About the Author
Ms. Ari Kristiana
The Audit Board of the Republic of Indonesia
Ms. Kristiana completed her bachelor’s degree at the State Accounting College (STAN) in 2000, and obtained a master’s degree in Accounting from the University of Indonesia in 2005. She is an auditor at the Audit Board of the Republic of Indonesia (BPK). During her career as an auditor, she has gained extensive experience in the audit of energy sector, such as renewable energy management and mining sector non-tax revenue compliance. She has also participated in several audits in public sector, including financial audit of both central and local government, performance audit in fiscal stimulus, and school operational assistance (Dana BOS) management.
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This past year, technology has advanced faster than ever before, far beyond what was predicted. The Covid-19 crisis that has hit the world for more than a year is one of the leading factors of that.
The COVID-19 is an ongoing worldwide pandemic that has spread across the globe with devastating human and economic consequences. Even though it is a health crisis, it has a broad impact affecting various domains: general society, economy, education, culture, politics, etc. The pandemic has changed the everyday habits of people around the world, and the new realities of lockdowns and social distancing have accelerated the uptake of technologies. The demand for communication software such as Microsoft Teams and Zoom has been unprecedented, as hundreds of millions of people have abruptly been required to work remotely from home.
Global developments relating to the COVID-19 pandemic have also impacted the work of auditors. The Audit Board of the Republic of Indonesia (BPK) has the mandate to audit the management of and accountability for the state's finances. This mandate is unlikely to be postponed due to the pandemic. Therefore, BPK must adapt to the changes that occur. The pandemic forced auditor to move to a new way of conducting audits.
Prior to the pandemic, audit was conducted in a more conventional way. The majority of audit procedures – such as interviews, discussions, document examinations, inspections – were conducted in the auditee’s offices. The current circumstances has brought opportunities for auditors to do things more differently, by using new, or flexing the use of existing technology resources in auditing. Auditors have to adapt their works in obtaining sufficient and appropriate audit evidence, amid challenges in accessing people or information. The physical distancing that has been brought about by the pandemic has forced such audit activities to be done online.
This paper will discuss the experiences of auditors in using technologies during the energy sector audit conducted by BPK in the midst of the pandemic in 2020.
This performance audit of energy sector focusing on city gas networks and gas refuel station development was conducted from long distance and depended heavily on technology. The paper will present the audit objective, methodology, findings, as well as the use of technologies and its obstacles.
Energy, which is needed for every aspect of life, plays a key role for the development of countries. Countries need to use energy efficiently to have an advantage in the global competition and ensure sustainable development. A well-established energy system supports all sectors: from business, medicine and education to agriculture, infrastructure, communications and high-technology.
Energy growth is directly linked to well-being and prosperity across the globe. Meeting the growing demand for energy in a safe and environmentally responsible manner is a key challenge. As a country with a population of more than a quarter of a billion, Indonesia certainly has enormous energy demand. Today, most of the energy Indonesians consume comes from hydrocarbons, with crude oil being the dominant source of transportation fuels and liquid petroleum gas (LPG) for households. Although Indonesia contains large oil reserves, a lack of investment has caused Indonesia's oil production to decline during the last two decades. In contrast, Indonesia's oil consumption is showing a steady upward trend.
In order to reduce dependence on petroleum, the Indonesian government has made various efforts to diversify energy. In 2007, the Indonesian government embarked on the largest household fuel conversion program, to phase out the domestic use of kerosene completely in five years and replace it with liquefied petroleum gas (LPG). This was primarily motivated by the rising cost of kerosene subsidies. The program was successful in reducing domestic kerosene use by 92% in less than 10 years.
But then there is a new problem, the nation’s demand for LPG is increasing over time, as well as the subsidy burden borne by the government. The use of liquefied petroleum gas (LPG) for cooking in Indonesia has increased rapidly, with more than 70% of households now using the fuel, a large shift from kerosene. After a big cut on fuel subsidies in 2015, LPG emerged as the biggest component of fuel subsidies in Indonesia. For this reason, since 2015 the government has formulated a program to convert LPG and petroleum to natural gas by building gas refuel stations (SPBG) and city gas networks. The main objective of this program is to reduce LPG subsidy in households and fuel subsidy in the transportation sector.
