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Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 22443-ID

IMPLEMENTATION COMPLETION REPORT(CPL-38010; SCL-3801A; SCPD-3801S)

ONA

LOAN

IN THE AMOUNT OF US$25.0 MILLION

TO

INDONESIA

FOR

ACCOUNTANCY DEVELOPMENT II

June 27, 2001

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 31, 2001)

Currency Unit = Indonesia Rupiah (Rp)Rp 1 million = US$ 89.29

US$ 1.00 = Rp 11,200

FISCAL YEARJanuary 1 December 31

ABBREVIATIONS AND ACRONYMS

BAKUN State Financial Accounting AgencyBAPEPAM Capital Markets Supervisory AgencyCAS Country Assistance StrategyDJLK Directorate of Supervisory for Accountant and AppraisalIAI Indonesia Accountancy InstitateICR Implementation Completion ReportGAS Government Accounting SystemGFS Government Financial StatisticsKARs Regional offices of BAKUNKPKN Treasury OfficeKTUA Budget Administration OfficeMOF Ministry of FinancePAN Budget Realization ReportPSSU Project Management OfficeROSCs Report on the Observations of Standards and CodesSGV A consulting firm based in the Phillippines

Vice President: Jemal-ud-din KassumCountry Director: Mark Baird

Sector Director: Honil KharasTask Manager: Nancy Chen

FOR OFFICIAL USE ONLY

INDONESIAACCOUNTANCY DEV H

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 86. Sustainability 97. Bank and Borrower Performance 128. Lessons Learned 159. Partner Comments 1610. Additional Information 16Annex 1. Key Performance Indicators/Log Frame Matrix 18Annex 2. Project Costs and Financing 20Annex 3. Economic Costs and Benefits 22Annex 4. Bank Inputs 23Annex 5. Ratings for Achievement of Objectives/Outputs of Components 24Annex 6. Ratings of Bank and Borrower Performance 25Annex 7. List of Supporting Documents 26Annex 7b. Comments By Bakun on the Government Accounting System 27

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

Evaluation Summary

The Second Accountancy Development Project was a follow-on project to a number of projects initiated since 1979.The Project negotiations started in late 1993 and culminated in Board approval in September 1994. The Projectbecame effective in December 1994. At project closure, the total cost was $19.63 million compared to an estimateof $25 million at Project appraisal.

Overall Ratings

The Project had two components: the modemization of the Government accounting system (GAS II) and theenhancement of accounting and auditing standard-setting and enforcement. The first component is ratedunsatisfactory, while the second component is rated satisfactory despite some weaknesses in enforcement. Theoverall rating for the Project is unsatisfactory because performance indicators relating to factors such as (i)outcome, (ii) sustainability, and (iii) institutional development impact are either unsatisfactory, unlikely, ormodest, while the Bank's overall performance is unsatisfactory. The Borrower's performance is the only factorthat is rated satisfactory; however, it is a borderline rating as there are some reservations about the leadershipquality of the implementing agency and the commitment by the Government of the resources necessary for a fullrollout of the first component. In addition, approximately three fourth of the project funds were spent on the firstcomponent-the modemization of Government accounting system.

For these reasons, the Evaluation Summary focuses mainly on issues raised and lessons leamed from the firstcomponent, although some of the lessons are equally applicable to the second component.

Project Objectives

The objectives of the Project were (i) to support the Govemment's strategy to modemize govemment accountingsystems, and (ii), to enhance the credibility and usefulness of financial information for private and public sectorenterprises through the implementation of rigorous qualifying examinations for public accountants, acomprehensive set of accounting and auditing standards, and the enforcement of these standards.

The Project's overall objectives were consistent with the Bank's Country Assistance Strategy (CAS) for Indonesia.The Project supports the thrust of the CAS with its emphasis on modemizing government accounting informationsystems, and enhancing the credibility and usefulness of financial information for both the public and privatesector enterprises.

The modernization of the Government accounting system component aimed to improve the timeliness, accuracyand completeness of accounting reports available to agencies' management, the Government, and Parliament tostrengthen their decision-making capacity and accountability. Although this component has been consistentlyrated as satisfactory in the Project Status Reports (PSRs) until the December 2000 PSR, it did not and still has notachieved its original objective of improved timeliness, accuracy and completeness of financial reports to theprimary users, namely, the Govemment and the Parliament. This is due to the fact that the design was flawedfrom its inception, when the concepts and scope of the new government accounting system were proposed by SGV,the consultants who prepared a report as part of the First Polytechnic Project (1979-1984). The ambitious andimpractical nature of the proposal went unnoticed in subsequent years through the Second Polytechnic and FirstAccountancy Development Projects. This deficiency was not recognized because of a number of factors:

I. Inappropriate skill mix of the team during the design and supervision stages of the First and SecondAccountancy Development Projects. The team did not include staff with experience in public sector accountingwho would have realized that while the proposed concepts of double entry bookkeeping and balance sheetaccounting are appropriate for private sector organizations, their application in a public sector environment,especially in a large and geographically diverse country like Indonesia, was a very high risk proposition. Thiswas particularly true given the scarcity of human resources who have the skills to undertake such a task inIndonesia.

2. The Second Accountancy Development Project was treated as a pure Information Technology (IT) project,namely, the conversion of programs and hardware onto a more modem, flexible, and nonproprietary platformand application software.

3. Even if it could be argued that the design was initially appropriate because the system was a 100 percentmanual system, the potential for significant problems to develop began as far back as 1989, when the decisionwas made to convert this manual design to a computerized system without a thorough review of its scope andstructure, and of the risks involved in such a large computer development project.

4. The lack of such a review may have reflected the general belief at the time that information technology was thesolution for improved efficiency through the development of systems that can handle large volumes of similartransactions. While this may be correct as a generalization, the importance of controls over input processing,such as account coding in a centralized computer system, was overlooked, and an understanding of basicaccounting controls was lacking by operators of the proposed system.

The second component achieved its stated objectives satisfactorily despite some reservations regarding theenforcement of standards, particularly relating to nonlisted private sector enterprises. However, it should be notedthat enforcement of standards is a common problem everywhere. The design should have allowed time to"socialize" the new standards before enforcement.

Summary of Findings, Future Operations and Key Lessons Learned

As the objective of the first Accountancy Development Project component was shifted from one of accountingmodernization to a pure IT focus in the Second Accountancy Development Project, the performance indicators usedfor monitoring purposes became input and process oriented such as deadlines for specifying users' requirements,number of consultants' days and delivery of system/users training. No mention was made in the performanceindicators of the original objective of timely, accurate and complete accounting reports to meet users' needs.

T'he modernization of the Government accounting system has not been realized after since 1988, 12 years ofimplementation. The old pre-GAS I manual system is still in use by BAKUN to produce the PAN (State BudgetRealization) reports to the Government and the Parliament. The plan is to have GAS II ready to produce the PANreports for the year ending 31 December 2002. This is a long implementation period for an accounting system thatis intended to be simple in its functionalities. There is, however, no guarantee that this plan will be achieved,given the current uncertainties arising from the potential impact on systems of a number of recent decisions madeby the Government regarding decentralization, the adoption of full Government Financial Satistics (GFS)classification framework, and the recent reorganization of the Ministry of Finance (MOF) with its planned changesto IT systems for the MOF.

It is therefore important that the focus be shifted back to meeting the needs of GAS II's main users, namely, theGovernment and the Parliament. Timeliness, accuracy and completeness of PAN reports should become the focusof activities, to make the system operational as soon as is practicable. It was recommended that BAKUJN be askedto produce the PAN reports for the period from April to December 2000 by both the GAS II and the pre-GAS Imanual systems. Only bugs relating to PAN reports should be fixed. Once this is done, another interimperformance indicator will be the production of the half-year PAN reports from 1 January to 30 June 2001 usingGAS II. This will be a very useful indicator because it will facilitate the preparation of the actual and forecastreceipts and payments for the year 2001 as the basis for Parliamentary consideration of the 2002 State Budget.

Lessons Learned

Lessons learned arise from a combination of factors that existed at point of entry and during the implementation:

1. There should be an appropriate mix of skills in the design and implementation monitoring teams, to ensurethat project design is appropriate to the needs of users and the country environment and that it remainsrelevant throughout the project cycle. It appears that none of the team members at the various stages of theproject had the requisite public sector experience and understanding that would have been helpful in realizingthe ambitious design scope and the risks of implementation of such a project in a public sector environment.

2. Supervision of all projects, especially those involving multi-year systems development, should be frequent andrigorous. Objective assessments of project status and potential problems should be developed and reported inaide memoires in a timely manner within the Bank and to the Borrower.

3. Large, complex IT projects should be avoided. For accounting systems, off-the-shelf accounting packages are apreferable alternative. Modifications to the software and related business processes may be needed to meet userrequirements. For significant changes to the off-the-shelf packages, pilot testing should be required as a riskmitigation strategy when implementation capacity is limited.

4. Comprehensive risk identification and mitigation strategies should be in place and effectively monitored inany large and complex information systems project.

5. The definition of "system implementation" for an IT project should specify that software consulting servicesmust cover, at a minimum, one full production cycle of not less than three months of "live" production, andthat system acceptance should not be signed off until the system has been implemented in a productionenvironment.

6. The key objective of a project should be reflected in its performance indicators. The performance indicatorsused for monitoring purposes should focus on output and outcome rather than input and processes.

7. It is important to acknowledge that there are no explicit Bank procedures which require that follow-on projectswith complex functionalities should be approved only after successful completion of an ICR. This lack ofBank procedures may have resulted in perpetuating an unsatisfactory project design for an unacceptably longtime.

8. High-level government commitment is crucial for success in any major reform program. This commitment isneeded not only from ministries but also from senior Government officials, who can make or break any reformefforts simply through their participation,or lack of participation.

9. Human resource capacity of the country should be carefully evaluated prior to the provision of Bank advice onmodernization and reforms.

In summary, managing risks associated with complex financial management projects, particularly those in thepublic sector, calls for:

- stronger commitment at the top;? better initial project planning as well as ongoing effective supervision;* strong public sector experience in disciplines relevant to the project; andv more rigorous risk mitigation strategies.

Project ID: P004019 Project Name: ACCOUNTANCY DEV II

Team Leader: Nancy Chen TL Unit: EASFS

ICR Type: Core ICR Report Date: September 18, 2001

1. Project Data

Name: ACCOUNTANCY DEV II L/C/TFNumber: CPL-38010;SCL-3801A;SCPD-3801 S

Country/Department: INDONESIA Region: East Asia and PacificRegion

Sector/subsector: FK - Capital Markets Development; FS - FinancialSector Development

KEY DATESOriginal Revised/Actual

PCD: 09/08/1993 Effective: 12/20/1994Appraisal: 01/04/1994 MTR: 11/15/1997Approval: 09/22/1994 Closing: 12/30/2000

Borrower/Implementing Agency: GOIOther Partners:

STAFF Current At Appraisal

Vice President: Jemal-ud-din Kassum Guatam S. KajiCountry Manager: Mark Baird Marianne HaugSector Manager: Jacques Loubert Peter R. SchererTeam Leader at ICR: Nancy Chen Albert Kennefick, SITA RamaswaniICR Primary Author: Nancy Chen; Thuy Mellor

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=HighlyUnlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: U

Sustainability: UN

Institutional Development Impact: M

Bank Performance: U

Borrower Performance: S

QAG (if available) ICRQuality at Entry: U

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:Context. The Govemment of Indonesia (GOI) had recognized the importance of setting and enforcing standards,and of generally enhancing the quality and reputation of the accounting profession. The GOI had also recognizedthe need for comparable and reliable financial information. Although the Indonesian Accountancy Institute (IAI)had been active over the past few years in drafting accounting and auditing standards, and in strengthening theaccounting profession, its effectiveness had been limited. The underlying reasons for the ineffectiveness arecomplex and include such factors as a lack of strength in its professional membership and a lack ofwell-established processes for drafting, reviewing, and approving standards to be issued.

The First Accountancy Development Project (Loan 2940-IND) was designed to (i) modernize the Government'saccounting system; (ii) improve accounting education and training; and (iii) initiate actions for meeting thefinancial information requirements of capital markets. Near the end of the implementation phase of the firstproject, it was determined that the computerized Govemment Accounting System (GAS), though suitable at thetime, should be enhanced to take advantage of new technology. Specifically, the hardware and application softwareshould be transferred onto an open system platform and relational database management system using fourthgeneration language to ensure its future operational and maintenance viability.

