ASIAN DEVELOPMENT BANK TAR:INO 35144

ASIAN DEVELOPMENT BANK TAR:INO 35144 TECHNICAL ASSISTANCE (Financed by the Japan Special Fund) TO THE REPUBLIC OF INDONESIA FOR PREPARING THE SUPPORT TO STATE AUDIT REFORM PROJECT May 2003

2 CURRENCY EQUIVALENTS (as of 31 March 2003) Currency Unit Rupiah (Rp) Rp1.00 = $0.0001 $1.00 = Rp8900 ABBREVIATIONS ADB Asian Development Bank AusAID Australian Agency for International Development BAPPENAS Badan Perencanaan Pembangunan Nasional (national development planning agency) BAWASDA Badan Pengawasan Daerah (regional internal audit body) BPK Badan Pemeriska Keuangan (Audit Board of the Republic of Indonesia) BPKP Badan Pengawasan Keuangan dan Pembangunan (Audit and Development Supervising Agency) IG inspector general MenPAN Menteri Negara Pendayagunaan Aparatur Negara (State Ministry for Administrative Reform) MOHA Ministry of Home Affairs MOF Ministry of Finance MSRI Ministry of Settlements and Regional Infrastructure PROPENAS Program Pembagunan Nasional (National Development Program) TA technical assistance TBD to be decided USAID United States Agency for International Development NOTE In this report, "$" refers to US dollars. This report was prepared by a team consisting of Farzana Ahmed (team leader), S Andrews, S. Chatterjee, S.A. Chowdhury, H. Purnomo, S, Synnerstrom.

I. INTRODUCTION 1 1. During the 2002 country programming exercise of the Asian Development Bank (ADB) the Government of Indonesia requested ADB to provide technical assistance (TA) to prepare a project for the reform of state audit institutions. It was confirmed that for sustainability of poverty reduction efficient public expenditure management is key and the reform of state audit would address this. Accordingly a project preparatory TA was programmed for 2003. ADB fielded the TA Fact-Finding Mission in January 2003 and reached broad understanding with the Government on the goal, purpose, scope, implementation arrangements, cost, financing arrangements, and consultants terms of reference of the TA. 1 The preliminary project framework is given in Appendix 1, and a summary initial social and poverty assessment in Appendix 2. II. ISSUES 2. Sound and effective auditing arrangements in the public sector are the cornerstone for ensuring good governance, accountability, and transparency. Public auditing arrangements need both an external audit function (reporting to the legislature) and an internal audit function (reporting to the executive). These are complementary activities. External audit is the mechanism outside of the executive of ensuring full accountability of the executive to the public, whereas internal audit is performed internally by the executive as a self administered check to ensure compliance of the executive with audit requirements. In Indonesia, following decentralization, both audit functions, to various degrees, are carried out at the central and regional government level. 2 Badan Pemeriska Keuangan (BPK), as the supreme audit institution, has the mandate for external audit both at the central government level reporting to the People s Consultative Assembly and at regional government level reporting to the regional parliaments. As regards internal audit at the central government level, Badan Pengawasan Keuangan dan Pembangunan (BPKP) reports to the President and at ministerial level an inspector general (IG) reports to each minister. At the regional government level, regional internal audit agencies (BAWASDAs) report to the regional governments. 3. For Indonesia, the move from a centralized authoritarian government to a decentralized democracy has posed a number of challenges and the country is very much in a transition phase. Under laws 22 and 25 of 1999, which underpin the Indonesian decentralization, all functions other than foreign policy, defense, security, judiciary, monetary and fiscal matters, and religious affairs, are being devolved to regional governments. 3 This has been accompanied by the transfer of over 2 million central Government staff to local governments and the transfer of central Government revenues, for fiscal year 2003, estimated to be $13 billion. However the devolution of auditing functions commensurate to the process of decentralization has not been effected due to unsettled institutional arrangements and capacity problems. 4. BPK is the supreme audit institution and the external auditor of Government, and is recognized as such by international professional organizations. 4 The 1945 Constitution established BPK, and its current structure is regulated by Law 5/1973. Following decentralization and the recent constitutional amendments, BPK has been given the mandate to expand its work in the regions. When auditing regional governments, BPK reports to the 1 The TA first appeared in ADB Business Opportunities (Internet edition) on January 2003 and was programmed for 2003 in the Country Strategy and Program for Indonesia 2003-2005. 2 Regional Government refers to both provincial (self-) governments (propinsi) and district (self-) governments, which are either regencies (kabupaten) or cities (kota). 3 Law 22/1999 on Regional Government and Law25/1999 on Fiscal Balance between the Center and Regions. 4 The International Organization of Supreme Audit Institutions (INTOSAI) and Asian Organization of Supreme Audit Institutions (ASOSAI) recognize BPK.

