Ms. Indah Noor Hafidias
International Relations Analyst
Mr. Muhammad Septian Wicaksono
Auditor
Asian Journal of Government Audit
Abstract
This paper analyzes the principal findings of public procurement audits conducted by the Supreme Audit Institution (SAI) of Indonesia during the first half of 2024. While discussions on corruption often center on large-scale and high-value procurements, the analysis highlights that recurring mid-to low-value procurements associated with operational expenditures also present substantial risks to public finances and may exert a material influence on audit opinions. Drawing on a selection of financial, performance, and special purpose audit reports from the first semester of 2024, the study examines procurement activities in the internet infrastructure and food security sectors. Findings indicate a strong correlation between deficiencies in procurement processes—such as inadequate documentation, fictitious invoices, and a lack of needs identification—and the issuance of qualified audit opinions. The analysis highlights that these issues not only lead to a significant financial drain and misstatement of financial assets but also compromise the government's ability to deliver its core public services. The study concludes that systemic weaknesses in mid-to-low value procurement activities often overshadowed by the focus on large-scale projects, which pose significant risks to fiscal integrity and governance outcomes, thus strengthening internal controls is essential for mitigating risk, promoting accountability, and ensuring the effective use of public funds.
1. Introduction
Public procurement is fundamental to provide the public infrastructure to satisfy the public interest (Florina-Maria, 2021). A study in Indonesian public sector has argued that the changes in values of the procurement of goods and services had a positive impact on Indonesian economy in the long run and that 91,12% variation of the economy of Indonesia derived from procurement by government (Azwar Azwar, 2016). Thus, this become the focus for the government auditors.
Almost all the corruption cases are stemmed from procurement of infrastructure (Rustiarini et al., 2019). Thus, a public procurement audit is a crucial process for ensuring that public funds are used effectively and ethically. It involves a systematic examination of the entire procurement lifecycle, from the initial needs assessment to the final contract closure. The goal is to provide assurance that all procurement activities comply with legal frameworks, internal policies, and principles of transparency, fairness, and value for money.
This article analyzes key findings from a selection of audits conducted by the Supreme Audit Institution (SAI) of Indonesia during the first half of 2024. We have found that not only procurement with high value which result in fixed assets are important, but also middle value of simple procurement that results to current assets are material due to the high frequency.
2. Public Procurement and its Relation to Financial Statements
Public procurement includes procurement of goods, construction, consultation services, and other services (PP 16/2018 - Government Goods/Service Procurement, 2018).
The classification and presentation of the government expenditure in the Statement of Budget Realization (cash basis) (PP 71/2010 - Government Accounting Standards, 2010, p. Standard Statement-2):
1. Operational Expenditure, including but not limited to: goods and service expenditure.
2. Capital expenditure, including land acquisition, equipment & machinery, buildings, roads, irrigation and other network, other fixed assets, other assets.
The “goods and service expenditure” are recognized as “current assets” while the “capital expenditure” are recognized as fixed assets in the government’s balance statements. The Statement of Balance is presented on an accrual basis.
3. Audit Methodology and Approach
SAI Indonesia publishes summaries of its audit reports biannually. The reports from the first semester of 2024, which primarily cover financial audits of 2023 financial statements as well as performance and special purpose audits, were selected for this analysis. The audits related to procurement were chosen from these reports, specifically in the sectors of internet infrastructure and food security.
We selected the audits that have “procurement” in the summaries of audit reports. We found that there are four financial audits, one performance audits and one special purpose audits, highlighted in the summary of audit reports. The financial audits and the performance audits are conducted on three ministries, with one ministry selected for both financial audit and the performance audits. In addition, the special purpose audit was carried out on a State-Owned Enterprise. All financial audits conducted on first half of 2024 are for the budget year 2023 while the performance audit and special purpose audit are conducted for the budget year 2021-2023.
The audit approaches employed were varied, reflecting the nature of each engagement:
Financial Audits: These audits, like those for Ministry A, B, C, and D, primarily used a compliance-based approach. The key methodology involved detailed examination of procurement documents, including planning, bidding, and payment records. This was supplemented by clarification and confirmation with relevant parties to verify the authenticity and accuracy of transactions.