Original Objectives. The objectives of the Second Accountancy Development II project were to support theGovernment's strategy to modernize government accounting information systems, and to enhance the credibilityand usefulness of financial information for private and public sector enterprises through the implementation ofrigorous qualifying examinations for public accountants and a comprehensive set of accounting and auditingstandards, and through the enforcement of these standards.

Assessment of Objectives. The project's overall objectives were appropriate and consistent with the Bank'sCountry Assistance Strategy (CAS) for Indonesia, presented to the Executive Directors on 12 April 1994. Theproject supported the thrust of the CAS with its emphasis on modernizing govemment accounting informationsystems, and enhancing the credibility and usefulness of financial information for both public and private sectorenterprises.

3.2 Revised Objective:

Not applicable.

3.3 Original Components:

Assessment of design/components. The project comprised two components: (i) the modernization of theGovemment Accounting System and (ii) enhancement of private and public sector accounting and auditingstandard-setting and enforcement. Primary activities in the first component included the enhancement andcontinued implementation of the Govemment Accounting System, which was originally designed under the FirstAccountancy Development Project. The second component addressed the Government's need to ensure thatinternationally accepted accounting and auditing standards are issued and enforced for private and listedcompanies. This component was also intended to further develop the quality and credibility of Indonesia'sprofessional accountants through more rigorous testing, licensing and continuing professional education programs.

Component 1: Modernization of Government Accounting System

The objective of this component was to be achieved through the enhancement and continued implementation of anew accounting system that was originally designed in 1985/1986 and implemented under the First AccountancyDevelopment Project and through addressing the Ministry of Finance's (MOF) need to better plan and manage itsdata communications capabilities. As the project was a follow-on to the First Accountancy Development Project,the assumption was that the delivery of new software based on then current Information Technology (IT) tools

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would achieve the (by this time, unstated) objective of improving timeliness, accuracy, consistency, andcompleteness of accounting reports that was first envisaged in 1984 in the proposals prepared by SGV, a consultingfirm based in the Philippines. (Section 11 contains additional background information.)

As the project became effective in December 1994 prior to the closure of the First Accountancy DevelopmentProject (30 June 1995), the project accepted as a given the functional arrangement, accounting framework andcomplex accounting and reporting requirements that were developed in 1985-1987. The fact that it took five yearsto develop and test the first version of the computerized system with very limited implementation and noobservable improvements apparently did not trigger any question about the system's design or the complexity of itsbusiness requirements.

A number of design and implementation weaknesses in the design of Government Accounting System I (GAS I)under the First Accountancy Development Project were carried over in a detrimental manner to the design of theSecond Accountancy Development Project. The unresolved GAS I problems can be summarized as follows:

* Complex functionalities-GAS I was designed as a system with complex functionalities to handle largevolumes of transactions. As such, tight controls should have been developed, but were not, over such activitiesas account coding, timely transmission of data from thousands of local agencies to the Central AccountingSystem and reconciliation of detailed accounting records with cash balances per bank records. Moreover, GASI requires the establishment of a Central State Treasury Accounting System in parallel with the CentralAccounting System. As these two systems maintain records relating to cash balances of the centralGovernment, it is a fundamental control weakness to place them under the control of two different agencieswithout a clear requirement for reconciliation. Consequently, cash balances as shown in the CentralAccounting System may be out of balance with those recorded by the Central State Treasurey AccountingSystem.

* Accounting basis-GAS I required the use of double entry bookkeeping and balance sheet accounting. TheParliament and Government use the single-entry/cash basis of accounting for budgets and appropriations.Since the primary purpose of GAS I was to facilitate the preparation of timely, accurate, consistent andcomplete reports to the Parliament and Government on actual revenues and expenditures for comparison withthe budgeting and appropriation, and since the Parliament and Government expressed no intention ofchanging their single-entry/cash basis of accounting, GAS I should have utilized the same basis. Therefore,the design of GAS I did not reflect a fundamental management principle-namely, that accounting andreporting systems are tools for control and accountability by management. Accordingly, they should follow thesame accounting basis as that adopted by Parliament and the Government in its planning and control ofoperations. It is not sensible to account and report on a different basis since the recipients of the reports do nothave comparable information to judge performance or accountability.

* Level of information-GAS I required that expenditures be distinguished between capital and current items atthe program/project level, whereas the budget appropriations to agencies do not require that detaileddistinction be made.

* Delay in implementation-GAS I was to have been implemented by 30 June 1994. However, theimplementation was delayed.

The design and preparation of GAS II took place before GAS I had been fully implemented and, as a result,the Second Accountancy Development Project became effective in December 1994 prior to the closure of theFirst Accountancy Development Project in June 1995. None of the above problems with GAS I werehighlighted in the Implementation Completion Report (ICR) of the First Accountancy Development Project.

It appears that the above inadequacies in the design and implementation of GAS I were not taken intoconsideration in the design of GAS 11, and thus the inadequacies were carried over to GAS II. During the designand preparation of GAS II, no one questioned:

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* The appropriateness of the functionalities, accounting basis, or level of detail in GAS l; or* The reasons for or implications of the delay in implementation of GAS 1.

Rather than reviewing the adequacy of the underlying framework of GAS 1, it was accepted as the starting point forGAS II, even though it had not yet been implemented. Given the lack of public sector accounting and IT expertisein Indonesia at the time GAS II was designed, the Bank should have recognized the problems inherent in GAS Iand should have advised the Government appropriately during the design of GAS II.

Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement

The objective appropriately responded to Indonesia's political and economic environment with an increasingdemand for transparency and accountability. Issuance and enforcement of accounting and auditing standards areone of the most cost-effective means of promoting transparency and good governance.

One noticeable design weakness was the requirement that the development of each set of standards could beginonly after satisfactory issuance of the previous set. Given the heavy reliance on volunteers in the review and publichearing process, delays in the approval of new standards had eventually led to the cancellation of phase 4 of theconsultant's contract.

3.4 Revised Cormponents:

Not applicable.

3.5 Quality at Entry:

Not applicable.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:


The stated objective of this component was the enhancement of GAS I forasset, liability, and investment accounting, and the continued nation wideimplementation of the new GAS II. The operational objective was the deliveryof hardware, software, communications capabilities and the nation-wideimplementation of GAS II, user training, and specialized training for MOFtechnical staff. Within these limited terms of reference, it can be said that theproject achieved its objective. The consultant delivered GAS II software,installed the software in 17 BAKUN offices, and delivered user and technicaltraining as specified in the contract by the due dates. Hardware has beendelivered to BAKUJN regional offices and some agencies (hardware wasavailable in only about 20 percent of agency offices due to budget cutbacks).

However, the facts that the system has not worked as planned 18 months afterthe consultants formally completed the contract, the reports are incomplete,some reports are still awaiting agency confirmation and/or clarification and,more importantly, the old manual system (that is; the system before GAS I ) isstill in use 12 years after the initiation of the First Accountancy DevelopmentProject indicate serious deficiencies in the planning and execution of the Firstand Second Accountancy Projects. The reasons for this state of affairs appearto be many:

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* The system requires data from the lowest levels of govemment (namely, program/project) to flow upwardseveral levels to the central govemrnent accounts. Without stringent control of coding and clear assignment ofresponsibility for this control, data becomes unreliable when there are changes to program/project codes eitherbecause of changes in the govemment structure (such as merging or splitting of departments or provinces) orchanges in the uniform chart of accounts structure to comply with Govemment Financial Statistics (GFS)requirements.

* The changes in the govemment structure since 1998 and the effects of these changes on the workability of thesystem were not recognized or taken into account during the relevant development phase. The currentdecentralization moves and the implementation of the full GFS classification framework will ensure anunstable environment in which the system is likely to be unreliable or perhaps even unworkable for the nextthree to five years.

* Data is currently received by BAKUN's regional offices (KARs) from the relevant regional offices of budgetadministration (KTUAs) about one and a half months after payments are made by the regional offices of theCentral State Treasury (KPKNs). An additional minimum of one month is required for processing by theKARs if there are no major errors or unusual transactions. Thus, timely reporting is almost impossible rightfrom the start of the process.

* The design of the system requires the timely cooperation of all units of all agencies to verify data and toprovide prompt feedback to KARs for data correction purposes. Unless this cooperation is forthcoming, theoutputs of the system are unreliable or incomplete; in some cases the whole reporting process may not becompleted if data from the lowest level is wrongly coded. This cooperation has been patchy, resulting inincomplete and untimely reporting. It is understood that BAKUN has been working on improving thiscooperation and that some improvement has been achieved.

* The consultants did not deliver standard operating procedures or reconciliation programs for the reporting unitin the BAKUN head office because of a difference of opinion as to whether this was part of the contract. Thus,the reconciliation and verification of PAN reports (PAN report is a budget realization report to Parliament, anex post account of the result of funds for govemment operations) with other independently prepared reports,such as those produced by the Directorate General, Budget, or by agencies, have been manually undertaken byBAKUN head office staff. This is time consuming and has generated a lack of confidence in the accuracy ofGAS II reports.

* To date there are still program errors that need fixing. This may be a bigger challenge when the system isrolled out to all agencies. At present, only about 20 percent of the agencies have computers to enable usage ofthe system at the lower levels.

* The Terms of Reference allowed the consultants to formally conclude their deliverables under the contract atthe end of March 1999. This was well before the start of live implementation in August 1999. The proceduresfor the acceptance testing were inadequate in detecting any programming/systems errors. Scarce IT skills andresources in BAKUN have made implementation progress and correction of bugs identified during liveproduction very slow.

Component 2: Enhancing the Accounting and Auditing Standard-Setting andEnforcement

As stated in the Staff Appraisal Report (SAR), the objective of this componentwas to address the Govemment's need to ensure that intemationally acceptedaccounting and auditing standards are issued and enforced for private andpublic sector enterprises. The principal means of enforcing accounting andauditing standards are applied through the Capital Markets SupervisoryAgency (BAPEPAM). It can be said that while the objective of issuingaccounting and auditing standards has been largely achieved, the objective of

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enforcing the standards has not been met. Key performance indicators withrespect to enforcement were not built into the project design, and consequentlythere appears to be a disconnect between the actual output and projectobjectives with respect to enforcement of standards. The performanceindicators (Annex 1) clearly indicate that the goals of this subcomponent are toassist BAPEPAM in the production of capital markets rules and in the trainingof its staff with respect to their supporting role in self-regulation of the capitalmarkets through overseas short-term courses and a masters degree program.In other words, the focus was on development of regulations and the technicalcompetency of BAPEPAM staff. It could be interpreted that an assumptionwas made that the existence of rules and standards and better skill sets by staffwould automatically lead to enforcement. In reality, existence of standards andregulations does not by itself ensure enforcement.

A recent study (funded by the Asian Development Bank, ADB) was carried outby a reputable international consulting firm that examined the extent ofcompliance by listed companies with the Indonesia accounting standards andBAPEPAM rules on accounting. The study found evidence to suggest thatnoncompliance with a number of disclosure items has the potential ofdistorting the financial statements of most of Indonesia's listed companies andmisleading the users of financial information. A process is yet to beestablished to ensure that all necessary steps are taken so that listed companiesfully comply with the current accounting standards and BAPEPAM rules.

Furthermore, since the objective is to enhance the credibility and usefulness offinancial information of private and public enterprises and the enforcement ofthe standards, it could be assumed that the enforcement should cover both theprivate and public listed enterprises. The design of this component assumedthat the principal means of enforcement is applied through BAPEPAM only,which automatically excludes the private enterprises. Consequently, there areno performance indicators addressing the enforcement of accounting andauditing standards for the private enterprises. On balance, however, thisproject component appears to have achieved its major objectives despite theweaknesses in enforcement.

4.2 Outputs by components:


Specific outputs include:

* Hardware, software, and communications capabilities;* Nation wide implementation of Government Accounting System II (GAS II);* User training; and* Specialized training for MOF technical staff.

On the basis of the project design and the related contractual terms to carry outthe implementation, the above mentioned outputs were satisfactorily delivered.However, as the emphasis was placed on IT elements, the performanceindicators and contract agreement with the consultants focused on the processand inputs, such as how many consulting days were needed for softwaredevelopment, how many computers were to be purchased, and deliverablessuch as the work plan, a system requirements specifications document orsystem documentation (technical manual) and source programs. The delivery

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of a working production system seems to have been lost in the process.Therefore, the project's outcome is considered unsatisfactory, as it failed toachieve the development objective of modemizing the Government AccountingSystem.


