Is it Critical to Apply Performance Auditing in Indonesian Public Sector?

Performance Auditing in Indonesian Public Sector

Since the 1998 reformation movement, Indonesia has been undergoing fundamental public sectors reform in all venues. Generally, the reform focuses on transforming the ineffective and inefficient public sector organisations into professionally managed public entities. Public Management is one of several sectors undergoing transformation, which falls into a category of new public management (NPM). New Public Management (NPM) is underpinned by some fundamental principles in public sector management, such as: ‘economy, efficiency, effectiveness and ‘good management’ of government programs’ (Pollittt et al in English 2007, p. 313). NPM strongly suggests the importance of financial and performance auditing, with the latter one receives more focus as it serves as a barometer to measure the effectiveness of public services. Performance auditing is defined as ‘a fair and impartial assessment that provides objective information about the performance of programs, activities and functions, and when applicable, specifics about where improvements can be made and the likely impact of those improvements’ (Raaum and Morgan in Funkhouser 2002, p. 21).

However, weighing on the ongoing process of sectoral reformation direction in Indonesia, it is apparent that the movement puts more focus on the financial accountability in public organisations rather than on performance. The shift of focus might be attributed to ineffective coordination between two national government audit bodies, BPK RI (The Supreme Audit Board) and BPKP RI (Financial and Development Supervisory Agency) when performing audits from national to district level. Functionally, BPK RI has a higher authority than BPKP RI. While, BPK RI is fully responsible to conduct financial auditing, assess and attest financial expenditure and management, BPKP’s authority to some extent is limited to internal auditing. This results in limited power to make decisions, as BPKP needs prior appeal before conducting any further investigation. This restriction issue to some extent will lead to violations to the spirit of public sector reform. Given this limited authority, BPKP thus cannot perform a thorough inspection in national level.

The significance to perform audit in public sector sometimes raises a question; why is it critical for a public organization to be investigated? The answer is quite simple. It is believed that performance auditing is necessary to examine outcomes’ frequency resulted by policies issued and whether the outcomes are effectively delivered to the citizen since the main function of public organisations is to deliver public service aimed at gaining ‘public trust’ (Salminen and Norrbacka 2010, p.653) and ‘consensus’ (Murray 1975, p.365).

A discussion held in the Indonesian embassy, Canberra, Australia, on April 14, 2013, confirms the significance of audit in public sector management. The minister of state apparatus empowerment (MenPAN), Azwar Abubakar, briefly suggested that the quality of public reform is measured by the delivery of outcome, not output. However this statement is not in line with the practice where the government of Indonesia is unlikely to cater a holistic approach to meet targeted aims of public sector reform.

In order to build an effective auditing performance, below I suggest some factors to be concerned of. First of all, it is imperative for government and parliament grant a larger lawful authority to BPKP to perform audit. Armed with the authority might assure BPKP to achieve effective outcomes. Secondly, measurement of performance in the public sector entities must be clearly defined and listed down. This will assist BKPK’s auditors to have precise directions when performing the audit engagements in a public sector even on their preliminary observations based on a well-designed guidelines and expected outcomes. Being equipped with those guidelines, BPKP’s auditors would be able to identify deviations and irregularities from expected practices in the public sector organisations.

By undertaking performance audits in the public sector, it is hoped that the public sector organisations will raise the quality of public service and welfare performance. In a nutshell, it can be seen that the trajectory of the bureaucracy reform in Indonesia can be an efficient, trusty, and professional one.

References:

  • English, LM 2007, ‘Performance Audit of Australian Public Private Partnerships: Legitimising Government Policies or Providing Independent Oversight?’, Financial Accountability & Management, vol. 23, no. 3, pp. 313-336.
  • Funkhouser, M 2002, ‘Auditing in America’s Big Cities: The Importance of Local Government Auditing’, The Journal of Government Financial Management, vol. 51, no. 4, pp. 20-24.
  • Murray, MA 1975, Comparing Public and Private Management: ‘An Exploratory Essay’, Public Administration Review, vol. 35, no. 4, pp. 364-371.
  • Salminen, A & Ikola-Norrbacka, R 2010, ‘Trust, good governance and unethical actions in Finnish public administration’, The International Journal of Public Sector Management, vol. 23, no. 7, pp. 647-668.

Henry Kusuma Adikara

Henry Kusuma AdikaraHenry Kusuma Adikara holds a Bachelor of Economics degree from the University of Brawijaya, Malang, Indonesia, in Management Program, Majoring in Finance. He is currently studying at the Australian National University (ANU), in an MBA (Master of Business Administration) Program, specialising in Finance. He has strong focus on financial modeling and projection; auditing, risk, and governance; business modeling, consulting, and projection; private equity and investment banking; corporate finance and investment; budgeting, government finances and organizational budgeting; and, management consulting.

One Response to Is it Critical to Apply Performance Auditing in Indonesian Public Sector?

  1. Budi Cahyono

    One difficulty in conducting performance auditing in Indonesian public sector is the unavailability of a clear outcomes for any given government’s programs or institutions. Development of clear outcomes indicators is not an easy task. Most of the development of performance indicators are derived from the strategic plan of the public institutions. However, currently, probably only few public institutions in Indonesia have developed their strategic plan adequately that can assist them in formulating their appropriate outcomes indicators.

    Without having adequate outcomes indicators, BPK’s audits will be trapped in the discussion about the utilization of input measures which is not appropriate under the modern public financial discourse that puts emphasis on the public managers’ discretion in managing the budget for establishing an effective and efficient public service deliveries.

    Contrast with the suggestion of this article, as the mandate to conduct performance auditing is clearly stated in the BPK’s mandates, I argue that BPKP should be given roles to assist public institutions to develop an appropriate outcomes measures.

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