Comparative Analysis of Transparency of Web-based Local Government Financial Management: Evidence from Indonesia

Comparative Analysis of Transparency of Web-based Local Government Financial Management: Evidence from Indonesia Toni Nurhadianto Master of Science at Accounting Program Faculty of Economics and Business, Universitas Gadjah Mada Bulaksumur, Yogyakarta 55281, Indonesia Abstract-- The transparency of local government financial management can be achieved through information disclosure at the local government s website. This study aims to compare and analyze the transparency of local government financial management in Indonesia. Transparency of local financial management is assessed by using content analysis method by looking at four measurement criteria: availability, accessibility, timeliness, and frequency of disclosure. Using 283 local government official websites in Java and Sumatera in budget year 2016, the results show that the average level of transparency related to financial management in Java is 19.58% while the rate of transparency in Sumatra is 9.39%. The results of the categorization according to the Open Budget Index (OBI) indicate that all local governments in Java and Sumatra are categorized as insufficient. Keywords-- Transparency, Good Governance, Local Government, Local Government Financial Management Nur Restu Amalia Salam Master of Science at Accounting Program Faculty of Economics and Business, Universitas Gadjah Mada Bulaksumur, Yogyakarta 55281, Indonesia I. INTRODUCTION Corruption is one of criminal acts inflicting the state s financial loss and impeding the national development. To overcome such event, the Central Government of the Republic of Indonesia published the Presidential Instruction Number 7 Year 2015 on Acts of Corruption Eradication and Prevention, instructing either local, provincial, or regency/city governments to support acts of corruption prevention and eradication and build a coordination with the Ministry of Home Affairs. Transparency of financial management is one of critical indicators encouraged by the government to prevent the criminal act of corruption. The Regulation of the Minister of Home Affairs Number 13 Year 2006 on Local Financial Management states that transparency is a disclosure principle enabling the society to know and easily access information of local finance. To realize the transparency, the government stipulated the Law 14/2008 on the Disclosure of Public Information, obliging every public institution to provide and serve a quick, punctual, affordable, modest appeal of public information.website is one of media the government intends to provide information for public. Styles and Tennyson [12] considered the Internet as the most 60

updated and accessible media for people. Besides, they also believe that it brings effectiveness for the government to overspread information to people. The uses of website and informational technology in the government are reflected by the implementation of e- government stipulated by the Presidential Instruction Number 3 Year 2003 on Strategies and Policies of E- government Development on local governments in Indonesia. Although there have been legislations echoing transparency improvement in the local financial management, not all transparencies are realized by the government. In consequence, there are inevitable dissatisfactions emerging among people in relation to the local government s performances, especially in the area of transparency of local financial management. The reason of why such inefficiency exists is because there have not been any transparency measurement and ranking of local financial management. It definitely hampers the improvement of local governments performances. The objectives of this research are to investigate the transparency levels of local governments financial management in Java and Sumatera and to compare them. This research contributes to improve local financial management upholding the transparency of financial statements. This research is expected to be able to be one of references and recommendations for the central government to continuously monitor the implementation of regulations stipulated concerning transparency. II. LITERATURE REVIEW A. Agency Theory The agency theory defines the contract relationship between principals and agencies. In the case of public sector organization, the government acts as the agent while the people acts as the principal. The contract relationship existing between focuses on the government as the task holder to serve public. However, in the practice, the government occasionally acts not in accordance with their duties by limiting people s access to information. Such limitation creates conflicts due to disharmony of information ownership between agents and principals and decreases people s confidence towards the government s transparency and performance evaluation. Hence, local governments as an agent whose accountability is to manage the local or city finance are encouraged to disclose any necessary information by the means of e-government. E- government enables local governments to decrease the conflict between agents and principals and therefore increases people s confidence regarding the transparency of local financial statements [13]. B. Transparency Araujo and Tejedo-Romero [2] explain that transparency is a broad concept in relation with information availability and accessibility for all people and other stakeholders. Hirsch and Osborne [3] add that transparency is a means to improve policy, administrative, and managerial effectiveness. Mardiasmo [9] argues that eventually, transparency of local financial management creates a horizontal accountability between local governments and people to realize a clean, effective, efficient, accountable, responsive government, particularly for the sake of people s aspiration and interests. To manage finance, frankly speaking, that is people s fund, the government must be encouraged to provide any 61

