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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