Integrity Management in the Indonesian Supreme Audit Institution

Abstract

This study investigates the quality and the adequacy of the Integrity Management System (IMS) of the Indonesian Supreme Audit Institution (ISAI). The ISAI has a key role in promoting the value and benefits citizens in Indonesia obtain from the public sector. Integrity management is seen as a key element in minimising the agency costs in the principal agent relationship between citizens and the public sector, in particular the ISAI. This study uses the OECD IMS, as ‘an ideal system and western model’ of integrity management to assess the quality and the adequacy of the ISAI IMS both as documented (the ‘nominal’ system) and as implemented (the ‘real’ system). Three questions guide this study:

1. How does the nominal ISAI IMS compare with the ideal OECD IMS and what does this comparison show about the quality of the nominal ISAI IMS? 2. How does the real ISAI IMS compare with both the nominal ISAI IMS and the ideal OECD IMS, that is, what is the implementation deficit? 3. What are the barriers and challenges that result in the implementation deficit?

Collection of the data for the study proceeded in three stages. The first two stages aimed to document the nominal and real ISAI IMS from the perspective of internal agents. The first stage was document analysis at the ISAI Head Office in Jakarta and semi-structured interviews with Head Office personnel to address any gaps in information left by the document analysis. The second stage took place at the branches of the ISAI located in Daerah Khusus Ibukota (DKI, Special Capital Region) of Jakarta and East Java. In each branch, document analysis was carried out and semi-structured interviews were conducted with management and auditors.

The third stage involved semi-structured interviews with external experts and critical commentators on the operation of the ISAI in order to achieve balance between internal and external views. The three stages provided the data required to address the three research questions.

The findings indicate that the nominal ISAI IMS incorporates most of the significant features of the ideal OECD IMS. However, this study also found that having a high-quality and adequate nominal system is not enough to ensure a high- quality real system. Three factors were identified as posing serious barriers and challenges to achieving the implementation of the nominal system as a high-quality and adequate real system. Firstly, strong political influence, especially in the selection process for ISAI strategic leaders, has a negative impact on the ISAI’s institutional integrity and credibility. Many of the interviewees questioned the commitment of politicians to support integrity programmes in the public sector including in the ISAI.

Secondly, the selection process for leaders in the ISAI, operating through the political process, fails to produce strategic leaders with robust organisational ethical leadership. As a result, ISAI personnel, especially auditors, perceive a lack of exemplary leadership behaviours and tone at the top. This situation makes it more difficult to implement principles of integrity within the organisation and may also impact the degree of public trust in the ISAI. Thirdly, local traditions create challenge for compliance with integrity standards developed from a mature western perspective. The OECD’s integrity system applies Weber’s ideal bureaucracy theory to developing organisational integrity, which has a limited fit with Indonesian culture and reality. Indonesian values, such as respect, gratitude and loyalty, are positive qualities, but the challenge within an organisational context, including the ISAI, is to ensure that they are applied to the promotion of integrity rather than being capitalised on by unethical persons in the pursuit of personal gain through integrity violations.

This study contributes to the literature on integrity management in at least four fundamental ways. Firstly, it places the value of an integrity management system in the context of minimisation of agency costs. Secondly, it introduces a quantitative assessment technique for comparison of different integrity management systems. Thirdly, the study identifies the negative impact of political influence and the importance of leaders providing ethical leadership in maintaining integrity. Finally, by focussing on Indonesia, a developing country, the study extends the scope of the empirical literature on integrity management which is presently dominated by western perspectives.The study identifies three significant factors that are barriers and challenges to implementing an integrity management system in the Indonesian context, namely: political influence, ethical leadership, and culture.