Indonesia: Support for State Audit Reforms

Sovereign Project | 35144-013

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Project Name Support for State Audit Reforms
Project Number 35144-013
Country Indonesia
Project Status Closed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 2126-INO: Support for State Audit Reforms
Ordinary capital resources US$ 100.00 million
Loan 2127-INO: Support for State Audit Reforms
Asian Development Fund US$ 25.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change
Sector / Subsector

Public sector management - Public expenditure and fiscal management

Gender Equity and Mainstreaming
Description The goal of the proposed State Audit Reform (STAR) Program is to enhance governance, and the efficiency, economy and effectiveness of public sector audit through strengthened audit institutions operating to internationally accepted standards. The objectives are: an improved policy and legal framework for state audit institutions; a strengthened and efficiently aligned operating framework for external and internal audit; enhanced accountability and oversight of the audit function at all levels of government; and increased public awareness of the benefits of audit and what it can deliver.The program loan of the STARSDP will facilitate the implementation of critical reform measures affecting the entire audit sector, while the project loan will support key investments aimed at enhancing capacity building and strengthening sector management practices.
Project Rationale and Linkage to Country/Regional Strategy

The Government is determined to continue sound macroeconomic policies by introducing measures, among others, to strengthen the fiduciary aspects of public expenditure management (PEM). These measures are reflected in the last medium-term planning document, (PROPENAS) 2000-2004. Consistent with this paper, the Government?s 2003 White Paper, which consolidates an ambitious agenda to achieve high and sustainable growth, recognizes the widespread concern about poor governance and weak fiduciary controls. The State Audit Reform Sector Development Program (STARSDP) will support these measures.

5. The STARSDP is a major step in the long-term partnership between the Government and ADB. Building upon its collaboration experience, the STARSDP is an integral part of a cluster of programs being formulated by ADB to support aspects of budget formulation at decentralized levels; strengthen intergovernmental fiscal relations; and the controls and checks related to budget execution, financial management, and public oversight. This Program is in part the outcome of the intensive policy dialogue between ADB and the Government, which started in December 2002 and was maintained throughout the project preparatory technical assistance (TA), and the STARSDP preparation missions.

This was listed in the ADB's Country Startegy Prpgram (2002-2004)

Impact Enhance governance, and the efficiency, economy and effectiveness of the public sector audit function through strengthened audit institutions operating to internationally accepted standards
Project Outcome
Description of Outcome Strengthened audit institutions working under strengthened legal and regulatory framework, with better resource allocation, greater oversight, and better public awareness
Progress Toward Outcome

The legal and regulatory framework was strengthened. Auditing standards meeting international standards have been introduced. These have helped the BPK in particular to perform its function as the country's only external auditor independently and responsible only to parliaments. The BPK has developed adequate policies, procedures, organization, and staff to conduct its role effectively. It has begun to adopt the latest audit methodologies such as risk-based audits, quality assurance audits, and financial performance audits, and to produce high-quality audit results.

Some high-profile audits have been conducted using these methodologies, with findings presented to the national and regional parliaments. This has helped to improve the performance of the audited entities. In parallel, the capacity of parliamentarians has been strengthened through education and the adoption of user-friendly formats to help analyze, interpret, and follow up on audit findings. Public awareness programs have helped the public to begin to recognize the role and value of audits. These positive developments have enhanced the reputation of state audit institutions, particularly the BPK. This enabled it to obtain the support of parliamentarians and bureaucrats for much-needed budgets and to further strengthen legal and regulatory frameworks. Similarly, inspectorate generals in individual ministries and the BPKP are now able to perform their internal audit functions more effectively with the strengthened legal, regulatory, and institutional frameworks.

Implementation Progress
Description of Project Outputs

1. New systems and practices for effective external audit (BPK) introduced

2. New systems and practices for effective internal audit (Bawasda and IGs) introduced

3. New systems and practices for BPKP to fulfill its new mandate introduced

4. Professional education program for internal auditors (IG department of education) established

5. New practices for Parliament and regional parliament (DPR and DPRD) oversight of BPK audit reports introduced

6. Public awareness of the public sector audit function established

Status of Implementation Progress (Outputs, Activities, and Issues)

New systems and practices for effective external audit introduced

BPK has developed and implemented new audit systems and practices (State Finance Audit Standard / SPKN, Audit Management Guideline / PMP and BPK's New Code of Ethics) that meet international standards. These implemented standards provide reliable assurance that audit carried out by BPK's auditors is well managed, strictly controlled, properly guided, and uses standardized procedures for each of the three types of audit, as well as for each phase of the audit. The capacity of BPK has been improved, as indicated by the broader coverage of audit objects, increase in the number of performance audits, more advisory services being carried out, and the number of high profile audits being boldly carried out. These achievements have been achieved through the continuous support from the leadership and direction of BPK's Board.