2 regional parliaments. BPK s mandate now includes the audit of over 8,000 agencies, departments, regions, state and region-owned enterprises, and hospitals in the public sector. Although BPK s role is firmly established in the constitution it is unable to fulfill its constitutional mandate of external audit performance effectively due to the shortage of budgetary and appropriate level of human resources. Further, at an operational level, clarification is required of BPK s constitutional role; legal status; powers, responsibilities, duties, qualifications, and independence of its Board members; and relationship to Parliament. There are issues relating to its funding arrangements, accountability, and the transparency of its own operations. In addition, the relationship with BPKP has not been clarified. 5. BPKP was established as the Government s central internal audit agency by presidential decree in 1983. BPKP reports formally to the President, but for administrative purposes reports to the State Ministry for Administrative Reform (MenPAN). BPKP is internal to the executive, but outside of any particular ministry, and its role is sometimes misconstrued as that of an external auditor. BPKP s role is, at present, the subject of debate. With the emphasis on strengthening the audit function of the IGs and the increasing autonomy of regional governments, whose executives are supported by their BAWASDAs, BPKP s role requires redefinition. Moreover, the current mandate of BPKP could be seen to overlap with the mandate of the IGs, BAWASDAS, and also with that of the external audit institution BPK. Various executive decrees and government regulations, often with conflicting objectives, have contributed to the confusion. The discussions of how to resolve this issue have been colored by institutional uncertainty as each audit institution tries to cement its role in a decentralized environment. This highlights the need to delineate internal and external audit activities and to clarify the mandates of the organizations carrying out those activities. BPKP is by far the best funded and equipped of all the audit institutions in Indonesia, and has about 8,000 staff in 25 provincial offices, compared to BPK s 3500 staff in 7 regions. Any change in role for any institution will have to deal with significant human resource issues. 6. The IGs function with a total of about 7000 operational and support staff. With the decentralization of many ministries the IGs are considered overstaffed as much of their auditing mandate at the regional level has been taken over by BAWASDAs. At the same time, a number of issues have been raised with respect to the quality of the audits, the ability of the IGs to carry out financial and operational audits, the professional competence of the auditors, their professionalism, and their funding. 7. The BAWASDAs were formed as part of the implementation of laws 22 and 25, and were strengthened with the subsequent Government regulation 105/2000 on Financial Management and Accountability in Regions. The latter now calls for the appointment of an internal auditor who reports to the head of the regional government. However, resource constraints are inhibiting the successful operation of the BAWASDAs, with the units not adequately staffed with trained professional internal auditors. In addition there is little consistency in how the BAWASDAs conduct their operations. Most of the staff possess educational backgrounds other than in accounting or auditing and turnover of qualified staff is high. In the past, owing to the lack of resources, the BAWASDAs often sought the assistance of BPKP. However, regional governments are now keen to stress their autonomy, and often prefer that regional entities not get audited rather than request help from BPKP. Given the need to ensure that the decentralization process is supported by sound financial management, the strengthening of the BAWASDAs is seen as a critical imperative. 8. The shared view of stakeholders, including Ministry of Finance (MOF), National Planning Agency (BAPPENAS), Ministry of Home Affairs (MOHA), Ministry of National Education (MONE), MenPAN, BPKP, representatives of IGs, BAWASDAs, experts from Indonesian

