[Kabar-indonesia] BPK's Disclaimer and Indonesia's Messy Balance Sheet

[Joyo at aol.com]

[Note: Due to problems accessing JP yesterday,
this could not be sent until today]

The Jakarta Post
October 9, 2006

Messy Balance Sheet 

So what? Soon, it will simply be back to business as usual. That was 
initially our reaction to the disclaimer slapped by the Supreme Audit Agency (BPK) on 
the central government's accounts for fiscal 2005. 

The auditors concluded that the balance sheet did not comply with financial 
accounting rules, and contained discrepancies in current accounts and numerous 
other "accounting sins". 

After all, this was the sixth consecutive year that the BPK refused to 
express an opinion on the government's accounts due to the fact that they left many 
questions unanswered and were inadequate for the auditors to base an opinion 
on. 

If the government was a publicly-listed corporation, it would have been 
delisted from the stock exchange years ago. But since the government is not bound 
by the stock market regulations, the BPK audit report does not immediately give 
rise to penalties. 

So, what is the point of conducting an audit if it does nothing to improve 
the way the government keeps its books? This is the issue that the House of 
Representatives needs to address. Otherwise, the government will not feel legally 
bound to improve its accounting performance and, consequently, its financial 
accountability to the public. 

The House must ensure that the BPK, as the sole independent auditor of the 
government sector, be given more power. This is because more effective audits 
and compliance with the BPK's recommendations would greatly help the House 
exercise its oversight of the state finances. 

The year 2005 marked only the second time the government had drawn up its 
accounts under the arrangements put in place by the 2003 laws on the state 
finances and state financial accountability. Unlike government accounts from before 
2003, which covered only budget realization (cash flow reports), the 2005 
financial accounts were consolidated and covered all budgetary and non-budgetary 
transactions (cash flow and current account), as well as the finances of state 
companies and local administrations. 

Sadly, though, the state accounts are as yet unable to function as reliable 
tools for gauging the government's real financial position as they are not 
sufficiently complete and accurate to be used as references for assessing fiscal 
management policies. 

As BPK director Anwar Nasution said when submitting the audit report to the 
House of Representatives last week, there were still many basic flaws in the 
accounts. The government's internal control system is not effective even though 
it consists of four internal audit levels. This is obviously quite worrisome 
as an effective internal control system is the first line of defense against 
corruption and inefficiency. 

Some examples of the audit findings: Similar to the 2004 accounts, the 2005 
accounts revealed the existence of more than 1,300 savings and deposit accounts 
holding some Rp 8.54 trillion (US$920 million) under the private names of 
government officials, rather than the names of the institutions for whom they 
work. The purposes of these accounts were questionable; the legal status of Rp 
130.22 trillion in government investments booked with Bank Indonesia was not 
clear; Rp 35.6 trillion in government equity investments in six state companies 
did not comply with the State Treasury Law. 

Some shortcomings were only to be expected in the state accounts -- the 
drawing up of such accounts was never going to be an easy task for a government 
served by one of the most corrupt bureaucracies in the world. Moreover, the 
process involved the collection and recording of figures and data from more than 
40,500 work units within the public sector all around the country. But it is 
nevertheless quite absurd that the accounts were so inadequate that the BPK was 
not able to issue an opinion. 

It is true that the disclaimer does not automatically imply extensive 
corruption, nor does it indicate huge financial losses to the state. But the 
government must have realized that the transparency and accountability it so often 
proclaims to be the basic principles of good governance require stringent 
public-reporting requirements and the enforcement of fiscal discipline in a 
transparent and accountable manner. 

The House must therefore act soon to force the government to improve its 
financial accountability. But while waiting for concrete action from the House, we 
are heartened to learn from the BPK director that he will soon report BPK 
audit findings that reveal strong prima facie evidence of corruption and other 
forms of malfeasance directly to the Corruption Eradication Commission and the 
government coordinating team for combating corruption. 

Strong law enforcement against the bureaucrats will force government work 
units to improve their financial accountability -- something that is essential 
given that it is the reports from these units that go together to form the 
overall government accounts. 

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Joyo Indonesia News Service
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