SOEs should have audit committee to promote trust

JAKARTA (JP): An audit committee should be established in state owned enterprises (SOEs) to help commissioners promote practices of good corporate governance, according to a noted executive.

Erry Riyana Hardjapamekas, the president of publicly listed PT Timah, said here on Wednesday that the establishment of an audit committee was important in order to improve the image of the state companies whose operations were often abused by senior government officials.

He also said promoting the image of state companies through the implementation of good corporate governance was needed to ensure the success of privatization.

"Good corporate governance should be implemented immediately, including the formation of an audit committee. Otherwise no investors would be interested in buying their shares," he said, in a seminar on the implementation of good corporate governance in state owned companies.

This year, the government plans to divest part of its ownership in some 16 state-owned enterprises and expects to raise about Rp 6.5 trillion (US$607 million) from privatization to help cover the state budget deficit.

According to Erry, the committee should be led by an independent commissioner in the company with several professional members in order to avoid any conflicts of interest.

"The audit committee's activities should not be interfered with by other commissioners, directors, or other interests," he said.

He said that an audit committee would have the task of supervising company directors as well as assessing the work of internal auditors.

The government issued a decree in 1999 to encourage SOEs to establish audit committees but it has yet to get a good response.

According to him, Timah has established an audit committee, which is led by an independent commissioner, with two professional members from outside the company.

Timah also required its staff from the top executives to those three layers below them to report their wealth as part of the promotion of good corporate management in the world's largest tin producer.

"Such moves have significantly helped improve the performance of Timah management," he said.

Mantaris Siagian, the secretary of the directorate general for the supervision of state enterprises, said that the government would reapply the fit and proper test in the appointment of the executive board of SOEs.

He said that the test would be carried out on the 10 best candidates selected from staff one level below the directors. The Ministry of Finance had also established a special team to conduct the test, he added.

The fit and proper test was introduced in 1998, following the establishment of a state ministry for the supervision of state enterprises during the administration of former president Habibie. The test was however abandoned after the government dissolved his office and integrated it into the Ministry of Finance last year. (05)