3 universities such as the University of Gajah Madah and the University of Indonesia, BPK, the Jakarta offices of the World Bank, the Japan Bank for International Cooperation (JBIC), Australian Agency for International Development (AusAID), and United States Agency for International Development (USAID is that while there is no dearth of auditors, the audit function is neither coordinated nor cost effective. 9. A clear set of issues has emerged: (i) a lack of consensus within the government on the overall institutional arrangement, in particular on the mandates and budgetary allocations for each institution; (ii) an unclear legal framework coupled with the plethora of government decrees that have resulted in overlapping functions; (iii) inadequate human resource capability compounded by structural civil service issues, particularly at the regional level; (iv) poor understanding by key decision makers of good audit practices; and (v) external support that has been intermittent and directed to individual institutions without the framework of a long-term plan. 10. Recognizing the importance of strengthening the state audit function, the Government initiated steps to resolve some of these issues by facilitating, through a paper, the submission of three separate bills on state finances, state treasury and state audit. 5 Although the state finances law has been enacted recently, the passage of the state treasury law and the state audit law are likely to take some time. In particular the draft state audit law was not based on necessary consultative processes, and there is a lack of independent analyses for decision makers to facilitate its acceptance by Parliament. The Government has indicated that key stakeholders, including BPK, the key agency to be affected by the new state audit law have raised issues with the draft law and it may have to be reformulated. The proposed medium-term national development plan (PROPENAS) for 2005-2009 specifically identifies the state audit function as one of its key focus areas for the reform of the state apparatus, and the Government feels strongly that external technical support is needed in appropriately analyzing the issues as input into the PROPENAS. 11. Although good governance in Indonesia has been a key issue for the funding community for some years now, the public audit function has not been a priority for assistance. 6 The need for strong fiduciary arrangements has been stressed in the joint ADB-World Bank 2001 Country Financial Accountability Assessment, and the ADB country governance assessment carried out in preparation of the Country Strategy and Program for Indonesia 2003-2005. 12. Capacity-building activities for the audit function have been focused on institutions. ADB s support has primarily been with BPKP (about $12 million) and the IG in the Ministry of Settlements and Regional Infrastructure (MSRI). 7 The World Bank is currently assisting BPK through its 1997 BPK Modernization Project (about $15.5 million). AusAID is currently assisting BPK (about $1.5 million) for capacity building to audit military expenditure and special purpose investigative audits. The United States Agency for International Development (USAID) is currently implementing a project with the IG in the MOF, with the focus on the customs and taxation divisions. At the regional level, there has been a concerted effort to support the national 5 Ministry of Finance 2002 Reform of Public Financial Management System in Indonesia; Principles and Strategy, Jakarta. 6 The Consultative Group for Indonesia (CGI), the principal forum for coordination of external funding agencies, puts a strong emphasis on good governance as necessary to support development. 7 ADB 1998 1620-INO Financial Governance Reforms: Capacity Building for Financial Governance. The loan has subprojects with different agencies and the component relating to BPKP is ongoing. The loan is due to close on 30 September 2003. While the role of BPKP in the future auditing structure was uncertain when this TA loan was designed, the establishment of the capacity in core audit functions was considered necessary and useful as the developed core competencies are fungible. ADB 2002 3842-INO Support to Strengthen the Capacity of MSRI to Combat Fraud and Corruption aims at improving auditing procedures, skills and techniques within the MSRI IG.

