POAD 9100

RESEARCH PROJECT IN POLICY AND MANAGEMENT

ACCOUNTABILITY FOR PERFORMANCE IN LOCAL GOVERNMENT

IN INDONESIA: SUSTAINABILITY BALANCED SCORECARD
APPROACH FOR BETTER PRACTICES OF CORPORATE
GOVERNANCE

Jermi Haning
2013986

Submitted in partial fulfilment of the requirements for the degree of

Master of Policy and Administration

FLINDERS INSTITUTE OF PUBLIC POLICY AND MANAGEMENT

FLINDERS UNIVERSITY
2003

TABLE OF CONTENT
TABLE OF CONTENT ..................... ERROR! BOOKMARK NOT DEFINED.
EXECUTIVE SUMMARY ................................................................................... III
DECLARATION................................................................................................... IV
ACKNOWLEDGEMENT...................................................................................... V
ABBREVIATION ................................................................................................. VI
1. INTRODUCTION ............................................................................................. 1
1.1. BACKGROUND OF THE STUDY ..................................................................... 1
1.2. LIMITATION OF THE STUDY ......................................................................... 2
1.3. OUTLINE OF THE STUDY .............................................................................. 3
2. LITERATURE FRAMEWORK ....................................................................... 4
2.1. CORPORATE GOVERNANCE ......................................................................... 4
2.2. ACCOUNTABILITY AND PERFORMANCE ....................................................... 5
2.2.1. What is Accountability? .................................................................. 5
2.2.2. The Changing Focus of Accountability........................................... 7
2.2.3. Relating Accountability to Performance ....................................... 10
2.2.4. Establishing Accountability Framework for Performance ............ 12
2.3. A SUSTAINABILITY BALANCED SCORECARD (SBSC) APPROACH TO
PERFORMANCE .......................................................................................... 13
2.3.1. What is SBSC? .............................................................................. 13
2.3.2. SBSC as Organizational Strategy for Performance ....................... 14
2.3.3. The Incorporation of SBSC ........................................................... 16
3. THE ACCOUNTABILITY SYSTEM IN LOCAL GOVERNMENT IN
INDONESIA ................................................................................................... 18
3.1. THE LEGISLATURE AS THE PRINCIPAL OF ACCOUNTABILITY ..................... 18
3.2. THE GOVERNMENT AS THE AGENT OF ACCOUNTABILITY ......................... 20
3.2.1. Providing Information/Reporting .................................................. 21
3.2.1.1.Annual Budget ......................................................................... 23
3.2.1.2.Annual Report ......................................................................... 24
3.2.1.3.Performance Information ........................................................ 26
3.2.2. Providing Explanation/Justification .............................................. 28
3.2.3. Reviewing and Revising ................................................................ 29
3.2.4. Granting Redress or Imposing Sanction ........................................ 30
3.3. AUDITING AND ACCOUNTABILITY ............................................................. 31
3.3.1. The New Focus of Auditing .......................................................... 32
3.3.2. Auditing in Local Government in Indonesia ................................. 34
4. RESEARCH METHODOLOGY .................................................................... 37
5. A SUSTAINABILITY BALANCED SCORECARD (SBSC) APPROACH
TO PERFORMANCE ..................................................................................... 38
5.1. INTRODUCTION .......................................................................................... 38
5.2. COMMUNITY-ORIENTED MANAGEMENT ................................................... 38
5.2.1. Satisfying Costumers and Communities Needs ............................ 38
5.2.2. Putting Governance into Practice .................................................. 41
5.3. INTERNAL BUSINESS PROCESS .................................................................. 44
5.3.1. Benchmarking ............................................................................... 44
5.3.2. Quality Assurance ......................................................................... 47
5.3.3. Quality Assurance ......................................................................... 48
5.3.4. Other Measures.............................................................................. 48

5.4. FINANCIAL PERFORMANCE MANAGEMENT ............................................... 48

5.4.1. Budgeting System.......................................................................... 49
5.4.2. Contemporary Financial Accounting ............................................ 52
5.4.3. Asset Management ........................................................................ 54
5.5. INNOVATION AND LEARNING MANAGEMENT ............................................ 56
5.5.1. Managerialsm ................................................................................ 58
5.5.2. Reward and Recognition ............................................................... 59
5.5.3. Training ......................................................................................... 60
5.6. SUSTAINABILITY MANAGEMENT ............................................................... 61
5.6.1. The Urgency of Sustainability....................................................... 61
5.6.2. Sustainability in Local Government .............................................. 63
5.6.3. Some Challenges to Its Sustainability ........................................... 66
6. DISCUSSION................................................................................................. 69
7. CONCLUSION AND RECOMMENDATION .............................................. 70
LIST OF APPENDIX
APPENDIX 1. LGA INDEX SUBJECTIVE WEIGHT BY CRITERIA ........... 74
APPENDIX 2. ACCOUNTABILITY DEFINITION, ORIENTATION AND
PROCESSES .............................................................................. 75
APPENDIX 3. MAIN CHANNELS OF ACCOUNTABILITY IN LG IN
INDONESIA .............................................................................. 76
APPENDIX 4. A POSSIBLE CHECKLIST OF ACCOUNTABILITY
INSTRUMENTS FOR LG ......................................................... 77
APPENDIX 5. ACCOUNTABILITY MECHANISM AVAILABLE TO THE
DPRD IN RELATION TO THE AUDITING ........................... 78
APPENDIX 6. AN ORGANIZATION'S RIPPLE EFFECT .............................. 79
APPENDIX 7. THE MAGICAL 7 STEPS (PLUS OR MINUS 2) IN
BENCHMARKING ................................................................... 80
APPENDIX 8. A MAP OF PARTICIPATION TYPES ..................................... 81
APPENDIX 9. A SUMMARY OF SER PRACTICES ...................................... 82
APPENDIX 10. COMPARISON OF COMMON TYPES OF PERFORMANCE
AUDITS ..................................................................................... 83
APPENDIX 11. APPROACH TO EFFECTIVENESS AUDITING .................... 84
APPENDIX 12. APPROACH TO EFFICIENCY AUDITING ............................ 85
REFERENCE ........................................................................................................ 86
LIST OF TABLE
TABLE 1. CHANGING IDEAS OF ACCOUNTABILITY................................. 10
TABLE 2. A SBSC TO ACCOUNTABILITY FOR PERFORMANCE IN LG .. 17
TABLE 3. ACCOUNTABILITY RELATIONSHIPS IN A LG CONTEXT ....... 21
TABLE 4. LADDER OF ACCOUNTABILITY .................................................. 23
TABLE 5. SERVICE QUALITY DETERMINANTS......................................... 40
TABLE 6. VARIETIES OF JOINED-UP WORKING......................................... 43
LIST OF FIGURE
FIGURE 1. ACCOUNTABILITY PROCESS IN THE PUBLIC SECTOR .......... 5
FIGURE 2. THE ACCOUNTABILITY FRAMEWORK .................................... 13
FIGURE 3. LG BUDGETARY CYCLE .............................................................. 24

ii

EXECUTIVE SUMMARY

This study aims to understand the nature of accountability which has experienced
profound changes as the new focus on accountability has made an impact. Public
sector reforms that have taken place in some western countries, and recently in
some developing countries, are acknowledged to have redefined the emphases of
accountability. The new foci of accountability are on performance, in terms of
results or outputs and outcomes, instead of on inputs, process and complying with
rules (Kluvers 2001; Osborne & Gaebler 1993), on satisfying the customers rather
than the citizens, on managerial accountability rather than public accountability
and on financial aspects rather than the whole aspects of organizations (Glynn &
Murphy 1996; Parker and Gould 1999).
Many argue that public sectors, especially local governments in Indonesia, have
been experiencing significant reforms similar to those in the western countries
(AF 2002; MOF 2001; Turner 2000). It formally started when the newly elected
government introduced a big bang policy of decentralisation which devolved
most of public service responsibility and delivery to local governments in 2001.
Two significant laws that reshape and empower local governments are Law 22 of
1999 on Local Government and Law 25 of 1999 on Fiscal Balance between
Central and Local Governments and among Local Governments.
This study, therefore, looks at the adoption of the Sustainability Balanced
Scorecard (SBSC) which consists of six aspects: financial, community, internal
business, innovation and learning, social and environment (Elkington 1998;
Kaplan & Norton 1992) in balancing accountability for performance beyond the
financial dimension. It is argued that accountability for performance should not be
confined to financial aspects only if organizations are to survive. The other
aforementioned aspects are significant to be pursued in an integrated approach.
Public sectors are especially challenged to adopt SBSC as they are inherently
there to serve the public and not to make profits.
In exploring how the elements of SBSC have been addressed, this study tried to
look at the academic work and experiences of both public and private sectors in
developed countries. While in harmony with international practices, this study
found that to some extent local governments in Indonesia have followed the
footsteps of local governments in some developed countries in managing public
organizations. Some local governments have become aware of and addressed the
elements of SBSC; however they have not addressed them in an integrated
manner. It is, however, acknowledged that adapting and adopting best practices
designed for one environment to place in another is not easy and can be
unsuccessful. At a glance the environments may look similar, but further analysis
may reveal significant differences. Therefore, pilot projects and research
concerning the transfer of international practices to the Indonesian contexts are
strongly recommended.

iii

DECLARATION

I certify that this thesis does not incorporate without acknowledgement any
material previously submitted for a degree or diploma in any university; and that
to the best of my knowledge and belief it does not contain any material previously
published or written by another person except where due reference is made in the
text.

