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Audited Project Financial Statements

The audited project financial statements are documents owned by the borrower. The views expressed herein do not necessarily represent those of ADB’s Board of Directors, Management, or staff. These documents are made publicly available in accordance with ADB’s Public Communications Policy (2011) and as agreed between ADB and the Ministry of Public Works and Housing.

Project Number: 49141-001 Period covered: 1 January 2017 to 31 December 2017

INO: Accelerating Infrastructure Delivery through Better Engineering Services Project

Prepared by the Audit Board of the Republic of Indonesia

For the Asian Development Bank Date received by ADB: 29 June 2018

AUDIT BOARD OF

THE REPUBLIC OF INDONESIA

AUDIT REPORT ON

THE FINANCIAL STATEMENTS OF ADB LOAN NO. 3455-INO

IN THE ACCELERATING INFRASTRUCTURE DELIVERY THROUGH BETTER

ENGINEERING SERVICES PROJECT OF

THE SECRETARIAT GENERAL OF THE MINISTRY OF PUBLIC WORKS

AND PUBLIC HOUSING YEAR 2017

Number : 20.A/LHP/XVII/06/2018 Date : 04 June 2018

AUDIT BOARD OF THE REPUBLIC OF INDONESIA Jl. Gatot Subroto No.31, Central Jakarta 10210

Telephone/Facsimile: (021) 5738770

BPK Audit Report – Financial Statement of ADB Loan No. 3455-INO Year 2017 i

TABLE OF CONTENTS TABLE OF CONTENTS ...................................................................................................... i

LIST OF ABBREVIATIONS ............................................................................................... ii

SYSTEMATICS OF AUDIT RESULTS ON THE FINANCIAL STATEMENTS OF ADB LOAN NO. 3455-INO IN AIDBES/ESP YEAR 2017 ................................................ iii

AUDIT REPORT ON THE FINANCIAL STATEMENTS ................................................. 1

SUMMARY OF THE FINANCIAL STATEMENTS .......................................................... 4

CONSOLIDATED FINANCIAL STATEMENTS OF ADB LOAN NO. 3455 IN AIDBES/ESP ........................................................................................................................ 6

OVERVIEW OF AUDIT ...................................................................................................... 34

Audit Legal Basis ................................................................................................................. 34

Audit Objectives ................................................................................................................... 34

Audit Target .......................................................................................................................... 34

Audit Standards ..................................................................................................................... 35

Audit Method ........................................................................................................................ 35

Audit Term ............................................................................................................................ 35

Audit Objects ........................................................................................................................ 35

Audit Limitations ......................................................................................................... 35

BPK Audit Report – Financial Statement of ADB Loan No. 3455-INO Year 2017 ii

LIST OF ABBREVIATIONS 1. ADB : Asian Development Bank 2. APBN : State Revenues and Expenditures Budget 3. AIDBES : Accelerating Infrastructure Delivery through Better

Engineering Services 4. CaLK : Notes to Financial Statements 5. DED : Detailed Engineering Design 6. DIPA : Budget Implementation Form 7. DGHS : Directorate General of Human Settlements, otherwise

known as the Direktorat Jenderal Cipta Karya 8. DJBM : Direktorat Jenderal Bina Marga

9. DGH : Directorate General of Highways, otherwise known as Direktorat Jenderal Bina Marga

10. Dirjen : Director General 11. Ditjen : Directorate General 12. EoI : Expression of Interest 13. ESP : Engineering Services Project (This Loan in addition

to be abbreviated into AIDBES is also well known with the acronym ESP)

14. KDP : Construction in Progress 15. LARAP : Land Acquisition and Resettlement Action Plan 16. LKPP : Government Procurement of Goods and Services Policy

Board 17. LRA : Budget Realization Report 18. LO : Operational Report 19. MPWH : Ministry of Public Work and Housing 20. PDB : Gross Domestic Product 21. PMO : Project Management Office 22. PIU : Project Implementation Unit 23. PUPR : Public Works and Public Housing 24. SAI : Accounting System for Line Ministry 25. SAIBA : Accrual-Based Accounting System for Line Ministry 26. SIMAK : Management and Accounting Information System 27. SDA : Water Resources 28. Sekjen : Secretariat General 29. Setjen : Secretary General 30. SPI : Internal Control System 31. SPKN : State Finance Auditing Standard 32. SPSE : Electronic Procurement System 33. TOR : Term of Reference 34. TP/TGR : Treasury Demand/Compensation Demand

BPK Audit Report – Financial Statement of ADB Loan No. 3455-INO Year 2017 iii

SYSTEMATICS OF AUDIT RESULTS ON THE FINANCIAL STATEMENTS OF ADB LOAN No. 3455-INO in AIDBES/ESP

YEAR 2017

The audit report on the Financial Statements of ADB Loan No. 3455-INO in the

Accelerating Infrastructure Delivery through Better Engineering Services Project (AIDBES)

Year 2017 comprises of three reports as follows:

1. Audit Report on the Financial Statements

This report contains: (a) Audit report containing opinion of the Audit Board on the fairness

of the Financial Statements of 2017; (b) Financial Statements in the form of Budget

Realization Report, Balance Sheets, Operational Report, Statement of Changes in Equity

and Notes to Financial Statements, and (c) Overview of Audit containing the legal basis of

the audit, objectives of the audit, target of the audit, audit standards, audit method, audit

term, audit objects, and audit limitations.

2. Audit Report on the Internal Control System

This report contains: (a) Summary of the Report on the Internal Control System, (SPI); (b)

Results of the Audit on SPI; and (c) Follow-up to the Findings of Previous Audit.

3. Audit Report on the Compliance with the Statutory Regulations

This report contains: (a) Summary of the Report on Compliance with the Statutory

Regulations; (b) Results of the Audit on Compliance with the Statutory Regulations; and (c)

Follow-up to the Findings of Previous Audit.

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BPK Audit Report on Opinion - Financial Statements of ADB Loan No. 3455-INO Year 2017 2

plans and performs the audit to obtain reasonable assurance that the financial

statements are free of material misstatement.

An audit includes implementing procedures to obtain audit evidences supporting the amounts

and disclosures in the financial statements. The selected procedure shall be based on the

professional judgment of the auditors, including an assessment of the risk of material

misstatement in the financial statements, either caused by fraud or error. In assessing the risk,

the Auditors consider the internal controls relevant to the preparation of the entity’s financial

statements to design an appropriate audit procedure in accordance with the existing conditions,

but not for the purpose of expressing an opinion on the effectiveness of the entity's internal

control. An audit also includes evaluating the accuracy of the accounting policies applied and

the fairness of the accounting estimates established by the Secretariat General of the Ministry of

PUPR, as well as evaluating the overall financial statements presentation.

BPK believes that the audit evidences obtained have provided adequate and reasonable basis to

state an opinion of BPK.

Opinion

According to BPK’s opinion, the aforementioned financial statements were presented fairly, in

all material respects, the financial position of the ADB Loan No. 3455-INO in Accelerating

Infrastructure Delivery Through Better Engineering Services Project (ESP) as of December 31,

2017 in conformity with the Government Accounting Standards and Project Administration

Manual.

Basis of Accounting and Restrictions on the Distribution and Use

Without modifying the opinion, BPK emphasizes on the Notes to the Financial Statements to

describe the basis of accounting. The Financial Statements are prepared to assist the Secretariat

General of the Ministry of PUPR to comply with the financial reporting clause set forth in

Article IV Particular Covenants Section 4.05 letter (a) of the Loan Agreement. As a

consequence thereof, the financial statements may not be appropriate for other purposes. BPK

report is only intended for ADB and the Ministry of PUPR, and is not allowed to be distributed

to/or used by any party other than ADB and the Ministry of PUPR.

