THE AUDITING OF TSUNAMI DISASTER RELIEF … AUDITING OF TSUNAMI DISASTER RELIEF FUNDS IN ACEH AND NIAS BETWEEN 2004-2009 Anwar Nasution Presentation at the International Public Sector

THE AUDITING OF TSUNAMI

DISASTER RELIEF FUNDS IN ACEH

AND NIAS BETWEEN 2004-2009

Anwar Nasution

Presentation at the International Public Sector Convention 2009, Sydney, 18-20 March 2009

Disaster Profile • The Indian Ocean Tsunami of December 26, 2004 was a

global natural disaster and received quick global response;

• The disaster corresponds to the Black Swan terminology of Mr. Nassim Nicholas Taleb, 2008, The Black Swan, London: Penguin, with three characteristics:

(i) it was a random event and therefore it was unpredictable;

(ii) it carried huge global impacts around the Indian Ocean rim in Asia, the Middle East and Africa;

(iii) it is retrospectively predictable: it happened due to a shift in the Indo-Australian tectonic plate.

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Open door policy and the limited

capacity of the government• Given its limited capacity to face the disaster, the

government adopted an open door policy: everybody was welcome to help, to bring and deliver their assistance;

• The government was unprepared to face the disaster due to the following reasons:

(i) Government, social and economic infrastructures had been severely damaged in the Aceh Province as it had been in war for over 3 decades due to local rebellion;

(ii) The tsunami further destroyed the already weakened infrastructures and killed a great number of local officials.

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Two phases of response• The response to the disaster is divided into two phases, namely:

(i) The emergency phase between December 26, 2004 and April 30, 2005. Immediately after the tsunami had occurred, the Emergency Relief Agency (Bakornas PBP) was established to coordinate activities in this phase. The focus of its activities was on saving lives and providing services to evacuees, removing corpses, clearing debris and rebuilding basic infrastructure;

(ii) Rehabilitation and Reconstruction phase from May 1, 2005 to June 30, 2009. The government issued a master plan for rehabilitation andreconstruction in 2004 and established BRR (the Rehabilitation and Reconstruction Agency for Nanggroe Aceh Darussalam and Nias) to coordinate activities during this period;

The tsunami relief consisted of financial assistance and non monetary support, both from domestic sources as well as from 34 countries and regional and international organizations. Non-monetary support included services of volunteers, including military personnel, medical team and paramedics, floating hospitals, mother ships and war ships, aircraft and helicopters, mainly from the U.S., Australia and Singapore. The military operation during the emergency phase in Aceh and Nias was the biggest military operation for non-military purposes in the past half a century.

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Financial assistance during the emergency phase

• Exhibit 7 indicates the size of the financial assistance to Aceh and Niasduring the emergency phase from various sources

7,627,423,946,019.17RpTOTAL

4,880,037,220,301.90RpTotal Foreign Aid

4,705,708,590,847.00Rpb. Goods

758,832,999,505.56Rpa. Funds

2. Foreign Aid:

998,944,578,351.27RpTotal Domestic Aid

414,440,208,300.61Rpb. Goods

584,504,370,050.66Rpa. Funds

1. Domestic Aid:

Via government donation centers (funds and goods)

1,748,442,147,376.00RpTotal

1.044,996,150.00RpForeign Aid (1 US$ = Rp 9,570.00)

1,747,397,151,216.00RpNational budget (Total Actual Disbursements)

Exhibit 7 : National Compilation Financial Report by Bakornas PB as of April 30, 2005

Source: BPK Audit Report5

Financial assistance during the rehabilitation and

reconstruction phase

• Exhibit 9 indicates the amount of financial assistance to Aceh and Nias during the rehabilitation and reconstruction phase.

6,890,754,282Total

208,963,282Companies and communities8

1,688,216,684International and local

NGO, UN Agencies

NGOs7

436,701,561Multilateral Organizations6

1,069,696,423BilateralForeign Governments5Off-budget

31,833,333KFW Germany4

121,652,076Multi Donor Trust Fund3

124,659,203Asian Development Bank2

3,209,031,720State Budget/ APBN Government of Indonesia1On-budget

Amount in USDConsist ofDonor CategoryNo

Exhibit 9. Breakdown of institutions and their contributions by donor category

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Flow of Tsunami-related Aid in Indonesia

Relief, Rehabilitation & Reconstruction Activities in Aceh and Nias

Gov. of Indonesia

BRR

Re

cip

ien

ts/I

mp

lem

en

ters

Inte

rme

dia

te

Ag

en

cie

sD

on

ors

Multi donor fund/

Multilateral org.