Jermi Haning

iv

ACKNOWLEDGEMENT

I would like to thank Dr. Janet McIntyre and Dr. Colin Sharp for their patient
supervision, AusAID and Australian Taxpayers for the Scholarship, Indah
Jacqueline Lisa Emery for her amazing love, laughter, tears and prayers, and
finally my ultimate gratitude and praise to the Heavenly Father for everything He
has been doing in my life.

ABBREVIATION

AG

: Auditor General

BSC

: Balanced Scorecard

CC

: Citizens Charter

CSC

: Customer Service Charter

CCT

: Competition Contracting and Tendering out

CSR

: Corporate Social Responsibility

DPRD

: Dewan Perwakilan Rakyat Daerah (Local Parliament)

EHS

: Environmental Health and Safety

JUG

: Joined-Up Government

IG

: Inspectorate General

ISO

: International Standard for Organization

LAKIP

: Laporan Akuntabilitas Kinerja Instansi Pemerintah (Public Sector

Reporting on Accountability for Performance)

LG

: Local Government

NGO

: Non-Government Organization

NPM

: New Public Management

PAC

: Parliamentary Audit Commission

PO

: Public Opinion

PQ

: Parliamentary Question

PPP

: Public Private Partnership

PTUN

: Pengadilan Tata Usaha Negara (Administrative Appeals Tribunal)

SAMSAT : Sistem Administrasi Satu Atap (One Stop Administration)

SBSC

: Sustainability Balanced Scorecard

SER

: Social Environmental Reporting

TBL

: Triple Bottom Line

TQM

: Total Quality Management

VFM

: Value for Money

vi

Chapter 1
INTRODUCTION

1.1. Background of the Study

The public sector reforms that swept western countries some decades ago were
meant to achieve two goals: efficiency and accountability of the public sector
(Gregory 1999; Power 1999). The focus is on how to make governments, their
agencies and officials, more accountable to the citizens, while providing better
efficient services. The reforms have been done in various ways, inter alia, by
adopting and adapting private sector management models into public sectors. The
private sector models are deemed as more efficient, effective and productive.

Despite the success, it also has profound weaknesses. Performance, in terms of

efficiency, for example, has been increased but it has been criticized as it is
achieved at the expense of other values such as quality, fairness and equity. It has
also changed the fundamental orientation of public sector accountability, among
other things, public accountability for the many dimensions of public sector
activity has been narrowed down to one of accountability for financial outcomes
to be exercised mostly within the hierarchy of public sector organizations
themselves (Denhardt & Denhardt 2003; Kluvers 2001; Mulgan 2000a; Parker &
Gould 1999; Sinclair 1995).

It is acknowledged that public sectors in Indonesia have experienced a

constellation of profound public sector reforms similar to those in other western
countries (AF 2002; MOF 2001; Turner 2000). In local government (LG) level,
the reform has been going since the government introduced Law 22 and 28 of

1999 which unprecedentedly devolves almost all responsibility of policy making

and public services from central government to LG. LG in Indonesia refers to the
third level of government.

The decentralization aims to increase efficiency and accountability of the public

sector. Yet, the central government has not produced supporting guidance and
directives for LG in discharging the inundating responsibilities (Alm, Aten &
Bahl 2001). Insufficient qualified human resources, weak leadership and high
incidence of corruption are also other ongoing basic problems challenging the
decentralisation policy. The consequences, as found by some, are the worsening
performance of the public service (SMERU 2002), the domination of power by
local elites (AF 2002; Antlov 2002) which leads to the marginalisation of
powerless groups and so forth.

This study aims to: firstly, explore and understand the nature of accountability
which has changed as the consequence of the public sector reforms; secondly,
expose how accountability is addressed in public sectors as an approach to deliver
performance at the LG level; thirdly, explore how a Sustainability Balanced
Scorecard (SBSC) is used as a framework theory to address, balance
accountability for performance, and explore what approaches have been used to
deliver the focus of each perspective; finally, to explore how applicable the
international practices of accountability are to the context of LG in Indonesia.

1.2. Limitation of the Study

This study is based on a literature review by drawing on guides and lessons from
both academic work, private and international practices. It relies on secondary

data which were gathered from various sources. No field research has undertaken.
As such, the information gathered cannot reflect the real situation of all LGs as a
whole. It is acknowledged that by the time this study is finished the ongoing
public sector reform in Indonesia may have rendered some of this information out
of date. In exploring SBSC, this study does not try to implement it nor analysis
how its elements interact with one another, nor does it try to explore how
management issues such as leadership, planning, controlling and so on should be
addressed to successfully implement SBSC. This study only analyses how
elements of SBSC have been addressed to balance exclusive focus on financial
aspects with other aspects. Finally, it is acknowledged that lack of both literature
and practical views on the topic of accountability in LG in Indonesia and on the
use of SBSC as both a concept and an approach to accountability poses huge
difficulties on the application of the concept in the LG context.

1.3. Outline of the Study

The study has been organized into six chapters. Chapter 1, Introduction, is about
the background, the objectives, limitations and outline of the study. Chapter 2,
Literature Review, looks at Corporate Governance, Accountability and
Accountability for Performance, and Sustainability Balanced Scorecard. Chapter
3, Accountability Systems in Local Government, covers the DPRD, Executive
branch of government and Auditing Institutions. Chapter 4 is about Research
Methodology used in conducting the study. Chapter 5 especially looks at how the
perspectives in the Sustainability Balanced Scorecard have been addressed in
local governments, both in Indonesia and other countries. Chapter 6, Conclusion
and Recommendation, concludes the study and expresses some recommendations.

Chapter 2
LITERATURE FRAMEWORK

2.1. Corporate Governance

The term corporate governance has increasingly been used in the public sector
for the last few years. It is defined as the system by which companies or
organizations are directed and controlled (Cadbury Report 1992:14). In local
government it is seen as the system by which local authorities direct and control
their functions and relate to their communities (CIPFA 2001:1). For Barrett
(2001: 5) the foci of corporate governance are on structures and processes for
decision-making and with the controls and behaviour that support effective
accountability for performance outcomes/results.

Corporate governance ensures that all involving parties are aware of their roles,
responsibilities and accountabilities (IFAC 2000). It provides the structure
through which those who exercise ultimate authority are accountable for
organizational performance in a transparent manner. Transparency is about being
open and inclusive in the processes and documents (Thurmaier 2003). So, it
concerns providing assurance to stakeholders that the management runs the
organization properly with care (Ryan & Ng 2000).

In the public sector, as shown in Figure 1, corporate governance defines the

function of the legislature and executive branch of the government. The
legislature provides the authority for the acquisition and use of resources while the
executive branch of the government is responsible for specific resourcing,

planning, directing and controlling of public sector operations. As the principal,

the legislature has the right and responsibility to hold the government, the agent,
accountable for its management of public sector activities. Accountability can be
assured by reporting and auditing.

Figure 1. Accountability process in the public sector (IFAC 2000:10)

2.2. Accountability and Performance

2.2.1. What is Accountability?
The notion of accountability is contested (Mulgan 1997; Parker & Gould 1999;
Sinclair 1995). Accountability in the public sector is different from that of the
private sector. It involves complex multifaceted relationships, many roles and
tasks with differing risks, uncertainties, and diverse and often conflicting
expectations (Kluvers 2003; Mayston 1993). Accordingly, attempting to find a
simple, working definition of accountability with a public sector context has
proven to be difficult (Corbett 1996).

In a specific sense, Caiden (1988:25) argues that To be accountable is to answer

for ones responsibilities, to report, to explain, to give reason, to respond, to

assume obligations, to render a reckoning and to submit to an outside or external

judgment. In simpler terms, accountability is about giving an account on what,
how and why resources are allocated for certain purposes, how authority is
exercised and the relationship between the exercised authority and the expected
and achieved results (Stewart 1984). Here accountability serves three purposes: to
avoid further misuse of power, to provide assurance that things are done as
intended and to encourage improved performance.

Key common elements of accountability are giving account for actions taken and
being held to account for those actions (Gray et al 1996; Stewart 1984).
Accountability, therefore, not only consists of the giving and receiving of
information, but also the action of holding to account. The former enables the
principals to examine and to respond to the agents (e.g. rewards, punishment).
However, it is not enough for the principal to control the agents. A concern
associated with reporting is how to ensure that information is true? The
information asymmetry arises as the principals find that it is difficult and costly to
get information about the agents performance (Mulgan 2000a; Watt, Richards &
Skelcher 2002).

Some key elements of accountability summarized from various sources (AGBC

1995; Coy, Fischer & Gordon 2001; Gray et al 1996; Parker & Gould 1999; Watt
et al 2002; Stewart 1984) are as follows:

Accountability is a relationship; it is a two-way relationship between the

principal and the agent. It is described as a contract between two parties.

Accountability is results-oriented; current public management does not look at

inputs and processes but outcomes.

Accountability requires reporting and assessment; through reporting principals

can assess whether the agencies have met the targeted plans.

Accountability is associated with consequences; the assessment tells the

principals how they should respond to it, for example imposing rewards and
sanctions, or requiring an act of explanation or making suggestions for
remedy.

Accountability improves performance; the principals response is meant to

improve and meet intended targets.

