Integrity and independence of state auditors<\/p>\n
Agam Fatchurrochman, Nottingham, United Kingdom<\/p>\n
The recent scandal at the General Elections Commission (KPU)
\ninvolved not only intellectuals, human rights activists, civil
\nservants and private companies but also auditors of the Supreme
\nAudit Agency (BPK), which is mandated by the Constitution as the
\nas the guardian of our national financial integrity.<\/p>\n
Deeper investigation by the Corruption Eradication Commission
\n(KPK) into the case revealed how a deputy chairman of the BPK and
\nseveral auditors accepted big sums of money from the KPU in the
\ncourse of the BPK audit of expenditure for the 2004 national
\nelections.<\/p>\n
An audit is intended to present an intellectual and moral
\nstatement in the form of an auditor's written testimony on the
\nauditee's financial integrity. An external audit plays a critical
\nrole in lending credibility to published financial statements as
\nrequired by users to make an informed decision on the basis of
\nthe integrity of an auditee.<\/p>\n
Auditor independence is one of the basic building blocks of an
\naudit.<\/p>\n
Integrity and objectivity are moral principles that should be
\nupheld by auditors in performing their duties. The principle of
\nintegrity requires an auditor to be straightforward and honest in
\nall professional relations, while objectivity regulates that an
\nauditor should not allow bias, conflict of interest or undue
\ninfluence over others to override professional judgments.<\/p>\n
International practices have partitioned independence into two
\ndimensions: independence in fact, and independence in appearance.
\nIndependence in fact relates to the notion that the auditor
\npossesses an independent mind-set when planning and executing an
\naudit and that the resulting audit report is unbiased.
\nIndependence in appearance relates to whether the auditor appears
\nto be independent, particularly in the view of the user
\n(principal), auditee and the public.<\/p>\n
The effectiveness of BPK audits of state institutions and
\nstate-owned enterprises, therefore, depends on several factors.
\nIt is fundamental to public confidence that the BPK operates (in
\nfact) and is seen to operate (in appearance), in an environment
\nthat supports objective decision-making on key issues having
\nmaterial effects on financial statements.<\/p>\n
Article 23 (e, f, g) of the third amendment of the 1945
\nConstitution, regulates the institutional relationships between
\nthe House of Representatives, the government and the BPK. The
\narticle stipulates that government institutions are required to
\nhold an account for the resources entrusted by the House (and
\nregional legislative councils) in the forms of financial
\nstatements (auditee). The BPK ( the auditor) is assigned by the
\nConstitution to examine the government institutions' financial
\nintegrity as required by the House. This relationship is a social
\ncontract as stipulated in the Constitution,<\/p>\n
These constitutional directives highlight the Governmental
\nAudit Standard, which regulates that in all audit matters, an
\nauditor has to act independent, organizationally and
\nindividually, and to be free from individual, external and
\norganizational threats to independence.<\/p>\n
In the BPK-KPU scandal, threats to individual independence
\nis the key issue and can be defined as the inability of auditors
\nto act impartially or to be seen as impartial. The audit standard
\nlists several individual threats that may occur as a result of
\nworking, professional, private or financial relationships, or
\neven inclinations to give special preference as a result of
\nshared social and political beliefs and in-group feeling and
\nsolidarity.<\/p>\n
The audit standard also underlines threats of familiarity,
\nwhich may occur from a close relationship between an auditor with
\nhis\/her previous post as a decision maker in an entity with
\nsignificant resources.<\/p>\n
On the BPK executive board level, the threat to individuals
\nstems mainly from the manner in which the auditors were recruited
\nduring the New Order government of authoritarian Soeharto, which
\nsimply used the BPK as a rubber stamp for government financial
\nreports.<\/p>\n
However, in the current democratic and reform era where the
\nlegislative influence is quite heavy in most major executive
\ndecisions, the recruitment or selection process for the BPK
\nexecutive board is also deeply influenced by social and political
\ngroupings in the House.<\/p>\n
We can see now that screening procedures in the House for new
\nBPK board members resulted in the recruitment of
\ntwo representatives from the country's largest political party
\ninto the BPK.<\/p>\n
On one side, the experience of senior finance officials or
\nauditors in state financial practices provide valuable resources
\nfor the BPK, but, on the other hand, these experiences could
\nbecome baggage and the source of a conflict of interests for BPK
\nauditors.<\/p>\n
One clear example was when a former finance minister was
\nselected as the chairman of the BPK a few years ago.
\nTheoretically his experience would greatly help BPK auditors in
\nconducting their duties, but the chairman became virtually
\ndysfunctional because of his alleged involvement in the Golden
\nKey-Indonesian Development Bank (Bapindo) loan scam causing
\nconflict of interests and public controversy.<\/p>\n
The current BPK-KPU affair also shows that the integrity of
\none member of the BPK board in his previous position as chairman
\nof the House's budgetary committee could impair the BPK's
\norganizational integrity.<\/p>\n
However, at the staff level, threats to individuals mainly
\nstem from illicit financial relationship between auditors and
\nauditees, which, in the KPU case, was essentially a bribe given
\nas transport allowances to auditors.<\/p>\n
If the BPK does not address these issues of integrity
\nseriously, the general public, auditees and users of government
\nfinancial reports may have big doubts about the BPK's integrity
\nand independence. This in turn could damage the effectiveness of
\nthe BPK's work and impair its audit findings and reports. If
\nthere is no public confidence in the BPK's integrity and
\nindependence, there is no point in having a supreme audit
\ninstitution at all.<\/p>\n
The failure of auditors to realize their social contract,
\nwhich underlies their professional existence, may force society
\nto revoke their professional rights.<\/p>\n
In the case of the BPK, the social contract that is already
\nembedded in the third amendment of the Constitution as the
\nsupreme audit institution might be revisited as well.<\/p>\n
The general public, the House, the government and the BPK
\nshould work together to initiate an overall reform of the supreme
\naudit agency to ensure its integrity and independence at both the
\nexecutive board and staff levels.<\/p>\n
The writer is an MA Student at Nottingham University's
\nBusiness School. He can be reached at lixaf2@nottingham.ac.uk<\/p>",
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