4

SUMMARY OF FINANCIAL STATEMENT

The financial statements of the Accelerating Infrastructure Delivery Through Better

Engineering Services Project (AIDBES or better known as ESP) of 2017 have been prepared

and presented in accordance with Government Regulation No. 71 of 2010 on Government

Accounting Standards (SAP), Minister of Finance Regulation No. 222/PMK.05/2016 on Manual

for the Preparation and Submission of Financial Statement for Government Ministry/Agency,

and other accounting principles. This Financial Statement consists of:

I Budget Realization Report

The Budget Realization Report describes the comparison between the budget and its

realization, which includes LRA-Revenue and Expenditure elements during the period of

January 1st through December 31st, 2017.

Realization of State Revenues in Fiscal Year 2017 are as much as Rp14,009,342,920.00

or 47.33% of a budget allocation of Rp29,597,189,000.00.

Realization of Financing Acquisition are in the form of Acquisition from International

Loan to finance the Accelerating Infrastructure Delivery Through Better Engineering

Services Project as much as Rp14,009,342,920.00 or 47.33% of the estimated budget of

Rp29,597,189,000.00.

II Balance Sheet

The balance sheet describes the entity's financial position on Assets, Liabilities and

Equity as of December 31st, 2017.

Asset Value per December 31st, 2017 is recorded and presented in the amount of

Rp14,009,342,920.00 which consists of: Current Assets of Rp12,701,110,800.00 and

Intangible Asset of Rp1,308,232,120.00.

The Value of Equity is Rp14,009,342,920.00, meanwhile the Total Value of Liabilities

and Equity combined amounted to Rp14,009,342,920.00.

III Operational Report

The Operational Report (LO) presents various elements of LO's income, expenses,

surplus/deficit from operations, surplus/deficit from nonoperational activities,

surplus/deficit before extraordinary items, extraordinary items, and surplus/deficit-LO.

5

The LO-income, expense and Surplus/Deficit for Activities for the period up to December

31st, 2017 amounted to Rp0.00.

IV Statement of Changes in Equity

The Statement of Changes in Equity provides information on the increase or decrease in

the equity of the reporting year compared to the previous year. Equity as of January 1st,

2017 amounted to Rp0.00 meanwhile Equity as of December 31st, 2017 amounted to

Rp14,009,342,920.00, which was due to the traction between entities that was worth

Rp14,009,342,920.00.

V Notes to the Financial Statements

The Notes to the Financial Statements (CaLK) provide information on explanations or

detailed lists or an analysis of the value of a post presented in the Budget Realization

Report, Balance Sheet, Operations Report and Statement of Changes in Equity. Further

included in the CaLK is the presentation of information required and recommended by

the Government Accounting Standards.

According to Minister of Finance Regulation No. 222/PMK.05/2016 on Manual for the

Preparation and Submission of Financial Statement for Government Ministry/Agency, the

Budget Realization Report for the period ending on December 31st, 2017 is prepared and

presented on a cash basis, meanwhile the Balance Sheet, Operational Report and Statement of

Changes in Equity for the Year 2017 are prepared and presented on an accrual basis.

6

CONSOLIDATED FINANCIAL STATEMENTS OF ADB LOAN NO. 3455 IN AIDBES/ESP

I. BUDGET REALIZATION REPORT Accelerating Infrastructure Delivery Through Better Engineering Services Project (ESP)

Budget Realization Report for Year Book Ended on December 31st 2017

Description Notes

FY 2017 % of

Budget

FY2016

Budget (Rp)

Realization (Rp)

Realization (Rp)

REVENUE

Non-tax State Revenue

Other Non-tax State Revenue

Total Revenue

EXPENDITURE

Operational Expenditure B.1

Goods and Service Expenditure B.1.1 13,547,189,000.00 6,628,644,620.00 48.93

Total Operational Expenditure 13,547,189,000.00 6,628,644,620.00 48.93

Capital Expenditure B.2

Machinery Equipment Expenditure B.2.1 8,000,000,000.00 3,572,466,180.00 44.65

Irrigation Roads and Bridges Expenditure

B.2.2 7,550,000,000.00 3,808,232,120.00 50.44

Other Capital Expenditures B.2.3 500,000,000.00

Total Capital Expenditures 16,050,000,000.00 7,380,698,300.00 45.98

Total Expenditure 29,597,189,000.00 14,009,342,920.00 47.33

Financing

Acquisition of International Financing

B.3

Acquisition of International Loan from ADB 3455-INO

29,597,189,000.00 14,009,342,920.00 47.33

Total Acquisition of Financing 29,597,189,000.00 14,009,342,920.00 47.33

Notes to the Financial Statement are an inseparable component to the Financial Statement

itself.

7

II. BALANCE SHEET Accelerating Infrastructure Delivery Through Better Engineering Services Project (ESP)

ESP Balance Sheet For Year Book Ended on December 31st 2017

Description Note Realization in FY 2017

ASSETS

CURRENT ASSETS C.1

Advance Payment (Prepaid) C.1.1 12,701,110,800.00

Total Current Assets 12,701,110,800.00

FIXED ASSETS C.2 0

Equipment and Machinery C.2.1 0

Buildings C.2.2 0

Roads, Irrigation and Network C.2.3 0

Construction In Progress C.2.4 0

Accumulated Depreciation on Fixed Assets C.2.5 0

Total Fixed Assets

OTHER FIXED ASSETS C.3

Intangible Assets C.3.1 0

Intangible Assets in Progress C.3.2 1,308,232,120.00

Accumulated Depreciation & Amortization of Intangible Assets C.3.3 0

Total Other Fixed Assets 1,308,232,120.00

TOTAL ASSETS 14,009,342,920.00

LIABILITIES

Short Term Liabilities C.4

Total Short term Liabilities

EQUITY

Equity C.5 14,009,342,920.00

Total Equity 14,009,342,920.00

LIABILITIES & EQUITY TOTAL 14,009,342,920.00


itself.

8

III. OPERATIONAL REPORT Accelerating Infrastructure Delivery Through Better Engineering Services Project (ESP)

Operational Report For Year Book Ended on December 31st 2017

Description Notes Amount

OPERATIONAL ACTIVITIES

REVENUE

Revenue-LO D.1 -

TOTAL REVENUE -

EXPENDITURE

Labor Expenditure D.2

Inventory Expenditure D.3 -

Depreciation & Amortization D.4 -

TOTAL EXPENDITURE -

Notes to the Financial Statement are an inseparable component to the Financial Statement itself.

9

IV. STATEMENT OF CHANGES OF EQUITY Accelerating Infrastructure Delivery Through Better Engineering Services Project (ESP)

ESP Statement of Changes of Equity For Year Book Ended December 31st 2017

Description Notes 2017 2016

Initial Equity E.1 -

Transactions Between Entities E.2 14,009,342,920.00

LO Surplus/Deficit, Revised Increase/Decrease in Equity E.3 -

Final Amount of Equity E.4 14,009,342,920.00


itself.

10

V. NOTES ON THE FINANCIAL STATEMENT

A. GENERAL DESCRIPTION

Improving infrastructure is critical to stimulating inclusive growth in Indonesia.

Inadequate infrastructure has hampered growth and poverty reduction, and poses significant

obstacles to doing business in Indonesia. Poor road infrastructure contributes to logistics cost in

Indonesia up to 24% of GDP. Food security is affected by poor irrigation infrastructure. Since

2005, irrigated land with decent infrastructure has declined from 78% to less than 50% today.