2.2.2. The Changing Foci of Accountability

New Public Management (NPM) has changed the nature of public sector
accountability. The focus of accountability is on performance in terms of results
or outputs and outcomes, instead of on complying with rules as it used to be
(Kluvers 2001; Osborne & Gaebler 1993). In this approach, principal and agent
together plan, define and negotiate performance expectations and needed
resources. They are both also mutually involved in evaluating and making
correction as necessary. The separating line has become blurred as politicians
increasingly rely on the managers for policy advice (Peters 2001, Dixon, Kouzim
& Kakabadse 1998). This phenomenon poses a new challenge to the line of
accountability in a politico-administrative system, in which civil servants are
responsible to ministers, who are responsible to parliament, and then, in turn,
responsible to the public. As Walsh (1995) argues, in transferring accountability
for outputs from politicians to officials the danger is that accountability becomes
reduced to meeting pre-stated performance targets, rather than the pursuit of
desired outcomes, and activity could be manipulated to show these targets have
been achieved. Secondly, it is hard for citizens to hold bureaucrats accountable as
there (was) no means by which local people can hold them to account through

the electoral process (Stewart 1995:292). The politicians, on the other hand, are
judged less on the basis of results than for loyalty to their political superiors
(Deleon 1998:548).

The private sector model sees a market consisting of individual customers who act
to serve their self-interest (Denhardt, & Denhardt, 2003; Peters 2001). Its focus is
on how to offer the best choices to the customers to meet their preferred services,
rather than to the citizens. Accountability is narrowed down to how to satisfy
customers needs (Parker & Gould 1999). This poses an attack on the tradition of
democratic accountability and denies citizens rights as the owners of the power
and the fact that citizens have paid tax before the needed services are provided
(Peters 2001). It argues that accountability can be achieved by the invisible hand
of market (Mayston 1993; Peters 2001), so that if users are dissatisfied with the
provided services they will find other providers, leaving it at loss. However, this is
only possible in a really competitive market. Furthermore, accountability in the
public is focused more on exercising the voice of citizens rather than on finding
other exits (Mulgan 2000a). This means that citizens have the right to dictate their
voice, and the providers are obliged to listen to citizens.

The private sector model has also changed the fundamental orientation of public
sector accountability from one of accountability to the public at large for the many
dimensions of public sector activity to one of accountability for financial
outcomes to be exercised mostly within the hierarchy of public sectors themselves
(Glynn & Murphy 1996; Parker and Gould 1999). This can be seen from the
gradual decreasing of the governments public accountability for their action.

Their actions may be less transparent than in the past (Peters 2001), as they tend
to focus more on the hierarchical accountability. The difficulty of accessing
information for contract management purposes is commonly related to
commercial confidentiality (Dixon, Kouzmin & Korac-Kakabadse 1996). Quite
often private sectors deny access of information to their activities. To some extent,
this denial can be acceptable provided it is done for good reason, but this does not
erode the right of the citizens for information (Barrett 2000). Likewise, the partner
public agency should ensure that the intended objectives are delivered in a costeffective manner and meet the information need of the citizens. In other words, it
can be argued that responsibility can be outsourced but it is not the case with
accountability. However, Peters (2001) argues that agencies are accountable for
things they had authority and responsibility over. How come and to what extent
can or should organizations be held accountable if they do not have control over
the decision-making process? (Schick 1996).

Furthermore, Kluvers (2001) puts forward the increasing use of program

budgeting in which management plays a more significant role than the principal.
The former has been more involved in policy decisions, objectives setting,
program designing and performance measures developing.

As a result, the

managerial accountability has expanded its scope from the traditional

administrative accountability which focused only on monitoring processes to
include the monitoring of inputs, outputs and outcomes. The restricted emphasis
on the financial outcomes will decrease its spending, but it happens at the expense
of the effectiveness and quality of the provided services (Parker and Gould 1999).
See Table 1 below for some of the changes mentioned earlier.

Table 1. Changing Ideas of Accountability

Accountability

Pre-Reform

Political
Broad
ranging,
(overall public linking
ministers
accountability
directly to service
delivery
responsibility

Post-Reform
Remains, but the responsibility has
been silently and subtly changed to
being acquitted on the basis that the
executive enables and chief
executives deliver.

Public
Consumers
Focus on the notion Remains but broadened to address
of compliance
issues
of
efficiency
and
effectiveness which has led to a
focus on the need for supporting
data and/or control systems.
Professional
Inward focused, self- Radically changes, less selfaccountability
regulated
multiple regulation but differences within
agency with services professions (e.g. teachers vs.
clinicians).
Administrative
Watchdogs
on
compliance
accountability
(financial and otherwise).
Management
New and varied but with a focus on
accountability
achievement of delegated targets.
Source: Glynn & Murphy (1996:130)
Financial
accountability

2.2.3. Relating Accountability to Performance

The performance-oriented approach of accountability is meant to improve results
and not to ensure the compliance with rules. Rules are there to shape and guide
the managers, but they are only means, and not the ends. This is important given
the fact that not all areas of responsibility can be specified in the rules. It is very
possible that some areas fall under the cracks, as responsibilities have not been
specified so that managers are sometimes unsure of what they are responsible for.
Legislation, for example, is often vague since to spell out its intended goals too
clearly is likely to alienate some groups of potential supporters (Deleon 1998:
547). As such, managers need discretion that can enable them to take risks in
addressing those unspecified responsibilities (OFaircheallaigh,

Wanna,

and

Weller 1999). In addition, too much emphasis on rules can inhibit innovation,

10

pose administrative burdens, consume large amounts of resources and divert the
attention of the managers from the real ends. Some managers may simply be
reluctant to adhere to the burdensome rules if they believe that compliance will
not deliver intended results but will instead lead to criticism particularly if they
are faced with a fast-required response situation (Denhard & Denhard 2003;
Peters 2001). As a consequence, delivering performance may be able to be
achieved at the expense of rules, ethical values and other factors.

The emphasis of accountability is to do things right rather than do the right

things (Barrett 2001). However, the emphasis of accountability for performance
could decrease accountability for finances, fairness and social justice (Parker and
Gould 1999).

In fact, accountability holders would not simply focus on

performance and ignore finance and other issues. Auditors are interested more on
ensuring that spending is within an approved level and for authorized purposes in
order to curb organized crime and corruption (Gendron, Cooper & Townley
2001).

An effective system of accountability for government and its public sectors for
delivering their responsibilities is one which can demonstrate that:

The outcomes of government was mandated to deliver by the citizens are

being achieved by various policies, programs and services developed and
implemented to do so;

The tax payers are getting value for money, government initiatives undertaken
to deliver the outcomes are efficient, that is, maximum output for every dollar
spent;

Government is conducting its business in a fair, legal and ethical way (AGBC
1995:15).

11

2.2.4. Establishing an Accountability Framework for Performance

The contested concept of accountability requires the establishment of an
accountability framework in order to make clear the accountability relationships
and to avoid conflict of interests that can pose barriers to the organizational
effectiveness. The framework can guide and give a common understanding of the
accountability concept

by putting

principles

that frame

accountability

relationships.

Based on the accountability framework developed by Desautels (1997), and the

AGC and the TBS (1998), Stanbury & Priest (1998:4) suggest some key
principles to the effective framework for accountability that characterizes
accountability relationships:

1. Clear and agreed expectations

a. Are the common objectives agreed to?
b. Are the expected results clear?
c. Are the operating principles and procedures to be followed clear and
agreed to?
d. Have human resource management issues been addressed?
e. Has provision been made for adequate financial control?
2. Clear roles and responsibilities
a. Are agreed roles and responsibilities clear?
b. Have adequate decision-making processes been established?
3. Balanced expectations and capacities
a. Have the partners the capability to do what they expect?
4. Credible reporting
a. Is provision made for adequate reporting?
b. Is information for Parliament sufficient?
c. Is the reporting credible?
5. Reasonable review, program evaluation and audit
a. Has provision be made for reasonable internal audit and program
evaluation?
b. Is sufficient monitoring underway?
c. Is sufficient learning taking place?
d. Are procedures in place to follow if things go wrong?
e. Has provision been made for audit?

12

The following is the accountability process which is based on the aforementioned

principles of effective accountability (AGC & TBS 1998). Two aspects of
accountability that influence accountability process are accountability framework
and holding to account. The formers elements are based on the principles of
effective accountability. The latter, whereas, is about making sure that the agent
provides adequate reporting and undertake sufficient review of information
reported so that it can make adjustment or change and especially understand the
consequence of its performance.

Figure 2. The Accountability Framework

Accountability Framework
Roles and Responsibilities
Expected Performance
Balance Expectation and Capacity
Reporting Requirements

PERFORMANCE
To meet expectations using
proper means

Holding to Account
Review and Adjustment

Credible Reporting of
Performance

PUBLIC SECTOR VALUES AND ETHICS

(Source: AGC & TBS 1998:8)

2.3. A Sustainability Balanced Scorecard (SBSC) Approach to Performance

2.3.1. What is SBSC?
Public sector reforms have diverted the accountability and performance to focus
more on financial aspects to senior executives of public organizations rather than

13

the others, and on outputs and outcomes than on inputs and processes and more on
the customer rather than to the Parliament and the public. To address this, Kaplan
and Norton (1992) propose Balanced Scorecard (BSC) to widen accountability
and performance beyond financial dimensions towards an integrated approach that
consists of four perspectives: (1) financial, (2) customer satisfaction, (3) internal
business process, and (4) learning and growth perspectives. BSC is to restructure
the exclusive emphasis of organizations on the financial perspective with the other
perspectives (Nickols 2000). However the effectiveness of BSC may be limited by
judgmental effects. If auditing still prioritizes financial over non-financial
indicators, it may discourage managers to balance the four perspectives.