Specific outputs include assisting IAI to:

* Issue 10 accounting standards and 4 auditing standards per year;* Design and deliver a Professional Accountant's Examination (USAP);* Design and deliver continuing professional education; and* Prepare and publish an accountancy magazine.

The above activities covered a period of four years, after which IAI must beable to continue as the standard-setting and the accounting professionaldevelopment body within its own resources.

The component was also intended to support the enhancement of a regulatoryfi-amework, investment fund regulations, and the capacity of BAPEPAM tocarry out its role by improving the technical qualifications of staff throughtraining.

A number of specific quantitative and qualitative outputs have been delivered:

(i) Accounting and auditing standards

A total of 25 accounting standards and 17 auditing standards have beenapproved and issued, compared to 40 accounting standards and 16 auditingstandards required under the project implementation plan. The variance inaccounting standards was due to the cancellation of phase 4 of the consultant'scontract and the reduction of phase 3 to deliver 5 rather than 10 accountingstandards. The cancellation is due to the lack of sufficient time to complete thecontract requirement by project closure. Though a single contract was awardedwith four phases, the development of each set of 10 accounting standards and 4auditing standards was to begin only after satisfactory issuance of the previousset. Since most of the members of the IAI Standards Committee arevolunteers, the review, public hearing, and approval process took longer thanexpected. It was generally agreed among DJLK, IAI, and the consultants thatthe original objective of completing 40 accounting standards was tooambitious.

A listing of accounting and auditing standards issued is attached in Appendix2 (to be prepared).

(ii) Professional Accountant's Examination

Since the design of the Professional Accountant's Examination in 1997 underthe project, USAP has been delivered twice a year, in Jakarta and Surabaya,respectively. It is mandatory for accountants in public practice to sit for theexamination. IAI has taken ownership of this activity and independentlydelivered a USAP in November 2000, with a total of 225 participants, 17 ofwhom successfully passed the examination. A total of 184 candidates have

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been accredited by the IAI as Certified Public Accountants.

A listing of the number of participants by year and by location is attached inAppendix 3 (to be prepared).

(iii) Continuing Professional Education

This activity entails the design of continuing professional education (CPE)courses and delivery of a CPE program to public accountants. Since thecompletion of the CPE design in March 1998, CPE programs have beenoffered in Jakarta and 19 other cities. IAI became involved in the CPE activityat an early stage of project implementation. CPE programs conducted outsideJakarta have been facilitated by IAI branches. The total number of CPEprograms offered in 1998, 1999 and 2000 were 35, 75, and 14, respectively.Though the program is intended for public accountants and IAI members, theCPE program attracted many non members and even non accountants in 1999,as evidenced by a total of 3,277 participants attending the CPE programs in1999, out of a total of CPE participants of 5,622 between 1998 and 2000. CPEhas become a mandatory requirement for the maintenance of a license topractice public accounting. As a result of this project sub component, membersof IAI in public practice are expected to complete 120 hours of continuingprofessional education within a period of three years. Compliance with thisrequirement is closely monitored by IAI.

(iv) Accountancy Magazine

The project has supported the publishing of 24 issues of an accountingmagazine titled Media Accountancy, which is intended to be the mainreference for the accounting profession in Indonesia. At project closure, 49issues had been published, with approximately 6,000 copies of each editiondistributed. The November 1999 edition was the last edition financed by theproject. To ensure sustainability, IAI established a business unit in April 2000to publish Media Accountancy on a monthly basis.

(v) Technical Consultancy and Technical Training Program for the CapitalMarkets Supervisory Agency (BAPEPAM)

This project sub component has supported BAPEPAM in:

* Preparing rules on operational procedures and business practices with respect to securities exchanges, brokerdealers, investment funds, investment managers, underwriters, custodians, central depositories, clearing andsettlement institutions, transfer agent services, and investment advisory services.

* Preparing rules on enforcement and regulatory matters and on the transfer of related technology, focusing onrules and procedures on criminal investigations of securities fraud, market manipulation, insider trading, andother violations of securities laws and investigations leading to administrative sanctions. The consultancy alsodealt with rules and policy recommendations regarding licensing, appeals, compliance monitoring, andhandling complaints from investors.

* Providing long-term and short-tern educational program materials relating to the securities industry, marketsurveillance, and securities regulators; conducting in-house training for BAPEPAM officials and staff byinviting capital markets experts and resource persons, and coordinating with training institutions, foreignregulators, and securities exchanges in arranging for specialized training programs to suit the specificrequirements of BAPEPAM.

Of the 225 rules drafted, 191 have been issued. The number of rules drafted is

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slightly higher than the target under the project implementation plan.BAPEPAM has benefited from a total of 371 staff-months of technicalconsultancy, having developed specialized in-country training for capitalmarkets professionals.

The number of BAPEPAM staff who participated in the overseas short-coursetraining is 76, more than the targeted 60. Of the 32 BAPEPAM staff whoattended the masters degree program, 31 graduated.

The outcome of this sub component has increased public awareness andsupport for the capital markets regulations and their related implementation,strengthened the concept of transparency and disclosure for capital marketsplayers, such as issuers, securities companies, investment managers, andbroker-dealers, and improved the rule-making function of BAPEPAM.

4.3 Net Present Value/Economic rate of return:

Not applicable.

4.4 Financial rate of return:

Not applicable.

4.5 Institutional development impact:

The institutional development impact has been substantial in strengthening the Indonesian accountancy profession,namely in standard-setting, issuing professional accountancy magazines, conducting professional accountancyexaminations and providing continuing professional education. BAPEPAM, the Capital Markets Agency, has alsobenefited from the project in terms of establishing a capital markets framework and enhancing the technicalcompetency of its staff. The institutional impact was limited, however, for BAKUN because the project failed toachieve the development objective of modemizing the Govemment Accounting System. Overall, the institutionaldevelopment impact is considered to be moderate.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

Because the design of the First Accountancy Development project wasconceived in 1987-1988, when the Government was stable and the economywas going well, it seemed reasonable to assume that the future shape of theGovemment and its requirements would be similar to the immediate past.Events such as the 1997 Asian economic crisis and its subsequent impact onthe political environment in Indonesia culminating in the 1998 change ofGovemment made the original assumption of organizational stabilityunrealistic.

5.2 Factors generally subject to government control:


There seemed to be no leadership at the highest bureaucratic level to considerthe likely impact of environmental or political changes and of consequentialgovernment decisions on day-to-day business operations. It appears that one ofthe key lessons leamed from the First Accountancy Development Project hadnot been applied in this project. This was the need for high-level intervention

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and leadership "in performing a major task such as implementation of agovernment accounting system that encompasses all independent cabinet levelgovernment agencies" [Implementation Completion Report, dated 4 January1996, of the Accountancy Development Project (LOAN 2940-IND)].

It is understood that the creation of BAKUN as a high-level office followed therecommendation of the SGV 1984 report. It was intended that BAKUN wouldhave the responsibility for introducing and maintaining accounting standardsthroughout the Government. It is reasonable, therefore, to assume thatBAKUN would be the source of instruction, advice and guidance on allaccounting matters, and a key player in influencing other offices within MOFand other agencies to adopt measures that were necessary to ensure theoperational capability of its system. The reality was otherwise, becauseBAKUN appears to have reacted to events rather than attempting to influencethem; BAKUN seems to have been a marginal participant in thedecision-making process.

5.3 Factors generally subject to implementing agency control:


Management effectiveness by BAKUN was also lacking in that the contractallowed the consultants to claim full performance and disappear from theproject six months before "live production" of the system. It is generallyaccepted that live production of a system almost always produces "bugs"despite intensive testing during development. To have a contract that enablesthe consultants to finish before "live" implementation indicates insufficientattention given to contractual negotiation and inadequate subsequent contractmanagement.

The ICR of the First Accountancy Development project suggested that a pilotimplementation by all units and agencies in one province should beundertaken to ensure that the reports emerging from the new system could beused as the basis for comprehensive evaluation prior to a full-scaleimplementation. It is not apparent that this suggestion was adopted in theimplementation plan prepared by BAKUN.


The start-up phase of the project suffered from implementation delays infinalizing the major consultancy contracts. The component experienced delaysin the review, public hearing, and approval of the standards because of theheavy reliance on volunteers, who had other commitments.

5.4 Costs andfinancing:

Discrepancies between the appraisal estimates and actual project costs aremainly attributable to the cancellation of the loan proceeds (US$ 2.3 million or9.2%) by the Ministry of Finance, in an effort to reduce the amount of overallborrowing by the country.

Total amount withdrawn from loan account is $19.63 million leavingunutilized balance of $1,957,577.24 to be cancelled. Loan cancellation is

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delayed owing to an amount of $7,591.32 remaining in the Special Accountwhich is yet to be recovered.

6. Sustainability

6.1 Rationale for sustainability rating:

Government commitment


It is unlikely that the Govemment Accounting System 11 (GAS 11) will besustainable in the future, given the current uncertainty regarding the structureof the Government following decentralization, the lack of control over codingof accounts to ensure compliance, and the apparent lack of commitment orappreciation by the Government and high-level bureaucrats to the importanceof this task.

Although decentralization has been announced as Govemment policy sincemid-1999, to date no plan has been provided to enable implementation to beundertaken at a working level. This is very important for the operationalcapability of GAS II because the merging or splitting of programs/projects andthe control relationship between different levels of Government at theprogram/project level will have a significant impact on how and what data iscollected. Additionally, as GAS II was created to account and report for allcentral Government revenues and expenditures from the lowest level, theestablishment of districts and provinces with their own parliament, budget, andreporting mechanisms will curtail the scope of the system compared with itscurrent design.

Policy Environment


The latest reorganization of MOF adds more uncertainty to the future of theGovernment accounting system. It is understood that BAPEKSTA has becomethe Office of Information Technology and Financial Systems (Badan Informasidan Teknologi Keuangan). It is further understood that this office will have theresponsibility for developing a number of financial systems including a"general financial information system." Some discussions have taken place inrecent months on the concept of "data warehousing" as the depository of alldata on revenues and expenditures of the central Government and its agencies.According to current planning, this proposal is expected to be realized within 3years; thereafter, rationalization of all current financial systems will beundertaken to ensure that data will be collected and stored in one place andthat this will be the only source of data for all applications within MOF. It hasbeen said that GAS 11 is expected to be part of this proposed system. If thisplan eventuates, impact on GAS II will be very significant because it may notbe an appropriate mechanism for data collection purposes. In addition, workwill be needed to turn GAS II into an application software only that will resultin changes to the system's data structure and operational rules.

Technical Viability

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The adoption of the full GFS classification framework will necessitate changesto the system's coding and reporting formats. Despite the commitment givenby the Government in its Letter of Intent to the IMF, there has been nosignificant development work to implement the decision to adopt GFS withrespect to the budgeting and accounting systems. A ministerial decree wasissued in June 2000 to establish a team to prepare guidelines for conversion ofthe State Budget format; the report of this team is not due until April 2001 (orlater).


Though IAI has taken the ownership in (i) standard-setting; (ii) theProfessional Accountant's Examination; (iii) continuing professionaleducation; and (iv) publishing Media Accountancy Magazine, thesustainability of its activities depends largely on successfully recruiting asufficient number of permanent technical staff who can work on the abovementioned activities on a full-time basis. It is difficult to attract qualifiedpersonnel due to the low remuneration offered by IAI. Standard-settingrequires the commitment of time and resources of technically competent staff.At present, there are only three full time staff working on standard-setting.Given the fact that the staff who are involved in the review, public hearing,and approval process are mostly volunteers, there is no compelling evidencethat the standard-setting subcomponent will be sustainable.

With regard to the other subcomponents, it is likely that the CPE andProfessional Accountant's Examination subcomponents will be sustainablebecause of a designated full time training manager, who became involved inthe activities at the early stage of project implementation and who continues tobe involved. It is also likely that Media Accountancy Magazine will besustainable, owing to the establishment by the IAI of a business unit in April2000, to publish Media Accountancy on a monthly basis.