Access to basic urban water and sanitation services lags far behind other middle-income

countries. In 2014, just 80.7% of the urban population had access to improved water sources,

while 61.06% had access to improved sanitation facilities. Such gaps in basic infrastructure

provision are the result of both low government infrastructure investment and underutilization

of the capital budget.

The reform of fuel subsidies in January 2015 has enabled the government’s

infrastructure budget to increase from Rp144.4 trillion in 2014 to Rp280.3 trillion in 2015 and

further to Rp302.6 trillion in 2016. The line-ministries are responsible for the delivery of more

than 50% of the government’s infrastructure budget. The increase in infrastructure spending has

been accompanied by institutional reforms to enable the ministries to deliver their public

investment programs in an accelerated manner. In 2014–2015, the government, in line with

institutional reforms, had: (i) established a dedicated office for land acquisition at the Ministry

of Agrarian and Spatial Planning/National Land Agency (NLA), (ii) improved legal and

technical frameworks on land acquisition, (iii) strengthened the procurement units of

government agencies and rolled out a national e-procurement system (LKPP SPSE), (iv)

increased the use of advance procurement and multi-year contracts for infrastructure projects,

and (v) set up a budget realization evaluation and monitoring team to address implementation

constraints at the central and sub-national levels.

The Ministry of Public Works and Housing (MPWH) leads the government’s effort to

meet RPJMN, 2015–2019 basic infrastructure targets to build 3,650 kilometers of new

highways, improve the irrigation network covering 1 million hectares, build 49 dams, attain

100% access to drinking water, reduce slum areas to 0%, and achieve 100% access to improved

sanitation, all of which are targeted to be achieved by 2019. During 2015–2019, the MPWH’s

infrastructure program is estimated to be Rp660 trillion or 47% of the government’s

infrastructure program. In 2015–2016, about 37% of the government’s infrastructure budget was

allocated to the MPWH.

Delivery of the MPWH’s infrastructure programs has been constrained by complex land

acquisition processes, procurement delays, and inadequate preparation of infrastructure projects.

11

With the implementation of the new land acquisition law and continuous efforts to strengthen

public procurement systems, it is now the latter that critically limits the ministry’s ability to

deliver infrastructure of good quality and timely manner. Weak project implementation

preparation is largely due to lack of resources to complete the required assessments, surveys,

master plans, feasibility studies, designs, and environmental and land acquisition clearances.

Addressing the project preparation issue will be, therefore, important for the MPWH to meet its

infrastructure development targets.

By incorporating these lessons learned, the proposed Accelerating Infrastructure

Delivery through Better Engineering Services Project (ESP) has been designed to target the

MPWH’s critical constraints by: (i) enabling financing of the preparation of infrastructure

projects as a separate project; and (ii) strengthening MPWH systems to improve the quality and

timeliness of the preparation of master plans, feasibility studies, detailed engineering designs

(DEDs), land acquisition and resettlement plans, environmental impact assessments, bidding

documents, and construction supervision. The project will be coordinated with development

partners to ensure complementarity.

The outcome that is expected of ESP is the strengthening of capacity of DGWH, DGH

and DGHS so that the design and implementation of public investment program in MPWH can

be done as efficient as possible. The outputs of ESP are given as follows:

Output 1: Quality and timely start-up of infrastructure projects improved. This output

will support the preparation based on new analytical methods and design standards of: (i)

irrigation, flood management, and bulk water projects of the MPWH’s Directorate General of

Water Resources (DGWR), (ii) water supply and sanitation projects of the Directorate General

of Human Settlements (DGHS), and (iii) national road projects of the Directorate General of

Highways (DGH). All infrastructure projects are from the MPWH’s 2015-2019 Strategic Plan,

and are to be mainly financed from the government budget. This output will support preparation

of: (i) master plans and feasibility studies; (ii) detailed engineering designs, including

geotechnical, topographical and other surveys; (iii) environmental impact assessments and land

acquisition documents as per government requirements; and (iv) advance contracting for civil

works. This output will also support construction supervision (for selected projects of DGHS

and DGH), and technical and financial assessment (for selected DGH projects).

Output 2: Capacity in public investment management strengthened. This output will

support the DGWR, DGHS, and DGH of the MPWH in: (i) improving master planning and

public investment management systems; (ii) on-the-job capacity development of project staff,

especially at local level, in such areas as design-and-build contracts, design standards,

construction supervision, enforcement of civil works contractor performance via technical and

12

financial assessment during construction, multi-year contracting, etc.; (iii) strengthening of the

ministry’s safeguards and procurement systems, (iv) strengthening value engineering during

preparation of infrastructure projects, and (v) implementation of the ESP, including monitoring

and evaluation of project preparation activities.

The project is expected to be implemented from December 1st 2016 to December 31st

2019. Most activities related to preparation and bidding of projects are planned to be completed

by the end of 2018 and mid-2019 respectively. A significant share of ESP prepared projects is

expected to be at various phases of civil works by the end 2019. The period between mid-2018

to the end of 2019 would be used for construction supervision as well as technical and financial

assessment of selected infrastructure projects prepared under the ESP.

The DGWR, DGHS, and DGH of the MPWH (implementing agencies under the ESP)

will undertake: (i) project preparation work for their infrastructure projects, and (ii) institutional

and capacity strengthening in public investment management. The list of ESP-supported

projects may change based the government priorities and agreement with the ADB.

A.1 Funding of ESP (RRP INO 49141) FY 2017

The financing of the Accelerating Infrastructure Delivery Through Better Engineering

Services Project (ESP) is derived from ADB Loan No. L3455-INO. The financing mechanisms

are carried out through DIPA with Direct Payment Procedure from ADB, based on the payment

request of the: (i) Directorate General of Water Resources (DGWR), (ii) water supply and

sanitation projects of the Directorate General of Human Settlements (DGHS), and (iii) national

road projects of the Directorate General of Highways (DGH). The Data on Budget and Actual

Expenditures are listed in the following Table 1.

Table 1. Budget and Actual Expenditure for Fiscal Year 2017

Work Unit

Output

Budget (USD) Budget (IDR) Actual

Expenditure (USD)

Actual Expenditure (IDR)

Loan Loan Loan Loan

Directorate Irrigation and Lowland (PIU on DGWR)

Output 1 ‐ Improved quality and timely start‐up of MPWH’s infrastructure projects

37,313.00 500,000,000.00 ‐ ‐

Directorate River and Coastal (PIU on DGWR) ‐ ‐ ‐ ‐

Directorate Center for Ground Water and Bulk Water (PIU on DGWR)

253,731.00 3,400,000,000.00 ‐ ‐

Centre Of Dams (PIU on DGWR) 597,015.00 8,000,000,000.00 359,518.00 4,880,698,300.00

Directorate Water Resource Development (PMO on

Output 2 ‐Strengthening

387,538.00 5,193,004,000.00 ‐ ‐

13

Work Unit

Output

Budget (USD) Budget (IDR) Actual

Expenditure (USD)

Actual Expenditure (IDR)

Loan Loan Loan Loan DGWR) capacity of MPWH in

public investment management

Directorate of Road Construction (PIU on DGH)


‐ ‐ ‐ ‐

Directorate of Bridges (PIU of DGH) 92,284.00 1,250,000.000.00 ‐ ‐

Administration Establishment and International Loan and Grant Monitoring, Directorate of Road Network Development (PMO on DGH)

Output 2 ‐Strengthening capacity of MPWH in public investment management

186,517.00 2,500,000,000.00 184,054.00 2,500,000,000.00

Directorate for Water Supply System Development (PIU on DGHS)


‐ ‐ ‐

Directorate of Environmental Sanitation Development (PIU on DGHS)

‐ ‐ ‐

Directorate of Integration of Settlement Infrastructure (PMO on DGHS)