Another model developed to address accountability for performance is Triple

Bottom Line (TBL) (Elkington 1998). This model covers economic, social and
environmental aspects of an organization. Kaplan and Norton (2001) refer it to
environmental, health and safety (EHS) dimensions. Recently the incorporation of
BSC and TBL has become more popular; it is known as Sustainability Balanced
Scorecard (SBSC) (Brignall 2002; Dabhilkar & Bengtsson 2002). The concept of
sustainability

itself

is

used

to

point

to

the

current

activities

of

humanity/organizations which consider the same opportunity of the future

generations in meeting their needs (WCED 1987). Two aspects or organization
that account for sustainability are social and environment.

2.3.2. SBSC as Organizational Strategy for Performance

Kaplan and Norton (1996) relate BSC to the translation of the organizations
vision and strategy into reality. BSC helps managers both in defining significant
indicators of each perspective, establishing necessary action to achieve these

14

objectives and in linking leading indicators to lagging indicators. As the focus is

on both financial and non-financial aspects, all managers of an organization are
required to understand, communicate, link and align their strategy with other parts
of organization. BSC promotes inclusiveness, openness, interdependence and
coordination of all parts of the organization. There is also interdependence among
the four perspectives.

Kaplan and Norton (1996) argue that relationships of four perspectives are a
cause-effect one. This one-way linier cause and effect relationship - starting with
innovation, learning and growth perspective and culminating in the financial
results for shareholders - helps the managers in implementing corporate strategy.
The financial and customer dimensions are classified as results, whereas internal
business processes and innovation and learning are the determinant dimensions.
Action in learning and growth, for example, will have impact on internal
processes and lead to better quality of service which, in turn, increases customer
satisfaction and produces a better financial return. However, Norreklit (2000)
refutes this argument, claiming that relationships between perspectives are
interdependent and not only a cause-effect one. He suggested that the quantity of
research for innovation, for example, is influenced by financial results and
likewise research and innovation will produce financial results. As such, there are
iterative cycles of communication and interdependence of relationships which
consequently require a systematic or holistic approach. Furthermore, the time
scale during which an organization experiences change is another thing that may
influence the cause-effect relationship. Change in learning and growth, for
example, may take a while before change in other perspectives happens. During

15

this time scale, there may be some other effects due to the change (Norreklit
2000:71).

SBSC also acknowledges the diversity of stakeholders. Three key organizational

stakeholders, according to the SBSC, are shareholders (financial, sustainability),
customers (customers) and employees (organizational innovation, learning and
growth, sustainability). This variety of an organizations stakeholders reflects the
various accountability relationships. The focus of accountability in satisfying the
needs of various stakeholders is on how to integrate strategies and response to the
needs and requirements of stakeholders. This model, however, fails to address
other stakeholders whose needs for performance-related information are essential.
In the public sector, stakeholders are unlimited (Deleon 1998; Peters 2001).
Public sectors are having not only accountability relationship customers, but also
with citizens. Citizens are the holders of the rights and legal status which have a
right to hold public sectors accountable. The stakeholders include those who have
concerns over environmental and social matters that need to be taken into account.

2.3.3. The Incorporation of SBSC

The incorporation of social and environmental matters into BSC reflects how
organizations demonstrate accountability for the stakeholders. Whether it is fully
or partly incorporated, it will have a different impact on its effectiveness (Bieker,
Dyllick, Gminder & Hockerts 2001). Some apply SBSC in the some perspectives
of BSC that most expose to sustainability issues (known as partial SBSC). Some
apply it in all four perspectives (transversal SBSC) while others add it as the fifth
perspective (additive SBSC). Commenting on the addition of the fifth perspective,
Epstein and Wisner (2001) argue that it requires top management to recognize the

16

strategic value of the new perspective. The recognition will not only give signals
to the whole organization of the value of it and the managements concern, but
also will direct the attention of managerial and employees to see it as a main value
of organizations. The addition also makes sustainability as important as other
perspectives, especially for organizations that expose and allocate a large resource
to social and environmental issues.

Table 2. A Sustainability Balanced Scorecard Approach for Performance in LG

(adapted from Ballantine, Brignall & Model 1998; Bieker et al 2001; Fitzgerald et
al 1991; Kaplan & Norton 1992; 1996; Kloot and Martin 2000).
Performance Perspectives
Primary objectives
results to be achieved
Financial

The focus of the perspectives

or

Community
Secondary objectives or
determinants of success
Internal Business Process

Innovation and Learning

To succeed how should LG appear to its

stakeholders?
To achieve its vision how should LG appear to its
stakeholders?

To satisfy its stakeholders what business processes

must LG excel at?

To achieve its vision how should LG sustain its

ability to change and improve?

Sustainability (Social and To succeed how should LG secure long-term

Environment)
advantages?
Source: (Ballantine, Brignall & Model 1998; Bieker et al 2001; Fitzgerald et al
1991; Kaplan & Norton 1992; 1996; Kloot and Martin 2000).

17

Chapter 3
THE ACCOUNTABILITY SYSTEM IN LOCAL GOVERNMENT
IN INDONESIA

The accountability system in LGs in Indonesia consists of few relationships (See

Appendix 3, 4 and Table 3). In practice, however, it is mostly dominated by two
separated independent entities: an executive branch of government and DPRD
(Dewan Perwakilan Rakyat Daerah). The former is the core of LG which consists
of Mayor and Local Departments/Agencies. This section, therefore, will explore
the accountability relationship between the two entities and the role of the Auditor
General (AG - external), which is a nation-wide independent auditing
organization, and Inspectorate General (IG - internal) at LG. In this study, the
terms Legislature, DPRD and Local Parliament are used interchangeably with one
another. Similarly, instead of using Executive branch of government, this study
often refers only to government.

3.1. The Legislature as the Principal of Accountability

In a democratic government, it is the citizens who give mandate to the
government to act on their behalf. The government, in turn, is accountable to the
citizens. However, given the fact that the public is not an organization, there is an
obvious problem here in terms of organizing accountability. DPRD therefore
should act on behalf of the public. But the current model of democracy in LG in
Indonesia does not give power to the public to directly nominate the Mayor. It is
still the DPRD that nominates the Mayor and then holds the Mayor accountable.

18

Therefore, DPRD can be seen both as the principal in relationship with the
executive and as the agent in relationship with the public.

As distinct from previous eras, during the reform era, DPRD has assumed a
greater role. According to LG Act 22/1999, DPRD is independent and has equal
power to the government. The law even empowers it to impeach the government
should it fail or abuse its power. Yet many argue that DPRDs are still facing a
very basic problem insufficient capability (Syahruddin and Taifur 2002).
Another challenge is how does the public ensure that DPRD is itself accountable?
The public can hold DPRD accountable every 5 years, but with the current
electoral system it is quite impossible to vote a member out. The current electoral
system allows only a party to nominate its members. Voters indirectly nominate a
member and the ultimate authority is with the party. As a short-term solution,
pending a direct electoral system, it is better to have an independent institution
that oversees the DPRD on behalf of the voters.

Others have argued for the existence of an effective and active Parliamentary
Audit Commission (PAC) to hold the government accountable (De Martinis &
Clark 2001). PAC plays important roles in assuring the work and accountability of
both internal and external audits (Bowerman & Hawksworth 1999). De Martinis
and Clark (2001) point out some more detail of the roles of PAC in relation to
internal and external audits as follows: approving strategic and annual work plans;
taking an active role in the appointment of the Chief Internal Auditor, overseeing
the internal audit function and its liaison with the external audit and management;
reviewing progress against plan; reviewing internal audit reports and management

19

responses;

and

following

up

the

implementation

of

internal

audit

recommendations.

In spite of its power, it should be ensured that both PAC and Auditors have
mutual trust, confidence and understanding of each others role and functions.
Above all, independence, cooperation and continuos learning environments are
promoted and guaranteed (De Martinis & Clark 2001). As Krafchik (2002:1)
argues:
AGs and PACs have traditionally developed a close relationship that
might be described as mutual dependence or symbiosis. Parliaments
oversight over the budget is most effective when it can rely on
information from the AG. In turn, the AG is most effective in
improving budgetary oversight when it can rely on parliament to
promote its recommendations with the executive.

3.2.

The Government as the Agent of Accountability

As the agent, executive branch of the government is entitled to discharge

delegated responsibilities and then accountable to the DPRD and citizens.
However, the current indirect electoral system has hindered it. It is the DPRD that
nominates the executives rather than the public. This system only strengthens
accountability relationship between the government and legislature. This seconds
Gray, Owen, and Adams (1996:44) argument that the principal-agent relationship
can run the other way; so each party can be both an agent and a principal to the
other. Therefore, instead of being controlling by the public, the government can
control the public. AF (2002) finds out that many LGs see local non-government
organizations (NGO) as a nuisance as the latter often play an opposition role to
the former. Almost similarly, most LGs also do not really take into account the
regional government roles, although it has significant roles.

20

Table 3. Accountability relationships in a LG context in Indonesia

Who

Mayor

Chief
Executives/
Head of
Agency or
Department

For What

Legislation
Policy /
Systems
Outputs /
Functions
Administrative
processes,
Value for
money,
Costs

To Whom

Public
(Electorate)

How
Elections
PQs/debates
MPs Letters
Judicial
Review,
Enquiries

DPRD

To What
Outcome
Explanation
Information
Acknowled
ment
Review

Select
Committees,
Ombudsmen,
Audit Office

Annual
Reports,
No Contracts

Revision

Individual
members
of public

Public/private
ventures

Redress

Sanction
Source: Barberis (1998:467).

It is clear here that there are several aspects of accountability that may occur
within one relationship (Barberis 1998). These aspects of accountability are
specified by Law 22, 25 and 28 of 1999, as will be elaborated next.