necessary financial information in an accurate, relevant, punctual, and trusted manner [1]. The government must implement such way from the process of planning to the process of accountability over the stipulated program and budget. Furthermore, Mardiasmo [8] believes that basically, people (public) possess fundamental rights towards the local governments that are: 1) Rights to know the governments policy, determination, and reasons of the implementation of a certain policy. 2) Rights to be provided any information of any debatable issues. 3) Rights to get their aspirations listened. Of several arguments, it can be concluded that transparency by local governments is a crucial matter. It should be immediately realized to create such good governmental systems. II. RESEARCH DESIGN The research objects were 283 authorized websites by local governments in Java and Sumatera. To measure the transparency level, the researchers employed an instrument designed by Huwae [4] in relation with the information of stages of planning, execution, reporting, and accountability of local government budget (Anggaran Pendapatan Belanja Daerah, APBD) for the budget year of 2016 (appendix). The transparency of local financial management was measured by hiring the content analysis by observing four criteria of measurement that were availability, accessibility, timeliness, and frequency of disclosure [11]. The index of transparency of local financial management was measured by applying these following methods: 1) Score 1 for available information and 0 for unavailable information. For the frequency of disclosure, were there no information available, the researchers gave score 0; were there information available in one year, the researchers gave 1/3, were there information available in two years, the researchers gave score 2/3, and so on. Provided the information was all disclosed, the researchers gave score 1. 2) Every criterion was multiplied by 0.25. 3) The transparency level was calculated by dividing the total score earned with the score expected of each indicator. 4) Ranking. There were several exceptions of this research that were: 1) Local governments without any authorized inaccessible, or under-construction websites were labelled as not transparent. In 2016, the researchers only used twenty seven indicators by excluding two indicators that were information of local government stipulation on accountability of implementation of local government budget and information of opinions of Supreme Audit Authority of the Republic of Indonesia (Badan Pemeriksa Keungan Republik Indonesia, BPK RI) of the local government s financial statements. The reason behind such exclusion was that those two information had not been provided by investigated local governments. The transparency ranking of local financial management referred to the Open Budget Index (OBI), a rank category employed by the International Budget Partnership (IBP) to stipulate the rank of index of budgetary disclosure in 102 countries in 2015 [5]. 62

TABLE I TRANSPARENCY BASED ON OBI Disclosure Level Category Score 81- Extensive 1 Sufficient 100 Substantial 61-80 Limited 41-60 2 Insufficient Minimal 21-40 Scant or None 0-20 III. FINDINGS AND DISCUSSION A. Measurement of Transparency Level of Local Financial Management TABLE II TRANSPARENCY LEVEL IN JAVA IN 2016 Local Government Total Index (%) 1 DKI Jakarta Province 15.67 58.02 2 Bojonegoro Regency 13.67 50.62 3 Centra Java Province 13.08 48.46... 117 Cianjur Regency 0.92 3.40 118 Indramayu Regency 0.92 3.40 119 Madiun Regency 0.92 3.40 Average 5.29 19.58 The highest transparency rate of local financial management in Java in 2016 is achieved by DKI Jakarta Province with the total score of 15.67 or with the index rate of 58.02%. Moreover, the lowest transparency rate is achieved by Madiun Regency with the total score of 0.92 or with the index value of 19.58%. TABLE III TRANSPARENCY LEVEL OF SUMATERA IN 2016 Local Government Total Index (%) 1 Aceh Province 13.25 49.07 2 Natuna Regency 11.42 42.28 3 Kepulauan Bangka 9.83 36.42 Belitung Province... 155 Sibolga City 0.75 2.78 156 Kepulauan Meranti Regency 0.75 2.78 157 Tanjungbalai City 0.00 0.00 Average 2.54 9.39 158 Bener Meraih Regency Not transparent 159 Gayo Lues Regency Not transparent 160 Lebong Regency Not transparent 161 North Musi Rawas Regency Not transparent 162 North Nias Regency Not transparent 163 Padangsidimpuan City Not transparent 164 Suwahlunto City Not transparent The highest transparency rate of local financial management in Sumatera in 2016 is achieved by Aceh Province with the total score of 13.25 or with the index rate of 49.07%. Moreover, the lowest transparency rate is achieved by Tanjungbalai City with the total score of 0.00 or with the index rate of 0.00%. There are seven regencies/cities that are not transparent. TABEL 1V LIST OF THE HIGHEST AND THE LOWEST LOCAL FINANCIAL MANAGEMENTS IN JAVA AND SUMATERA IN 2016 63

