THE IMPORTANCE OF AUDITING FOR VILLAGE CREDIT INSTITUTIONS

Village Credit Institutions (LPD) are financial institutions that aim to raise funds from the community and channel them back to the community, but operate in a certain customary village administration area, based on family principles. LPD was first conceived by Prof. Dr. Ida Bagus Mantra in 1983 when he was the Governor of the Bali Provincial Government. He made the idea to form an adat-based financial institution by adopting and developing the concept of sekaa, banjar and traditional villages that had grown up in the midst of Balinese society. The legal basis for the formation of LPD is the Decree (SK) of the Governor of Bali No. 972 in 1984, November 19, 1984. The LPD was officially operational from March 1, 1985 which was further strengthened by the Bali Regional Regulation No 06 of 1986. This regulation explains that Microfinance Institutions (MFIs) are institutions that provide financial services to the poor and low-income families, enabling them to better manage their risks, achieve consistent consumption patterns and develop their economic base.

 LPD governance has been regulated in Bali Governor's Regulation Number 44 Year 2017 concerning Village Credit Institutions, specifically related to core competencies and tasks, principles LPD management prudence that includes administration, capital adequacy, maximum lending limit, loan classification system, and the formation of doubtful loan reserves (CPRR). In addition, LPDs are required to maintain their level of liquidity through liquidity management and to maintain the soundness of LPDs assessed in terms of capital adequacy, quality of productive assets, management; earnings.

From the mass media, we get a lot of information related to problematic LPDs spread throughout the regencies and cities in Bali, and not a few of them enter the realm of law. Problems that arise for example due to embezzlement carried out by unscrupulous officials, or employees, disruption of liquidity due to the number of bad loans, non-compliance with credit lending SOPs, insufficient collateral value. To overcome this, the effectiveness of the regulatory body as an internal supervisor is necessary. Competent supervisors in the audit field will certainly be able to carry out their tasks and functions properly in conducting audits. The American Accounting Association's Committee on Basic Auditing Concepts states that auditing is a systematic process for obtaining and evaluating evidence objectively about statements about economic activities and events with the aim of determining the level of conformity between these statements with established criteria and delivering the results to interested users. Thus the audit is a systematic process with the aim of evaluating evidence regarding economic actions and events to ensure the level of correspondence between what is reported with the actual conditions. The purpose of the Audit in general is to test the completeness, accuracy of existence, classification and assessment carried out appropriately by management. The audit also aims to ensure that transactions near the balance sheet date are recorded in an appropriate period and to ensure that the account balances and related disclosure requirements are fairly presented in the financial statements and explained appropriately in the contents and notes of the financial statements. To meet the objectives of the audit required adequate competence from an auditor. The Supervisory Agency is an internal auditor for the LPD while the external auditor for the LPD is from the Public Accountant Office (KAP). Article 44 of the Bali Governor's Regulation in 2019 stipulates the requirements that must be fulfilled by the Supervisory Agency (Panureksa) including having skills in financial management and auditing and being willing to participate in a competency-based training program. Article 45 states that the duty of Panureksa is to monitor and supervise the LPD; conduct LPD audits; provide guidance and / or policy direction to Prajuru; provide advice and considerations regarding the strengthening of LPD institutions, management, operations and LPD activities; assisting in solving problems; promoting the existence of LPDs; evaluating Prajuru's performance regularly, and submitting the end-of-year Panureksa accountability report to Paruman Desa.

Panureksa which has adequate competence and carries out its tasks and functions properly will be able to detect early weaknesses in LPD internal control, so that LPD problems faced by LPDs can be detected early. However, audits from external parties are still needed to provide an opinion on the reasonableness of the LPD financial statements so that users get adequate assurance from an independent party. Undoubtedly with periodic audits from both internal and external parties will increase accountability and good governance so that the concept of LPD sustainability can be guaranteed.