Output 2 ‐Strengthening capacity of MPWH in public investment management

502,138.00 6,728,645,000.00 488,370.00 6,628,644,620.00

Total 2,056,536.00 27,571,649,000.00 1,031,942.00 14,009,342,920.00

A.2 Profile of Loan

The general profile of the loan is as follows:

Project Name : Accelerating Infrastructure Delivery Through Better Engineering Services Project

Executing Agency : Ministry of Public Works and Housing

ADB Loan Number and Register Number

: 3455-INO (Project No.49141-001)

Date of Signing : November 28th 2016

Effective Date of Loan : December 24th 2016

Closing Date of Loan : June 30th 2020

Total Loan : USD 148,20 million

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A.3 Loan Allocation per Category

Table 2. ESP Loan Allocation by Funding Source

Description

ADB Portion (USD)

% Government Amount (USD) %

A Investment Costs

1 Consultants :

a. Infrastructure project preparation. 123,700,000.00 100 ‐ ‐

b. ESP Management and MPWH Institutional Strengthening 8,600,000.00 100 ‐ ‐

c. Trainings &Workshops 200,000.00 100 ‐ ‐

2 Office Equipment& Furniture 600,000.00 100 ‐ ‐

Subtotal (A) 133,100,000.00 100 ‐ ‐

B Contingencies

Sub Total (B) 15,100,000.00 100 ‐ ‐

C Taxes

Sub Total (C) ‐ ‐ 14,800,000.00 100

D Implementation Fees

Interest During Implementation ‐ ‐ 4,600,000.00 100

Sub Total (D) ‐ ‐ 4,600,000.00 100

Total Project Cost (A+B+C+D) 148,200,000.00 88.42 19,400,000.00 11.58

Table 3. Loan Allocation in Each Directorate General No. Organization Unit Loan Portion (USD)

A DG Water Resources (DGWR) 51,625,000.00

B DG Highway (DGH) 45,000,000.00

C DG Human Settlement (DGHS) 51,575,000.00

Total 148,200,000.00

A.4 Organizational Structure of ESP

A.4.1 Project Implementation Organization-Roles and Responsibilities

The Steering Committee (SC) was established through a Decree of the Minister of

Public Works and Housing and chaired by Secretary General of the Ministry Public Works and

Housing. Other members of the ESP Steering Committee will include Director General for

Highways, Director General for Human Settlements, and Director General for Construction

Development. This Committee has some duties, that is: (i) to provide overall coordination and

guidance during the implementation of the ESP; (ii) Monitor status of preparation of individual

infrastructure projects and ensures that ESP-supported projects receive the required capital

budget; (iii) Monitor status of institutional strengthening and capacity building activities; and

(iv) Ensure alignment of the ESP with MPWH SDP targets and time-lines. The steering

committee will meet regularly and ad-hoc meetings may also take place at the request of the

Chairperson.

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A.4.2 The Project Coordination Office (PCO), Secretary General’s Office

The ESP Project implementation is coordinated by Secretary General’s Office (Setjen)

assigned through the PCO. Consultants are also called in involvement to support PCO through

APBN and ADB cluster technical assistance on sustainable infrastructure assistance program

(C-TA0013-INO). The roles and responsibility PCO will include the following :

• Serve as secretariat in ESP Steering Committee;

• Ensure follow-up on issues discussed in Steering Committee meetings;

• Execute the monitoring, evaluation and coordination of the implementation of ESP activities;

• Prepare a consolidated implementation report on ESP which will be submitted to the Minister of MPWH along with other respectful agencies;

• Give instruction and guidance to each Project Management Office;

• Facilitate annual financial audit; and

• Prepare a public pocket book that contains information of the implementation of ESP activities that are updated annually and/or a webpage containing information on the implementation of ESP.

A.4.3 Project Management Office (PMOs) at DGWR, DGHS, and DGH

DGWR, DGHS and DGH are the implementing agencies for the project to be prepared

for implementation under ESP. These DGs will be represented by their PMOs. The PMO for

each of the DG headed by Director of relevant directorate for planning and programming and

will include necessary staffs to cover procurement ad financial management areas. The roles

and responsibilities of PMO’s include the following overall :

• Coordination and reporting of ESP to PCO and ADB;

• Coordinate and give guidance to PIU;

• Facilitate whatever funding is needed for activities that are supported through ESP;

• Manage financial reporting and accountability aspects (withdrawal applications, financial reports, audits, bank account statements, etc.) in accordance to the ADB Loan Disbursement Handbook and the respectful Government of Indonesia’s Regulations;

• Review and process payments to consultants; and

• Manage loans and state-owned goods.

16

A.4.4 Project Implementation Units (PIUs) at DGWR, DGHS, and DGH

The PIU for each of the DG headed by a Director and include necessary staffs to cover

procurement, financial management, and technical areas. The management roles and

responsibilities of each of the PIUs will include the following:

• Coordination and reporting to PMO;

• Monitoring and evaluation of the implementation of ESP activities within the PIU;

• Assist PMO in facilitating annual financial audit;

• Manage loans and state-owned goods;

• Review and process payments to consultants; and

• Report the monitoring results on the contract implementation status to PMO and ensure

the timeliness of project implementation.

A.4.5 Project Team (PIU – Balai/Satker)

Established by the concerned PIU with participation of local Balai or Satker. Tasks

carried out by the team are to :

• Review the results of project preparation done by consultants;

• Submit consultant outputs to PIU for approval and endorsement of payment to the project preparation consultant firms.

A.5 Approach to Preparation of Financial Statements

This 2017 Financial Report is a report covering all financial aspects of the ESP. This

Financial Statement is generated through Institution Accounting System (SAI) which is a series

of manual and computerized procedures starting from data collection, recording and

summarization up to reporting of financial status and financial operation at State

Ministry/Agencies.

SAI consists of Accounting System of Accrual Based Institution (SAIBA) and

Management Information System and Accounting of State Property (SIMAK-BMN). SAI is

designed to generate a Unit Working Financial Statement consisting of Budget Realization

Reports, Balance Sheet, Operations Report, and Statement of Changes in Equity. While

SIMAK-BMN is a system that produces information of fixed assets, inventories, and other

assets for the preparation of balance sheets and reports of state property and other managerial

reports

Preparations of Financial Reports of the Project for Accelerating the Provision of

Infrastructure through Better Technical Service (PPT) and as a reference for Financial

17

Administration Reporting are:

• Director General of treasury’s Regulation No. Per-14/PB/2014

• Law Number 17 of 2003 on State Finance

• Law Number 1 of 2004 on State Treasury

• Government Regulation (PP) Number 71 of 2010 of the Governmental Standard Accounting

• Minister of Finance’s Regulation Number 171/PMK.05/2007 as amended to Minister of Finance’s Decree Number 233/PMK.05/2011 on Central Government’s Financial Accounting and Reporting System.

• Minister of Finance Regulation No. 222/PMK.05/2016. on Guidelines for the Preparation and Submission of Financial Statements of State Ministries/Agencies

• Presidential Regulation (PerPres) Number 54 of 2010 concerning Procurement of Goods/Services as amended a number of times and the last amendment was Presidential Regulation Number 70 of 2012

• ADB Guidelines on Goods and Services Procurement

• Loan Agreement between ADB and the Government of Indonesia

• General Unit Price and Basic Unit Price for Activities (HSU & HSPK).