Table IV displays that the transparency level of local financial management in Java achieves a higher rank than the transparency level of local financial management in Sumatera. B Categorization of Transparency Level Based on the Open Budget Index (OBI) TABLE V TRANSPARENCY LEVEL IN JAVA BASED ON OBI IN 2016 No. Disclosur e Level Category Score Numbe r 1 Sufficient Extensive 81- - 100 Substantia 61-80 - l Limited 41-60 10 Insufficien Minimal 21-40 37 2 t Scant or 0-20 72 None Table V indicates that all governments of regency/city in Java are not transparent enough (Insufficient). There are ten governments of regency/city included in the limited qualification (Limited), thirty seven governments of regency/city included in the minimal qualification (Minimal), and seventy two governments of regency/city included in the little qualification (Scant or None). TABEL VI TRANSPARENCY LEVEL IN SUMATERA BASED ON OBI IN 2016 Disclosure Numbe Category Score Level r Extensive 81-100 - 1 Sufficient Substantial 61-80 - Limited 41-60 2 2 Insufficient Minimal 21-40 7 Scant or 0-20 148 None Table VI shows that all governments of regency/city in Sumatera are not transparent (Insufficient). There are two governments of regency/city included in the limited qualification (Limited), seven governments of regency/city included in the minimal qualification (Minimal), 147 governments of regency/city included in the little qualification (Scant or None), and four governments of regency/city that are not transparent. Observed on Table V and Table VI, the categorization of transparency of local financial management referring to the Open Budget Index (OBI) displays that the governments of Java and Sumatera are not adequately transparent (Insufficient). It indicates that both governments have not disclosed enough information of local financial government. IV. CONCLUSIONS Overall, Java can be considered as having a higher transparency than Sumatera. The categorization result of disclosure level of public information based on the Open Budget Index (OBI) shows that the governments in both Java and Sumatera are in the category of insufficient because their indexes are below 61%, indicating that local governments in Java and Sumatera have not disclosed information on their websites regarding the local finance government. However, this research is unfortunately limited by hiring samples taken in Java and Sumatera only. Thus, the researchers could not elaborate a broader concept of implementation of transparency of local financial management in Indonesia. The criteria used for the measurement have the same weight so that the most important criteria have not been able to be classified. Future researchers are expected to add 64

