S

ince the collapse of Soeharto's New Order regime, successive administrations have tried to employ New Public Management (NPM) principles in managing public sector organizations.

This can be seen, for example in the granting of greater political autonomy for regional administrations from the central government, the privatization of state-owned enterprises, and the adoption of some aspects of the private sector approach to human resource management in a few departments (e.g. the Finance Ministry).

With the objective of enhancing public sector accountability and transparency, two important policy steps have been taken, based on experience with NPM-driven policies in certain developed nations (Australia, the United Kingdom and New Zealand, in particular).

First, the strengthening of the role of the Supreme Audit Agency (BPK) through enactment of Law No. 15/2005, which gives the BPK almost unlimited authority to audit and scrutinize all government financial reports and accounts. Importantly, the BPK, apart from its obligation to report to the House of Representatives (DPR) is required to directly report any findings of fraud, irregularities, and indications of corruption to the relevant law enforcement agency, such as the National Police, the Attorney General's Office, and the Corruption Eradication Commission.

Second, with the introduction of Government Regulation 24/2005, all government organizations at all levels are now required to prepare financial reports twice annually, based on a new governance accountancy standard (SAP) that requires a shift from the colonial era single-entry system to modern double-entry accrual accounting. Specifically, four types of reports must be presented as part of the governments' accountability to their parliament, including not only budget realization reports, but also balance sheets, cash flow statements, equity reports and explanatory notes to these financial statements.

The purpose of adopting the new reporting system is to provide more informative, relevant and timely information on government operations, assets and liabilities and to reduce the misuse and misappropriation of public sector assets (such as cash, vehicles, land and buildings).

However, a closer look at the progress of the implementation of the new reporting system at local government level reveals that it is severely constrained by the lack of qualified and experienced accountants.

As a consequence, most local governments are failing to produce satisfactory financial statements.

This is evident from the high and increasing issuance of "disclaimer" and "adverse" opinions by the BPK on local governments' reports. In 2007, for example, 25 percent of all local government reports were issued with disclaimer opinions, indicating that they were so deficient in their preparation that the auditor was simply unable to determine whether they were an accurate record of the government's operations and financial position. At the same time, the proportion of reports that are given a clean bill of health (an "unqualified" opinion) by the BPK is almost negligibly small, or just 0.6 percent in 2007.

Although the new reporting requirements are also aimed at enhancing public sector efficiency, because of the lack of relevant expertise within the civil service, preparation of reports is typically outsourced to consultants or accounting firms, at considerable cost to the local governments in question. Alternatively, many of them simply fail to present their reports in a timely manner to the BPK.

The acute shortages of accountants within local governments is mainly a consequence of the old-fashioned human resource management system still used by Indonesian governments at all levels, which effectively prevents the recruitment of qualified and experienced accountants from the private sector. By contrast, the successful adoption of accrual accounting in Australia and New Zealand was facilitated by competitive human resource management systems in their public sectors comparable to those used in big business organizations.

The source of this problem is the fact that the Administrative Reforms Ministry is still clinging to its control over the recruitment process at local government level.

Likewise, the Home Ministry also continues to assert its control over local governments by requiring them to report their financial affairs in a format different from that required by the SAP. As a consequence, local governments are obliged simultaneously to implement two conflicting regulations on reporting, involving them in considerable unnecessary cost.

These observations clearly indicate inconsistency within the central government's approach to decentralization. On the one hand it loads significant additional responsibilities on local governments, but on the other, it fails to provide them with sufficient autonomy to allow them to implement these additional responsibilities as they see fit. The end result is failure to achieve the objective of making public sector organizations at local government level more transparent and accountable.