4 framework for decentralization. 8 In particular ADB s Sustainable Capacity Building for Decentralization loan supports local Government initiatives in a range of areas. 9 While the specific institution-based capacity-building efforts have been useful, there is also an unmet need to establish a clear vision for the future institutional setup of Indonesia s audit function. The proposed TA will address this need and complement the ongoing efforts of all concerned agencies. III. THE TECHNICAL ASSISTANCE A. Purpose and Output 13. The TA will help the Government formulate and design a project to support state audit reform. The TA will aim to build strong and effective audit institutions in the public sector by (i) developing a road map that reflects a shared understanding among stakeholders of a comprehensive and long-term perspective for audit institutions, (ii) formulating institutional development plans for internal and external audit institutions, and (iii) identifying areas for external financing. The TA will specify key policy actions needed to effect legal and institutional change. The TA will also incorporate internationally recognized auditing standards and good practices in Indonesia s public sector audit systems and procedures taking into account the Indonesian experience. Underpinning the road map will be four basic considerations, the need to (i) make a clear distinction between internal and external audit functions, (ii) respect the decentralised environment in Indonesia, (iii) avoid duplication and overlap of mandates, and (iv) achieve cost efficiency. B. Methodology and Key Activities 14. The TA will have two phases. Phase 1 will focus on helping the development of a framework for state audit reform, based on careful sector analysis and an extensive consultative process, to ensure acceptance of the framework by all stakeholders. Under this phase, the TA will (i) carry out a comprehensive sector analysis; (ii) support consultation with stakeholders; (iii) make key stakeholders aware of the best international practices in public sector auditing arrangements and practices; (iv) develop alternate scenarios with proposed policy implications for the institutional arrangement of auditing institutions, and for the proposed legislative framework; (v) seek stakeholder consensus on a selected scenario; and (vi) identify suitable areas of possible ADB financial and further TA support for state audit reform. Given various stakeholders in the sector and competing institutional demands, a major requirement will be to involve all the stakeholders in the discussions during TA implementation. Any conclusions reached must then be seen by decision-makers to have broad-based support. Objectivity and the link to best international practice will be achieved by involving suitable international consultants. Following a tripartite meeting, phase 2 will be undertaken. This phase will develop the project design for further assistance including the project scope and components, implementation arrangements, cost estimates, and a financing plan. 8 The Government undertook a participatory needs assessment in 1999-2000, supported by funding agencies in preparation for the 2001 decentralization. It resulted in the National Framework for action and the external support in capacity building for local governance being finalized. ADB support in this field includes ADB 2000 TA 3394-INO: Public Expenditure Management and the Implications of Decentralization, for $225,000, ADB 2000 TA 3178-INO under the Community and Local Government Support Program (CLGSSP); ADB 2000 TA 3518-INO: Financial Management Systems, for $1,100,000, and ADB 2001 TA 3764-INO: Supporting Country Financial Accountability, for $300,000, 9 ADB 2002 Loan1964-INO: Sustainable Capacity Building for Decentralization for $42,000,000.

C. Cost and Financing 5 15. The total cost of the TA is estimated at $884,000 equivalent, comprising a foreign exchange component of $550,000 and local currency component of $334,000 equivalent. ADB will provide $700,000 equivalent to finance the total foreign exchange cost and a portion of the local currency costs amounting to $150,000 equivalent. The TA will be financed on a grant basis from the Japan Special Fund, funded by the Government of Japan. The Government will provide the remaining $184,000 equivalent in kind to cover the costs of office accommodation, counterpart staff and support services relating to TA implementation. The Government has been informed that ADB s approval of the TA does not commit ADB to finance any ensuing project. The detailed cost estimates and financing plan are in Appendix 3. D. Implementation Arrangements 16. The TA will require a total of about 28 person-months of consulting services, including about 12 person-months of international and 16 person-months of domestic consultants. The consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants using the quality and cost based selection (QCBS) method, and other arrangements satisfactory to ADB for the engagement of domestic consultants. The simplified technical proposal format will be used. An outline terms of reference of the consultants is in Appendix 4. 17. BAPPENAS will be the Executing Agency for the TA. A steering committee chaired by BAPPENAS and comprising senior BAPPENAS, BPK, BPKP, MenPAN, MOF, and MOHA officials will be established to provide guidance and oversee the TA implementation. A working group chaired by BAPPENAS, and comprising representatives from BAPPENAS, BPK, BPKP, MenPAN, MOF, MOHA, and other nominated individuals from regional governments, nongovernment organisations and universities will provide counterpart support to the consultants. The chair of the working group will be the secretary to the steering committee. The working group will work closely with the consultant team, and ensure that the consultants are provided with all necessary documents and data. The steering committee will meet monthly and the working group weekly. BAPPENAS will fund the counterpart activities from its budget. Office equipment for the TA project will be procured by ADB, and will be transferred to the Government on completion of the TA. During TA implementation, several workshops and seminars will be organised to help the process of consensus building. To provide inputs to such workshops and seminars, the TA will also support a study tour to be conducted by Government officials on best international practices. 18. The consultants will be fielded at the end of August 2003 for a 6 month period ending February 2004. They will submit an inception, an interim, a draft final, and a final report. Tripartite meetings involving ADB, the Government, and the consultants will discuss the findings. IV. THE PRESIDENT'S DECISION 19. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $700,000 on a grant basis to the Government of Indonesia for preparing the Support to State Audit Reform Project, and hereby reports this action to the Board.

