State finance accountability

State finance accountability

The Supreme Audit Agency (BPK) will be armed with stronger and
broader powers with which to perform its duties and to enforce
its recommendations under a public finances accountability bill
that is expected to be passed soon by the House of
Representatives.

The legislation stipulates, among other things, that anyone
found guilty of obstructing an audit by the BPK will be liable to
a maximum jail term of 18 months and/or a fine of up to Rp 500
million (US$55,500), while any state officials who fail to act on
the recommendations of the BPK shall be subject to administrative
sanctions, as provided for in the Civil Service Law.

After its enactment, the new law will complete the foundations
for the building of the necessary legal and institutional
frameworks for better management, accountability and transparency
in the public finances.

The bill forms an integral part of a package of three pieces
of legislation that was proposed to the House in September 2000
as part of the government's ongoing efforts to enhance good
governance, democracy and transparency in the management of the
state finances.

The first part of the package, on the state finances, was
approved by the House in March 2003, as Law No. 17/2003, while
the second, on the state treasury, was passed into law late last
year as Law No. 1/2004

The public finances accountability bill further strengthens
the role and functions of the Supreme Audit Agency (BPK) as the
sole independent, external auditor responsible for auditing all
elements and components of the state finances, including the
budgets of the central government and all local administrations,
and companies owned by both the central and local governments.

Even publicly-listed state companies, which the Capital Market
Law requires to be audited by public accountants, are also
subject to the oversight of the BPK.
The new bill requires publicly-listed state companies to submit
their audited financial statements to the BPK for further
assessment, and the BPK is authorized to reaudit these statements
if it finds that they fail to satisfy the principles of
accountability.

It also allows the BPK to conduct general financial audits,
performance audits and special audits in respect of all aspects
of the management of the public finances.

The three pieces of legislation are mutually related and
reinforcing. The State Finances Law, for example, stipulates that
the financial accountability of both the central government and
local administrations shall be audited by the BPK.

In provisions specially designed to deter officials from
embezzling public funds, the State Finances Law also stipulates
that any official who is charged with receiving, keeping, paying
and/or transferring money, securities or state property is deemed
to be a treasurer and, accordingly, is obliged to account to the
BPK. And a treasurer, as defined by the Law, shall be held
personally liable for any losses of state funds consigned to his
care.

This stipulation will, hopefully, go a long way toward
instituting a high level of discipline in the management of our
public finances. Treasurers should now be courageous enough to
refuse orders or directives from their superiors or senior
officials that run against budget or treasury rules, knowing that
they can no longer escape responsibility or seek protection by
hiding behind the coattails of their bosses, as many officials
now attempt to do.

The public finances accountability bill further stipulates
that it is the BPK that will be responsible for determining the
amount, and conducting the collection, of restitution in respect
of shortfalls that occur in state funds, cash flows or
goods/assets under the management of treasurers in the state
agencies and state companies that come under the auspices of both
the central government and local administrations.

Legislation alone will not be effective in preventing
corruption and curbing inefficiency in the management of our
public finances as the effectiveness of the legislation
ultimately depends on the mentalities of the officials who
implement them.

But stronger rules on budget allocations, accounting systems,
cash and debt management, procurement, internal-control systems
and independent audits, as provided for in the new legislation,
could help to greatly minimize the opportunities for malfeasance.

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