VZCZCXRO6378
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2864/01 2840349
ZNR UUUUU ZZH
R 110349Z OCT 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6638
INFO RUEAWJB/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 0942
RUEHBJ/AMEMBASSY BEIJING 4397
RUEHBY/AMEMBASSY CANBERRA 1354
RUEHUL/AMEMBASSY SEOUL 4239
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 002864 
 
SIPDIS 
 
STATE FOR EAP/MTS, EEB/IFD/OIA, INL BOULDIN 
MCC FOR AMBASSADOR DANILOVICH AND MORFORD 
DEPT PASS USTR 
SINGAPORE FOR BAKER 
TREASURY FOR IA - BAUKOL 
USAID FOR ANE/AA WARD 
 
SENSITIVE 
SIPDIS 
 
AIDAC 
 
E.O. 12958: N/A 
TAGS: PGOV KMCA KCOR ECON KJUS ID
SUBJECT: SUPREME AUDIT BOARD SETTING VISION, LACKING CAPACITY 
 
REF: JAKARTA 2722 
 
JAKARTA 00002864  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY: The Indonesian Supreme Audit Board (BPK) presented 
its semiannual audit report to Parliament on October 10, documenting 
1,543 cases that caused $854 million in losses to the state.  The 
BPK performs key government oversight functions, yet lacks the 
resources, capacity, and cooperation with other government agencies 
to enact its strategic plan.  A 2005 law requires all government 
bodies to provide financial reporting to the BPK.  BPK Chairman Dr. 
Anwar Nasution continues to engage in political battles to increase 
government accountability.  With only 600 auditors, the BPK's 
capacity to implement its own responsibilities is far from 
comprehensive.  End Summary. 
 
BPK Reports $854 Million in Losses to State 
------------------------------------------ 
 
¶2. (U) On October 10, the BPK reported to Parliament 1,543 cases of 
government malfeasance that caused Rp 7.69 trillion ($854 million; 
Rp 9,000/USD) in losses to the state.  High-profile cases involved 
wrongdoing at state-owned investment company PT Bahana Pembina Usaha 
Indonesia (BPUI), state-owned airline Merpati, and local 
governments.  Nasution presented the semiannual audit report to 
Parliament and noted the government's reluctance to follow-up on BPK 
findings.  Since 2004, the BPK has documented 5,717 cases that 
caused a loss of state assets.  Only 860 of these cases - 15% - have 
had full asset recovery.  Compared to 2005 findings, the BPK has 
reported comparatively fewer cases for 2006.  The BPK documented 
thousands of cases in 2005 reports, amounting to Rp 48 trillion 
($5.33 billion) in losses to the state. 
 
Wide Mandate, Limited Resources 
------------------------------- 
 
¶3. (SBU) Covering 467 local-level governments, 82 government 
institutions, all state-owned enterprises, and other special audits, 
the BPK is stretched with only 600 auditors and 3,000 total staff. 
We met with BPK Director General for Strategic Planning Daeng Nazier 
on October 1.  (See bio notes in paragraph 10.)  BPK's core 
responsibility is conducting financial audits of local government 
and government institutions.  It also does performance audits (i.e. 
Health Ministry handling of avian influenza) and special purpose 
audits (i.e. Lapindo mud flow, Aceh reconstruction, disaster 
management). 
 
¶4. (U) The BPK evaluates institutions based on adherence to 
government accounting standards, effective internal control, and 
adequate disclosure.  Four possible results are: unqualified 
positive with no exceptions (highest), qualified positive with 
exceptions, adverse, and disclaimer - unable to make judgment.  If 
the BPK gives an adverse rating, the institution reviewed has 60 
days to implement the findings and recommendations.  If problems 
continue, the BPK reports the case formally to the Attorney 
General's Office.  Fraud cases are sent to the police and on a 
case-by-case basis to the Corruption Eradication Commission (KPK). 
Law enforcement can file penal, civil, or administrative cases based 
on BPK findings. 
 