more research samples and to examine factors influencing the transparency level of local financial management. REFERENCE [1] P. Chalid, Local finance, investment, and descentralization. Jakarta: Kemitraan, 2005. [2] J. F. F. E. De Araujo, and F. Tejedo-Romero, Local government transparency index: determinants of municipalities rankings. International Journal of Public Sector Management 29 (4): 327 347, 2016 [3] W. Hirsch, and E. Osborne, Privatization of government services: pressure-group resistance and service transparency. Journal of Labor Research XXI (2): 315 326, 2000. [4] K. Huwae, Analysis of disclosure level of local financial management information (case study of Daerah Istimewa Yogyakarta Province). Universitas Gadjah Mada, 2016. [5] International Budget Partnership (IBP). Open Budget Survey 2015. Open Budgets. Transform Live, 2015. http://internationalbudget.org/wpcontent/uploads/ob S2012-Report-English.pdf. [6] Presidential Instruction of the Republic of Indonesia Number 7 Year 2005 on Acts of Prevention and Eradication of Corruption in 2005. [7] Presidential Instruction of the Republic of Indonesia Number 3 Year 2003 on National Policies and Strategies of E-government Development. [8] Mardiasmo, Public Sector Accounting. Yogyakarta: Andi, 2002. [9] Mardiasmo, Autonomy and Local Financial Management. Yogyakarta: Andi, 2004. [ 10] Regulation of Minister of Home Affairs Number 13 Year 2006 on Guidelines for Local Government Finance. [11] Ritonga, Irwan Taufiq, Measuring transparency of local financial management in Indonesia: website-based. Jurnal Akuntansi & Auditing Indonesia, Vol. 20 2, 2016. [12] A. K. Styles, and M. Tennyson, The Accessibility of Financial Reporting U.S. Municipalities on the Internet. Journal of Public Budgeting, Accounting & Financial Management. Vol.:9, No:1, pp. 56-92, 2007. [13] Suhardi et al, Evaluating e-government and Good Governance Correlation. ITB Journal Publisher, ISSN:2337-5787,DOI: 10.5614/itbj.ict.res.appl.2015.9.3.3, 2015. [14] The Law Number 14 Year 2008 on Disclosure of Public Information. [15] The Law Number 15 Year 2005 on Investigation of Management and Accountability of State Finance APPENDIX TABLE A TRANSPARENCY INDICATORS ON THE PLANNING STAGE OF LOCAL FINANCIAL MANAGEMENT Information of summary of Regional 1 Development Plan (Rencana Kerja Pembangunan Daerah, RKPD) documents 2 Information of general budget policy 3 Information of summary of priority and budgetary plafond documents Information of summary of local government department/agency-budget 4 work plan (Rencana Kerja dan Anggaran- Satuan Kerja Perangkat Daerah, RKA- SKPD) documents 5 Information of summary of local government finance officer-budget work 65

plan (Rencana Kerja dan Anggaran- Pejabat Pengelola Keuangan Daerah, RKA-PPKD) documents Information of summary of documents of 6 local regulation draft on local government budget 7 Information of local regulation on local government budget 8 Information of local head regulation on description of local government budget Information of summary of local government department/agency-budget 9 implementation document (Dokumen Pelaksanaan Anggaran-Satuan Kerja Perangkat Daerah, DPA-SKPD) Information of local government finance officer-budget implementation document 10 (Dokumen Pelaksanaan Anggaran- Pejabat Pengelola Keuangan Daerah, DPA-PPKD) Source: Huwae (2016) TABLE B INDICATORS OF TRANSPARENCY ON THE STAGE OF IMPLEMENTATION OF LOCAL FINANCIAL MANAGEMENT Source: Huwae (2016 Indicators 1 Information of local revenue realization 2 Information of local budget realization 3 Information of local financing realization Information of summary of document of local 4 government budget amendment draft Information of local regulation on local 5 government budget amendment Information of local head regulation on description 6 of local government budget amendment 7 Information of summary of budget work plan of local government budget amendment 8 Information of general procurement plan 9 Information of local head certificate on local government finance officer TABLE C INDICATORS OF TRANSPARENCY ON THE STAGE OF REPORTING AND ACCOUNTABILITY OF LOCAL FINANCIAL MANAGEMENT Indicators 1 Information of local head regulation on accounting policies 2 Information of cash flow statement 3 Information of budget realization of all local government departments/agencies 4 Information of budget realization of all local officers 5 Information of balance 6 Information of local government notes of financial statement (Catatan atas Laporan Keungan, CaLK) 7 Information of financial statement of local enterprises 8 Information of annual statement of accountability and performances of local government 66