6.2 Transition arrangement to regular operations:

Component I. Modernization of the Government Accounting System

Given the current lack of confidence in the reports generated by GAS II, thefact that only 20 percent of agencies have computers on site, and the lack of aconcrete funding plan to overcome this shortage, the old pre-GAS I manualsystem is still in use to produce PAN reports. The last reports submitted toParliament were for the financial year I April 1998 to 31 March 1999; thereports for the financial year from I April 1999 to 31March 2000 have beencompleted and submitted for audit. There is no plan to check the manualreports with GAS II outputs, as the new system did not go "live" until August1999. Thus, the first opportunity to verify the accuracy of GAS II PAN reportsis for the period April to December 2000. It is understood that a decision wasmade by BAKUN to continue with the old pre-GAS I manual system for theperiod April to December 2000 and for the year 2001. PAN reports for the year2002 are to be produced by GAS II. This plan was confirmed in the StateBudget Law 2001. This results in a very long implementation period. Somemeasure may need to be considered to shorten this timeframe to obtain some

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benefits from the considerable investment in GAS 11 as soon as possible.Additionally, given the current uncertainty regarding the implementation offull GFS and of decentralization decisions, and given that the majority ofagencies and units do not have access to suitable computers, a decision mayneed to be made to focus on the timely reporting objective to Parliament in thecurrent year, namely PAN reports for the period April to December 2000.

Unless priority is given to this objective, it is likely that day-to-day fixing ofsystem and data errors may take precedence over reporting to the primaryclient of BAKUN, namely, the Government and the Parliament. It isunderstood that this reprioritization does not mean that no reports will beavailable to agencies or that work on assets/ liabilities will stop. It means thataccuracy of data at the program/project level will be less important as adeterminant of system operations. Timeliness, accuracy and completeness ofPAN reports will become more important than other elements of the system,such as asset/liability information and information for program/projectmanagers. It is also understood that BAKUN has undertaken a brief feasibilityreview to determine if such reprioritization is workable. Preliminaryindications are positive and there should not be any major impact on theoperations of the system.

This reprioritization is a reasonable interim step to obtain some benefits fromthe investment in GAS II to date. It is also a reasonable decision given thecurrent uncertainty about decentralization and about linkages (if any) betweenreporting by different levels of Government and the impact of the recentreorganization of MOF, especially in view of the plan to implement a "generalfinancial information system."

Regarding the interim performance indicators, BAKUN should be asked toproduce a PAN report using GAS II for the six months to 30 June 2001. Thenthey should compare the June report with the current manual report to identifyany discrepancies. The reconciliation between the computerized report and themanual report is necessary to test the interim work.

A public sector financial management reform mission took place from 12 to 15February 2001. It was recommended by the Bank to the Government that adiagnostic review be conducted prior to undertaking any future work on theGovernment Accounting System.


Indonesia could be a good candidate for the Report on the Observations ofStandards and Codes (ROSCs) review which is currently being undertaken bythe Bank. ROSCs review focuses on corporate governance, accounting, andauditing standards.

7. Bank and Borrower Performance

Bank7.1 Lending:


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As this was a follow-on project, it became effective in July 1994 before theclosure of the First Accountancy Development Project on 30 June 1995. Thus,the objective and scope of the project were unchanged-namely, theenhancement and continued implementation of a new Govemment accountingsystem, which was originally designed under the First AccountancyDevelopment Project. There is no evidence to suggest that any attempt wasmade to determine whether the basic requirements determined back in 1985-86were still appropriate, namely a centralized accounting system to collect andaccount for receipts and payments incurred at the lowest level. The fact that ithad taken nearly ten years to develop a modern Government accounting systemwithout any tangible benefit appears to have been lost in the effort to get theloan and the project off the ground.

Another possible explanation for the lack of critical analysis was the focus onthe power of IT as a solution. Bank staff appeared to assume that given thatthe implementation of the system under the First Accountancy DevelopmentProject was slow because of the use of old technology, the conversion to newer,more flexible technology would solve the problem. This may reflect theinadequate skill mix of the project team at the time; the team did not appear toinclude accounting expertise, especially public sector accounting knowledge,even though this was essentially an accounting project. This IT focus alsomanifested itself in the fact that no review was thought necessary in either1989 or 1994, even though the system was originally designed for manualoperations. The scope and functionalities designed for manual operations mayhave been suitable in the original 1985-1986 design because the control overdata collection and classification was undertaken by supervisory staff atsuccessive reporting levels. It might not have been necessary to have tightcontrol over coding of each transaction in a manual system, whereas stringentcontrol over account coding for each transaction is critical in a centralizedcomputer system.

This bias was also reflected in the contractual and monitoring arrangementsadopted for the project. Both the contract with the consultants and themilestones and key performance indicators focused on the delivery of hardwareand software, user and technical manuals, inputs, and processes (that is;staff-months, number of software licences purchased, and number of trainingsessions delivered). The initial objective of improving accounting practicesthrough the timely, accurate, consistent, and complete reporting to theParliament, Government, agency heads, and program/project managers (thatis; the desired outcome) was not reflected in any performance indicator formonitoring purposes.

This may also be a factor in the inadequate assessment of the implementationrisk. The description of services included in the contract with the consultantsemphasized various deliverables and their timing, while implementation wasdefined as "a phased GAS II installation and production start-up in all regionalsites to be covered during a given implementation period." Given the delay infinalizing the contract, the focus was therefore on the deliverables, withsoftware installation being carried out in the last few months of the contract.Thus, there was no testing of the software in a live production environmentprior to the conclusion of the contract.

A pilot implementation of the new accounting system covering all agencies(using live data) in a selected province was recommended in the ICR of the

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First Accountancy Development Project. However, this does not seem to havebeen taken into account in the initial planning or subsequent mid-term reviewor supervision missions.


The project design substantially reflected the Government's accountancydevelopment strategy recognizing the importance of setting and enforcingstandards and enhancing the credibility and usefulness of financial informationfor private and public sector enterprises. However, it appears that the designassumed that the principal means of enforcing the standards is applied throughBAPEPAM, while BAPEPAM, as the capital markets supervisory agency, isresponsible only for the enforcement of standards for public listed companies,not private enterprises. Thus, the design did not include the enforcement ofstandards for private enterprises.

Another design weakness that was not detected at the preparation stage is thelack of performance indicators regarding the enforcement of standards byBAPEPAM. Section 4.1 contains a more detailed discussion of this matter.

7.2 Supervision:


In terms of the stated objectives and agreed monitoring arrangements,supervision by Bank staff is rated as satisfactory. However, the decisions madein the earlier project regarding the scope and functionalities of the system andthe faith in IT seemed to color judgments, even when there was evidence that asuccessful conclusion of the project might be in jeopardy; that is, theimplementation of the system in a live production environment was passed tothe implementing agency's staff without help from the specialist consultants.There should have been concems about the risk of such a plan in early 1999.The supervision team should have worked more closely with BAKUN toaddress the issues that surfaced during the live implementation in 1999, ratherthan rating project implementation as satisfactory in the Project Status Report.

The fact that the "new" Government Accounting System has not producedreliable, timely, and complete reports almost 15 years after its initialdevelopment supports the contention that it is an accounting and managementissue and not just an IT issue.

Annex 7 indicates that there seems to be no mission aide memoire preparedbetween October 1995 and February 1999. The project would have benefitedfrom more regular supervision missions and frequent reporting for both theGovernment and Bank management, and from a candid assessment of projectperformance.

Component 2: Enhancing Accounting and Auditing Standard-Setting andEnforcement

Prior to mid-1998, the Bank had engaged an expert in accounting to supervisethe standard-setting and enforcement component. Both the 1997 supervisionreport and mid-term review report rightfully pointed out the key issues such as

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delay in standard-setting due to heavy reliance on volunteers and sustainabilityof IAI, owing to difficulties in attracting qualified personnel. However, fromthe period of mid-1998 to the end of 1999, the Bank supervision team did notinclude any staff with relevant experience in accounting and auditing. As aresult, the accounting and auditing standards drafted were not reviewed by theBank on a timely basis, to ensure that the standards drafted were in harmonywith intemational standards. The supervision team had not conducted anyimpact evaluation of the new accounting/auditing standards, ProfessionalAccountancy Examinations, CPE, Media Accountancy Magazine, and capitalmarkets rules.

7.3 Overall Bank performance:

The Bank's performance is judged to be unsatisfactory during the preparationand supervision of the Modemization of Govemment Accounting systemcomponent because of its failure to address a series of design weaknesses in theprior project. The performance rating given in PSR was not realistic.

The Bank's performance is judged satisfactory for the Enhancing Accountingand Auditing Standard-Setting and Enforcement component.

Overall, the Bank's performance is judged to have been unsatisfactory on thebasis of issues discussed above in paragraphs 7.1 and 7.2, especially thoserelating to the Modemization of Govemment Accounting System component.

Borrower7.4 Preparation:

Within the scope of the terms of reference agreed with the Bank in the 1994SAR, the performance of the Borrower is rated as satisfactory. Like the Bankstaff, the Govemment agreed too readily to the conceptual proposals made bythe SGV consultants in 1984 on the modemization of Government accountingpractices and systems. A study of public sector accounting practices ofcountries in the region and around the world might have provided a realitycheck on the feasibility and hidden complexity of what was proposed at thetime. When the decision was made to computerize a system designed formanual operations, a further opportunity existed to raise questions about theappropriateness of the system's original scope and structure. None of this wasdone by the Govemment. However, it is considered reasonable for theGovemment to have relied on advice of Bank staff on technical matters, giventhat it was acknowledged by both the Bank and the Government that there wasinadequate accounting and IT expertise and experience within the Indonesianpublic sector.

7.5 Government implementation performance.

There is evidence that the Govemment's commitment to modernize itsaccounting practices existed initially. However, political and economicuncertainty and confusion arising from events in 1998 and 1999 divertedattention away from "non-core" reforms such as those of this project. Thus,funding for the acquisition of computers to enable a full rollout of the systemhas not been forthcoming in the current year's budget. It is not known whenthis funding will be made available, even though by the closure of the projectthe Government had already cancelled $2.3 million of the loan balance, with

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another $1.45 million (unutilized balance) to be cancelled. The decision tocancel the loan proceeds, as stated in paragraph 5.4, was to reduce the amountof borrowing. This decision was not based on the status of the projectimplementation.

Similarly, decisions on decentralization and GFS presentation of the StateBudget need to be implemented through changes in the budgeting andaccounting systems. It is not evident, however, that any implementationplanning has been undertaken or that additional resources will be madeavailable for this purpose. The political uncertainty at the time of this ICRpreparation could once again divert attention from this reform effort.

7.6 Implementing Agency:

BAKUN devoted the resources necessary to ensure that the project was carriedout as planned. However, given that this project encompasses all Governmentagencies, high-level management and leadership were needed for successfulimplementation. It is difficult to say whether any other agency could have beenmore effective, given the economic and political environment of the past fewyears.

Except for initial delays in finalizing the consultants' contracts (which werenot exclusively the responsibility of the implementing agencies), BAKUN,DJLK, and BAPEPAM were effective in project management, includingcompliance with audit requirements, procurement, and progress reports.

7.7 Overall Borrower performance:

Based on the above analysis, the Borrower's performance was satisfactory forthe Enhancing Accounting and Auditing Standard-Setting and Enforcementcomponent, but it was unsatisfactory for the Modemization of GovernmentAccounting System component.

Overall, the Borrower's performance is judged to have been satisfactory,although the ICR team has reservations about the Govemment's commitmentto implementation.

8. Lessons Learned

Lessons learned arise from a combination of factors that existed at point of entry and during the implementation:

1. Given that the objective of the project was to improve public sector accounting, there is a lesson to be learnedin terms of the Bank's allocation of human resources to design, implement, supervise and evaluate such amacro financial management-oriented project. There should be an appropriate mix of public sector accountingand IT skills at various stages of the project cycle, to ensure that project design is appropriate to the needs ofusers and the country environment and that it remains relevant throughout the project cycle. It appears thatnone of the team members at the various stages of the project had the requisite public sector experience andunderstanding that would have been helpful in realizing the ambitious design scope and the risks of

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implementation of such a project in a public sector environment.

2. Supervision of all projects, especially those involving multi-year systems development, should be frequent andrigorous. Objective assessments of project status and potential problems should be developed and reported inaide memoires in a timely manner within the Bank and to the Borrower. It appears that no aide memoires wereprepared for this project between October 1995 and February 1999.

3. Large complex IT projects should be avoided. Experience elsewhere would suggest that the likelihood of largemulti-year systems development initiatives being completed on time, within budget, and with desiredfunctionality is low. For accounting systems, off-the-shelf accounting packages are a preferable alternative.Modifications to the software and related business processes may be needed to meet user requirements. Forsignificant changes to the off-the-shelf packages, pilot testing should be required as a risk mitigation strategywhere implementation capacity is limited.

4. Comprehensive risk identification and mitigation strategies should be in place and effectively monitored inany large and complex information systems project.

5. The definition of "system implementation" for an IT project should specify that software consulting servicesmust cover, at a minimum, one full production cycle of not less than three months of live production, and thatsystem acceptance should not be signed off until the system has been implemented in a productionenvironment.