Appendix 1 6 PRELIMINARY PROJECT FRAMEWORK Design Summary Indicators & Targets Monitoring Mechanisms Key Assumptions & Risks Goal Good governance. Good governance indicators. Baseline surveys on good governance and auditing practices. Governance assessments. Economic and political instability. Good governance through effective auditing function will impact economic, social and other activities. Purpose Effective auditing institutions functioning in a decentralized environment according to best practices. Outputs 1. Legislative framework for auditing institutions in place. 2. Institutional development plan for regional and central levels, implemented for both internal and external audit institutions. Increase in the number of governance issues raised though audits. 1.State audit law and other associated executive decrees passed by (date to be decided [TBD]). 2.Clear terms of reference for work plans available by (TBD). Review missions. Project completion report. Project performance audit reports. Legislation operational. Project review missions. Enforcement of audit findings and recommendations. Government will place high priority on and give support to restructuring audit functions at central and regional levels. Government will provide requisite counterpart funds and on-lending mechanisms are available. 3.Civil Service reform implemented to distinguish structural and functional positions for auditors. 4. Educational infrastructure for State Auditors in place. 5. Capacity building of staff at both regional and central levels completed. 6. Appropriate auditing systems and procedures established. 3.1. Functional positions defined by (TBD). 3.2. Reorganisations completed by (TBD). 4. At least x% (TBD) of auditors with required qualifications, by (TBD). 5. At least x% (TBD) of auditors has completed relevant training by (TBD). 6.Written manuals and procedures available for auditors at regional and central levels by (TBD). Project Review Missions. Survey. Project review missions. Project review missions. Government will place high priority in passing the requisite legislation. Government will review and revise current decrees and implementing regulations. Implementing agencies, local governments and private sector are willing to assist the project. Consultants, contractors, and implementing agencies implement the project effectively, and local governments support it. 7. Appropriate MIS systems established and operational. Inputs and Activities 1. Consulting Services -PPTA Consultants 7. Systems staffed and operational by (TBD). Project review missions. Tripartite meetings, consultants reports, and approval. Consultants recruited by July 2003. 2. Equipment TBD Review meetings and approval. Disbursements. 3.Training, seminars, TBD conferences 4. Surveys TBD 5. Miscellaneous TBD 6. Contingencies TBD 7. Government financing TBD Timely recruitment of consultants. Contracts will be negotiated and awarded in a timely manner. Adequate counterpart funding will be provided in a timely manner. Timely procurement of equipment.

Appendix 2 7 SUMMARY INITIAL POVERTY AND SOCIAL ANALYSIS A. Linkages to the Country Poverty Analysis Sector identified as a national yes priority in country poverty analysis? Sector identified as a national priority in country poverty partnership agreement? Contribution of the sector/subsector to reduce poverty in Indonesia: Good financial governance through an efficient and effective auditing function will reduce the incidence of wastage and corruption in the use of public sector funds. This will then allow the funds to be used to the maximum effect for the community. Effective governance at the regional level is very important. yes B. Poverty Analysis Proposed Classification: TBD What type of poverty analysis is needed? No specific poverty analysis is required although the focus areas chosen for support through the regional components will be the poorer regions least able to allocate funds for the start-up capacity building in this area. C. Participation Process Stakeholder analysis: During the TA the consultants will hold workshops and seminars to disseminate the project issues and to consult on the key issues with major stakeholders and concerned non-government organizations (NGOs) with interest on good financial governance issues. When key components of the project are chosen, stakeholders will be at the core of subproject design and implementation. Participation strategy required: yes D. Potential Issues Significant, Not Significant, Subject Uncertain, None Strategy to Address Issues Plan Required Resettlement Not Significant None Gender Uncertain The TA may highlight potential gender imbalance. None as yet depending on PPTA outcome. Affordability Not Significant None Labor Uncertain The TA will highlight potential labor issues such as redundancies, relocation of staff, None as yet depending on PPTA outcome. structural civil service reforms. Indigenous Not Significant None People Other Risks/ Vulnerabilities Not Significant None

