to internationally accepting standards. Of the $200 million program loan, the first tranche of $100 million was

released upon loan effectiveness on 17 December 2004. The Technical Assistance (TA) was originally designed to

support the Government’s reforms and ensure that the policy matrix conditions were actually met to allow the release

of second $100 million tranche. However, after more than two years of consultation, the Government failed to comply

with all tranche release conditions and decided to cancel the remaining $100 million tranche by the end of December

2007. The program loan was closed on 31 December 2007.

Expected Impact, Outcome and Outputs

The expected TA impact was efficient internal and external audit functions meeting international practices and

standards.

The anticipated outcomes were restructuring and strengthening of the internal and external audit bodies

and functions to achieve a clear delineation between internal and external audit; furthermore, the reform aimed at

establishing audit functions and mechanisms consistent with the ongoing decentralization process and improving cost

efficiency through a reallocation of resources from the over staffed but less mandated internal audit

institution (

Badan

Pengawasan Keuangan dan Pembangunan, BPKP

) to the newly empowered Supreme Audit Institution (

Badan

Pemeriksa Keuangan, BPK

).

Through the assistance to the Ministry of Finance (MOF), the TA key expected outputs encompassed: (i)

the State

Audit Law to specify the role of audit in public sector financial management; (ii) the amendment to the Supreme Audit

Institution law (BPK) and public sector auditing standards; (iii) a draft government regulation to reorganize the internal

audit institutions: (iv) an analysis of the restructuring of the audit functions and its impact on the utilization of the

budget resources; (v) an auditor certification program; and (vi) a public awareness campaign on public sector audit

function.

Delivery of Inputs and Conduct of Activities

The TA required 24 person-months of international consultants and 35 person-months of national consultants; the

inputs were provided through seven consultant contracts over a total period of 23 months.

The international

consultant team comprised a public sector audit specialist and a legal specialist with extensive working experience in

public sector audit. The national consultant team consisted of an audit specialist, a database programmer, a public

awareness expert, a survey expert, and a training specialist. The consultants worked closely with the Government in

monitoring the policy matrix conditions and assisting with the implementation of the reform program. The Directorate

General of Treasury under MOF was the TA Executing Agency and provided adequate office space and sufficient

counterpart staff. By the TA completion date only about 56% of the TA budget was spent; the low budget utilization

results mainly from the failure to complete the reform: some TA activities, mainly workshops and overseas study tours,

were not implemented as no longer relevant to a reform still in progress. The implementation of the audit reform the

TA supported, was longer and more complex than anticipated; as a result the TA had to be extended until 31

December 2007, the closing date of the program loan.

Evaluation of Outputs

and Achievement of Outcome

Despite the failure to complete the internal audit reform within the TA period, overall, the TA delivered the anticipated

outputs and successfully supported the external audit reform. Key outputs are summarized as follows.

(i)

Monthly reports on the progress of the policy matrix and conditions for releasing the program loan tranche.

These reports were instrumental in monitoring the audit reform process. The consultants assisted proactively

the concerned institutions in fulfilling their obligations; once met the conditions for tranche release were fully

documented. A significant achievement is the TA support to the development and enactment of Law 15/06 on

State Audit Board (BPK) in October 2006;

(ii)

Sector report on Accountability and Audit in Indonesia prepared by the consultants through a consultative

approach involving the audit institutions, multilateral financing agencies, bilateral donors and other

stakeholders. A survey on the organizational structure and staffing of the internal public sector audit

institutions (BPKP and regional governments audit agencies) provided the report data.

(iii)

Dissemination of the sector report. A national dissemination program was set up with the assistance of the

consultants; the purposes of the program were to stimulate the discussion on the audit reform agenda and

facilitate the adoption of the regulation on internal control.

A major event was the 4 April 2007 conference

gathering about 500 national and international government officials.

(iv)

Comparative Study. In June 2007, 17 Government officials visited audit institutions in the United States,

Canada, Australia, and New Zealand to improve their understanding of well established and long time

operating public sector audit institution. A comparative study report has been prepared highlighting the main

features of the audit systems in the four visited countries and analyzing the country approaches to politically-

sensitive internal audit issues in decentralized administrations.

The consultants successfully assisted the Government in meeting 13 of 17 conditions for the second tranche release

and significantly contributed to meet the 28 milestones of the policy matrix.

One condition, the adoption of a new

Government Regulation on internal control, and three tranche release conditions were not met. The draft Government

regulation on internal control was not adopted due to a lack of consensus among the Government agencies

concerned.

The proposed regulation defines the future mandate and role of the internal audit agency (BPKP).

The

reduced power and mandate of BPKP entails in particular significant staff changes and downsizing.

Overall, the consultant’s performance, in term of efficiency, team work, and cooperation with counterpart agencies,

has been satisfactory. The consultants’ work was carried out in a cooperative and collaborative manner and outputs

timely delivered. Due to an oversight in TA administration the Performance Evaluation Reports for four individual

consultants were not prepared in the year following the consultant contract termination.

As a result the consultants’

performance is recorded as “Not Rated” although they performed satisfactorily.

While less conclusive in supporting the reform of the internal audit system, the TA help achieve the expected

outcomes. Significant progress have been achieved in restructuring the audit institutions, strengthening their

functions, building their capacity, and developing legal and regulatory frameworks in public sector audit. The

empowerment of the Supreme Audit Institution following the enactment of a State Audit Law in November 2006 is a

major achievement.

Overall Assessment and Rating

Having achieved its objectives within the anticipated consultant inputs and budget resources the TA is rated as

successful. The TA assisted the Government in implementing the audit reform and meeting the milestones of the

policy matrix. Of the 17 conditions required to release the $100 million second tranche, four could not be met because

of their political implications. Also, the TA developed an effective reporting system to monitor compliance with the

policy matrix; this system could be used for other program loans.

Major Lessons

At the time of designing the program loan and identifying the tranche release conditions the impact of the reform on

the existing audit institutions was insufficiently assessed. Given its reduced mandate and functions following the

decentralization reform, and its oversized staff resources, BPKP resistance to change could have been anticipated

since the reform entails significant staff downsizing. In contrast, the newly empowered institution, BPK, is extremely

motivated and committed to implement the reform, build capacity and meet its obligations. The disbursement

conditions for multi tranche program loans should be set up based on a comprehensive assessment of their

achievability during the loan period.

Recommendations and Follow-Up Actions

The TA has laid the bases for the Government to develop a consensus on the Government Regulation on Internal

Controls, which will govern the reorganization of BPKP. The audit reform is further supported through the ongoing

State Audit Reform Project financed by Loan 2127(SF)-INO approved in December 2004 for $26.9 million equivalent.

Given the Government’s commitment to proceed with the state audit reform, the sustainability of the TA outputs is

ensured. While the full implementation of the reform may take longer than anticipated, it is very likely that both the

internal and external state audit institutions and operating procedures will be reorganized and restructured to

international standards and practices. It is recommended that ADB continue monitoring the state audit reform

progress and if required, provide assistance to the Government through the ongoing State Audit Reform Project.

Prepared by

Jean-Marie, Lacombe

Designation

Head, Portfolio Management, IRM