A.6 Base of Accounting

ESP adopts an accrual basis in preparing and presenting the Balance Sheet, Operations

Report and Statement of Changes in Equity and cash basis for the preparation and presentation

of the Budget Realization Report. The accrual basis is an accounting basis that acknowledges

the effect of transactions and other events at the time the transactions and events occur,

regardless of when cash or cash equivalents are received or paid. While the cash basis is the

basis of accounting that recognizes the effects of transactions or other events when cash or cash

equivalents are received or paid. This is in accordance with Government Accounting Standards

(SAP) that has been established with Government Regulation No. 71 of 2010 on Government

Accounting Standards on Accrual Basis.

A.7 Basic Measurement

Measurement is the process of determining the value of money to recognize and include

each component in the financial statements. The measurement basis adopted by Accelerating

Infrastructure Delivery Through Better Engineering Services Projecting preparing and

presenting the Financial Statement is to use historical value.

18

Assets are recorded at the expense / use of economic resources or at fair value of the

benefits provided for acquiring the asset. Liabilities are recorded at the fair value of economic

resources used by the government to meet the obligations concerned.

The measurement of financial statement items uses Rupiah currency. Transactions using

foreign currencies are converted first and denominated in rupiah.

A.8 Accounting Policies

The preparation and presentation of the 2017 Financial Statements has been referred to

Government Accounting Standards (SAP) on Accrual Basis. The accounting policies are the

principles, basics, conventions, rules and specific practices chosen by a reporting entity in the

preparation and presentation of financial statements. The accounting policies adopted in these

financial statements is the policies established by the Accounting and Financial Reporting

Board, which are reporting entities of the Jayapura Special Accounting Office. In addition, in

the preparation has been an applied rule of sound financial management within the government

environment.

The significant accounting policies used in the preparation of the Financial Statements

of the Accelerating Infrastructure Delivery Through Better Engineering Services Projecting as

follows:

A.8.1 Revenue-LRA

• Revenue-LRA is recognized when the cash is received in the State Treasury (KUN).

• Revenue-LRA accounting is executed on gross basis, by posting gross receipts, and not

recording the net amount (after being offset).

• Revenue-LRA is presented according to the classification of revenue sources.

A.8.2 Revenue-LO

• LO revenues are recognized when the right to revenue and / or income is realized, is the

flow of economic resources.

• Revenues that are used to fund operational activities are not used for neither the capital

expenditure of goods nor fixed assets.

• Revenue from Building Rentals is recognized proportionally between the value and

period of rent.

• Revenue from Fines is recognized the moment when the fine verdict is published or

respectful documents.

19

• LO revenue accounting is based on gross principle, by posting gross receipts, and not

recording the net amount (after being compensated by expenditures).

• Revenue is presented according to the classification of sources of income.

A.8.3 Expenditure

• Expenditures are recognized when a cash outflow is made from KUN.

• Specifically for expenditures through the expenditure treasurer, expenditure recognition

occurs when the accountability of such expenditures is authorized by the State Treasury

Office (KPPN).

• Expenditures are presented by economic classification / type of expenditure and

subsequent classifications by organization and function will be disclosed in the Notes to

the Financial Statements.

A.8.4 Expenses• Expenses states the decline in economic benefits or potential services in the reporting

period that decrease the equity, which may be the expenditure or consumption of assets

or the incurrence of liabilities.

• Expenses are recognized when an obligation is incurred; asset consumption occurring;

the decline in economic benefits or potential services.

• Expenses are presented under the economic classification / type of expenditure and

subsequent classifications by organization and function are disclosed in the Notes to the

Financial Statements.

A.8.5 Assets

Assets are classified into Current Assets, Fixed Assets, Long-Term Receivables and Other

Assets.

a. Current assets

• Cash is presented on the balance sheet using nominal value. Cash in foreign currencies

are presented on the balance sheet using the middle rate of BI at the balance sheet date.

• BLU’s Short-term Investment in securities is stated at cost, while investments in time

deposits are recorded at nominal value.

• Receivables are recognized if they meet the following criteria:

i. Receivables arising from the Treasury / Indemnification Demand if there a rise

rights that are backed by an Absolute Liability Statement and / or have been issued

a decree which has permanent legal force.

20

ii. Accounts receivable arising from receivables are recognized in the event of a

claiming event and are endorsed by a treaty which expresses rights and obligations

clearly and the amount can be measured reliably

• Receivables are presented on the balance sheet at a realizable value. This is realized by

establishing an allowance for doubtful accounts. The allowance is based on the quality

of receivables determined on the basis of maturity and collection efforts by the

government. The allowance is as follows:

Table 4. Allowance According to Quality of Receivables Quality of Receivables Description Allowance

Current Unpaid until due date 0.5%

Substandard Unpaid until one month commencing from the date of the First Billing Letter 10%

Doubtful Unpaid until one month from the date of the Second Billing Letter 50%

Loss

Unpaid until one month from the date of Third Billing Letter 100% Receivables have been submitted to the State Receivables

Management Committee/DJKN

• Claims on Installment Sales (TPA) and Compensation / Compensation Claims

(TP/TGR) which will mature 12 (twelve) months after the balance sheet date are

presented as Current Section TP/TGR or Current Section of TPA.

• Inventory Value is recorded based on the results of the physical inventory at the balance

sheet date multiplied by:

o the latest purchase price, if obtained by purchase;

o standard price if obtained by self-production;

o fair price or estimated sales value if obtained by other means.

b. Fixed assets

• Fixed assets include all tangible assets utilized by the government as well as for the

public interest which has a useful life of more than 1 year.

• The value of Property and Equipment is presented at cost or fair value.

• The recognition of fixed assets is based on the value of the minimum unit of

capitalization as follows:

i. Expenditures per unit of equipment and machinery and exercise equipment equal

to or more than Rp300.000,00 (three hundred thousand rupiahs);

ii. Expenditures on buildings and buildings of value equal to or more than

Rp10.000.000,00 (ten million rupiahs);

21

iii. Expenditures not covered by the minimum capitalization limits mentioned

above, are treated as expenses except land, road / irrigation / network

expenditures, and other fixed assets in the form of library and artwork

collections.

• Fixed Assets not used in government operations due to, among other things, being worn

out, out of date, not in accordance with the needs of the growing organization, severely

damaged, incompatible with the general spatial plan (RUTR), or the useful life has

ended up reclassified to Other Assets on Other Assets item.

• Fixed assets that are permanently discontinued are removed from the balance sheet at

the time of any proposed removal from the entity in accordance with the provisions of

legislation in the management of BMN / BMD.

c. Depreciation of asset

• Depreciation of property and equipment is a value adjustment in relation to the decrease

in the capacity and benefits of a fixed asset.

• Depreciation of property and equipment is not carried out against:

i. Soil

ii. Construction in Progress

iii. Fixed Assets declared to be lost on the basis of valid source documents or in

conditions of serious damage and / or obsolescence that have been proposed to

the Goods Manager for removal

• Calculation and recording of Depreciation of Fixed Assets shall be done at the end of

each semester without taking into account the residual value.

• Depreciation of Property and Equipment is carried out using the straight-line method by

allocating depreciable value from fixed assets equally each semester during the Benefit

Period.

• The Period of Benefit of Property Assets is determined based on Decree of the Minister

of Finance Number: 59 / KMK.06 / 2013 concerning Table of Benefit Period in the

Framework of Depreciation of State Property in the form of Fixed Assets in Central

Government Entities. In general, the useful life table is as follows:

Table 5. Classification Fixed Assets based on its Useful Life

Group of Fixed Assets Useful Life/Benefits Age

Equipment and Machines 2 until 20 years

Building 10 until 50 years

Road, Network and Irrigation 5 until 40 years

Other Fixed Assets 4 years

22

d. Long Term Receivables

• Long-term Receivables are expected/scheduled receivables within a period of more than

12 (twelve) months after the date of reporting.

