System of accountability

Those who regularly follow the summaries of the Supreme Audit Agency's reports on the state budget accounts would find nothing surprising in the latest findings related to the government's 2003 budget accounts.

After all, the government's budget accounts for the previous four fiscal years had all been classified with a disclaimer, meaning that the accounts were so deficient and questionable that the auditors could not give any opinion on the financial statements.

Like the previous four years, the agency reported to the House of Representatives last week thousands of instances of irregularities, deviations and breaches of budgetary rules and public finance management procedures related to the 2003 budget accounts.

The auditors, for example, found that the government did not account for Rp 27.2 trillion (US$3.02 billion) of funds in 16 different escrow accounts under the supervision of the finance ministry.

In another part of the report, the agency questioned the status of almost Rp 38 trillion that the government did not account for in its 2003 financial statements.

No wonder the agency also returned the 2003 budget accounts with a disclaimer.

But then what is the meaning of the audit agency's report if it cannot force the government to improve its financial accountability?

This has long been a contentious issue. The agency's audit report simply demonstrates the relaxed stance on the part of the government as regards malfeasance, showing how the government's tolerance of breaches of rules or deviations from regulations seems to have steadily been stretched.

Obviously, part of the problem is the lack of enforcement power and the lack of clarity in the mandate, scope and role of the Supreme Audit Agency. Nor are there systematic follow-up procedures to ensure implementation of the agency's findings.

However, a deeper reading of the agency's report and the government's clarifications to the agency suggests that many of the auditors' findings of irregularities or breaches of budgetary rules or procedures derive from different interpretations of the rules on public finance management, accountability and transparency. Both the government and the Supreme Audit Agency seem to use different languages in reading state financial accounts.

These problems were supposed to have been resolved with the enactment of three laws regarding state financial accountability, state finances and the state treasury.

The three pieces of legislation are related to and reinforce each other with regards to the enforcement of stronger rules on budget allocation, accounting systems, cash and debt management, procurements and internal controls.

The problem though is that the three laws have yet to be fully implemented as they are relatively new. The laws on the state treasury and state financial accountability were enacted only last year and the legislation on state finances in mid-2003.

The laws have yet to be supplemented with many regulations on technical details such as accounting standards, the systems of internal control, the format of financial accountability, the treatment and classification of revenue and spending, etc.

The new treasury law, for example, puts the Ministry of Finance fully in charge of managing the state budget and clearly stipulates the principle of a single consolidated fund. It enforces the role of the finance minister as the chief financial officer of the state.

This will create a stronger treasury directorate general to conduct a comprehensive overhaul of the government's payment and receipt systems, consolidate government cash resources currently held in thousands of bank accounts and enhance the internal control framework.

But as finance minister Jusuf Anwar explained in his clarifications to the auditors' report, a special regulation on the government's accounting standards and system has yet to be issued. The government's internal control system and structure has yet to be realigned according to the state treasury law, and the finance ministry has not been reorganized to conform with its new role under the new laws.

But the job does not end there. Regulations and directives have to be understood by officials in charge of handling state finances and assets in central and local governments, and at state companies. This process requires a lot of training.

It is therefore imperative for the government to speed up the implementation of the three laws to minimize differences of opinion and improve accountability, lest the Supreme Audit Agency continue to classify the budget accounts with a disclaimer and the House of Representatives refuse to approve the state budget.