The gas refuel stations and city gas networks development is the part of the government's priority programs that were stated in the National Medium Term Development Plan (RPJMN) of 2015-2019. The government set a target that, by 2019, there will be city gas networks for around one million households and 118 gas refuel stations.
The city gas network development is still a national priority program in the RPJMN of 2020-2024 with a target of building more than four million connections by 2024. However, the gas refuel stations development is no longer a priority program even though only 73 of 118 gas refuel stations have been built until 2019, and there is no target for 2024.
SDGs Implementation: Energy
The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by all United Nations Member States in 2015 as a universal call to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. The 17 SDGs are integrated—that is, they recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability.
In the energy sector, the world is making progress towards Goal 7 of SDGs, with encouraging signs that energy is becoming more sustainable and widely available. Access to electricity in poorer countries has begun to accelerate, energy efficiency is continuing to improve, and renewable energy is making impressive gains in the electricity sector.
The Indonesian government has issued Presidential Regulation number 59/2017 concerning the Implementation of the Achievement of the SDGs. This regulation sets targets for each goal and presents the action plan for responsible government institutions to achieve them. The Indonesian government has set a main goal for the energy sector that is to guarantee universal access to affordable, reliable and modern energy services by 2030.
One of the government's programs to achieve Goal 7 is to build a city gas network. National targets to achieve include "Achieving a gas network of 1.1 million household connections by 2019". The ministry that is responsible in the implementation of SDGs in the energy sector is the Ministry of Energy and Mineral Resources, involving other ministries such as the Ministry of Finance, the Ministry of National Development Planning (Bappenas), the Ministry of State-Owned Enterprises (BUMN), and local governments.
Unfortunately, until 2020, there were only 537,916 household connections built, less than 50% of the 2019 target. Although this target had not been achieved, the government set quite an ambitious target in the RPJMN of 2020-2024, which is to build 4.7 million household connections.
In 2020, BPK conducted performance audit concerning city gas networks and gas refuel stations development at the Ministry of Energy and Mineral Resources (MEMR) and state-owned enterprises. The objective of this audit was to assess the effectiveness of this development in supporting the achievement of government objectives in the use of natural gas in households and transportation sectors. This audit is mainly focused on three aspects, i.e. planning, implementing, and monitoring. The audit scope is the city gas networks and gas refuel stations development from 2015 to mid-2020.
To answer the audit objective, BPK developed three audit questions:
- Is the plan of city gas network and gas refuel station development defined in a comprehensive and integrated manner, and is it consistent and aligned with policies and regulations to ensure the achievement of the targets?
- Has the government implemented the city gas network and gas refuel station development activities according to plan?
- Has the government carried out systematic and regular monitoring and evaluation to measure the achievement of the targets set and to identify problems for improvement in the decision-making process?
The audit approach determines the nature of the examination to be made. It is an important link between the audit objectives, audit criteria and the work done to collect evidence. Performance auditing generally follows one of three approaches:
- a system-oriented approach, which examines the proper functioning of management systems, e.g. financial management systems;
- a result-oriented approach, which assesses whether outcome or output objectives have been achieved as intended, or programs and services are operating as intended;
- a problem-oriented approach, which examines, verifies and analyses the causes of particular problems or deviations from criteria.
According to ISSAI 3000, auditors should choose a result-, problem- or system-oriented approach, or a combination thereof, to facilitate the soundness of audit design. This audit used a combination of system and problem-oriented approach. This approach will help auditors identify problems in the entire development process and determine their root causes. The result-oriented approach was not chosen because preliminary audit findings revealed that the target set of city gas and gas refuel stations development was not achieved.
The system approach used the input-process-output-outcome model (IPOO model). Then auditors identified significant factors that affected each stage and the problems were found. The identification of problems is obtained from various sources, such as ministry performance reports, research results from outside parties / NGOs / academics, as well as news in various media. In this examination, BPK only assessed the achievement of the middle-term outcome, not the long-term outcome. (Figure 1).