3.2.1. Providing Information/Reporting

Providing information or reporting is the essence of answerability; being
accountable means having the obligation to provide information and to answer
questions regarding decisions and/or actions (Stewart 1984). Providing
information is simply to be informed; this might include budget information,
annual report, evaluation of performance, websites, newsletters or bulletins and so
forth. Law 22 of 1999 requires the government to provide information to the
public, the parliament, provincial and central governments (see Appendix 4). It
states that the Mayor must present annual reports to the DPRD and at the end of

21

his/her service period (Article 44, 3). In this section later, the first three potential
sources of information are examined further.

In providing information, the government does not only focus on financial

information, but also more on non-financial matters. There should be an
indication of what type of performance measures (inputs, outputs, efficiency and
outcomes) should go into the reports (Neale & Anderson 2000). Complete
information covers all aspects of the organizations performance (performance
measures, capability and areas such as risk management) as well as reporting the
dimensions of quality, quantity, timeliness, and location and cost as applicable.
Steward (1984) argues that accountability information should cover all levels of
the accountability ladder (see Table 4). It should also be relevant and
understandable in the sense that it is comparable over time and with other
organizations. Lastly, it should meet standards that are generally accepted by
professional groups, or other similar reporting organizations. Furthermore,
meeting these criteria for providing information is not, in itself, sufficient for
accountability (Stewart 1984). After all, there is no guarantee that the provided
information is accurate (Kluvers 2003). Thurmaier (2003), therefore, argues that
accountability requires greater transparency of processes and documents. This
implies that processes and their documentation, for example, should be open and
accessible to the public and the press.

However, most of the reports by LGs provide financial information only on the
inputs and outputs measures as reflected in the traditional budget (Fachrudy 2001;
Raditya, Hermawan & Rizki 2002). Law 22 of 1999 does not specify in detail the
breadth and content of an accountability report. It does require transparent

22

processes and documents, but this is also another issue that has been widely
demanded by NGOs and international organizations (Raditya et al 2002).

Table 4. Ladder of Accountability

Accountability information

Concerning

Policy accountability:
Programme accountability
Performance accountability
Process accountability
Accountability for probity and
legality
Source: Stewart (1984:16-17).

Goals and objectives

The achievement of goals and objectives
The achievement of required standards
Ensuring adequate procedures and efficiency
The avoidance of malfeasance and illegality

3.2.1.1. Annual Budget

Budget plays an essential role in enhancing accountability for performance
(Kluvers 2001). Budget is more than a technical tool for resources allocation and
performance measurement (Thurmaier 2003). It reflects the political will of the
government which determines and shapes public life, public organizations and the
relations between the two (Kluvers 1999). As such, transparency and publicity of
the budget processes and documents are deemed essential to accountability as
they enable the citizens to access the information and therefore to hold the
government accountable (Corbett 1996).

Cagatay, Lal, Keklik and Lang (2000) argue that accountability is not only about
assuring that the budget is allocated and spent appropriately, but also about
assuring that resources are targeted for social equitable purposes to meet the needs
of a broad range of citizens especially marginalised groups. This increased
accountability of budgetary processes increases citizen participation and equitable
use of resources. Some countries have shown that a participatory budget which
involves citizens in establishing budget priorities, allocating investments and

23

monitoring results has significantly enhanced accountability (Navarro 1998;

Posner 2003).

Accountability in terms of holding the government accountable is exercised in

almost all stages during the budget cycle (see Figure 3) especially when the
budget bills are presented to DPRD for debate and review for the expenditure of
funds raised from general revenues. Difficulties may arise where private sectors
are involved in partnership with public sectors, the scrutiny by DPRD might never
happen as the income raised does not necessarily come from appropriateness, but
it comes from tolls and other charges (Grimsey & Lewis 2002).

Figure 3. LG Budgetary Cycle

5. Auditing the
Accountability
Report

1. Budget
Preparation
2. Budget
Authorisation

4. Reporting
(Calculating
of Budget
Execution)

Income
Execution
3. Accounting
& Calculation
Operational &
Capital
Spending
Operation

(Source: Buku 4 SAKD 2002 cited in Eriantono 2003:33)

3.2.1.2. Annual Report

A public sector annual report is generally prepared to serve two objectives:
accountability and decision-making. It is deemed to be a primary medium of
accountability, although not reporting on the overall accountability (Steccolini
2002). The annual report is the main vehicle for reporting program performance.

24

However, some dispute its ability to discharge accountabilities and question its
value and usefulness, whereas others highlight the use of other communication
means by public organizations (Mack, Ryan & Dunstan 2001; Ryan, Stanley, &
Nelson 2002).

In Indonesia, ICDHRE (2002) argues that lack of demand and requirement for the
publication of the report, limited users, limited information and the inexistence of
a general framework and performance standards are among some basic problems
of annual reports. Some other problems found by the author during his work in
LGs are lack of knowledge and interest from DPRD of the report itself. In
addition, Law 22 of 1999 (article 44, 3) requires the government to report to only
regional and central governments. There is no requirement to publish and
disseminate it.

Steccolini (2002), for example, finds that most annual reports do not seem to
serve the general purpose of the report - satisfying the information needs of the
potential users - but rather to meet the law requirement which is mainly to serve
internal stakeholders. This is related to her findings that citizens are not likely to
be interested in reading annual reports, while internal users are interested in more
specific and frequent monthly or quarterly reports (Steccolini 2002:19). To
overcome these problems, Crcaba-Garca, Lpez-Daz, & Pablos-Rodrguez
(2002:27) suggest the elaboration of special reports to meet the specific needs
of different users. While for the detailed content of the annual report, Ryan,
Stanley, & Nelson (2002) present a general framework that has been used in local
governments in Queensland (see Appendix 1).

25

What is included in the annual report and how it is published are two central
issues that have also been highlighted (Steccolini 2002). Ryan, Stanley, & Nelson
(2002) argue that the content of the annual report is closely related to the
difficulty and embarrassment it might cause. Similarly Coy and Pratt (1998:5412) argue, the content and presentation of annual reports may have less to do with
what are the best technical approaches, and be more a result of political
compromises between the various interested parties. Another issue that has
significant impact on the quality of the report is its timeliness and its
comprehensiveness. Any delay in the publication will consequently undermine its
role in the local democratic process (Ryan, Stanley, & Nelson 2002:264).

3.2.1.3. Performance Information

Performance information is critical for performance accountability improvements
and resource allocation particularly in accrual-based accounting (Pallot 1999;
Ryan, Stanley, & Nelson 2002). It is broader than performance indicators, and the
collected evidence (Guthrie & English 1997). Barrett (1996: 97) argues the
concept covers the setting of objectives, the development of strategies or means to
achieve the objectives, the use of both qualitative and quantitative indicators,
targets, standards (including values and ethics) and benchmarking. Performance
reports must include information on performance trends and comparisons over
time rather than just a snapshot at a point in time which may be misleading
(Bartos 1995). There has been also increase auditing of performance reporting
(Barrett 1996).

Barrett (1996: 103) identifies some of the principles that have been applied in the
Australian Public Sector:

26

performance information should measure all part of the objective set for
the programs or services;
there should be an appropriate balance of indicators to address economy,
efficiency and effectiveness;
targets and standards should be developed which motivate appropriate
behaviour and assist the achievement of objectives;
where cost effective benchmarking exercises should be undertaken to
test actual performance; and
reports, in particular the annual report, should include outcome oriented
performance information which allow the assessment of program
performance.

The provision of performance information requires wide involvement of the

public to identify and evaluate their needs and satisfaction (Barrett 1996). This
implies that the performance information goes beyond the one-way obligation of
public sector organization to provide information on the performance of the public
programs. The difficulty in identifying users, aggregating their information needs
equitably and assessing their criteria for judging performance are among some
problems justifying public participation (Brusca Alijarde 1997; Steccolini 2002).

As explained earlier, Law 22 of 1999 does make clear the aforementioned

requirements. Central government has actually provided LAKIP (Public Sector
Reporting of Accountability for Performance). However, Tamin (2002) argues
that this centrally designed framework has been abandoned by many LGs. Some
problems associated with LAKIP are inadequacies of reporting, lack of incentive
to report more than required, inexistence of enforcement mechanism, tension
between parliamentary and managerial accountability, variety of performance
reporting on outputs, imbalance focus among outputs, outcomes and capability,
and incapability of recipients to assess performance information (ICDHRE 2002;
Yudoyono 2001).

27

3.2.2. Providing Explanation/Justification

This type of accountability moves beyond reporting. It asks for explanations and
justifications; that is, why and not what (Brinkerhoff 2001). Law 22 of 1999 states
that the government must present accountability reports to the DPRD for certain
matters on the request of the DPRD (Article 45, 2). The requests by DPRD are
done on either its own initiative or on request from the community, Audit Office
and the Ombudsman. It can take place in various ways, from internal dialogue
between the legislature and particular agency to more public arenas such as
parliamentary questions and hearings, or city hall meetings where local officials
hold dialogue with residents.

AF (2002) finds that there has been increased dialogue held between local
governments and their citizens ever since the implementation of the
decentralisation policy. In fact, dialogue is seen as an effective means to address
accountability concern as participants listen and respond emphatically to one
another, trying to understand what others think and feel equally without coercion
(Roberts, 2002). Most importantly, the public context of the dialogue, especially
when there is a free press reporting on participants every move, can help to make
participants accountable to one another and to build relationships on mutual
listening and learning (Dryzek, 2000). There is nowhere to hide if things go
wrong. It also enables the participants to commit themselves to working together.
However, dialogue is not enough to hold the agents accountable. Accountability
reflects an unequal relationship of authority between principals and agents in
which the latter comply with the formers direction including sanction for any
failure (Mulgan 1997; 2000b; Ryan, Dunstan & Brown 2002). As such, dialogue
which reflects equal relationship between involving parties does not enable the
28

principal to exercise its sovereign right to some extent. It might involve

information sharing and assessment or verification, but there is no direction or
control and sanctions can be imposed.