• Claims on Installment Sales (TPA), Claim for Treasury/Compensation Claims

(TP/TGR) are valued at face value and presented at the realizable value.

e. Other Assets

• Other assets are government assets other than current assets, fixed assets, and long-term

receivables. Included in Other Assets are intangible assets, installment sales receipts

with maturities of more than 12 (twelve) months, assets of cooperation with third parties

(partnership), and restricted cash.

• Intangible Assets (ATB) are presented at their net carrying amount at cost less the

accumulated amortization.

• Amortization of ATB with limited useful life is done on a straight-line method and

residual value of nil. While on ATB with unlimited period of service is not made

amortization.

• The Period of Benefit of Intangible Assets is determined by the Decree of the Minister

of Finance No. 620/KM.6/2015 on the Period of Benefit for the Amortization of State

Assets in the form of Intangible Assets in Central Government Entities. In general, the

useful life table is as follows:

Table 6. Classification of Intangible Assets based on its Useful Life Intangible Assets Group Useful Life (years)

Computer Software 4

Francize 5

License, Simple Patent, Brand, Industrial Design, Trade Secret, Layout Design of Integrated Circuit.

10

Economic Rights of Broadcasting Institutions, Patent Ordinary, Variety Protection of Annual Plants.

20

Copyright of Applied Art Works, Annual Plant Variety Protection 25

Copyright on Creation Gol.II, Economic Rights Performer Performance, Economic Rights of Producer Phonogram. 50

Copyright on Creation Gol.I 70

• Other Assets in the form of government fixed assets are presented at book value that

is cost subtracted by accumulated depreciation.

23

A.8.6 Liabilities

Liability is debt arising from past events whose settlement resulted in a flow of

government economic resources. Government obligations are classified into short-term

liabilities and long-term liabilities.

• Short-term Liabilities

An obligation is classified as a short-term liability if they are expected to be paid or due

within twelve months after the date of reporting.

Short-term obligations include Debt to Third Parties, Expenditures that are Paid, Revenue

Received Advance, Current Section of Long-Term Debts, and Other Short-Term Debts.

• Long-term obligation

A liability is classified as long-term liabilities if they are expected to be paid or is due for

more than twelve months after the date of reporting.

Liabilities are recorded at nominal value, which is the value of government liabilities at the

first transaction.

A.8.7 Equity Equity represents the difference between assets and liabilities in a period. Further

disclosures of equity are presented in the Statement of Changes in Equity.

24

B. EXPLANATION ON POST BUDGET REALIZATION REPORT

The 2017 DIPA for ESP based on the source of income and type of expenditure is given

below:

2017 Budget Description Budget (Rp)

Acquisition of Financing:

Government of Indonesia

ADB Loan no.3455 INO: 29,597,189,000.00

a) DGWR 14,461,404,000.00

b) DGH 5,007,140,000.00

c) DGHS 10,128,645,000.00

Total Amount of Acquisition of Financing 29,597,189,000.00

EXPENDITURES:

Goods and Services Expenditure 13,547,189,000.00

a) DGWR 5,561,404,000.00

b) DGH 1,257,140,000.00

c) DGHS 6,728,645,000.00

Capital Expenditure 16,050,000,000.00

a) DGWR 8,900,000,000.00

b) DGH 3,750,000,000.00

c) DGHS 3,400,000,000.00

Social Expenditure

Total Expenditure 29,597,189,000.00

B.1 Operational Expenditure

The realization of ESP expenditures in 2017 is Rp14,009,342,920.00 or 47.33% of the

budget of Rp29,597,189,000.00. The details of the budget and the realization of expenditures in

2017 are as follows:

Details of Expenditure Estimation and Realization in 2017

Description

FY 2017 % of Budget

FY 2016

Budget (Rp) Realization (Rp) Realization (Rp)

Goods and Services Expenditure 13,547,189,000.00 6,628,644,620.00 48.93

a) DGWR 5,561,404,000.00 -

b) DGH 1,257,140,000.00 -

c) DGHS 6,728,645,000.00 6,628,644,620.00 98.51

Capital Expenditure 16,050,000,000.00 7,380,698,300.00 45.99

a) DGWR 8,900,000,000.00 4,880,698,300.00 54.84

25

Description

FY 2017 % of Budget

FY 2016

Budget (Rp) Realization (Rp) Realization (Rp)

b) DGH 3,750,000,000.00 2,500,000,000.00 66.67

c) DGHS 3,400,000,000.00

Total Expenditures 29,597,189,000.00 14,009,342,920.00 47.33

The realization in FY 2017 Expenditures increased by 100% compared to actual

expenditure in the previous year.

B.1.1 Goods and Services Expenditure

The goods and services expenditure is used for the shopping/expenditure of Project

Management Consultants (PMC). According to the loan agreement of ADB No. 3455-INO there

is a separate expenditure category for consultant services, whereas this is used for PMC. The

amount of Goods and Services Expenditure for 2017 is Rp6,628,644,620.00.

�

B.2 Capital Expenditure

Actual capital expenditures for FY 2017 and FY 2016 are Rp1,308,232,120.00 and

Rp0.00, respectively. Capital expenditures represent budgetary expenditures for Consultant

Expenditure whose costs should be capitalized into the intangible assets because the consultant

work that is preparation of DED, LARAP, and FS can be categorized as intangible assets as

they can be used for more than one year after completion.

Capital expenditure realization in FY 2017 is increased by 100% compared to FY 2016

due to the start of procurement consultants in 2017.

Comparison of the Capital Expenditures of 2017 and 2016:

• Payment for Capital Expenditure for Machinery Equipment with a total or

Rp7,380,698,300.00 which is comprised of:

a. A payment total of Rp1,308,232,120.00 for Milestone 1 for Project

Preparation of the consultants for DED, LARAP, Feasibility Study and

Environmental Impact Assessment (EIA or better known as AMDAL) for

Jragung Multi-purpose Dam awarded to PT Indra Karya Persero, for the

payment of the Inception Report and cost of consultant for preparation of

making DED, FS, LARAP and AMDAL must be capitalized to Intangible

Assets in Progress. The comparison of Capital Expenditures for Intangible

Assets for FY 2017 and 2016 is given as follows.

26

Description Realization FY 2017 Realization FY2016 Increase/ (Decrease)

Capital Expenditure (Intangible Assets in Progress) 1,308,232,120.00 0 100%

Amount 1,308,232,120.00 0 100%

b. A payment total of Rp3,572,466,180.00 as advance payment for activities in

PIU 3 Center of Dams, DGWR, MPWH.

c. A payment total of Rp2,500,000,000.00 as advance payment for

Administration Assistance and Implementation of the Management of

International Loan and Grant, DGH, MPWH.

B.2.1 Capital Expenditures on Equipment and Machinery

Capital Expenditures on Office Equipment and Machinery for 2017 is as much as

Rp4,880,698,300.00. The Realization of Capital Expenditures for Machinery is

Rp1,308,232,120.00. Derived from the payment of consultants for the preparation and

establishment of DED, AMDAL, FS, and LARAP for Jragung Multipurpose Dam Project which

is won by Indra Karya Persero. The expenditures for preparation of DED, AMDAL, FS, and

LARAP will all be capitalized as Intangible Assets in Progress and the amortization will be

accounted for after the completion of each document.

As much as Rp3,572,466,180.00 is still in the form of advance payment, and is not

categorized as fixed assets. In the first term, the value of advance payment will decrease and

acquired as assets in progress. The comparison of the Realization of Capital Expenditures on

Equipment and Machinery for 2017 and 2016 is given in the following table.