6. The key objective of a project should be reflected in its performance indicators. The performance indicatorsused for monitoring purposes should focus on output and outcome rather than input and processes.

7. It is important to acknowledge that there are no explicit Bank procedures which require that follow-on projectswith complex functionalities should be approved only after successful completion of an ICR. This lack ofBank procedures may have resulted in perpetuating an unsatisfactory project design for an unacceptably longtime. If there had been such explicit Bank procedures and if they had been followed for the SecondPolytechnic and the First and Second Accountancy Development Projects, the flaws and hidden complexity ofthe original design might have been revealed sooner.

8. High level government commitment is crucial for success in any major reform program. This commitment isneeded not only from ministries but also from senior Govemment officials, who can make or break any reformefforts simply through their participation or lack of participation. In the Government of Indonesia, the DirectorGeneral of Budget (DG Budget), who controls receipts, payments, cash management, and budget reporting,was not involved in the project. As a result, a key player did not have ownership and accountability of theproject.

9. Human resource capacity of the country should be carefully evaluated prior to the provision of Bank advice onmodemization and reforms. The project objective was far beyond the technical and human resource capacity ofthe Government. High-tech solutions will not work without the capacity to operate these systems.

It is important to note that some of the lessons learned (that is, Government commitment and risk mitigationstrategy) were also mentioned in the ICR of the First Accountancy Development Project in 1995. However, there isno evidence that these lessons had been considered either in the design phase or in the mid-term review of GAS 11in 1998. It is to be hoped that these and other lessons learned arising from this project will have more impact onfuture similar projects.

9. Partner Comments

(a) Borrower/implementing agency:

Please refer to Annex 7b for comments by BAKUN, the implementing agencyfor Government Accounting System component.

(b) Cofinanciers:

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Not applicable.

(c) Other partners (NGOs/private sector):

Not applicable.

10. Additional Information

An understanding of how the GAS II component was developed and evolved isnecessary to understand the current state of its progress.

The idea of modernizing government accounting practices was first mooted in1979 when the First Polytechnic Project (Cr 869-IND 1979) to improveaccounting education and training was under discussion between the Bank andthe Government. A component of this project called for an extensive study ofthe need to modernize Government accounting practices. A report wasprepared by the consultants, the SGV Group, in October 1984 titled "Study onGovernment Accounting and Auditing Modernization in Indonesia: MajorFindings on the Existing Budgeting, Accounting and Reporting System."

This study developed a detailed program of proposed measures to modernizeGovernment accounting. The most important changes called for in the reportwere:

* Double entry accounting in order to improve accuracy and completeness ofGovernment accounts;

* Consolidation of central accounting to improve timeliness, accuracy,consistency, and completeness of reports on overall Government revenuesand expenditures. The responsibility to maintain a Government wideaccounting and reporting system was to be given to a State FinancialAccounting Center of the Ministry of Finance;

* Improved agency accounting to provide better support to agency programsand project managers. This meant that the responsibility for maintainingbasic agency accounts was to be decentralized to the lowest level, namely,programs via spending units and projects. Expenditures were to beclassified in agency accounts by program/project and category ofexpenditure;

* Introduction of balance sheet accounting to support enhancedaccountability for State investments through the notion of Governmentequity by distinguishing capital items from Government revenues andexpenditures and by reporting them as assets and liabilities; and

* Introduction of a Uniform Chart of Accounts to ensure consistency ofrecording and reporting.

This project was followed up in the Second Polytechnic Project (Loan2290-IND), in which the proposals were further developed and tested in1987-1988 in three provinces and covered expenditures and revenues effectedthrough the relevant Central State Treasury offices and selected spending unitsof three agencies and the Special Fund (Bagian Anggaran 16). The programthat was developed and tested was on a fully manual basis.

The First Accountancy Development Project (Loan 2940-IND) was proposed inApril 1988 and included a component to fully implement the measuresdeveloped and partially tested under the Second Polytechnic Project. Thiscomponent involved four main accounting subsystems:

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* The Central Accounting System (CAS) to enable the preparation of reportsof budget realization and statements of assets, liabilities, and governmentequity in an accurate and timely manner and without dependence on theprior completion of reports by the agencies.

* The Central State Treasury Accounting System to provide MOF withcentralized accounting for all of the Govemment's cash resources.

* The Agency Accounting System (AAS) to provide agency managementwith better information to monitor and control budget implementation atthe program and project level.

* The Special Fund System (Bagian Anggaran 16) to provide accounting forthe special fund managed by the Minister of Finance through theDirectorate of Budget Administration. This fund includes budgetallocations for pension payments, subsidies to local governments,investments in State enterprises, and receipts and payments of foreignloans.

This project was designed to result in a new Government accountingframework and systems with 100 percent manual operations, although thefeasibility and desirability of computerization was to have been evaluatedduring the life of the project.

The project was amended in 1989 when it was realized that computerizationwas necessary because of the need for extensive reconciliation of data fromdifferent sources, the volume and complexity of transactions, and theduplication of processing activities between CAS and AAS.

The computerization was undertaken in stages commencing in financial year1990-1991 and was due to be completed in June 1994. In late 1993, it wasrealized that the technology used in the development of the GovermnentAccounting System would restrict its long-term viability and futureprocurement activities. GAS I was developed and implemented usingDEC-VAX computers that used proprietary platform and operating systems.

The Second Accountancy Development Project was proposed and negotiated inlate 1993 and early 1994, culminating in a loan agreement in October 1994.The project had a narrow focus on the GAS component. Its aim was to providefunding to transfer the hardware and application software onto an open systemplatform and relational database management system using fourth-generationlanguage to ensure its future operational and maintenance viability. The basicaccounting arrangements and business processes, for example, the roles,functions, and relationships of various parties within the recording, processing,and reporting processes were accepted as given. Thus, project management andBank supervision activities under GAS II focused on meeting the deadlines ofvarious subcomponents culminating in the delivery of the software andsoftware installation in BAKUN's regional offices. Consideration of theoriginal objective, namely, the improvement of timeliness, accuracy,consistency, and completeness of reports to Parliament, Government, andagencies, is not in evidence. The possible or potential impact of changes in thepolitical environment and Government structure was not discussed in either thestaff appraisal report or the midterm review in November 1997.

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Annex 1. Key Performance Indicators/Log Frame Matrix

Annex la. Outcome/lmpact Indicators

A. Major Technical Assistance Contracts

Al. GAS R.2.0 Development and 549 staff months 524 staff monthsImplementation and Acctg. SystemInformation Management

A2. GAS R. 1.0 Management and 89 staff months 112 staff monthsMaintenance

A3. Capital Markets Regulation and 387 staff months 371 staff monthsDevelopment

A4. Accounting/Auditing Standards 797 man months 598 man monthsDevelopment and AccountingProfession Development

B. Overseas Degree Program

B1.Computer/information Sciences-BAKUN 4 Students 2 Students-BAPEPAM 1 Student 0

B2.Business Administration-BAKUN 0 1 Student-BAPEPAM 7 Students 17 Students

B3.Accounting-BAKUN 0 1 Student-BAPEPAM 12 Students 2 Students

B4. Law-BAKUN 0 0-BAPEPAM 4 Students 13 Students

B5. Statistics-BAKUN 0 0-BAPEPAM 1 Student 0

Annex lb. Output Indicators

Detailed approach and work plan for Adopted in January 1997 and the firstprofessional accountant qualifying examination took place in October 1997examinations adopted by 30 June 1996

GAS R.2.0 requirements documents Completed on 30 June 1997

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completed by 31 July 1996

At least 15 accounting and 15 auditing 4 standards adopted on 6 October 1997standards officially adopted by 31 May 1997

At least 18 (18-29)overseas degree program 8 candidates enrolled in September 1996candidates enrolled by 30 September 1997 9 candidates enrolled in September 1997

At least 30 new rules and 10 disclosure Completed on 31 October 1997guidelines for regulation of capital marketsadopted by 31 October 1997

Pilot data communication system Completed on 30 September 1998implemented by 30 November 1997

Acceptance test of GAS R.2.0 successfully Completed on 31 August 1998completed by 30 November 1997

40 accounting and 15 auditing standards A total of 25 accounting and 17 auditingofficially adopted by 31 July 1999 standards were adopted by project closure

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Annex 2. Project Costs and Financing

Annex 2a Pro-ect Cost by Component (in US$ million eouivalent)Appraisal Actual/Latest Percentage of

Proect costs by Component Estimte0 Estimate ApDpraisal(UiSS mitlion) (S Minlion

BAKUJN 15.30 13.50 88.28BAPEKSTA 0.73 0.19 26.49DJLK 5.31 1.37 25.79BAPEPAM 10.62 4.70 44.30EKKU 0.24 0.01 0.00PSSU 1.75 3.64 207.47OTHERS 0.00 0.58 0.00Total Baseline Costs 33.95 23.99 70.66

Total Project Costs 33.95 23.99 70.66Total Financing Required 33.95 23.99 70.66

Annex 2b. Pro iect Costs by Procurement Arran2ements (in US$ million equivalent) /aExpenditure Procurem0ent method Procurement Method actual/latest estimateOategories

Ap raisal Estimate________ICB Other NCB NBF Total ICB OtherLb NCB NBF Total

Equipment: 4.1 4.1 1.72 0.15 0.61 0.21 2.48Data (4.1) (4.1) (1.72) (0.15) (0.61) (2.48)ProcessingEquipmentData 1.2 1.2 1.35 0.52 0.14 2.01Processing (1.2) (1.2) (1.35) (0.52) (0.14) (2.01)SoftwareTechnicalAssistance:Foreign 16.2 16.2 10.18 0.11 0.02 10.31&Local (12.8) (12.8) (10.18) (0.11) (10.31)SpecialistsProvided byFirmsForeign 0.4 0.4 0.91 0.91Individuals (0.3) (0.3) (0.91) (0.91)Local 0.7 0.7 0.01 0.01Individuals (0.6) (0.6) (0.01) (0.01)Overseas 6.0 6.0 3.94 3.94Training (6.0) (6.0) (3.94) (3.94)In-Country 1.6 1.6 0.27 0.27TrainingMiscellaneou 3.7 3.7 3.85 3.85s ITotal 5.3 23.3 5.3 33.9 3.07 15.71 0.86 4.35 23.99

_ (5.3) (19.7) (25.0) (3.07) (15.71) (0.86) (19.64/a Figures in parentheses are the respective amounts financed by the Bank loan./b Consists of direct contracting of firns/individuals.

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Annex 2c. Pro-ect Financing by Component (in US$ million equivalent)Component AP ralsal Estimate Actual/Latest Estimate Percentage of Appraisal

Bank Govern- Co- Bank Govern- Co- Bank Govem- Co-ment financier ment financier ment financier

BAKUN 10.9 4.40 N/A 10.68 2.81 N/A 97.98 87.81 N/ABAPEKSTA 0.4 0.33 N/A 0.14 0.05 N/A 35.00 - N/ADJLK 4.9 0.41 N/A 1.24 0.13 N/A 25.31 130.00 N/ABAPEPAM 8.6 2.02 N/A 4.50 0.20 N/A 52.33 11.76 N/AEKKU - 0.24 N/A - 0.01 N/A - 10.00 N/APSSU 0.2 1.55 N/A 3.07 0.56 N/A 1,535 - N/AMISC. - 0.00 N/A - 0.59 N/A - 15.95 N/ATOTAL 25.0 8.95 19.63 4.35

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Annex 3. Economic Costs and Benefits

Not applicable.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle No. of Persons and Specialty Performarnce Rating

(e.g. 2 Economists, I FMS, etc.) Implementation DevelopmentMonth/Year Count Specialty Progress Objective

Identification/PreparationJanuary 1994 2 1 Financial Sec. Specialist

1 Auditing/Accting Advisor

Appraisal/NegotiationApril 1994 2 1 Financial Sec. Specialist

I Auditing/Accting Advisor

SupervisionNovember 2000 1 Financial Mgmt Officer S SFebruary 2000 4 1 Princ. Fin. Economist S S

1 Financial Mgmt. SpecialistI Systems AdvisorI Inst. Dev. Spec.

August 1999 1 1 Systems Advisor S S

May 1999 2 1 Princ. Economist S SI Systems Advisor

April 1998 4 1 Sr. Financial Specialist S S1 Database Coordinator2 Consultants

November 1996 4 1 Technology Specialist S S2 Financial SpecialistsI Auditing/Accounting Advisor

October 1995 4 1 Financial/Accouting Advisor S S1 Information Tech. Specialist1 Operations OfficerI Financial Sector Specialist

ICRJanuary 2001 2 Financial Mgmt.Specialist

Consultant

Notes: 1. Performance Ratings for "Identification" and "Appraisal" stages are not available.2. November 2000 mission, Implementation Progress was rated "U" for the GAS II Component.