Performance Audits: The audit for Ministry B used a performance and value for money (VFM) approach. The auditors sought to answer specific questions: "Has food been provided to meet national needs?" and "Is food affordable?" To gather evidence, they used non-probability and purposive sampling techniques to interview key personnel and assess whether the procurement activities aligned with the stated objectives of food availability and affordability.
Special Purpose Audit: The audit for Institution E was a compliance audit focused on specific regulations. The methodology involved testing for adherence to established procedures, which ultimately concluded that the procurement was in accordance with the regulations.
4. Audit Opinions/Conclusions
Since there is limited audit opinion research in public sector (Nurhidayah et al., 2024), it is important to gain more understanding on the audit opinions which were selected due to public procurement audit findings.
Table 1. Signifinance Audit Findings on Procurement - first half 2024
| No | Ministry - Sector | Audit Type | Audit Opinion / Conclusion - 2023 | Previous Opinion – 2022 |
|---|---|---|---|---|
| 1 | A - Digital Infrastructure | Financial Audit | Qualified Opinion | Unqualified Opinion |
| 2 | B - Food Security | Financial Audit | Qualified Opinion | Unqualified Opinion |
| 3 | C – Food Security | Financial Audit | Qualified Opinion | Not available (recently established institution) |
| 4 | D - Financial Security | Financial Audit | Unqualified Opinion | Unqualified Opinion |
| 5 | B - Food Security | Performance Audit | Significance Problems | Not available (included in the 2024 audit) |
| 6 | E - Food Security | Special Purpose Audit (compliance audit) | In accordance with the regulation | Not available (included in the 2024 audit) |
Ministry B was also subjected to the performance audit, not only the financial audit, due to the importance of food security government program. The auditors concluded that significance problem occurred in the program, particularly due to weak control over goods expenditure.
State-owned enterprises E (which is also the only non-ministry institution in the sample) was subjected to special purpose audit. While the overall audit conclusion of the audit is “in accordance with the regulations”, the auditors noted that, with regards to the findings on the procurement of living animals, the principles of good governance had been disregarded.
5. Audit Findings
The selected audits revealed a variety of findings on procurement goods and services, which can be linked to common fraud schemes. While the findings themselves do not constitute legal proof of fraud, they serve as significant red flags for potential misconduct.
Table 2. Audit Findings Patterns
| Audit Type | Institution | Accounts / Transactions | Red Flag / Patterns | Impacts |
|---|---|---|---|---|
| Financial Audit | A | • Prepaid expenditure – current assets • Work in progress – fixed assets |
• No ownership of assets (stored in provider’s warehouse) • Fictitious and falsified invoices • Differential amounts in supporting details • Change of asset components without price adjustment • Recognition using invoice price instead of fair value • Ongoing corruption case trial |
• Auditors’ reasonable doubt on asset value recognition • Significant financial risk; state may lose money on unusable assets • Misstatement of financial accounts and unauthorized public fund disbursement, indicating potential fraud |
| B | • Inventory expenditure • Transportation expenditure • Business trip expenditure • Service expenditure – event organizing |
• Inadequate invoices/evidence • No receipts for manual payments/disbursements to employees • Contract splitting to avoid open tender |
• Material uncertainty for auditors due to high frequency and low value transactions • Suggests weak internal controls |
|
| C | • Inventory expenditure • Transportation expenditure • Business trip expenditure |
• Incomplete or missing invoices and supporting evidence • Non-existence invoices • No receipts for manual payments/disbursements |
• High occurrence with small value per transaction but high total value • Material uncertainty for auditors • Could hinder institution in fulfilling mandates |
|
| D | • Debt procurement / debt issuance | • No needs identification | • High burden of interest and debt on state finance • Ad-hoc, reactive procurement misaligned with organizational goals |
|
| Performance Audit | B | • Food security program – staple food procurement (rice) | • No price reference for procurement | • Weak control on food buffer maintenance • Inefficient resource allocation and unnecessary financial burden on the state |
| Special Purpose Audit | E | • Procurement of living animals (cattlestock) | • No business plan • Lack of demand-driven procurement • Use of past transaction prices as reference • Ignoring existing risk plans and analysis |
• High risk of obsolete inventory due to low sales • High risk of stock debt from low sales • Ad-hoc procurement misaligned with goals • Ignoring market dynamics and risk analysis, leading to inflated costs and lower profit margin |
From the Table 2 above, it can be concluded that many repetition in: inadequate invoice, no needs identification and no price reference can have negative impact on the audit opinion as well as the impact of the organizational day-to-day activities.