Comparison of Equipment and Machine Realization in year 2017 and 2016

Description Realization in 2017

Realization in 2016

Increase/ (Decrease)

Advance Payment for Capital Expenditures of Office Equipment and Furniture

3,572,466,180.00 - 100%

Payment For Other Capital Expenditure 1,308,232,120.00

Capital Expenditures of Office Equipment and Furniture

4,880,698,300.00 - 100%

Return of Equipment and Furniture expenditure - - -

Total Expenditure 4,880,698,300.00 - 100%

27

B.2.2 Capital Expenditure on Roads, Irrigation and NetworksRealization Capital Expenditure for Road, Irrigation and Network Expenditures of FY

2017 and FY 2016 amounted to Rp2,500,000,000.00 and Rp0,00 respectively. The funds from

the loan can only be used for the procurement of consultants to establish DED, FS, LARAP, and

AMDAL. In the first term, the value of the advance payment will decrease and acquired as

assets in progress.

Comparison of Capital Expenditure of Irrigation and Network Roads Realization in year 2017 and 2016

Description Realization in 2017

Realization in 2016

Increase/ (Decrease)

Capital Expenditures of Office Equipment and Furniture

2,500,000.000.00 - 100%

Total Gross Capital Expenditure 2,500,000,000.00 - 100%

Return of Equipment and Furniture expenditure

- - -

Total Expenditure 2,500,000,000.00 - 100%

B.2.3 Other Capital Expenditures

Other Capital Expenditures are the expenditures that are not classified within the criteria

of capital expenditures for Land, Equipment and Machinery, Buildings, and Networks (Roads,

Irrigation, etc.). In the FY 2017, other capital expenditures according to the DIPA is

Rp500,000,000.00.

B.3 Acquisition of Financing

Realization of Acquisition of Financing for ESP for the period ending on December

31st 2017 is Rp14,009,342,920.00 or 47.33% of the total DIPA that is Rp29,597,189,000.00.

This realization is derived from the ADB loan for the PMC component in DGH and DGHS, and

the Project Preparation Consultant (PT Indra Karya) for the establishment of FS, DED,

AMDAL, and LARAP for the Jragung Multi-purpose Dam Project.

28

C. EXPLANATION OF BALANCE SHEETS

C.1 Current Assets

C.1.1 Advance Payment

Advance Payment Expenditures as of December 31, 2017 and 2016 amounted to

Rp12,701,110,800.00 and Rp 0.00 respectively. Advance Payment are rights that must still be

received after the balance sheet date as a result of the goods/services that have already been paid

in full but not yet received entirely. The details of Advance Payment are as follows:

Advance Payment Details on FY 2017 and 2016

Description 2017 2016

PT Smec International (PMC on Bina Marga/DGH) 2,500,000,000.00 -

PT. Indra Karya (Persero) DED Consultant for Jragung Multipurpose Dam Project on DGWR

3,572,466,180.00

-

PT Ciria Jasa (PMC on Cipta Karya/DGHS) 6,628,644,620.00 -

Total 12,701,110,800.00

C.2 Fixed Assets

C.2.1 Office Equipment and Furniture

The balance of office equipment and furniture as of December 31st, 2017 and 2016 is

Rp0.00 and Rp0.00. This is because the PMC have yet to establish any spending on the

procurement of office equipment nor furniture, although it has already been allocated in the

advance payment.

C.2.2 Buildings

Building values as of December 31st, 2017 and 2016 are Rp0.00 and Rp0.00. Within

ADB Loan No. 3455 INO, there is no allocation for the procurement of buildings.

C.2.3 Roads, Irrigation, and NetworksThe balance for Road, Irrigation and Networks as of December 31st, 2017 and 2016

amounted to Rp0.00 and Rp0.00 respectively, due to the fact that ADB loan no. 3455 did not

allocate any funds for physical procurement of road construction, irrigation and its network.

C.2.4 On-going Construction (KDP)

The balance for on-going construction as of December 31st, 2017 and 2016 amounted

to Rp0.00 and Rp0.00 respectively. Absence of On-going Construction is because there is no

allocation of funds for procurement of categories for physical procurement in building,

irrigation, dam and network in ADB Loan No. 3455 INO.

29

C.2.5 Accumulated Depreciation of Fixed Assets

The accumulated depreciation balance of fixed assets as of December 31st, 2017 and

2016 amounted to Rp0.00 and Rp0.00 respectively. Accumulated Depreciation of Fixed Assets

is a systematic allocation of the value of a fixed asset depreciated over the useful life of the

asset except for Land and On-going Construction. Details of the Accumulated Depreciation of

Fixed Assets as of December 31st, 2017 are as follows:

Details of Accumulated Depreciation of Fixed Assets FY 2017 and 2016

No Fixed Assets Acquisition Value Accumulated Depreciation Book Value

1 Equipment and Machinery - - -

2 Building - - -

3 Road, Irrigation & Network - - -

4 Other fixed assets - - -

Accumulated Depreciation - - -

C.3 Other Fixed Assets

C.3.1 Intangible Assets

Intangible assets are identifiable and owned assets, but have no physical form. The

balance of Intangible Assets (ATB) as of December 31st, 2017 and December 31st, 2016 are

both Rp0.00.

C.3.2 Intangible Assets in Progress

Intangible Assets in Progress within ESP are attained from implementation progress by

PT Indra Karya (Persero) Consultants that is the establishment of DED, FS,AMDAL, and

LARAP of Jragung Multipurpose Dam Project. The transactions and cash flow on Intangible

Assets at the reporting date is as follows:

Balance Acquisition Price per December 31st, 2016 0

Added Mutation :

Purchasing Rp1,308,232,120.00

Decreasing Mutation :

Balance per December 31st, 2017 Rp1,308,232,120.00

Accumulated Depreciation until December 31st, 2017 0

Book Value per December 31, 2017 Rp1,308,232,120.00

Mutation added: Payment of Milestone 1 for Inception Report of PT Indra Karya

(Persero) Consultant firm for Preparation of Jragung Multipurpose Dam Project worth

Rp1,308,232,120.00.

30

C.3.3 Accumulated Depreciation and Amortization of Intangible Assets

The accumulated balance of other asset depreciation as of December 31st, 2017 and

2016 is Rp0.00 and Rp0.00 respectively. The intangible assets that are derived from the

procurement process of DED, AMDAL, LARAP, Feasibility Study for the development of

Multipurpose Dam has not been amortized because it is still under progress and will be

amortized only after the completion of the contract. Accumulated Depreciation of Other Assets

is the counter of other Asset Accounts which are presented based on the accumulated value

adjustment in relation to the decrease in capacity and benefits of Other Assets. Details of

Accumulated Depreciation of Intangible Assets as of December 31, 2017 are as follows:

Details of Accumulated Depreciation and Amortization of Other Intangible Asset

Fixed Assets

Price Acquisition

Accumulated Depreciation/ Amortization

Book Value

Other Assets:

DED, LARAP, FS, AMDAL Rp1,308,232,120.00 0 Rp1,308,232,120.00

Total Rp1,308,232,120.00 0 Rp1,308,232,120.00

The amortization of ATB with a limited useful life is done using the straight-line

method and the residual value of zero. While for ATB with unlimited period of service,

amortization is not needed.

C.4 Short-term Liabilities

The Value of Debt to Third Parties as of December 31st, 2017 and 2016 amounts to

Rp0.00 and Rp0.00respectively. Debt to Third Parties is an outstanding liability and will be

settled to other third parties in less than 12 (twelve months) from the date of reporting.

C.5 Equity

Equity as of December 31st, 2017 and 2016 amounted to Rp14,009,342,920.00 and

Rp0.00 respectively. Equity is the net worth of an entity which is the difference between assets

and liabilities. More details on equity are presented in the Statement of Changes in Equity.