The Emerging Use Of Technology In Audit Methodology
The audit standard requires auditors to design and perform appropriate audit procedures to obtain sufficient, relevant and reliable audit evidence to draw conclusions on an activity. However, the Covid-19 pandemic increases the risk of auditors not obtaining sufficient evidence. Auditors need to establish alternative procedures to overcome those risks.
The pandemic has forced auditors to operate remotely and embrace digital technologies - whether they were ready to or not. Covid-19 has significantly accelerated the evolution towards a "virtual" audit. The audit methodology and the emerging use of technology in this audit are as follows:
- Establishing audit criteria, types and sources of evidence as well as inspection procedures. The audit criteria used are regulations, planning documents such as RPJMN and National Energy Plan (RUEN), and best practices adopted from UNDP, UN, etc. Audit criteria, evidence, and procedures will be outlined in the Audit Design Matrix (ADM).
- Collecting data and information- The use of virtual meeting applications is absolutely necessary for collecting data and information. Prior to the pandemic, this data collection process was carried out through face-to-face discussions or interviews with auditee. Since the pandemic, all interviews must be conducted virtually using Zoom or BPK Room (a virtual meeting application developed by BPK). Data collection is also carried out using soft files, scanners and emails, not paper documents.
The benefits of this method is there will be a significant reduction in time spent on commuting to the audit location, thus audit can be conducted more efficiently. However, digitizing paper documents into softcopy creates the risk of document manipulation. Auditors need to be more careful to ensure that the documents received are valid.
- Gathering opinions from experts- The auditor's expertise in the field of natural gas is limited, therefore BPK held a focus group discussion (FGD) by inviting several independent experts. These experts have academic and practitioner backgrounds. This FGD is very important for auditors to get a more comprehensive picture of energy management. The FGD was conducted virtually using Zoom. The advantages of a virtual FGD are flexibility in schedule, so it was easier to invite experts, and less costly compared to physical FGD.
- Selecting sampling techniques and designing audit sample. In this audit, the audit team conducted a non-statistical sampling method using professional judgment to select the numbers of gas network and gas refuel stations to be physically observed. Physical observation and examination to gas network site and gas refuel stations were still needed by auditors, as they could provide key information in identifying problems of the program's implementation. From audit population of 49 location of city gas network and 73 gas refuel stations, the team visited only one location gas network and ten gas refuel stations. It was quite challenging to visit the audit sites due to limitation of mobility. The audit team ultimately managed to examine a city gas network in Sumatra virtually and visited ten gas refuel stations in around Jakarta.
- Conducting a survey of city gas network customers. The audit team carried out a survey of city gas network customers with the aim of gathering evidence of the city gas network reliability. Surveys are usually conducted by directly visiting customers. However, due to the pandemic, the survey was conducted online using a survey application and sent to the customers’ What Sapp numbers. An advantage of using online surveys is a significant increase in response rates, compared to conventional surveys. The team received more than a thousand respondents, a number that would have been difficult to achieve with an offline survey. The main problem of conducting an online survey is how to design survey questionnaires. Auditors have to ensure that the questions are understood easily and answered correctly by respondents. Furthermore, the audit team should also ensure that the results of the survey are relevant with audit objectives.
- Data analysis- The data collected were not only primary data obtained directly from auditee, but also secondary data from reliable external sources, such as Statistics Indonesia (BPS), trusted national mass media, and other data collection platforms. The audit team conducted several analytical methods that include root cause analysis, regression analysis, and LEAP (Long-range Energy Alternatives Planning) analysis.
There are other advantages in using technology in audit:
- Saving time and money as most data is accessible from anywhere. Interviews and even observations can be conducted through popular platforms like Microsoft Teams or Zoom. There will be a significant decrease in money and time spent on commuting to the audit location.
- The audit team works more efficiently. The audit team feels more comfortable working from their home office environment, since they are able to use all the necessary tools, such as high-speed internet, monitors, printers, etc.
However, there are also challenges encountered during the audit by using technology:
- Internet network disruption is a major obstacle. Sometimes, network connections are not very reliable, or the auditee can have difficulties to log into a database in order to show evidence. In addition, due to network issues, interviews and meetings can be interrupted, taking some time to reconnect and solve all the network problems.