The International Standard on Auditing (ISA) 320: Materiality in Planning and Performing an Audit sets out how an auditor must determine materially and performance materiality, including for particular classes of transactions, account balances or disclosures. ISA 320 (2008, para. 10) particularly states : “When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole. If, in the specific circumstances of the entity, there is one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users … the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures.” This means that even smaller transactions may require audit attention if they are of a nature or frequency such that they could influence a stakeholder’s decisions. This approach has been practiced by Victorian Government Purchasing Board (VGPB) in Australia by applying risk-based sampling and data anlytics for high-volume transactions. For procurements of lower individual value but large aggregate volume or frequency, auditors are advised to select a larger sample size (or even entire populations) and/or apply data-analytics techniques to identify patterns of risk (rather than relying solely on sampling of large value items) (Victorian Government Australia, 2025).
This supports the argument that the deficiency of internal control systems, non-compliance with regulations and non-conformance with accounting standards can impact the audit opinion on government financial statements (Pamungkas et al., 2018).
6. Conclusion
Audit findings from the first half of 2024 demonstrate that vulnerabilities within public procurement processes are not confined to large-scale infrastructure projects. The cumulative effect of frequent small- to medium-value transactions—particularly those pertaining to inventory, logistics, and routine operational expenditures—can exert a material influence on the accuracy of financial statements and heighten the risk of fraudulent activities. Accordingly, auditors should adopt a more comprehensive analytical approach that encompasses lower-value procurements and systematically identifies recurring patterns and structural weaknesses within organizational practices.
The qualified audit opinions for Institutions A, B, and C underscore the seriousness of these control weaknesses. This supports the argument that weaknesses in internal control could negatively affect the auditor’s opinion (Heniwati & Hervianto, 2024; Pamungkas et al., 2018).
To strengthen public procurement and mitigate associated risks, governments must adopt a comprehensive control framework. Strengthening internal controls is particularly important for low-value but high-frequency transactions, which, although individually small, may collectively present material risks. This requires clear segregation of duties, multi-level approvals, and mandatory documentation to ensure accountability and reduce opportunities for fraud. Furthermore, transparency plays a vital role in strengthening procurement governance. Publishing procurement information—from tender announcements to contract awards and payment records—not only deters misconduct but also enhances accountability through external scrutiny by legislatures, civil society, and the public. Digitizing the public procurement procedures can also enhance auditors capacity to identify suspicious transaction, by enabling the integration of digital technologies and data analytics into audit processes (Mokeeva & Yurko, 2023).
In addition, enhancing due diligence is essential: auditors should consistently verify the legitimacy of invoices, confirm supplier credibility, and ensure that procurement decisions are preceded by both sound business plans and demonstrated demand. Such measures align with the principles of economy, efficiency, and effectiveness that underpin performance auditing.
Beyond preventive measures, adopting a risk-based approach can further optimize oversight. By integrating data analytics into audit practices – not only at the engagement level but also at the institutional level (Eilifsen et al., 2020) - auditors can be better equipped to detect anomalous bidding behavior, unusual payment flows, and recurring red flags that traditional sampling techniques may overlook. Recent research also indicates that the application of machine learning can help the detection of collusion in procurement (Wallimann & Sticher, 2023). Collectively, these measures reinforce procurement systems that safeguard public funds, foster integrity, and strengthen trust in public sector governance.
Disclaimer:
The views expressed in this article are those of the authors and are presented within certain limitations
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