31

D. CEXPLANATION OF OPERATIONAL REPORT POST

D.1 Non-Tax State Revenue

Revenues as of December 31st, 2017 and 2016 amounted to Rp0.00 and Rp0.00. No

operational expense has been incurred since it is still an advance payment for the PMC

consultant and for the payment for PT Indra Karya (Persero) for milestone 1 which is the

implementation of the AMDAL, DED and LARAP preparations for Jragung Multipurpose Dam

Project which are now up to the Inception Reports phase, which will be capitalized as intangible

assets in progress.

D.2 Employee Expenses

Total Employee Expenses in 2017 and 2016 amounted to Rp0.00 and Rp0.00

respectively. Employee Expenses are the expense of compensation, in the form of money or

goods stipulated under the laws and regulations granted to state officials, Civil Servants (PNS),

and Non Civil Servant employees. There is no salary expense for civil servants because no part

of this ADB loan nor are there counterpart funding from the Indonesian government for civil

servant salary payments within ESP.

D.3 Inventory Expenses

Total Inventories Expense in 2017 and 2016 amounted to Rp0.00 and Rp0.00

respectively. Inventory Expense is used to record consumption of consumables, including both

marketed and non-marketed products. No amount of fund from this ADB loan is allocated for

the purchase of inventory, since loan funds are allocated only for consultancy of DED, LARAP,

AMDAL Feasibility study, purchasing office equipment and furniture and related expenses to

conduct training by the Project Management Consultant.

D.4 Depreciation and Amortization Expense

Total Depreciation and Amortization Expenses for the years 2017 and 2016 amounted

to Rp0.00 and Rp0.00 respectively. Depreciation Expense is an expense to record the systematic

allocation of the value of a depreciable asset over the useful life of the asset. Meanwhile

Amortization Expense is used to record the allocation of decreased economic benefits for

Intangible Assets. For 2017, the ADB loan gives no allocation of funds for the physical

procurement of buildings, roads, bridges and dams so there is no depreciation cost for such

tangible fixed assets. Amortization of intangible assets has not been made since it is still in the

32

process of making DED, FS, AMDAL, and LARAP analysis by consultant and not yet

completed in terms of the contract by both time and result.

33

E. EXPLANATION OF STATEMENTS OF CHANGES IN EQUITY

E.1 Initial Equity

The value of shareholders' equity, that is the Government of Indonesia, as of January 1st

2017 is Rp0.00, even though the effective date of the ADB loan no. 3455-INO is December

24th, 2016.

E.2 Transactions between Entities

The value of transactions between entities correlates to the disbursement of ADB loan

no. 3455-INO, that is Rp14,009,342,920.00.

E.3 Surplus (Deficit) LO

Total Surplus as of December 31st 2017 is Rp0.00.

E.4 Final Equity

Value of Equity as of December 31st 2017 is Rp14,009,342,920.00.


OVERVIEW OF THE AUDIT

1. Audit Legal Basis

a. Law Number 15 of 2004 regarding State Financial Management and Accountability Audit;

b. Law Number 15 of 2006 regarding Audit Board;

c. Loan Agreement of Accelerating Infrastructure Delivery through Better Engineering Services Project (AIDBES) Project between Republic of Indonesia and Asian Development Bank (ADB) No. 3455-INO Article IV (Particular Covenants) section 4.05 (a).

2. Audit Objectives

The Audit on the Financial Statements of AIDBES/ESP is conducted to express opinion on the Consolidated Financial Statements of ADB Loan No. 3455-INO as of December 31, 2017. In accordance with the Loan Agreement of Accelerating Infrastructure Delivery through Better Engineering Services Project (AIDBES/ESP) between the Republic of Indonesia and ADB Section 4.05.(a), which states, among other things, that the audit to express an opinion shall be performed by taking into account the following matters:

a. Assessment of the internal control system and its compliance with the government accounting standards in relation to the expenditures and other transactions;

b. Assessment of the adequacy of evidences supporting the implementation of funds disbursement procedures; and

c. Assessment of the compliance of project implementation with the loan agreement and the provisions set forth in the Loan Agreement and other applicable regulations.

3. Audit Target

Target of the audit is the Financial Statements of AIDBES/ESP ended as of December 31, 2017, including the overall implementation of AIDBES activities, such as the source and use of funds by the Secretariat General of the Ministry of Public Works and Public Housing as Executing Agency (EA), supported by the following implementing organizations:

a. Steering Committee, chaired by the Secretary General, with the committee members comprising of the Director General of Water Resources, Director General of Highways, Director General of Human Settlements, and Director General of Construction Development;

b. Project Coordination Office (PCO) is a coordination team under the Secretariat General;

c. Project Management Office (PMO) comprising of Directorate General of Water Resources (SDA), Directorate General of Highways, and Directorate General of Human Settlements; and

d. Project Implementation Unit (PIU) comprising of the relevant technical/central directorates.


4. Audit Standards

Regulation of BPK RI Number 1 of 2007 regarding State Finance Auditing Standards (SPKN).

5. Audit Method

The audit on the Financial Statements of AIDBES/ESP as of December 31, 2017 has been performed with the following approaches:

a. Risk Approach

The methodology applied in the performance of the audit on the Financial Statements of AIDBES/ESP Year 2017 is the risk approach, based on comprehension and testing of the effectiveness of internal control system for the preparation of Financial Statements.

The results of such a comprehension and testing will determine the reliability level of management assertion and implementation of the applicable policies, plans and procedures.

The audit risk that is determined simultaneously with the reliability level of risk control (control risk) and the inherency level (inherent risk) of the entity to be audited can be used as a reference in determining the expected detection risk and number of tests to be conducted as well as in determining the focus of the audit.

b. Materiality

The materiality level in the overall financial statements is determined at 3.13% of the FY 2017 expenditure realization. The aforementioned materiality standard shall not applicable to any deviations containing the elements of collusion, corruption and nepotism (KKN) as well as any violations of law.

c. Audit Sampling

This audit is conducted by means of sample testing on the transactions within the population to be tested. The conclusions of the audit will be obtained based on the sampling results to be used as the basis for describing the conditions of the population. In this audit, the auditors determine the extent of samples based on the results of risk assessment which has been performed with due observance of the adequacy of number of samples selected both in terms of rupiah amount and the transaction type.

6. Audit Period

The audit was conducted for 20 days as from April 24, 2018 up to May 22, 2018 based on the Assignment Letter from BPK RI Number 25/ST/VI/04/2018 dated April 6, 2018.

7. Audit Objects

The audit was conducted on the Financial Statements of AIDBES/ESP Year 2017 in the form of Consolidated Financial Statements for the year ended as of December 31, 2017.

8. Audit Limitations

All information presented in the financial statements is the responsibility of the management. Therefore, BPK is not responsible for misinterpretation and possible effects of the omission of information either intentionally or unintentionally by the management.


An audit by BPK includes procedures designed for providing reasonable assurance in detecting any errors and misrepresentations that materially affect the financial statements. An audit by BPK is not aimed at finding errors and irregularities. However, if any irregularities are found in the audit, they will be disclosed.

In conducting the audit, BPK also recognizes the possible existence of any unlawful acts. However, the audit by BPK provides no assurance that all unlawful acts will be detected and gives only reasonable assurance that the unlawful acts, which directly and materially affect the amounts stated in the financial statements, will be detected. BPK will inform about any possible unlawful acts or material errors/deviations found during the course of the audit.

In carrying out a testing of compliance with statutory regulations, BPK only tests compliance of the agency with the statutory regulations directly related to the preparation of the financial statements. This does not rule out the possibility that there is still unidentified non-compliance with the regulations.

AUDIT BOARD OF

THE REPUBLIC OF INDONESIA

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