3.2.3. Reviewing and Revising

Reviewing of the governments reports is aimed at giving assurance of the fairness
of the information (Stewart 1984). Reviewing enables those accountable to
examine performance, system or practices, and if necessary, make changes to meet
the expectations of stakeholders. Whereas for the principal it will help diminish
information asymmetry as a result of its incapacity to monitor and understand in
detail everything that the agent has done or is doing. Information asymmetry also
exists when the agent produces information, in order to satisfy the system but it
may be misleading (Broadbent, Dietrich and Laughlin 1996).

In Indonesia the political culture of keeping the boss happy - meaning not to
upset or cause any problems, or even be novel - has a profound impact on the
authenticity of disclosed information (Antlov 2002). The main mechanism for
reviewing is auditing (described later in detail). DPRD also review the
performance of the government by querying it during question period or by
debating its annual estimates. Another forum to hold the executive accountable is
through legislature committees that allow members of the DPRD to explore in
more detail matters that need further justification. However, concerns have also
been raised as legislature committees have a great number of weaknesses, such as
their authority, effectiveness, and the insufficiency of time (Syahruddin & Taifur
2002).

29

3.2.4. Granting Redress or Imposing Sanction

Accountability is not complete after receiving information from the executive.
Feedback as well as reward or sanction should be provided. If there are no
consequences attached to performance information, it will not affect the corporate
culture (Brinkerhoff 2001). For any activity to change the way people act, it must
affect them directly. If good performance is not reported publicly, reviewed,
appreciated and rewarded, those involved will realize that it does not matter if
they do not put in extra effort or have little incentive to learn and improve.

Law 22 of 1999 clearly states about imposing sanctions on the Mayor whose
report has been rejected twice (Article 46). The Mayor must submit annual
progress reports to the DPRD, and if these reports prove insufficient and cannot
satisfy the DPRD twice, they could dismiss the Mayor. In some regions, Mayors
have been impeached by DPRD for failing to discharge their responsibility
(Syahruddin & Taifur 2002).

Given this fact, it is important that the

accountability requirements for impeachment should be clearly specified. They

should be transparent, clear, realistic, and not burdensome so that they will not be
used as political tools for threatening the mayor with dismissals. Stakeholders also
need to liken the accountability requirements. Sometimes, the Auditor General,
for example, promotes efficiency, whereas the Information Commissioner favours
access to information.

Care must be exercised with regard to sanctions. It must take into account both the
agents performance and the likely responsiveness of the agent to the sanction.
After all, the goal of accountability is to ensure the improvement of performance
not to shackle the agent. The focus that is pursued is on how to change the

30

organizational culture from merely complying with legislation to one that favours
flexibility for continuous learning and improvement. Furthermore, there are other
factors that might contribute to the failure of the agent, such as inadequate
instruction, powers and resources (e.g., outdated legislation, failure to provide
policy direction), and appointments of incompetent members (Standbury & Priest
1998:19; Syahruddin & Taifur 2002).

3.3.

Auditing and Accountability

Auditing is a significant component of accountability. It legitimises the

information and assures the trust on which accountability, control and power rest
(Gendron et al 2001; Lee 1998). Politics is replaced by management, which in
turn, is replaced by audit (Walsh 1995:250). For public servants an audit helps
them to understand the dimension of programs and processes, to harness the
provided information for decision-making and to asses the cost-benefit of the
collected information (Baker & Wallage 2000; Barrett 1996). For the principals,
an audit helps them in holding the agents accountable, and influences the ability
of the former in controlling the latter. As such, the ability of the principal to
control the agent depends heavily upon auditor, whose role is to ensure that the
principal is informed of the agents activities (Gendron et al 2001).

This essential role has drawn public attention to its credibility and integrity which
are often attributed to its independence (Gendron et al 2001), competence (Lee
1998) accountability (Hollingworth, White, & Harden 1998), funding and a
comprehensive mandate (English & Guthrie 2000; Funnell & Cooper 1998) which
are intertwined but dilemmatic in their characteristic. Furthermore, auditing
institutions do not work secludedly. Mulgans (1997) model of accountability (see

31

Appendix 5) describes several complementary agencies, processes, and channels

of accountability which are interdependently inevitable and together will deliver
better outcomes (Barberis 1998; Brinkerhoff 2001; Wilkins 2002). The focus,
then, is on how to provoke other channels of accountability to respond
appropriately on the auditing activities (Mulgan 1997).

3.3.1. The New Focus of Auditing

Another challenge facing auditors in the NPM era is the shift of the focus of the
auditing. Initially the focus was on the financial control and compliance with
rules and regulations (Gendron et al 2001). Now the focus is on results and
includes areas of scrutiny beyond financial assurance such as performance,
probity, accountability, authority and value for money (Buchanan 2001; Gendron
et al 2001; Glynn 1985).

Performance audit is used to describe a wide range of activities and aims to

evaluate the performance of governments (Pallot 1999). It covers efficiency,
effectiveness and management capacity audits (Barzelay 1996; See Appendix 10).
Others point to the Value for Money (VFM) which includes economy,
efficiency and effectiveness audits (Gendron et al 2001; Glynn 1985; Guthrie
1990a; Parker 1986; 1990; Power 1999; Rouse 1999). Economy refers to the
resource acquisition, efficiency refers to the resources usage and effectiveness
refers to the ends-oriented rather than means-oriented concept (Parker 1986:13).

There are, however, some critics of VFM audit across western countries. It is
linked to the short-term foci on the quantitative data and performance
measurements which do not take into account the environmental influences,

32

interdependence between organisational processes, and long-term impacts (Parker

1990). Pallot (1999) links it to the unintended impacts on the managers
motivation, innovation and reliability on the performance measures - evidence
such as the number of letters to the minister - which overshadows its usefulness.
Pallot (1999:45) therefore, argues that auditors need to examine further the
relevance, completeness, understandability and reliability of information. The
emphasis on the quantified phenomena might overshadow unquantified aspects of
performance (Smith 1995). The challenges auditors face are to develop and
implement performance measurement schemes that do not run the risks and to
identify inadequate performance measures. Smith (1995:304), therefore, suggests
involving staff at all levels in the development and implementation of
performance measurement scheme to encourage creative thinking and dialogue
between auditors and auditees on the performance criteria and other unintended
consequences.

Auditors also need to examine whether the established performance goals are
reasonable, as illustrated in Figure 2. This is essential to avoid unintended
consequences of the publication of poor performers. Auditors are expected to be
able to assist management in understanding its programs and problems; thereby
auditors focus on continuous improvement to achieve higher goals and objectives.
However, auditors have to be careful not to overburden management with
additional requirements and not to overstep the authority and domain of the
management (Barzelay 1996). Kluvers (2001) finds in Victorian LG that
management tends to reject performance audits and the gathered information due
to these problems.

33

Additionally, Parker (1986) points to the powerlessness of AG to do effectiveness

audits which require essential political judgement in which they should not be
involved. It is hard to distinguish between the effectiveness of achieving the goals
of a policy and the question of the worthwhileness of the policy (Gendron et al
2001). It is debatable whether auditing should focus on the implementation of
policy and stay away from the formulation of the policy (Glyn & Murphy 1996).
This is an old issue in politics deciding the boundaries between administration
and policy-making. The difficulty facing AG as an officer of the Parliament may
reduce as the Parliament has gradually shifted its role from lawmaker to
supervisory body (Guthrie 1990b). Furthermore, effectiveness auditing requires
particular expertise which may cause difficulty and the wrong conclusion if it is
done by non-expert auditors (Glynn, Gray, & Jenkins (1992). Cost-benefit
analysis, for example, is deemed appropriate to be done by experts. Given these
difficulties, some public sectors tend to focus on more economy and efficiency something easily measurable - rather than effectiveness (Palmer 1993). Glynn
(1987) and Butt and Palmer (1985) provide a framework for efficiency and
effectiveness auditing (see Appendix 11, 12).

3.3.2. Auditing in Local Government in Indonesia

There are two auditing institutions at LG: IG and AG. As mentioned earlier, the
independence of auditing is essential to maintain credibility and legitimacy. The
extent to which they can adequately scrutinise and audit very much depends on
their accountability relationships with both DPRD and the government (see
Appendix 5). The IG operates separately from those organizations that are
responsible for the activities under review. Therefore, it must be independent from
both DPRD and the executive branch of government. However, this is not the case
34

in relation to the government in LG in Indonesia. The IG has been viewed and

positioned as partial auditor to LG (World Bank 2000). As it finds that there
is currently a lack of clarity in the mandate, scope, independence and roles of
and Inspectorate Generals (World Bank 2000: 21). Appendix 5 illustrates that
IG has no accountability relationship with Legislature. Similarly, according to
Law 22 of 1999, DPRD does have power to ask for auditing and have all audit
reports tabled in the DPRD. It is only the Executive branch of LG that can hold
the IG accountable.

DPRD can rely on the AG which can provide independent review and objective
information on the activities of the executive. Its independence originates from
three issues: the mandate to perform audits, independence from direction by the
executive, and funding (Buchanan 2001; English and Guthrie 2000). The "1945
Constitution" clearly specifies these issues, that is, AG is established to examine
state finances, its funding from the state annual budget, unless for special audits,
its unrestricted access to information of the audit function together with the right
to report any findings to DPRD, and its independence from both DPRD and the
executive branch of government. This independence has enabled the AG to
criticise the government, detect and prevent several cases of corruption of public
money both at central and LG levels (Masassya 2000; Sherlock 2002).

