The Australian National Audit Office (ANAO) has undertaken an audit of AusAID's management of Australia's two largest infrastructure investments in Indonesia. While the overall assessment is 'generally effective' the audit has made four recommendations for improvement. AusAID agrees and will implement all four recommendations (see box below).
The report [external link], tabled today, looked at AusAID's management of the Eastern Indonesia National Road Improvement Project (EINRIP) and the Indonesia Infrastructure Initiative (IndII), which together account for 85 per cent of AusAID's infrastructure aid to Indonesia.
While the ANAO found AusAID's management of the two programs to be 'highly valued by Government of Indonesia counterparts' the report also outlines early problems with the start of each program. The ANAO states in its report that, 'AusAID does not carry primary responsibility for the management of those matters that have been identified as the main causes of implementation delay.' Nonetheless these early challenges were tackled and fixed. After EINRIP's launch in 2005 AusAID and the Government of Indonesia agreed on a new scope of work, and since 2009 EINRIP has been fully on track to achieve its goals, and will be completed by late 2014. IndII successfully completed phase 1 and has now commenced phase 2.
EINRIP was developed in response to the 2004 tsunami which destroyed much infrastructure in Indonesia. The project is funded through a loan to the Government of Indonesia. In December 2005 it was announced that EINRIP would build two thousand kilometres of road. Since its commencement, the scale and scope of EINRIP changed substantially at the request of the Indonesian Government after they introduced new, higher road standards. As a result of the new standards and large increases in the cost of fuel and materials it was agreed by all parties in 2009 that the total amount of road to be built by the end of 2014 would be 395 kilometres. The report found that the project objectives have been clear since 2009 and that it is now achieving 'higher quality and more durable roads'.
AusAID also accepts the audit's suggestions for improving the implementation of the road project's anti-corruption action plan but notes the report found the project is 'consistent with international best practice for promoting quality and reducing the opportunity for collusion and corruption in civil works.'
The report also recommended improved transparency in the public reporting of AusAID's fraud estimates which AusAID has already begun to address. The report also found levels of identified and reported fraud in the Indonesian infrastructure programs to be very low.
Recommendation No. 1:
To support improved program planning, delivery and evaluation, the ANAO recommends that AusAID progresses the development of a sector strategy for infrastructure aid to Indonesia, with a view to finalising the strategy as soon as possible.
AusAID response: Agreed. An infrastructure sector delivery strategy for the Indonesia country program is under development and will be completed by 31 October 2013.
Recommendation No. 2
To maximise the potential return from its investment in EINRIP, the ANAO recommends that AusAID:
a) puts in place the necessary structural and administrative arrangements to support the timely completion of EINRIP
b) explores further opportunities for working with the Government of Indonesia to promote institutional strengthening in road management, address risks to project sustainability, and monitor compliance with EINRIP's anti-corruption framework.
AusAID response: Agreed. AusAID is pleased to report that as of May 2013 progress continues to be on track with 8 of EINRIP's 20 road projects having reached substantive completion and 18 on track to be completed by early 2014.
Recommendation No. 3
To support more effective and efficient management of IndII, improve assurance of stakeholders and better manage transitional risks, the ANAO recommends that AusAID:
a) monitors the effectiveness of reforms to IndII governance and administration
b) refines its external review strategy to enhance transparency in regard to IndII's performance and AusAID's management of the initiative
c) develops appropriate arrangements to manage the risk of loss of continuity and momentum at the end of the second phase of IndII operations.
AusAID response: Agreed. AusAID launched its Transparency Charter on 23 November 2011. In accordance with the Charter, AusAID provides transparent, publicly available information on how aid program money is being spent effectively, achieving results and helping people to overcome poverty. The Charter makes Australia one of the most transparent aid donors in the world.
Recommendation No. 4
To support greater stakeholder awareness of risks in aid delivery, the ANAO recommends AusAID considers options for:
a) more clearly reporting the levels of residual operational risk in infrastructure initiatives in Indonesia or when operating in environments or with delivery models which are characterised by lower levels of AusAID administrative or legal control
b) improving transparency in the public reporting of aggregate fraud estimates.
AusAID response: Agreed. AusAID has put in place important measures to manage the risks of fraud and corruption that exist when a procurement activity is undertaken at arm's length from AusAID's own systems, as is the case with EINRIP. Similarly, in IndII, AusAID has incorporated a range of measures designed to minimise the potential for corruption or fraud. AusAID adopts a multilayered approach to working with Indonesia to reduce the potential for and impact of corruption.
More information
Report: AusAID's Management of Infrastructure Aid to Indonesia [external link]
Eastern Indonesia National Road Improvement Project (EINRIP)
EINRIP: Program fast facts
Indonesia Infrastructure Initiative (IndII)
IndII: Program fast facts
AusAID at work in Indonesia
Fraud fact sheet
Fraud control guidelines