Gov

of Indonesia

Multilateral

OrganizationsNGOs Companies Communities

Central GOI

MinistriesAceh

Local Gov.

NGOs

NGOsCompanies

Foreign

Govts.

1

21

23

24

2

3

12

22

26

4 5

1413

6 7

20

8 9

15 16

10

17

11

18 19

25

(Source: Indonesia Country Report- Intosai Task Force)

Exhibit 10 indicates the flow of tsunami relief funds

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Auditing the tsunami relief funds• BPK has the constitutional mandate to audit state finance in the three tiers

of government in Indonesia: central, provincial and regency/municipality (Kabupaten/Kota). During the long period of former President Suharto’sadministration from 1966 to 1998, BPK was banned from auditing the “gold mines” of the regime, tax revenues, foreign aid and loans. The “gold mines”of the regime included Pertamina, the state oil company, and the oil sector, the central bank, state-owned banks, some other state-owned companies, as well as foreign aid and loans;

• BPK can only audit the tsunami relief funds channeled through the state budget as indicated in channels 1, 12, 21 to 26 of Exhibit 10. BPK has the authority to audit funds provided by foreign governments and multilateral organizations to the state budget (Channels 2 to 5). BPK has no mandate to audit funds channeled through the off state budget mechanism by the international community, NGOs and other private sector actors directly to the needy, as indicated in Channels 6, 7, 8 to 11, 15 to 19 and 20;

• Assistance from donor countries has been audited by their respective SAIs. Funds from international and national NGOs and private sector actors have been audited by their private auditors. Major international accounting firms, such as PriceWaterhouse&Coopers have provided voluntary audit services to audit tsunami relief funds.

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BPK’s Strategy

• BPK gradually improved its capacity to audit the relief funds both during emergency phase and beyond, by seeking advice and assistance from SAIsof other countries. Following the international conference attended by SAIsof donor countries, international organizations and tsunami-hit countries held in Jakarta on April 25-27, 2005, the INTOSAI-Tsunami Initiative Task Force was established to advise BPK on auditing the tsunami relief funds. At the time the tsunami had occurred in December 2004, the capacity of BPK was limited due to the following reasons:

(i) BPK had had no prior experience in auditing such a major disaster;

(ii) the absence of internal control system at the Ministry of Social Welfare, the National Disaster Management Agencies and local governments;

(iii) BPK had had no representative office in Aceh. Traditionally, the province had been covered from Medan, the capital city of the neighboring province of North Sumatra;

(iii) As mentioned earlier, during the administration of President Suharto, BPK had been banned from auditing foreign aid and loans;

• To conduct field audit, BPK opened a dedicated office in Aceh in early 2005;

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Audit Approach and Methodology• In collaboration with the SAI of France, BPK has audited projects of

the UNICEF and NGOs from France in Aceh.

• Assisted by the Australian Audit Office (ANAO), BPK performs twotypes of audit, namely financial and performance audit. The latter includes analysis of risk, materiality, geography and environment aspects. Investigative audit has been conducted in some cases;

• Through BRR, BPK has been making use of data base provided by the international community such as the RAND system for tracking, accounting, reporting and monitoring of the committed relief funds. The system covers about 60 percent of the commitment, but no information is available on actual disbursed funds;

• With the help of ARK of The Netherlands, BPK has been using the information technology available at BRR such as GIS or satelliteimages, particularly for auditing housing projects. The GIS images, however, are being used only for first approximation, followed by field audit.

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Audit Reports and Findings• A number of audit reports have been produced by BPK between 2005-2009

in relation to the tsunami in Aceh and Nias. These include (i) Accountability of funds management during the relief phase; (ii) Audit on national budget expenditures during the relief phase, (iii) a series of performance audits on infrastructure, health and other programs; (iv) Audit of the financial statements of BRR for the fiscal years of 2005, 2006 and 2007 and (v) Audit of the ADB ETESP consolidated financial statements for the fiscal years of 2005, 2006 and 2007;

• As expected, a number of weaknesses were found during the havoc emergency phase related to organizational structure, functions and authority, coordination, implementation, monitoring and the deficiency of accounting and reporting systems. Some of the material assistance provided by the donors, including medical kits and equipment, were useless as they did not match the actual needs on the ground;

• Planning and coordination by BRR and its accounting and monitoring systems during the rehabilitation and reconstruction phase have been considerably improved, and its financial reports have received unqualified opinion from the BPK.

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