In addition to these auditors, there are various kinds of independent review

mechanism such as ombudsman, commissioners concerned with specific matters
of accountability such as access to information, human rights, respect for privacy,
and so on. However, the appearance of these multiple players does not necessarily
simplify accountability. In fact, just the opposite, as multiple players imply

35

multiple views, multiple criteria and multiple standards (Aaltonen 1996). Their
independence has also been criticized (Hollingsworth, White & Harden 1998;
World Bank 2000). Issues such as the scope of their auditing, accountability
relationships and authority/responsibility can pose difficulties if not well
addressed (Clark & De Martinis 2003; English & Guthrie 2000).

36

Chapter 4
RESEARCH METHODOLOGY

In this study the emphasis in the elements of the SBSC are changed to
acknowledge how local governments are different from private sectors. First,
public sectors have stakeholders - not only shareholders -with different interests
and conflicting relationships (Mayston 1993), for example the central and
provincial governments, parliament, ratepayers, local community, and consumers
including employees, and other private partners. A second change is to replace
customer with community as local governments decisions affect the whole
community, not only its specific service users.

This study relies only on secondary sources, both theoretical and practical, such as
academic journals, research reports, books, electronic databases, and Internet
documents. Various methods of analysis such as description, comparison,
prescription, exploration and synthesis were employed to portrait, expose, explain
and support the findings. However, as it did not involve field research, it is
acknowledged that this study may not provide general situations and results.

This study will explore how accountability should be addressed in local

governments that can deliver performance, using a framework developed in Table
2. In addition to the developed questions in the Table 2, there are three other
questions to guide this project. Firstly, what approaches have been used to deliver
the focus of each perspective of SBSC? Secondly, to what extent LGs in
Indonesia keep up with international practices? Finally, how applicable are the
international practices to Indonesian local governments context?

37

Chapter 5
A SUSTAINABILITY BALANCED SCORECARD (SBSC) APPROACH TO
PERFORMANCE IN LOCAL GOVERNMENT

5.1. Introduction
As many authors have argued, accountability for performance should not only
focus on financial aspects to internal stakeholders, especially the management, but
also on other aspects such as community, internal process, employees learning
and innovation, social and environment (Elkington 1998; Kaplan & Norton 1992).
This section, therefore, will explore how each aspect of the SBSC, both in
theoretical perspectives and especially practical, have been addressed in local
governments both in other countries and in Indonesia.

5.2.

Community-Oriented Management

The focus of this perspective is on providing satisfying public goods and services,
improving overall customer service and managing relationships with the whole
community (Hafner 1998; Kaplan & Norton 1992; OFaircheallaigh et al 1999).
In the public sector, managing community and consumers are equally important.
Consumers do not represent the total stakeholders; therefore satisfying the needs
of the consumers does not necessarily satisfy those of the community. In other
words consumers responsiveness is no substitute for public accountability
(Stewart 1995:290).

5.2.1. Satisfying Costumers and Communities Needs

Most of LGs responsibilities are directly associated with satisfying the needs of
the community (Ballantine et al., 1998). It is important to assure that community

38

management is directed to the question of how to satisfy community needs.

However, as stakeholders in public sectors are numerous with different and
conflicting interests, there is no one-size-fits all approach to satisfy their needs.
Satisfying some stakeholders needs might happen at the expense of the others.
Therefore, satisfying stakeholders needs is a matter of trade-off, negotiation and
balancing (Rouse 1999).

There are various measures with different advantages and disadvantages that can
be employed to increase and sustain the satisfaction of the community. Laking
(1995) suggests some measures such as regular meetings between senior
management and local customer groups, a customer service council, a published
customer charter with precise service standards, publicly available complaints
escalation procedures and customer participation in departmental output
evaluation and in output design. Navaratnam and Harris (1994) put forward some
key strategies for customer service, such as setting performance targets;
conducting customer surveys; conducting staff surveys; benchmarking; sustaining
customer satisfaction; and providing customer advice.

From the various measures, market research, for example, has been widely used to
measure the satisfaction of the community. Local governments in Indonesia have
involved a third party on a regular long-term basis to conduct survey and focus
groups (BIGG 2001b; Soenarto 2001). Some aspects of public services that have
been focused on are tangibility, reliability, responsiveness, assurance and empathy
(Rahayu 1997:11). Stevenson and Gibson (2002), however, warn that in
measuring the satisfaction of the community, it should be remembered that the

39

community responses to the very general satisfaction items in community surveys

often do not correlate with more direct, objective measures of service delivery.

Table 5 shows some other detailed measures that influence the quality of public
services.

Table 5. Service Quality Determinants

Determinants

Examples

One-stop-shop
Handicapped facilities
Safe location with easy-to-spot logos
Staggered office hours
Communication Provision of interpreters
Telephone equipment for the hearing impaired
Newsletters, leaflets, educational programmes and seminars
Consumer hotlines
Information centres
Courtesy
Design and display customer service standards
Conflict management training
Responsiveness Customer service training
Referral services
Respond to all telephone inquires within 24 hours and to
written correspondence within ten working days
Answer all calls by first ring
Security
Protection from discrimination
Privacy act
Electronic benefits transfer
Source: Lin and Ogunyemi (1996:7).
Access

The use of Compulsory Competitive Tendering and Contracting (CCTC) has also
increased in LGs in Indonesia (World Bank 2001). CCTC has various benefits
which lead to improved satisfaction. Some of the benefits are: (1) improved
management of public service and organisations (clearer objectives, better
standards and targets setting, better monitoring, reorganisation of work to improve
productivity, etc); and (2) increased capacity of the government to enforce
conformance and performance, achieved in response to the incentive of

40

competitive comparison and thus the prospect of contracting out (Kavanagh and
Parker 2000)

Yet, inherently private providers often focus more on the efficiency than quality
and other ethical aspects, while policy options may be committed for many years
into the future (Denhardt 1991; Kluvers 2001). One of the measures to solve this
issue is the establishment of Customer Service Charters (CSC). It is believed to
empower customers and help providers in discharging their responsibility and
accountability (Nash 1996). Falconer (1997), however, argues that the CSC only
empowers consumers and not the citizens. Service providers are required to meet
certain standards and targets, however members of the public have little, if any,
influence over their specification. Beyond CSC is a Citizens' Charter (CC), which
codifies standards of services and empowers citizens to ensure that the services
are really delivered (OFaircheallaigh et al 1999; Rouse 1999). CC aims to raise
the standards of public services and to make them more responsive to the needs of
citizens (Osborne & Plastrik 1998). As part of the charter, agencies are required to
publish their performance against the standards to encourage public debate of the
performance of public services.

5.2.2. Putting Governance into Practice

It is obvious that satisfying consumers needs does not really do so to the whole
community. The numerous strategies that have been implemented privileged only
the consumers and often marginalised certain communities (Falconer 1997).
Many, therefore, argue for wide community participation to bring their voice into

41

public policy level, beyond service delivery (Cornwall & Gaventa 2001;
Cornwall, Lucas & Pasteur 2000).

Participation reflects a form of recognition that citizens have the right and
capability to have their wishes heard, to influence public policy and to hold the
government accountable (Cornwall & Gaventa 2001; McIntyre 1995). The
participation of citizens in LGs in Indonesia has increasingly been addressed since
the implementation of decentralisation policy (AF 2002). Some LGs have
developed a community-based budget which is similar to the participatory
budgeting where the citizens are empowered and involved actively in shaping the
budget (Inovasipemda 2003a). It is however; acknowledged that in practice, this
community-based budget consumes a lot of resources. The employment of
professionals in running the processes has also posed difficulties as the
professionals often precedent themselves over the ordinary citizens (Cooke &
Kothari 2002).

It is therefore argued that participation should be expanded beyond consultation at

project levels as has been practised in many LGs. Participation should focus on
the policy level and governance through which citizens can influence and hold the
government accountable. Other types of participation such as partnership,
standing, consumer choice and control have various objectives, advantages and
disadvantages for the citizen (Bishop & Davis 2002; see Appendix 8).

Participation is one feature of governance which acknowledges that power and

resources are more dispersed, therefore the government itself cannot solve all

42

complex social issues (Ling 2002). The government needs other parties to address
social issues together. In LG in Indonesia, various forms of participatory
governance has flourished, among other things, Public Private Partnership
(PPP), Sistem Administrasi Satu Atap (SAMSAT) and Joined-Up
Government (JUG) (Ediharsi & Taifur 2000; Inovasipemda 2003b).

This

participatory governance practice involves the government agencies and private

sectors both within and inter-local governments. The increasing growth of
governance is closely related to the increasing freedom and discretion of local
governments since the implementation of decentralisation policy.

Ling (2002) puts forward the dimensions of joined-up government as follows:

Table 6. Varieties of Joined-up Working

New types
of
organization

Joined Culture and

by:
values;
Information;
Training

New ways
of working
across
organization

Shared
leadership;
Pooled
budget;
Merged
structures;
Joint teams
Source: Ling (2002:626).

New ways of
delivering services

New
accountabilities
and incentives

Joint consultation/
involvement;
Shared client
focus;
Shared customer
interface

Shared outcome
targets
Performance
measures;
Regulation

Despite its promises, governance does have some weaknesses. Accountability, for
example, is difficult since the parties involved may bear a certain degree of
accountability but who is accountable overall? Parliamentary accountability
reinforces departmental silos and makes Ministers risk averse because of the fear
of having to answer for cross-departmental initiatives (Richards & Kavanagh

43

2000). Accountability can be at risk if arrangements involve parties who are not
directly accountable to a Minister and not subject to parliamentary scrutiny.
There are several accountability tensions, including when there is greater
involvement of local levels of decision-making, this cuts into the authority of the
centre - the Minister and the Department - since in the context of local level
decision-making the officials may be accountable to counterparts in other
agencies and clientele, but less accountable to the Minister (Wilkins 2002).