(b) Staff'

Stage of Project Cycle ! Actual/Latest Estimate

|___ __ _ No. Staff weeks US$ ('000)Identification/Preparation 17.1 77.9Appraisal/Negotiation 22.6 122.4Supervision 77.6 375.7ICR 14.0 (est) 45.7Total 131.3 621.7

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components

(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)Rating

E Macro policies O H OSUOM O N * NAO Sector Policies OH OSU*M O N O NAE Physical O H OSUOM O N *NAO Financial O H OSUOM O N * NAO Institutional Development O H O SUO M O N 0 NAO Environmental O H OSUOM O N * NA

SocialLI Poverty Reduction O H OSUOM O N * NAEl Gender OH OSUOM ON *NA0 Other (Please specify) O H OSUOM O N * NA

O Private sector development 0 H O SU O M 0 N 0 NA, Public sector management 0 H O SU 0 M 0 N 0 NAa Other (Please specify) O H OSUOM O N * NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

F Lending OHS OS *U OHUE Supervision OHS OS * u O HUZ Overall OHS OS * U O HU

6.2 Borrowerperformance Rating

? Preparation OHS OS O U O HUF Government implementation performance O HS O S 0 U 0 HUF Implementation agency performance OHS OS O U O HU

N Overall OHS OS O u O HU

Note: Bank overall performance is rated satisfactory for Component 2: Enhancing theAccounting and Auditing Standard-Setting and Enforcement.

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Annex 7. List of Supporting Documents

Annex 7a

1. Implementation Completion Report:Indonesia Accountancy Development Project(LOAN 2940-IND) 4 January 1996

2. Minutes of FEPS Review Meeting 23 December 19933. Minutes of the Yellow Cover Review Meeting 25 April 19944. Pre-Negotiation Package 5 July 19945. Aide Memoires:

* 16-19 October 1995* 21-29 February 1999* 30 April- 4 May 1999* 1-16 February 2000* 30 October-2 November 2000* 22 January-l February 2001

6. Mid-term Review Report 23-28 March 1998

7. Draft Strategic Plan for the Technical Development of Ministry of Finance (MOF)

8. Draft Government Regulation on Financial Information

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Annex 7bGOVERNMENT ACCOUNTING SYSTEM

COMMENTS ON THE DRAFT ICR

No. ISSUES IN ICR COMMENTS FROM BAKUN COMPONENT

1. 1. Proiect Data No comment.

2. 2. Principal Performance Ratiny s Please refer to the comments in items 4.7 and 6 of this Comments on the Draft ICR.Outcome: UnsatisfactorySustainabi]ity: Unlikely

3 3. Assessment of Development Firstly, we do not agree with some of the weaknesses identified with GAS I for reasonsObiective and Desien. and of explained in the following paragraphs. Secondly, on the problems that did exist (lack of

Oualite at Entry (P.3) control over account coding and transmittal of data) , we do not agree that these problemsA number of design and were weaknesses in GAS I design, and subsequently in GAS 11. Instead they should beimplementation weaknesses in the viewed as organizational constraints which impact on the design of GAS I and GAS II.design of Government theountmg However, we agree that this is a matter which has to be addressed and resolved by theSystem I (GAS I) under the First goenntithim daefur.Accountancy Development Project goverment in the immediate future.were carried on in a detrimentalmanner to the design of the Second System Complexity:

3.1 Accountancy Development Project. * Because of the way the Ministry of Finance is organized and the manner in whichThe unresolved GAS I problems can functions are delegated, BAKUN (I) has very little influence over account coding, (2) hasbe summarized as follows: no control over the accuracy of the actual coding of accounts in the accounting source* System complexity-GAS I was documents, and (3) has no control over the bank account statements/records.designed as a large complex system. ,As such, tight controls should have ... timely transmission of datafrom thousands of local agencies to the Central Accountinbeen developed, but were not over Svstem". This statement is not accurate because the basic data being processed by BAKUNsuch activities as account coding, comes from the Budget Administration Offices(KTUA) in the regions and the Directoratetimely transmission of data from General of the Budget Head Office. Data from the agency accounting units (less than 1000thousands of local agencies to the present because only 4 departments require regional accounting units in provinces outsideCentral Accounting System, and Jakarta, compared with about 23 departments before the reorganization - other departmentsreconciliation of detailed accounting have offices only in Jakarta) are needed only (1) if there are corrections to be made in datarecords with cash balances per bank generated by BAKUN at the KARs, and (2) to post the fixed asset data from the agencies torecords. the Central Accounting System. The delay in transmission of data from the Budget Treasury

Administration Offices (KTUA) to the Regional Accounting Offices (KARs) is due toexisting organizational arrangements where transactions of the State Treasury Offices mustbe verified by the KTUA before documents are forwarded to the agencies and BAKUN. Thiset-up cannot be changed now because the procedures performed by KTUA still support thexisting single entry system in the agencies. Changes in this arrangement can be made onlyafter the single entry system is replaced by GAS II.

* GAS I did not address the cash reconciliation aspect because at the time it (GAS I) wasbeing implemented, not all agencies and provinces were covered. Since many cashtransactions were not yet being processed, cash reconciliation was not possible and wouldhave been a futile exercise.

3.2 * Accounting basis - GAS I required . The budget of the Central Government is formulated based on the cash principle. Boththe use of double entry bookkeeping GAS I and GAS II accounts for budgetary transactions based on the cash principle. Thus theand balance sheet accounting. The budget realization reports give a comparison between the budget and actual results using

Parliament and Goveoment use tnihe cash basis. The capture of actual fixed asset data in GAS II (this feature was not yet presensingle entry/cash basis of accounting in GAS I) aims to supply the system with fixed asset data needed for the balance sheet.(Thfor budgets and appropriations. decision to include fixed assets in the balance sheet was a govemment decision.) This adde...The design of GAS I did not reflect feature does not in any way impact on the budget accountability reports.a fundamental managementprinciple-namely that accounting and * The decision to develop an accounting system using double entry bookkeeping was madereporting systems are tools for by the government at the urging of the World Bank. This was a requirement in the Terms olcontrol and accountability by Reference for the initial study. During the early stages of GAS development, themanagement (i.e., Parliament and the government was half-hearted in supporting this effort, but through the years the Governme:

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Government in this instance) in its had come to accept it as the better alternative to single entry. The decision to adopt doubleplanning and control operations. It is entry is more urgent now with pressure from the IMF and the WB for the government tonot sensible to account on a different adopt the new GFS (which calls for the use of double entry) . We believe questioning thebasis since the recipients of the use of the double entry system for GAS I and GAS II is not appropriate at this time becausereports do not have comparable it will only generate confusion and doubt in the minds of people about what really is theinformation to judge performance or best practice. Moreover, it will simply throw back the criticism on the WB, since it was theaccountability. original sponsor of this move.

"It is not sensible to account on a different basis since the recipients of the reports do nothave comparable information to judge performance or accountability. " This argument is niaccurate because, if a government is using single entry at a given time, it does not followthat it cannot decide to shift to double entry in the future. At any given time, the govemmeror any institution for that matter, can only have one official accounting system. Today it isthe single entry system. Hopefully, in year 2002 it will be the double entry system.

We therefore suggest that this item be deleted from the draft ICR.

3.3 * Level of detailed information- GAS When GAS I was developed, the budget system did not yet have a standard chart of accoun

I required that expenditures be for revenue and expenditure. The accounts and codes used in accounting documents ardistinguished between capital and reports generated by the state treasury in the head office were different from those used bcurrent items at the program/project treasury offices in the regions and from codes used in budget documents. But, withoutlevel whereas the budget standard chart of accounts there can be no accounting system. GAS I proposed a chartappropriations to agencies did not accounts which distinguished between capital outlay and current operating expenditures. Ttrequire that detailed distinctions be proposed chart of account was adopted to a large extent and has and standard accounts haxmade. been used for budget, treasury, and accounting purposes since 1994. Before that, GAS I ha

to convert the budget codes into the proposed accounting codes. Since this problem wEcorrected before GAS II development started,we suggest that this item be deleted from thICR.

3.4 * Delay in implementation of GAS I - The delay in the implementation of the 2nd and 3rd Priority Accounting Modules of GASGAS I was to have been implemented was brought about by the modifications in the documentation of budget and treasuiby 30 June 1994. However, the transactions as a result of the decision to adopt the new chart of accounts (item 3.3). Thimplementation was delayed. move necessitated changes in many programs which had already been completed.

The design and preparation of GAS II However, apart from delays caused by the late start-up, it should be recalled that, from th

took place before GAS I had been very start, the implementation of GAS I was planned to be a phased implementation (fiImplemented and, as a result , the reasons that are too many to explain in this paper), where each year 5 to 6 new DepartmenSecond Accountancy Development and 4 to 5 new provinces were to be added to area covered by the implementation. (TraininProject became effective in of agency accounting and computer operations personnel in each province is necessary befoiDecember 1994, prior to the closure implementation could start.) As of FY 1994/1995 only 12 of 27 provinces and 18 of 3of the First Accountancy agencies have been covered by the implementation.Development Project in 1995. Noneof the above problems with GAS I The phased implementation plan for GAS I was approved by the WB and was adhered X

were highlighted in the from the time GAS I was implemented as a partially computerized. Before the decision tImplementation Completion Report. develop GAS II, it was planned that by year 1997/98 all agencies and provinces would hax(ICR) or the First Accountancy been fully covered by GAS I implementation. When GAS II development started, the WDevelopment Project Supervision Mission urged BAKUN to not to expand the implementation of GAS I in tt

remaining agencies and provinces, but continue GAS I implementation in the agencies anregions already been covered as of FY1995-96. However, by FY 1997-98, the govermneresumed training and implementation in the remaining agencies and provinces (usirgovemment Rupiah funds) to hasten the leaming process, particularly on basic accountinland so that the momentum and enthusiasm of agencies will not be lost.

GAS I was routinely producing the monthly, quarterly and annual financial reports for tlagencies (for all levels), the central government and the Central State Treasury when iimplementation was discontinued in 1998 and GAS II was phased in. We wish to emphasi,that during the time GAS I was being implemented (after it was completed and debugged i1994-1995 and 1995/96), with the exception of intermittent problems brought about by tlbtwo issues on account coding and data transmission, there were no significaiimplementation problems that should have been considered serious concemns during tfdevelopment of GAS II.

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3.5 It appears that the above Out of the many issues raised in this section 3 of the Draft ICR, the only ones that trulinadequacies in the design and had a continuing impact on GAS II are: (1) BAKUN has very little control over the accouiimplementation of GAS I were not coding, (2) BAKUN has no control over the quality of data in the accounting sour(taken into consideration in the design documents, and (2) delay in the transmission of data from KTUA to the KARs.of GAS II, and thus inadequacieswere carried over to GAS II. During In view of these observations, we feel there is a need to revise this section of the report sothe design and preparation of GAS II, that it will reflect the real situation.no one questioned:* The appropriateness of the systemcomplexities, accounting basis orlevel of detail in GAS I; or* The reasons for or implications ofthe delay in implementation of GAS I

Rather than reviewing the adequacyof the underlying framework of GASI, it was accepted as the starting pointfor GAS II, even though it had nor yetbeen implemented. Given the lack ofpublic sector accounting and ITexpertise in Indonesia at the timeGAS II was designed. The Bankshould have recognized the problemsinherent in GAS I and should haveadvised the Governmentappropriately during the design ofGAS 11.