- Not all data and documents are available in digital form. Big data analysis has not been able to run optimally, because the data needed has not been fully integrated.
- There is lack of attention from the auditees, possibly since they are performing other tasks while the audit is being conducted, or they have more than one virtual meeting at the same time.
- There is a gap in auditors’ ability in using advanced technology. The reality is that these new technologies and expectations are evolving rapidly, requiring auditors to constantly upgrade their skills and approach.
BPK found several problems on the city gas network and gas refuel stations development:
- The government had not considered the short-term, medium-term, and long-term costs and benefits when formulating the goals and objectives of the city gas network and gas refuel stations development. Those designs have not been integrated with the plans for the use of other energy sources. For this matter, BPK recommends the government to study the implementation of city gas network and gas refuel station and its impact on reducing LPG and petroleum consumption comprehensively;
- The government does not yet have a clear and measurable roadmap for accelerating the use of natural gas for households and transportation sectors. In an effort to do so, BPK's recommendation on this issue to the government is to define a clear, measurable and comprehensive roadmap, as well as to develop tools to monitor its implementation;
- The program of converting petroleum to gas does not depend only on one ministry, but involves many other agencies. However, the involvement of cross-sectoral roles and coordination between ministries, agencies, local governments and business entities in the development of city gas network and gas refuel station have not been optimal. Therefore, the construction of city gas network and gas refuel station does not synergize with government policies in other sectors, and it is difficult to achieve the expected targets.
- Monitoring and evaluating city gas network and gas refuel station development activities have not been able to assess the medium-term outcome, namely controlling the rate of increase in imports and subsidies for LPG and petroleum, and the resulting impact if the targets set in the construction of city gas network and gas refuel station are not achieved.
By performing simulations and analysing the results using LEAP application, BPK revealed that the potential to reduce LPG imports would not be achieved if the government did not make a breakthrough in city gas development. Figure 2 shows the import value of LPG that can be suppressed if the construction of city gas network is as targeted, the economic growth is as assumed, and the other policy such as Dymethil Ether (DME) run smoothly.
Figure 3 shows the value of LPG imports using realistic scenario data, namely economic growth of 5% using real figures for 2015 - 2019, adding gas lines only around 90 thousand SR per year according to the trend in the last five years, and without any other policies. The simulation shows us that LPG import will increase significantly.
BPK also conducted a simple linear correlation and regression analysis by comparing the effect of city gas consumption with the realization of 3 kg (subsidized) LPG consumption in 2014 - 2019 in the city of Prabumulih, where 80% of the people have benefited from gas network. The results of the analysis show a negative coefficient of 0.3, which means that the construction of city gas has not had a significant effect in reducing the 3 kg LPG subsidy. The Ministry of Energy and Mineral Resources needs to study why this happens and find solutions so that the city gas policy can achieve its objectives, one of which is to reduce the 3 kg LPG subsidy.
The results of BPK’s audit of the city gas network and gas refuel stations development found positive efforts and achievements by the government in building and operating city gas networks and gas refuel stations. However, without diminishing appreciation for those efforts, BPK states that the above problems should be resolved immediately. Otherwise it can affect the effectiveness of city gas networks and gas refuel station development in supporting the achievement of objectives of the utilization of natural gas in households and the transportation sector.
The Covid-19 pandemic has abruptly forced change, in a matter of days. Digital transformation has become a necessity during these unusual times, when physical distancing and remote work have become the norm. But the future of audit isn't just about remote audits; it's about transforming underlying processes using technology to achieve three objectives: a higher quality audit, a more efficient audit and better business insights for our clients through the traditional audit process.
- BPK, 2020, Performance Audit Report of Effectiveness of City Gas Network and Gas Refuel Station Development at Ministry of Energy and Mineral Resources;
- ISSAI 3000: Performance Audit Standard;
- ISSAI 3100: Guidelines on Central Concepts for Performance Auditing
- Canadian Audit & Accountability Foundation, 2020, Better Integrating Root Cause Analysis into Public Sector Performance Audit