Erwida Maulia, Jakarta – The control of state assets by government-linked social foundations to help them operate and raise funds may lead to corrupt practices, a study has found.

The study, conducted jointly by the Jakarta-based Freedom Institute and Washington D.C.'s Brookings Institution in 2008, revealed that while 34 out of 36 surveyed foundations used state assets, most of the foundation executives interviewed did not understand that the assets belong to the state.

According to the study, the executives considered the foundations independent from the state and therefore resisted a regular audit by the Supreme Audit Agency, raising fears they could misuse the money for their own benefits.

Defying the main purpose of their establishment, which is to improve the welfare of employees of state agencies or institutions, many of the foundations appeared to run business units to seek profits, which are believed to be channeled to their board of executives.

"Since the executive boards of these foundations are also state officials, it is very difficult to avoid conflicts of interest during, for example, in the bidding process involving the foundations," Freedom Institute researcher Karaniya Dharmasaputra said on Thursday.

"The executive are sometimes shareholders of the business units competing in the tenders which are organized by state institutions, while on the same time they have overlapping function as government officials in the institutions," he said.

The government-linked foundations were set up by state department agencies and are led by government officials. The 2004 law on foundation bans state officials from holding executive posts at foundations controlled by their insitutions.

Besides aiming to improve the welfare of the state institutions' employees, the foundations are usually involved in social activities, including in the fields of education and healthcare.

The joint study tried to examine why major graft scandals often evolved from the management of state funds that went to the foundations. The embezzlement of Rp 100 billion in Bank Indonesia's Indonesia Banking Development Foundation (YPPI) funds by senior BI officials and a number of scandals involving State Logistics Agency (Bulog) were among the cases that had sparked the study.

The study discovered at least 50 foundations which are affiliated with 22 state departments and institutions, most of which were established during the New Order era.

Brookings Institution researcher Lex Rieffel said while the government should not no longer allow the establishment of such foundations, it could not just dissolve the existing ones before inventorying state assets controlled by the foundations in advance in a bid to avoid the loss of the state assets.