4 4. Achievement of Obiective andoutputs (P.4) The system has not worked as planned 18 months after the consultants formally completed

the contract for the following reasons:4.1 Para. 2 : The fact that the system 1 Modifications had to be made in the programs because:

has not worked as planned 18 months lBudget formulation and approval was decentralized, and budget data had to be obtainedafter the consultants formally from and processed in the provinces. Before, these activities were centralize, and budget

are incomplete, some reports are still data was obtained by BAKUN from only one source, the DGB Head Office.awaiting agency confirmation and/or * The budget format was changed from the balanced budget to the deficit budget format.clarification and, more importantly, This affected the chart of accounts, posting rules, reports and validation rules.the old manual system (i.e., the * Interface programs to transfer data from the DGB (KTUA) to BAKUN had to be modifiedsystem before GAS I) is still in use because there was no consistency in the format/data structure of data coming from the more12 years after the initiation of the than 30 KTUJA.First Accountancy Development 2. The regional and fiscal autonomy laws came into effect with the following impact:Project indicate serious deficiencies * There was a series of reorganization resulting in the dissolution of many departments.in the planning and execution of the Master data as well as data processing problems resulted because there was confusion as toFirst and Second Accountancy which remaining/new agencies are responsible and should be charged for expenditures ofProjects. The reasons for this state of projects / offices which previously belonged to the dissolved agencies.affairs appear to be many: * Budget allocation documents oftentimes did not contain all the relevant codes (particularl,

for offices/projects which used to be under the dissolved agencies). Thus, both the budgetand cash disbursement data received by GAS 11 either did not contain all the necessary codeor were assigned the wrong codes.* It was not clear which new agencies/departments should be credited for revenue whichused to be credited to dissolved agencies.* Account codes which have already been removed from the chart of accounts were stillbeing used.* Since GAS II validates the data received from the DGB against the master data,erroneously coded transaction received from the DGB were automatically rejected by thesystem.3. There were bugs in the system which had to be corrected. (This is a contributing factor n.the only cause of the delay.)

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With regard to the use of the old system, it has already been explained earlier that from thestart of GAS I implementation, the plan had been to undertake a phased implementation.The original target of FY 1997/1998 was set back when the decision to develop GAS II wasmade. GAS II development used up another 3 years. We should therefore not gauge theperformance of GAS II against the 12 years which has transpired but in terms of the revisedimplementation plan, which is 1997/1998 plus 3 years.

4.1 * The system requires data from the If the statement (in Italic) means that data is received from the lowest level agency spendinllowest levels of government (i.e. units for processing and posting to the central government accounts , this is not accurate asprogram/project) to flow upward mentioned in section 3.3. However, if it means that data is captured by the system to providseveral levels to the central details for reporting to the lowest level agency spending units, and aggregated upwards foigovernment accounts. Without higher level reporting, then your statement is correct.stringent control of coding and clearassignment of responsibility for this Why was the system designed to capture data from the lowest level agency spending unit?control, data becomes unreliable The manually designed GAS called for the maintenance of agency general ledgers by thewhen there are changes to agencies themselves, while BAKUJN will maintain the general ledger for the centralprogram/project codes either because government accounts. BAKUN was to provide both systems List of Transactions and theof changes in the government journal voucher to minimize discrepancies in the posted data.structure (i.e. merging or splitting ofdepartments, provinces) or changes When the decision to computerize the system was made, a Senior Adviser recommended,in the uniform chart of accounts and BAKUN, the World Bank and SGV Consultants agreed that accounting data processingstructure to comply with GFS from data entry to the maintenance of the general ledger be centralized in BAKUN (KAR).requirements. BAKUN shall provide the agencies with the GL details needed for verifying posted data an(

for preparing their financial reports. In view of this, it was necessary for the system captureall details needed for reporting on the budget realization of the lowest level spending unitsof agencies, namely offices and projects. This decision was made for the following reasons:1. Centralization of the GL maintenance activities at BAKUN will reduce the cost ofsystems development maintenance and implementation because only one system had to bedeveloped. This would not have been the case if the agencies had to have their ownaccounting system separate from the central accounting system that would be run byBAKUN. Furthermore, control over the maintenance of the agency accounting system woulihave been difficult if not impossible because each agency can make changes in its ownaccounting system.2. The primary source documents for the accounting system came from the DGB. Bycentralizing the data processing in BAKUN the government will save a lot by performingonly one data entry operation instead of two, which would have been the case if the agenciemaintained and implemented a separate agency accounting system.3. Agencies did not have the capability to develop, implement and maintain a full scalecomputerized and decentralized agency accounting system. Very few agencies hadaccountants in the agency Head Offices and definitely there were none in the regions. Thegovernment did not have the capability and resources to simultaneously develop andimplement two separate systems.4. Separate data processing for the agencies and the central government (Ministry ofFinance) would result in serious reconciliation difficulties. In fact it would be almostimpossible to trace the cause of any differences between data reported by agencies and datareported BAKUN because each one can make errors in any stage in the accounting cycle.

It is worthwhile to note that contrary to the custom in other countries where discrepanciesbetween reports generated two separate systems are tolerated, auditors, government reportusers, and decision makers in the country make a case against unreconciled figures inreports. This explains the emphasis placed on the need to produce reconcilable accountingreports.

4.2 The changes in the government When the changes in the government and budget structure took place, 2 and 1/2 yearsstructure since 1998 and the effects I structure hanges 199and the workaity design, programming and testing work had been completed. At the time the specificatioxof these changes on the workability and designs were developed no one could have known that changes were going to take placof the system were not recognized or much more anticipate where it was going. It would have been too much for anyone to expetaken into account during the the Consultant to make changes at that time, especially since in 1998 no one knew tIrelevant developmentiphase. The direction the government was going . Most of the changes only occurred when fie]

the implementation of the fill GFS implementation was already taking place.

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classification framework will ensurean unstable environment in which thesystem is likely to be unreliable orperhaps even unworkable for the next3 to 5 years.

4.3 * Data is currently received by Please refer to the comments on item 3.1 on timely transmission of data (page 3).BAKUN's regional offices (KARs)from the relevant regional offices ofbudget administration (KTUAs)about one and a half months afterpayments are made by the regionaloffices of the Central State Treasury(KPKNs). An additional minimum ofone month is required for processingby the KARs if there are no majorerrors or unusual transactions. Thustimely reporting is almost impossibleright from the start of the process.

4.4 * The design of the system requires The system can produce the central accounting reports for reporting to Parliament on thethe timely cooperation of all units of budget realization even if no feedback is received from the agencies. While it is true that

all agencies to verify data and to inaccuracies can occur because the KARs may can make errors in data entry or in editingprovide prompt feedback to KARs for transactions data, it would be no different if the system were developed and implemented a!data correction purposes. Unless this two separate systems, with the central accounting system (CAS) working independently of

cooperatson ts forthcomiag, the the agency accounting system (AAS). In the latter case, no one will be verifying the outputoutputs of the system are unrehable of either the CAS or the AAS. Under GAS I and GAS II, at least there is still a chance thator wcomplete; mn some cases the the agency will discover and correct the mistakes made by the KARs.whole system may not work if datafrom the lowest level is wrongly On the question of wrong coding, since it is the State Treasury Offices that code thecoded. This cooperation has been documents used by BAKUN and by the agency, the agency accounting units (if they are topatchy resulting in incomplete and operate independently) will have the same problems that the KARs have in the processing cuntimely reporting. It is understood these transactions.

that BAKUN has been working on The cooperation of all agency accounting to verify data and to provide feedback to KARs uimproving this cooperation and some . d improvement has been achieved. now supported by the Minister of Finance Decree number 295/KMK012/2001.

* The consultants did not deliver Agestandard operating procedures orreconciliation programs for thereporting unit in BAKUN head officebecause of a difference of opinion asto whether this was part of thecontract, Thus the reconciliation andverification of PAN reports (PANreport is a budget realization reportto Parliament, an exposure account ofthe result of funds for governmentoperations) with other independentlyprepared reports, such as thoseproduced by the Directorate General,Budget or by agencies, have beenmanually undertaken by BAKUNhead office staff. This is timeconsuming and has generated a lackof confidence in the accuracy of GASII reports.

4.6 * To date there are still program The Head of BAKUN has already written a letter to the Head of DG Budget to allocate fun(errors which need fixing. This may for agencies for computer hardware procurements. However, the financial difficulties facebe a bigger challenge when thesystem is rolled out to all agencies. by the government at present should always be considered.At present, only about 20% of the

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agencies have computers to enableusage of the system at the lowerlevels.

4.7 * The Terms of Reference allowed As mentioned earlier, the delay in the start-up of GAS II live implementation for FYthe consultants to formally conclude (1999-2000) are caused primarily by factors beyond the control of BAKUN and the

the end of March 1999. This was Consultant. The terms of the contract cannot justify keeping the Consultant beyond Marchwell before the start of live 1implementation in August 1999. The Please refer to comments in item 5.2 page 9 of this paper.procedures for the acceptance testingwere inadequate in detecting anyprogramming/ systems errors. ScarceIT skills and resources in BAKUNhave made implementation progressand correction of bugs identifiedduring live production very slow.

4.8 Outputs by Component-Comnonent (P.6. item 4.2) Before you rate the project as unsatisfactory, we would like you to take these things ini

... The delivery of a working consideration:production system seems to have When the GAS study started in the 1980s,been lost in the process. Therefore, * There was no accounting system at the central accounting office (Directorate for Statethe projects outcome is considered Financial Accounting or DSFA, now BAKUN). Annual budget realization reports tounsatisfactory as it failed to achieve Parliament were prepared by the DSFA by compiling data from the annual budgetthe development objective of realization reports submitted by the agencies and the Directorate General of the Budgetmodernizing the Government (DGBAccounting System. * Agency accounting (single entry) was centralized at the department/agency head office.

Agency accounting records were maintained by agencies following reporting guidelinesissued from year to year by the DSFA. The agencies only produced annual budget realizatoreports for the Ministry of Finance. Since no accounting activities were done in the regions,no budget realization reports were generated for the spending units ( offices and projects)aswell as for regional and echelon I level units.* There was no formal state treasury accounting although treasury offices maintained dailycash transaction records and prepared daily cash reports.* No clear accounting policies and standards governed the record keeping activitiesperformed by the agencies and DGB..* Very few government agencies had personnel with accounting training/education.* There was no standard chart of accounts for revenue and expenditure.

At the present time:* A formal, double entry accounting system encompassing central accounting, agencyaccounting, and treasury accounting has been developed, computerized and implemented inall central government agencies in all provinces. The Government has targeted Year 2002for converting from the old single entry system to GAS II.* The agency accounting system is decentralized and is now being implemented in theregions (by the agency regional offices,not spending units) . GAS I and subsequently GAS Iare capable of generating financial reports for the lowest level spending units upwards tothe department level.* Thousands of government personnel all over the country have been trained both on thetheory and on the implementation of the govemment accounting system.* The government has adopted a standard chart of accounts for budgeting, treasury andaccounting.* Improvements have been made in the budget and treasury procedures to facilitate betteraccountability.* The govemment has developed the exposure draft of the government accounting standard!Public discussions on the draft are on-going.

In any system that is tailor-made, bugs can be expected to occur even after a thorough

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systems test and trial implementation has been done, because it is not always possible toreplicate field conditions for a complete accounting cycle - particularly those involvingreports comparing data for two years or more. This is especially the case in complexsystems like GAS I & 11. Aside from bugs, implementation problems also arise becausegovemment staff implementing the system still have to learn and adjust to the new system.Unlike developed countries which have an abundant supply of well trained and skilledaccountants and computer personnel, govenmnent staff in this country, especially in theregions are not as skilled.

GAS 11 implementation started at a time when fundamental changes were taking place inthe country and in the govermnent. The government revised the budget format by adoptingdeficit budget framework (vs. balanced budget). The regional and fiscal autonomy lawscame into effect resulting in a series of reorganization, and changes in budget structure andfinancial operations. These developments have created a lot of confusion in the budgetpreparation process and in budget execution, causing many documentation problems(particularly coding of accounts), all of which impact on the timeliness of implementationand the quality of the output of GAS 11.

The task which BAKUN had to accomplish to date was enormous. It was not just a case ofdeveloping, and implementing a govemment accounting system. It involved institution anccapability building in an environment which for a long time was "unsympathetic" towardsthe idea of modemizing the accounting system.

The development and implementation of the GAS was a pioneer undertaking which, as I.as we know has never

been done before in other countries on a similar scale. Thus there were no experiences todraw from. It is true that there are other countries with government accounting systemswhich could serve as models for developing new systems. In fact a number of SeniorAdvisors to this project had extensive govemment accounting experiences from developedand developing countries. But which country has similar budgeting and treasury systems,and organizational arrangements as Indonesia? Which ones developed and implemented tlleaccounting systems from scratch, trained all accounting staff on the basics of accounting. antrained computer staff with minimal experience on how to maintain computerizedaccounting systems? In the final analysis, a country has to develop a system which wouldsatisfy its requirements under existing environmental constraints.

