The World BankStrengthening Internal Audit (P159448)

REPORT NO.: RES31986

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

STRENGTHENING INTERNAL AUDIT

APPROVED ON SEPTEMBER 23, 2016

TO

ASOSIASI AUDITOR INTERN PEMERINTAH INDONESIA (AAIPI)

GOVERNANCE

EAST ASIA AND PACIFIC

Regional Vice President: Victoria Kwakwa Country Director: Rodrigo A. Chaves

Senior Global Practice Director: Deborah L. WetzelPractice Manager/Manager: Arturo Herrera Gutierrez

Task Team Leader: Novira Kusdarti

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The World BankStrengthening Internal Audit (P159448)

ABBREVIATIONS AND ACRONYMS

AAIPI = Asosiasi Auditor Intern Pemerintah Indonesia (Government Internal Auditor Association)BPKP = Badan Pengawasan Keuangan dan Pembangunan (Finance & Development Supervisory Agency) or known as Government National Internal Audit InstitutionCAAT = Computer Aided Audit TechniquesIA-CM = Internal Audit Capability ModelIG = Inspector GeneralMoF = Ministry of FinanceMDTF = Multi Donors Trust FundsPFM = Public Financial Management QAIP = Quality Assurance Improvement Program

The World BankStrengthening Internal Audit (P159448)

Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

BASIC DATA

Product Information

Project ID Financing Instrument

P159448 Investment Project Financing

Original EA Category Current EA Category

Approval Date Current Closing Date

23-Sep-2016 30-Apr-2018

Organizations

Borrower Responsible AgencyASOSIASI AUDITOR INTERN PEMERINTAH INDONESIA (AAIPI)

ASOSIASI AUDITOR INTERN PEMERINTAH INDONESIA (AAIPI)

Project Development Objective (PDO)

Original PDOThe primary objective of our engagement is to contribute to government's efforts to improve the capacity of the internal audit institutions to progress towards level 3 of IA-CM requirements.

Internal Audit Capability Model (IA-CM) is a framework that identifies the fundamentals needed for effective internal auditing in government and the broader public sector. It illustrates the levels and stages through which an intern audit activity can evolve as it defines, implements, measures, controls and improves its processes andpractices. The IA-CM provides a road map for continuous improvement in processes and practices to establish effective internal auditing in an organization.

There are 5 capability levels in IA-CM, where level 1 is the lowest with no sustainability and high dependency on individual efforts and level 5 is the inspirational level. Level 3 is where internal audit management and professional practices are uniformly applied and the practice generally conforms to the internal audit standards and an established Quality AssuranceImprovement Program (QAIP) .

The World BankStrengthening Internal Audit (P159448)

Level 3 of IA-CM requires advisory services and performance audit to be practiced uniformly and the use of risk based audit plan within the internal audit institutions. To ensure such internal audit professional practice, qualified IA-CM accessors and certified QAIP reviewers should be available to support such transformation.OPS_TABLE_PDO_CURRENTPDOSummary Status of Financing

TF Approval Signing Effectiveness ClosingNet

Commitment Disbursed Undisbursed

TF-A3211 23-Sep-2016 23-Sep-2016 23-Sep-2016 30-Apr-2018 .66 .56 .10

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?No

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I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

The project ratings on the progress towards achievement of the PDO and overall implementation progress (IP) are Satisfactory.

Although there was delay in the initial stage, project implementation has significantly improved. Bank disbursements as of March31, 2018 is 86% of the total allocated grants while AAIPI has utilized only 88% of the funds advanced by the Bank. AAIPI had commitment amounted to USD 594,350 covering five activities endorsed by the Donors earlier from the initial allocation of USD 655,350. Following are the details progress of the activities in each component.

Component 1: Internal Audit Capacity Enhancement:

1. Stakeholder Learning Workshop was completed. Two workshops were already conducted. Each workshop attended by 750 – 800 internal auditors from ministries / agencies inspectorate general (IG’s) and from local government IG’s. The first Workshop was conducted on November 30, 2016 to share and learn experience in moving towards level 3 of Internal Audit Capability Model (IA-CM). The second workshop was conducted on September 30, 2017 to monitor the progress of IA-CM of Ministries/agencies while providing update on use of technology for internal audit and risk based audit plan. Both are required for level 3 IA-CM.

2. The development of distance learning modules was completed. The AAIPI distance learning application already attached in AAIPI website. The application consists of the following modules (i) Government Internal Audit Standard; (ii) Government Auditor Code of Ethic; (iii) Peer Review Standard and (iv) performance Audit Standard. The application is also accessible through smart phone.

3. The Capacity Building to Implement Audit Universe and Risk Based Planning is recently completed. The guidelines to implement risk based planning has been prepared and piloted in planning of cross sectoral poverty alleviation and food sustainability program (using activity approach) in BPKP and IG of Ministry of State Owned Enterprises and Jakarta Local Inspectorate (using unit auditee approach).

The World BankStrengthening Internal Audit (P159448)

Component 2: Piloting use of Technology in Conducting Internal Audit: Computer Aided Audit Techniques (CAAT) has been developed and piloted within the Inspector General of Ministry of Finance (IG MoF). Plans are being made to implement the CAAT in IGs from other ministries. Further development of CAAT to be used by local inspectorates is also being considered.