New Systems and Practices for Effective Internal Audit Introduced

New Systems and Practices for Effective Internal Audit Introduced which has strengthened the capacity of the Government's internal auditors through several of STAR-SDP's activities, such as: MONE-IG's scholarship programs for Bawasda and IGs, MOHA-IG's and BPPK's technical training for Bawasdas, and MOF-IG's training and secondment for its staff and that of other ministerial inspectorates.

MOHA-IG has successfully issued a Minister Decree (Permendagri) No. 8 Year 2009 concerning Guideline of Regional Governance Supervision, which provides guidance for BAWASDA in carrying out a supervisory function on the implementation of the obligatory and voluntary functions of local governments. In order to support the implementation of said Permendagri No. 8 Year 2009, MOHA-IG has developed an information system (SIWASDANAS) for handling the audit mechanism carried out by BAWASDA. Moreover, MOHA has exceeded the Project's target by the issuance of Minister Decree (Permendagri) No.1 Year 2010, a decree which enforces implementation of SIWASDANAS. All of those achievements have extended the scope of audit to local government level and improved the effectiveness of planning and management of internal audit by BAWASDA.

New Systems and Practices for BPKP to Fulfill its New Mandate Introduced

With the issuance of PP No.60 Year 2008, BPKP has now received its mandate as internal auditors of the Government and reports directly to the President of Indonesia. At present, BPKP mandates have been made clear and include internal audits in three specific areas: (a) conduct cross-sectoral, treasury, and other audit activities as instructed by the President; (b) review of the Government's financial statements prior to submission to the President, and; (c) manage the implementation of the Government's Internal Control System (GICS).

In connection with the implementation of BPKP's mandate, particularly the implementation management of the Government's internal audit system, the head of BPKP issued a Decree (Perka BPKP- 1326/K/LB/2009) in December 2009 regarding the guidelines on how to implement GICS. This decree, which is based on Article 47 of PP No.60 Year 2008 that states all of the ministers/head of institutions, governors, regents/mayors shall be responsible for the implementation of the GICS within their respective institution, requires a task-force to be established in each Government institution and agency to assist in the implementation of GICS. This task-force supports the effectiveness of the Internal Control System by performing internal control on the implementation of the tasks and functions of the Government institutions including the accountability for the state finance, as well as providing guidance in the implementation of GICS. Currently, the required task-forces have been established and are operational in Government institutions and agencies. A number of Head of Regional Decrees concerning Internal Control System Implementation have been established by respective regional governments as a result of BPKP's continuous effort in socializing the GICS and providing training and technical assistance.

Professional Degree Education and Non-degree Program for Internal Auditors Developed and Implemented

A Professional Degree Education and Non-degree Education Program on state accounting and public auditing for internal auditors have been established by MONE-IG and BPPK, respectively. As of 31 December 2010, more than 80% of Bawasda and 90% of IG participants have successfully graduated from the scholarship program. This achievement has exceeded the project's target. The total number of graduates (578 participants) has increased the number of Government internal auditors trained with public accounting and auditing skills and knowledge.

The participation of BAWASDA staff in the degree and non-degree programs combined with the technical training carried out in BAWASDA has significantly contributed to the capacity development of human resources, which in turn has improved the advisory capacity of BAWASDA.

New Practices for Parliamentary and Regional Parliamentary Oversight of

BPK's Audit Reports Introduced

From 2007 to 2010, DPR Secretariat has produced analysis reports of BPK audit results (three reports in 2007, nine in 2008, fourteen in 2009, and fifty in 2010) and presented them to Parliament. These reports have assisted Parliament in better and easier understanding of BPK's audit results. There is evidence that these analysis reports have been regularly utilized by Parliament as references for discussion with the Government on national budget preparation and amendment matters and on special national issues.

As a result of BPK's continuous effort in promoting the importance of having Parliament follow up on BPK's audit findings, a State Finance Accountability Agency (Badan Akuntabilitas Keuangan Negara or BAKN) has been established within the Parliament. Establishment of BAKN, which is positioned to have the same level as a DPR Commission and has the main task of following up on BPK's audit findings, is an indication of Parliament's willingness to improve oversight capabilities. The DPR Secretariat has developed a Standard Operating Procedures (SOP) that has been established as the daily operation guideline of BAKN.