¶5. (U) In 2006, the BPK evaluated 82 government institutions, such 
as the State Logistics Agency (BULOG), Parliament, and the Judicial 
Commission.  The BPK reported that six institutions earned an 
unqualified positive rating (highest score), 39 earned qualified 
positive ratings, 37 received a disclaimer (unable to make a 
judgment), and no institution received an adverse rating.  For 2006 
audits, 362 of the 467 local governments submitted financial reports 
to the BPK.  Three local governments (Surabaya, Pontianak, Sambas) 
earned an unqualified positive rating, 284 earned a qualified 
positive rating, and 56 received a disclaimer judgment.  The BPK 
gave 19 adverse (negative) ratings, including both East and West 
Kalimantan Province. 
 
Limitations of BPK 
------------------ 
 
JAKARTA 00002864  002.2 OF 002 
 
 
 
¶6. (U) The BPK is severely limited by its personnel - only 3,000 
staff - and lack of reach into the provinces.  The BPK has only 
established 23 of the proposed 33 provincial level offices.  Daeng 
acknowledged that the 600 BPK auditors are not sufficient to cover 
its expansive mandate.  A long-discussed merger of the BPK with the 
state audit authority, the BPKP, has not materialized and has met 
with strong resistance from the BPKP. 
 
BPK's Perspective on Governance Problems 
---------------------------------------- 
 
¶7. (U) Daeng said that there is a trend across local governments of 
inefficient budget formulation, implementation, and monitoring. 
Both Aceh and Jakarta province had Rp 2 trillion ($222 million) 
remaining in their budgets in 2006.  Many have offered reasons for 
the slow spending, including the lack of experience of newly elected 
officials.  Daeng suggested that poor or non-existent budget 
planning processes is one cause.  Local government officials are 
also concerned about corruption charges if they approve large 
procurement contracts.  Procurement processes have traditionally 
been discretionary and a source of graft.  Standardized guidelines 
and training for procurement officials in Indonesia do not yet 
exist. 
 
¶8. (SBU) BPK Chairman Dr. Anwar Nasution, a Harvard-trained 
macroeconomist, has led several political battles to assert the role 
of the BPK.  President Yudhoyono decided in favor of the BPK in a 
controversy with the Supreme Court over the BPK's authority to audit 
revenues from court fees (see reftel).  However, Daeng was not 
optimistic on Supreme Court cooperation in upcoming BPK 
investigations.  Nasution has also picked a fight with the Director 
General of Tax at the Ministry of Finance.  Nasution wants BPK 
authority to audit the Directorate General of Tax, particularly tax 
collection methods.  The powerful Directorate General of Tax is 
responsible for collecting 70% of government revenue.  Nasution's 
willingness to push for the BPK's stronger role in auditing is 
encouraging.  However, the bureaucratic forces resisting the BPK are 
still immense. 
 
Comment: Good Vision, Lacking Capacity 
-------------------------------------- 
 
¶9. (SBU) The BPK has a strong mandate, institutional vision, and 
leadership.  It has improved its own transparency according to US 
GAO recommendations in 2005, including posting reports online. 
However, a lack of personnel and financial resources severely limit 
the reach and effectiveness of BPK's auditing.  BPK's ability to 
follow-up on documented malfeasance, such as the 19 adverse opinions 
it rendered for 2006 audits, remains to be seen.  The BPK can take a 
strong role in combating corruption within the government.  However, 
it will need increased funding and political support to achieve its 
mission of government accountability. 
 
Daeng Nazier Bio Notes 
---------------------- 
 
¶10. (U) Daeng Nazier is Director General for Strategic Planning, 
which includes planning, evaluation, research and development, and 
education and training at the BPK.  Daeng joined the BPK in August 
2007 after two years at the Ministry of Home Affairs as the Director 
General for Local Government (2005-2007).  Daeng worked for the 
Ministry of Finance for 30 years, rising to Director General level 
(1975-2005). 
 
¶11. (U) For more information on the BPK, see www.bpk.go.id.  The 
English website is limited, but does include an audit report on Aceh 
reconstruction. 
 
HEFFERN