Component 3. Institutional Support and Project Management: Preparation of AAIPI’s strategic plan is already completed and presented to AAIPI Board. To support AAIPI vision to be a leading professional organization to support internal auditor as the assurance and consultant for accountable financial management at central government and local governments, AAIPI will (i) provide methodology, technic, and approach and good practice in internal audit which in-line with international practice; (ii) provide input for prosper, professional internal auditor with good integrity; and (iii) conduct cooperation with other national and international professional organization. Other than the above, AAIPI is maintaining and continuously developing the internal audit standard, code of ethic and peer review standard which already developed earlier.

The Project Development Objective (PDO) indicators are showing progress. The number of internal audit units in level 3 IA-CM (PDO1), is already above the end target (20), currently reaching 125 internal audit units. The use of Information Technology (IT) for internal audit practice within IG MoF (PDO2) has also been achieved. It was reported that IG MoF is using IT for its audit on SPAN. The preparation of AAIPI Strategic plan (PDO3) is also completed as explained above.

Extension of the closing date is required, the client has sent a request to extend the project closing date from February 28, 2018 to February 28, 2019 to allow for completion of ongoing activities as well as to seek additional financing from donors for activities already approved by the Bank. The project went through interim extension up to April 30, 2018 while waiting for PFM MDTF (parent TF) extension process. As the parent TF was recently extended up to August 30, 2019. The project is proposed for extension up to March 27, 2019.

Recent endorsement by Donors. There were thirteen activities approved by the Bank in the project paper, of which five activities already completed. The Bank team received endorsement from the donor Management Committee of the remaining eight activities (six activities under Component 1 and 2 activities under Component 3) at MC meeting on March 14, 2018.

Additional activities endorsed by Donors are (a) performance audit guidelines; (b) training of Trainers Program for IA-CM Assessors Certification; (c) Training of Trainers Program for Quality Assurance Improvement Program (QAIP); (d) Independent Validation of BPKP IA-CM Self-assessment and QAIP; (e) Implementation Support on COSO and IA-CM at Local Government Level; (f) Internal Control Workshop; (g) Institutional Support to AAIPI; and (h) Development AAIPI Membership Database. These activities could significantly contribute to the achievement of PDOs. AAIPI requires an extension to implement them as they were recently endorsed by the donors. Currently all Term of Reverences (ToRs) of the above activities have been reviewed and No Objection Letters (NOLs) have been issued. Procurement process is expected to start soon to expedite the project implementation.

II. DESCRIPTION OF PROPOSED CHANGES

The project had interim extension up to April 30, 2018 while waiting for parent TF extension process.

Eight activities endorsed by the donors in MC meeting dated March 14, 2018 are as follows: (a) development of performance audit guidelines; (b) training of Trainers Program for IA-CM Assessors Certification; (c) Training of Trainers Program for Quality Assurance Improvement Program (QAIP); (d) Independent Validation of BPKP IA-CM Self-assessment and QAIP; (e) Implementation Support on COSO and IA-CM at Local Government Level; (f) Internal Control Workshop; (g) Institutional Support to AAIPI; and (h) Development AAIPI Membership Database. These activities could significantly

The World BankStrengthening Internal Audit (P159448)

contribute to the achievement of PDOs. An additional fund allocation of USD344,650 (after considering the initial allocation of USD 655,350) bring the total cumulative allocation for AAIPI into USD 1,000,000. AAIPI requires extension to implement these activities. All Term of Reverences (ToRs) of the above activities have been reviewed and No Objection Letters (NOLs) have been issued. Procurement process is expected to start soon to expedite the project implementation.

As the parent TF already extended up to August 31, 2019, the project is proposed to be extended up to March 27, 2019 with reduce grace period from four months into three months. The recipients are fully aware that the grace period for submitting the withdrawal application will only be about three months after March 27, 2019. DFI clearance has been obtained.

Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

III. SUMMARY OF CHANGES

Changed Not Changed

Change in Loan Closing Date(s) ✔

Additional Financing Proposed ✔

Change in Disbursement Estimates ✔

Change in Implementation Schedule ✔

Change in Implementing Agency ✔

Change in Project's Development Objectives ✔

Change in Results Framework ✔

Change in Components and Cost ✔

Cancellations Proposed ✔

Reallocation between Disbursement Categories ✔

Change in Disbursements Arrangements ✔

Change in Overall Risk Rating ✔

Change in Safeguard Policies Triggered ✔

Change of EA category ✔

Change in Legal Covenants ✔

Change in Institutional Arrangements ✔

Change in Financial Management ✔

Change in Procurement ✔

Other Change(s) ✔

The World BankStrengthening Internal Audit (P159448)

IV. DETAILED CHANGE(S)

OPS_DETAILEDCHANGES_LOANCLOSING_TABLE

LOAN CLOSING DATE(S)

TF StatusOriginal Closing

Revised Closing(s)

Proposed Closing

Proposed Deadline for Withdrawal

Applications

TF-A3211 Effective 28-Feb-2018 30-Apr-2018 27-Mar-2019 30-Jun-2019

OPS_DETAILEDCHANGES_ADDITIONAL_FINANCING_TABLEADDITIONAL FINANCINGSource Currency Amount USD EquivalentIndonesia - Support Public Financial Management(IDFM) USD 344,650.00 344,650.00

Existing Net Commitment USD Amount 660,000.00

Total 1,004,650.00

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE

DISBURSEMENT ESTIMATES

Change in Disbursement EstimatesYes

Year Current Proposed

2017 0.00 399,380.00

2018 0.00 487,151.00

2019 0.00 113,469.00

2020 0.00 0.00

2021 0.00 0.00

2022 0.00 0.00

2023 0.00 0.00

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