At regional level, a guideline on the Follow-up of Audit Result of BPK by DPRD has also been developed and enforced through the issuance of Permendagri No. 13 Year 2010. As a result of this achievement there has been an increase in the use of audit reports by DPRD members.

There is clear indication that the above achievements have resulted in an increased willingness of parliaments, at both national and regional level, to improve their oversight capabilities. This in turn will have a positive impact in the improvement of governance in the Republic of Indonesia.

Public Awareness of the Public Sector Audit Function Established

The public awareness program supported by STAR-SDP has improved the knowledge of the public concerning BPK, and enhanced public awareness on public audit activities and objectives. Evidence that supports the effectiveness of the public awareness efforts includes the increase in number of public complaints submitted to BPK after the public awareness program has been carried out. Since the establishment of the public relations plan, BPK has become more active in public awareness campaign, as well as in extending cooperation with international SAI through a strategic public awareness plan and improved communication channels to the public via media workshops, press releases, and other SAI relationships. All of these efforts have helped in the improvement of public awareness on public audit and state finance accountability issues.

Law No. 32 Year 2004 states that the supervisory function of regional government should be carried out not only by the local inspectorate and local parliaments but should also involve public participation. Therefore, STAR-SDP in 2007, through MOHA-IG developed and implemented a campaign model for public participation in order to improve public awareness and public participation in public audit efforts. Based on a survey there was evidence that the number of public reports on suspected local government misuse of budget increased in 2007 compared to previous years. This fact has shown that the public campaign on public awareness improvement was successful.

A public campaign was also carried out by ILMU in order to support improvement of public awareness concerning public audit institutions and the function of each public audit institution. Based on a post survey carried out to review the public campaign results showed that there was an improvement of awareness concerning main assignment and function of BPK, APIP, and BPKP.

Geographical Location Central Government Audit Institutions, 33 Provincial Level Internal Audit Bodies, 17 District level Internal Audit bodies.
Safeguard Categories
Environment C
Involuntary Resettlement
Indigenous Peoples
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services International and domestic consultants will be engaged in accordance with ADB's Guidelines on the Use of Consultants and other arrangements satisfactory to ADB.
Procurement Procurement of goods and services financed under the ADB loan will be undertaken in accordance with the ADB's Guidelines for Procurement. Civil works for project institutions will be fully financed by the Government, and will be carried out in accordance with the Government's standard procurement procedures acceptable to ADB.
Responsible ADB Officer Deeny Simanjuntak
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Indonesia Resident Mission
Executing Agencies
Ministry of FinanceFrans Seda Building
Jln. Dr. Wahidin Raya No. 1
Jakarata 10710, Indonesia
National Development Planning Agency (BAPPENAS)Rahayu Puspasarisumadjipuspa@yahoo.com.auJl. Taman Suropati No. 2
Jakarta 10310
Indonesia
Timetable
Concept Clearance 20 Apr 2011
Fact Finding 24 May 2004 to 20 Apr 2011
MRM 20 Apr 2011
Approval 13 Dec 2004
Last Review Mission -
PDS Creation Date 20 Nov 2006
Last PDS Update 05 Aug 2011

Grant 0024-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
13 Dec 2004 16 Dec 2004 17 Dec 2004 16 Dec 2009 31 Dec 2010 06 Jul 2011
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 0.00 Cumulative Contract Awards
ADB 0.00 13 Dec 2004 0.00 4.79 96%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 13 Dec 2004 0.00 4.44 89%

Loan 2126-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
13 Dec 2004 16 Dec 2004 17 Dec 2004 31 Dec 2007 - 28 Dec 2007
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 100.00 Cumulative Contract Awards
ADB 100.00 13 Dec 2004 100.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 13 Dec 2004 100.00 0.00 100%

Loan 2127-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
13 Dec 2004 16 Dec 2004 17 Dec 2004 30 Jun 2010 31 Dec 2010 01 Jul 2011
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 25.00 Cumulative Contract Awards
ADB 25.00 13 Dec 2004 22.17 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 13 Dec 2004 22.17 0.00 100%

TA 4474-INO

Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 0.00 12,728,300.00 0.00 0.00 0.00 12,728,300.00 - 0.00
Title Document Type Document Date
State Audit Reform Sector Development Program Project/Program Completion Reports Oct 2011
State Audit Reform Sector Development Program Project/Program Completion Reports Mar 2010
State Audit Reform Sector Development Program: Report and Recommendation of the President Reports and Recommendations of the President Nov 2004

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation
Title Document Type Document Date
Indonesia: State Audit Reform Sector Development Program Validations of Project Completion Reports Dec 2012
Indonesia: State Audit Reform Sector Development Program Validations of Project Completion Reports Dec 2012

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