Mon, 03 Oct 1994

Auditing state accounts

The four-day government conference on the auditing of state financial accounts which opened on Thursday has disclosed the enormous difficulties encountered by the Supreme Audit Agency (BPK) in properly executing its tasks and the inadequacy of the financial accountability of the various government agencies. BPK's difficulties and constraints seemed to have been caused mainly by the inadequate legislation regarding its audit authority and function. But what makes the government financial accountability seemingly questionable is the fact that the audit of the state financial accounts has been based largely on the standards set by the government itself.

Therefore, as BPK board member Gandhi observed at the conference, it would be understandable if many doubted the objectivity of the audit reports because the audit standards were set by the party being audited (the government) itself. The quality of the government's accountability would not seem so questionable if the BPK, which is constitutionally supposed to be on an equal footing with the government, were able to execute its audit authority properly.

However, as discussions at the conference showed, the power of the BPK in auditing the government accounts has been so limited that we get the impression that the Supreme Audit Agency is actually supreme only in a definitional sense. And, upon a closer look, we become aware that it exhibits an extreme lack of substance.

That is really worrisome because the BPK, as stipulated in the Constitution, is responsible for auditing the financial accounts of the central and provincial governments and state companies. The House of Representatives also depends on the BPK-audited reports for forming its opinions and making its decisions on the annual state budget accounts.

Of course, auditing is not a goal in itself, but is merely a means for improving effectiveness and efficiency in achieving prescribed goals. Nonetheless, high-quality auditing is required to enforce good accountability. Further down the line, the quality of audits is determined largely by the accounting and auditing standards that are suitably designed for the public sector financial accounts.

Gandhi also revealed that the BPK could perform only financial audits and that they related to conformity with laws and regulations. Another more important aspect -- the operational audit -- to determine the effectiveness and efficiency with which the government uses its resources cannot be done due to the absence of standard government accounting principles and uniform standards for the auditing of government financial accounts. Therefore, BPK cannot declare any opinions on the financial accounts either of the various government agencies or the government as a whole (state budget accounts).

It is encouraging, though, to learn from the conference that the BPK is finalizing new standards for the auditing of government financial accounts. Because the standards are being formulated by BPK as a state agency whose constitutional position is equal to the government itself we are confident that the standards will enhance an objective audit of the government accounts and will improve the accountability on the part of the government. But we also realize that the standards themselves will not mean much if they are not fully enforced with the full support of the government. Likewise, the willingness of the government is crucial for making the much-needed amendments to the 1973 law on BPK's role and function possible.

The legislation should indeed be adjusted because the BPK's task will become increasingly challenging as the size and complexity of government transactions increase and new forms of revenues and new categories of public sector expenditures emerge.