We believe that the two projects (First and Second Accountancy Development Projects)should not be evaluated in terms of one absolute criteria, which is that GAS 11 should berunning smoothly, and complete and accurate reports are generated as of a specific targetdate. Instead, the accomplishment of these two projects should be evaluated in its totality.We believe the aforementioned accomplishments of the two projects should be consideredwhen making an overall assessment of the project.

In view of this, we disagree to the "Unsatisfactory" rating given for "Outcome". Aunsatisfactory outcome can be interpreted as the failure of GAS 11, and this can be used 1other sectors with ulterior motives as a basis for forcing the govemment to completely stcimplementing the system.

5 Maior Factors AffectineImulementation and Outcome The primary cause of delays in the implementation of GAS 1I were developments outside tl

5.1 P.9. Item 5.2 :It is reasonable, control, not only of BAKUN, but of the Ministry of Finance (MOF) as well. The adoptiontherefore, to assume that BAKUN the GFS framework in budget preparation was required by the IMF, the adoption of tlwould be the source of instruction regional and fiscal autonomy laws was passed by Parliament in 1998, and the series iadvice/guidance on all accounting reorganizations was by Presidential Decree. These events occurred after GAS 11 had be(matters, and a key player in developed, tested, and trial implemented. Neither BAKUN nor the MOF could haiinfluencing other offices within MOF influenced these decisions or anticipated the impact of these events on GAS 11.and other agencies to adopt measuresthat were necessary to ensure the It is true that, as the agency responsible for the accounting function, BAKUN should be aboperational capability of its system. to lay down the rules and guidelines to be followed/observed by government agencies (DGThe reality was otherwise in that included) to insure that the accounting function is properly carried out. But it should tBAKUTN appears to have reacted to noted that, unlike in other countries where this role has already been recognized anevents rather attempting to influence

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accepted, in this country this is a very new development. Acceptance takes time. And sincthem; BAKUN seems to have been a BAKUN does not have jurisdiction over budget and treasury operations, it does not have tFmarginal participant in the decision authority to compel DGB to take stringent measures to ensure that data flowing from DGmaking process. to BAKUN satisfy GAS II requirements, both in terms of quality and accuracy. There a]

organizational constraints which limit BAKUNs actual authority.

5.2 P.9, Item 5.3: Management It is not true that the Consultant just claimed full performance and disappeared 6 montleffectiveness by BAKUN was also before live production. They were involved in live production, although we referred to thlacking in that the contract was such as trial implementation because it only covered 3 months live transactions covering tlthat the consultants were able to period April to June 1998 (for Fiscal Year 1998-1999), not one year's transactions. Theclaim full performance and disappear monitored the implementation for 6 months from the start of GAS II trial implementatioifrom the project 6 months before During this period they debugged the system and made modifications as required t"live production" of the system. To BAKUN. In addition, there was a further warranty of 6 months were the Consultaihave a contract that enables the continued debugging the system. It was the live production for the following fiscal yearconsultants to finish before "live" FY1999-2000) that suffered a delay in the start up because of the problems/developmenimplementation indicates insufficient mentioned in the preceding sections.

attention givento contractual Note: The contract with PT Ernst & Young was signed on December 15, 1995. Tri.negoqeaton and tmadequate implementation in all KARs using live data for April to June 1998 started G

subsequent contract managementc October-November 1998. PTE&Ywas releasedfrom the contract in November 1999.The ICR of the First AccountancyDevelopment Project suggested that apilot implementation by all units andagencies in one province should beundertaken to ensure that the reportsemerging from the new system couldbe used as the basis forcomprehensive evaluation prior to afull scale implementation.

6. Sustainability '...apparent lack of commitment/appreciation by the Government and high level6. Sustainability bureaucrats to the importance of this task.' The situation has changed significantly under

It is unlikely the govenmment the leadership of Dr.Mulia Nasution. On April 19, 2001, the Minister of Finance issued aAccounting System II (GAS II) will Decree No. 196/KMK.01/2001 creating the Committee for the Modemization of Financialbe sustainable in the future given the Management (Komite Penyempurnaan Manajemen Keuangan). This Committee is headed bcurrent uncertainty regarding the the Secretary General and the Head of BAKUN was appointed Vice Chairman. The tasks oistructure of Govemment following this committee include:decentralization, the lack of control a. Formulate the strategy for the improvement/modernization of financial management,over coding of accounts to ensure b. Formulate the policies for drafting the Govemment Regulations on the implementation o1compliance, and the apparent lack of State Finance laws,commitment/appreciation by the c. Formulate the policies for the improvement/modernization of the govemment budgetingGovemment and high level system leading towards a unified budget,bureaucrats to the importance of this d. Formulate the policies for the improvement/modernization of the state treasury system,task. e. Formulate the policies for the improvement/modemization of the govemment accounting

standards and system,f. Formulate the policies for the standardization of annual agency reports,g. Formulate the policies for improving/modernizing auditing within the governmentagencies,h. Formulate the policies for restructuring the (MOF) organization in line with themodemization of financial management.i. Consult with the Minister of Finance on the outcome of the tasks mentioned in items a toh.The main factors that can cause uncertainty in the sustainability of GAS II are the plans toadopt the unified budget structure (together with the implementation of the GFS), and anymajor reorganization in the MOF which may come about as a result of the recommendation!of the aforementioned Committee.We expect that this Committee will, among others, address the problems of coding and dattransmission which were raised repeatedly in this draft ICR.

*oIt is understood that BAPEKSTA The real role to be played by BINTEK (BAPEKSTA) v^s-a-vis the accounting system is nothas become the Office of Infoms yet clear at this point. It is premature to judge the extent that this development will impactTechnology and Financial Systems

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(Badan Informasi dan Teknologi on GAS 11.Keuangan). It is further understoodthat this office will have theresponsibility for developing anumber of financial systemsincluding a "General FinancialInformation System." If thiseventuates, the impact on GAS II willbe very significant, as it may not bean appropriate mechanism forcollecting data from lower levelprogram/projects with consequentialchanges to the system's datastructure and operational rules.

7 7. Bank and Borrower We assume that "conceptual proposal" refers to the items enumerated in "Section 10.Performance (Page 13, item 7.4) Additional Information" page 15 of the Draft ICR. All the first four proposals quoted from

... Like the Bank staff, the the SGV report were all requirements in the Terms of Reference and the main deliverablesgovernment agreed too readily to the of the Contract. The TOR required the consultant on develop a central accounting system atconceptual proposals made by the the Central Accounting Office (now BAKUN) and an agency accounting system using theSGV consultants in 1984 on the double entry system for manual implementation. The TOR also required that the systemmodernization of Govemment should also produce the state balance sheet. The last item, a uniform chart of accounts is ofaccounting practices and systems. course basic to any accounting system. The system delivered by SGV complied with the

terms of the first contract. At that time, there was no basis for proposing a different concel- which would have meant justifying a change in the TOR and the contract. All thearguments against the conceptual design which are being used in this Draft ICR are based ohindsizht.

We object to the tenor of this statement which implies that the government, not to mentionthe Bank, accepted blindly the Consultant's recommendation. We wish to emphasize thatduring the development stages, in addition to Government official, there were SeniorAdvisors and WB experts reviewing the Consultant's output.

While we do not agree with the conclusions of the Draft ICR that the fault lies in the origin:conceptual framework, we want to stress that if there were weaknesses in the system, this iithe joint responsibility of all parties involved in the development, supervision and review olthe system that was designed.

We therefore recommend that this statement be deleted from this section of the Draft ICR. .

When the decision was made to The variables that influenced the decisions and actions taken by the government, the Bankcomputerize a system designed for and the Consultant at the time the computerization was started were many.manual operations, a further Although the manual government accounting system had not yet been implemented, theopportunity existed to raise questions system was simulated in 3 regions and in 4 agencies. The simulation showed that the systen

about the appropriateness of the was able to produce the expected output. At the same time, the simulation also revealedsystems original scope and structure. problem in connection with the lack of standardized inputs to the system.None of this was done by thegovernment. Years of hard work had been put in developing and simulating the accounting and financial

reporting system designed for manual operation. The cost and further delay that will resultfrom revising the conceptual design and detailed design of the system at that point wouldhave been difficult to justify. Furthermore, revising the design of the new manual accountinsystem prior to the development of a fully computerized system would have been highlyrisky because the resulting system would have been one that was not simulated.

At the time GAS I was being developed, the Project was under pressure, both from theGovernment and the Bank to produce results, notwithstanding the fact that the simulationshowed that there were problems in budget and treasury operations which impact on thesystem. The phased computerization of the system was deemed the best approach at thattime to move forward while at the same time finding solutions to existing problems. It wasdecided that systems development would be done in 3 stages.

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* The 1st priority module (FPAM) covered the computerization activities up to joumalvoucher generation at the KARs for cash transactions in the regions (through the KPKNs),and for budget allocation transactions from the DGB Head Office. The reason for the focuson the regional transactions was the fact that treasury operations in the regions wererelatively more stable and standardized.* The 2nd priority module (SPAM) covered activities from the maintenance of the generalledger to financial report generation. Data to be posted in the accounts would cover only thetransactions already processed by the FPAM. When SPAM is implemented, BAKUN willcentrally maintain the general ledger for both the agencies and BAKUN. Posting andreporting activities done manually will be stopped. Agency financial reports will begenerated from the general ledger received from BAKUN, while central accounting reportswill be generated by BAKUN from the same GL details maintained at BAKUN.* The 3rd priority module (TPAM) covered activities up to joumal voucher preparation forcash transactions through the DGB Head Office, and posting thereof to the GL. The reasonfor giving these transactions 3rd priority was because it was expected that while the lst and2nd priority modules are being developed, the budget and treasury issues which were raisecduring the simulation could be resolved.

What happened was, due to pressure to finish computerization and accomplish fullcomputerization as soon as possible 2nd and 3rd priority modules were developedsimultaneously (at the recommendation of Senior Advisers). Some of the budget and treasurissues were resolved only during the development of the 2nd and 3rd prioritymodulesAgreement on the chart of accounts was achieved only when systems developmentwas almost finished. And as we all know the issue on control over account coding is still anon-going issue.

In view of the fact that GAS I was developed from a system designed for manualimplementation and as such would have serious shortcomings for a fully computerizedsystem, we agree that perhaps a complete reengineering/restructuring of GAS I may havebeen necessary before GAS II was developed.

8 8. Lessons Learned (Page 14) Does unsatisfactory project design refer to the accounting system design or the design of theIt is important to acknowledge that First and Second Accountancy Development Projects? If this refers to GAS I, we reject thenon-compliance with the Bankprocedures resulted in perpetuating statement that from the start the design was flawed from the beginning, as explained in thean unsatisfactory project design for previous sections.an unacceptably long period of time.

The generally accepted alternative is We wish to inform you, that the Consultant for GAS II (P.T. Emst & Young) did not blindlyto use off-the- shelf accounting adopt the GAS I framework. After reviewing GAS I, and before actual GAS II system desigipackages and make appropriate and development, they considered changing the system framework and using an accountingmodifications to suit unique user package. They have tried modifying an accounting package which the believed could berequirements. modified to suit the user requirements. However that package assumed certain business

processes and relationships which differed significantly from the actual situation. To be abl,to use it, many changes in the budgeting and treasury procedures were needed. But,considering that this project did not directly involve DGB, it was impossible to makematerial changes outside the jurisdiction of BAKUN, within the limited time that wasavailable for systems development. Furthermore, instead of simplifying the system it woulehave created more complications. In the end, they dropped the idea of using the accountingpackage.

Other Points to consider / Lessons Learned:1. Before undertaking any large-scale government accounting modernization effort, thereshould be a prior, or simultaneous activity to modernize the budget and treasury functions.Much of the delay in the accounting system development and implementation activities(both GAS I and GAS II) can be traced to either deficiencies in policies, organizationalarrangements, or budget and treasury operations.2. If a project would require streamlining/reengineering the systems and operations ofmore than one agency, all agencies whose operations need to be streamlined/reengineeredshould be provided with an expenditure budget, and the activities of each agency should

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be treated as a separate project component or sub component. For instance, for theaccounting system development effort to succeed, many changes should have been madein the budget and treasury procedures. During GAS I and GAS II systems development,BAKUN proposed many recommendations covering DGB operations but only a few ofthese proposals were implemented. It would have been different if the budget and treasurysystem improvement activity was a sub-component of the project.3. Governments and the Bank should recognize that in introducing massive changes ingovernment systems and /or operations, the extent of the change and the speed ofimplementation will be affected by the availability or lack of trained and skilledpersonnel, the existing organizational arrangements, and availability or lack ofgovernment funds to finance the undertaking.

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