Appendix 3 8 COST ESTIMATES AND FINANCING PLAN ($'000) Foreign Local Total Item Exchange Currency Cost A. Asian Development Bank Financing a 1. Consultants a. Remuneration and Per Diem i. International Consultants 342.0 0.0 342.0 ii. Domestic Consultants 0.0 70.0 70.0 b. International and Local Travel 21.0 7.0 28.0 c. Reports and Communications 0.0 16.0 16.0 2. Equipment 20.0 0.0 20.0 3. Training, Seminars, and Conferences a. Facilitators/Resource Persons 21.3 11.0 32.3 b. Study of Best International Practices b 35.7 0.0 35.7 4. Surveys 0.0 10.0 10.0 5. Miscellaneous Administration and 0.0 16.0 16.0 Support Costs 6. Representative for Contract Negotiations 5.0 0.0 5.0 7. Contingencies 105.0 20.0 125.0 Subtotal (A) 550.0 150.0 700.0 B. Government Financing 1. Office Accommodation and Transport 0.0 36.0 36.0 2. Remuneration and Per Diem 0.0 123.0 123.0 of Counterpart Staff 3. Others 0.0 25.0 25.0 Subtotal (B) 0.0 184.0 184.0 Total 550.0 334.0 884.0 a Financed by the Japan Special Fund b To be used as inputs to the Workshops and Seminars for Consensus Building Source: Asian Development Bank estimates

Appendix 4 9 OUTLINE OF SUMMARY TERMS OF REFERENCE FOR CONSULTANTS 1. The consultants will have had (i) extensive experience, at a senior level, in dealing with and assessing public sector audit institutions, including the institutional and legal framework; (ii) expertise in understanding, defining, and drafting the constitutional, legal, and government regulations underpinning the functioning of audit institutions in the public sector; (iii) experience in holding workshops and in conflict resolution and negotiation; and (iv) experience in government sector civil service and human resource issues, including the training of auditors. The consultant team will comprise international consultants working closely with experienced domestic consultants. 2. The consultants will work under the supervision of Badan Perencanaan Pembangunan Nasional (BAPPENAS) as the executing agency. The technical assistance (TA) will be implemented in 2 phases. Phase 1 (project formulation) will establish mechanisms to facilitate the consultative process; review the Indonesian auditing arrangements; review the outcomes from previous activities supported by the Government and external agencies; review Government policies and programs; benchmark these against best international practices and standards; present options for auditing institutional arrangements; provide inputs into the Government five year plan (PROPENAS) 2005-2009; and identify priority areas of further ADB assistance. Following a tripartite meeting, phase 2 (project preparation) will evaluate and provide a feasibility study, including the proposed policy reforms underpinning the project. A. International Consultants (12.0 person-months) 1. Specialist on Public Sector Auditing and Team Leader (6.0 person-months) 3. The specialist will: (i) (ii) (iii) (iv) (v) Be responsible for team coordination, appropriate sequencing of consulting inputs of the team, timely submission of outputs and all reports, and lead all consultations and discussions with the aid community, the Government, and other stakeholders. This will include the coordination with BAPPENAS, the steering committee and working group, to ensure all stakeholders are aware of the progress of the TA. Take a lead role in organizing workshops and seminars. Ensure (i) attendance by key Government decision makers, and relevant international speakers, (ii) the workshop material is consistent with the objectives, (iii) the working papers summarize the presentations accurately, and (iv) any feedback comments are noted. Coordinate the data collection relating to the audit institutions, and in conjunction with the legal expert, analyze and summarize them in a report for distribution to the Government. Consolidate information on all Indonesian public sector entities that need to be audited. Review the terms of reference of the Indonesian auditing institutions, and categorize them for each institution so that conflicts and overlaps among the various audit institutions will be avoided. Carry out a consolidated review of the training requirements for government sector auditors. Identify the issues and propose cost efficient options. This will also include identifying the key civil service structural issues to be addressed by the Government.

Appendix 4 10 (vi) (vii) Identify components for the proposed project based on team inputs and for devising an implementation strategy for the project. In consultation with other team members, the Government, and ADB, prepare a draft project proposal in accordance with the ADB format for a report and recommendation to the President (RRP) and the associated project administration manual. This will include any required policy matrix underpinning the loan. 2. Specialist on the Development of Institutional Framework for Public Auditing Institutions. (4.5 person months) 4. The specialist will ideally be or formally have been a senior individual in a supreme audit institution, and will work closely together with the expert on auditing in devising the alternate scenarios for Indonesian auditing institutions. Ideally the individual will have had experience in dealing with auditing institutions in transition, similar to those in Indonesia. The specialist will: (i) (ii) (iii) (iv) (v) Collect and provide comparative data on the function of audit institutions in other decentralized countries with a separation of powers between the legislature and executive. Produce a gap analysis between the best practice for each type of institution, internal and external in a decentralized public sector environment, and the Indonesian comparator institutions. The expert will have knowledge of suitable benchmark criteria with which to analyze the efficacy of auditing institutions. Take a lead role, working closely with the auditing and legal specialists, in devising suitable scenarios for the operation of Indonesian auditing institutions. The specialist will also work closely with the working group and steering committee to try and develop a common understanding and roadmap for the auditing function. Provide key inputs as to how Indonesian auditing institutions can keep abreast of global changes in audit policy and procedures. Play a lead role in the education of GOI stakeholders and decision makers on best practices for auditing institutions taking into account the Indonesian experience. 3. Legal and Institutional Specialist. (1.5 person months) 5. The specialist will have extensive knowledge on the legal requirements for auditing institutions and the drafting of legislation and legal requirements. The specialist will: (i) (ii) (iii) Support the auditing specialist to collect relevant documents and information on the legal requirements and institutional setup of Indonesian auditing institutions. Identify and summarize the key laws and government regulations and how they impact the terms of reference of the auditing institutions. In particular, work with the other experts to identify areas of overlap when compared to the matrix developed in 1(vii). Draft the policy matrix underpinning the scenarios developed for the Indonesian auditing institutions. The matrix will include the draft amendments required for laws and government regulations and decrees to be introduced.

Appendix 4 11 B. Domestic Consultants (total of 16.0 person-months) 6. Domestic consultants will support the international specialists. They will possess extensive knowledge of the Indonesian experience, and the ability to translate and interpret key documents into English. The domestic consultants will comprise the deputy team leader and expert on auditing institutions (5.5 person-months); the decentralization and local government expert (5.5 person-months); the legal expert with a good understanding on the formulation and drafting of laws, government regulations and decrees (3 person-months); and the expert on project cost and financing and project performance monitoring system (2 person-months) who will have a key role in formulating of the costing for the ensuing project. C. Timing and Reporting Requirements 28. The consultants will be fielded at the end of August 2003 and will carry out their work over a 6 month period ending February 2004. They will submit an inception report at the end of 3 weeks, an interim report at the end of phase 1, a draft final report 3 weeks prior to completion of the consultancy, and a final report within 2 weeks of the final tripartite meeting. The consultants will submit 30 hard copies each of the interim, draft and the final report to the Government (20 in Bahasa Indonesia and 10 in English) and 10 hard copies of the inception, interim, draft final, and final reports to ADB. A soft copy version will also be submitted to ADB.