5.3.

Internal Business Process

In line with financial accountability, there is a requirement that service should be

delivered in a manner that has value for money in order to satisfy communities
and customers.

This needs significant change and reform of processes and

systems to reduce costs and to manage financial information (Kaplan and Norton
1992). However, managers might be uncertain about how to proceed when the
effects of changes cannot be estimated due to the lack of information (Kouzmin,
Loffler, Klages and Korac-Kakabadse 1999).

The uncertainty can put the

organizations objectives and customers expectation at risk. Managers therefore

need to identify, monitor and improve the key business processes at which they
are weak and those at which they must excel to ensure that changes are
manageable and the outcomes will be satisfactory.

5.3.1. Benchmarking
In order to deliver quality services and goods benchmarking has been widely used
to seek better practices (Cowper and Samuels 2002). Benchmarking is defined as
an ongoing effort of measuring and comparing the quality of services, products

44

and processes of an organization against those of other leading organizations to

achieve the best performance (Camp 1989:10 cited in Kouzmin et al 1999).
Similarly, Sharp (1994) links it to the collection, examination and comparison of
information for improvement between an organization and other organizations
that are employing best practice. He proposes seven steps (plus or minus two)
to undertake benchmarking (Sharp 1994:3; see Appendix 7).

Benchmarking both formal and informal can be used for process improvement
(Evans 1994). Formal benchmarking requires performance measurement while
informal may take place in informal networks without formal indicators being
available (Ball, Bowerman & Hawksworth 2000). Informal networking is helpful
in

exploiting

opportunities

to

improve

and

enrich

management

perspective/practices (Putnam 2000). In benchmarking valid and accurate

information is significant in enabling the learning organization to solicit better
practices of numerous good ones. However, the search for best one in a class is
the most difficult part of the benchmarking exercise. A systematic search involves
huge time and cost, and since in most cases, only secondary information sources
are available, comprehensive searches do not necessarily lead to comparable
outcomes (Kouzmin et al 1999: 124).

Formal benchmarking in LGs in Indonesia during the centralistic administration

was mostly initiated by central government (Suwandi 2000). In order to encourage
LGs to adopt new better practices, central government incorporated benchmarking
practices in a package of requirements in order to get certain funds. The impetus
for benchmarking was not strong as the overarching focus was on compliance to

45

the rules and on getting the funds, rather than on improving the quality of
management practices. Therefore, many centrally imposed management practices
in LGs have been forsaken after a few years of unenthusiastic implementation
(Tamin 2002). The defunct LAKIP (Performance Accountability Report of Public
Sector) is one example of this ineffectiveness policy. It was imposed to LGs as a
requirement for getting additional funds, but after a few years, many LGs have
abandoned it. Not being part of the process, not being able to exert any influence,
LGs came up with reasons to state that the LAKIP indicators did not reflect their
individual situation.

Recently central government has increasingly encouraged benchmarking for LGs

to oversea partners (Inovasipenda 2003a). The carrying out of benchmarking itself
is part of an incentive granted to local governments that win the annual nationalwide competition for the best innovative ideas. Those who win the competition
are sent overseas to do benchmarking and then share the newly learned ideas with
other local governments. The driver of the benchmarking here is constructive as
those who do it are those who have worked hard in order to win the competition.

In addition to the lack of will, LGs face enormous other problems in carrying out
benchmarking. Problems such as lacking of accurate information, financial and
political support, and the domination of politicians in conducting comparison
studies are prevailing across the country (Saragih 2002; Yudoyono 2001).
Politicians, for example, are interested in carrying out formal benchmarking, but
many argue that their interest is merely on having a holiday in other

46

regions/countries at the expense of the publics money, without bringing home the
expected information (Saragih 2002; Yudoyono 2001).

5.3.2. Quality Assurance

Public sectors have increasingly applied formal quality assurance such as TQM
and ISO 9000 for continuous improvement and managing quality (Bishop 2000;
Jones 1995). These quality assurances require organizations to adopt the belief
that service and product quality should meet if not exceed customers
expectations (Lin & Ogunyemi 1996). The increased implementation of TQM and
ISO 9000 has been seen in local governments in Indonesia (Inovasipemda 2002).

In evaluating their implementation, Deliveri (2002) argues that they have

gradually changed the behaviour of the senior managers that has led to significant
increasing of service quality as well as customers satisfaction in some LGs.
However, there are some problems that inhibit their implementation. Their
implementation requires enormous resources. They are seen as expensive and
time consuming, which demands much attention on the process and
documentation rather than on the quality of the services (Deliveri 2002: 9-10;
Morgan & Murgatroyd 1994). Other typical barriers in the public sector are
lacking of market incentives, uncertainty of political support as a result of
frequent political changeovers, a highly centralized and layered structure,
conflicting needs between various customer groups, an emphasis on due process
over efficiency and poor management of documentation (FTA 1994; Mayston
1993; Rahardjo 2001).

47

5.3.3. Other Measures

Some LGs in Indonesia have developed and used CSC to guide internal processes
and encourage the incorporation of community perspective of outputs (World
Bank 2001). Contract specification is also a powerful means to review how things
have been done and sustaining performance management. In the contract, there is
recognition of the need to work towards meeting customer needs and satisfaction
which in the end will lead to the renewing processes that do favour customers.

Another measure that has been taken to improve processes includes formal
monthly meetings to discus process improvement and cost reduction, and market
testing (Yudoyono 2001). Public services that have been carried out by the public
sectors are re-contracted to allow competition between in-house providers and
private providers in order to increase efficiency without degrading the service
quality and other ethical principles (Wright 1998).

5.4. Financial Management

Financial management focuses on how LGs may manage to provide VFM
including how to provide good quality service (Kluvers 2001). VFM is more than
simply realizing the lowest price. It is about maximizing overall value, promoting
transparency, proper stewardship, probity, equity and ensuring accountability for
the use of the limited resources to achieve what it intended to achieve and
providing adequate and affordable services (Denhardt 1991).

Financial management has been increasingly linked to managing assets, debts,

ensuring long-term economic and social sustainability and demonstrating
accountability to legislatures and ratepayers. While Ryan, Robinson and Grigg

48

(2000: 94) link sound financial management to fiscal sustainability and

intergenerational equity. The former is about balancing both current and
futures financial needs and obligations with available resources - which consists
of four dimensions: own source revenue reliance, revenue flexibility/intensity,
indebtedness and liquidity, - while the latter is about ensuring that each generation
pays for what it gets or gets what it pays for, without imposing or subsiding
additional charges (Ryan et al 2000:95).

5.4.1. Budgeting System

Many local governments in Indonesia are operating traditional line item budgeting
systems (Nurkholis 2001). Some of their characteristics are: expenditures relies on
the available budget funding for specified items, benchmark is based on
increasing the budget rather than on the performance, focus more on the inputs
and outputs than on the outcomes, and rely on the previous years budget rather
than the achievement of objectives (Fachrudy 2001). The budget does not try to
integrate with the whole planning processes of the organization, but favors a
single process, which is to maximize the budget amount of its sectors. While the
financial control is appropriation-based, the funding for the programs of
departments is provided and authorized by DPRD through annual budget
appropriation.

Traditional budgeting does not provide enough information (only inputs are listed)
and encourages managers to pursue VFM (Fachrudy 2001; Raditya, Hermawan &
Rizki 2002). Nor does it provide sufficient information about the activities and
functions of a program, department or municipality (Mardiasmo 2002; Schaeffer

49

2000). It focuses more on how much it receives and pays out, and how much is
on hand at the bank, rather than on the outputs and outcomes of a program. There
is no attempt made to state objectives or what activities would be undertaken to
achieve those objectives (Jones & Pendlebury 1996). Therefore, it may be
difficult to assess whether resources had been used to pursue VFM. From the
authors experience working in local governments another negative impact of
applying this budgeting system is that it may encourage managers to misuse the
budget as performance is measured from the extent to which managers can finish
the budget. Those who cannot finish the budget at the end of the year budget are
seen as unsuccessful (Mardiasmo 2002).

Since 2000 through the Government Decree 105 of 2000, central government
introduced performance budgeting for local government, the implementation of
which is optional. Theoretically the allocation of resources in performance
budgeting is based on the performance of agencies during the previous year
(Robinson 2002). Those who meet or exceed their performance targets should see
increases in their funding, while those who fail to meet their targets should see
decreases in their funding. Those who apply this budgeting believe that there is a
logical, controlled link between performance measures and resources allocation,
with the ability to state the level of the outputs that can be achieved with an
additional amount of resources (Robinson 2002). But not all outputs can be
measured accurately and the resources allocation itself is politically inherent.
There are many factors that are considered in allocating resources. Politicians, for
example, tend to see their political interests met, the resources are often allocated

50

to get political support and not necessarily to serve non-political objectives

(Prasojo 2003; Syahruddin & Taifur 2002).

The benefits of performance budgeting, inter alia, focuses the attention of

managers on achieving outputs, outcomes and pursuing higher performance - the
better the performance, the more budget allocated - promotes efficient and
effective use of funds and increases policy debates and accountability, as
legislators are expected to hold the managers accountable for the achievement of
set outputs and outcomes, and the use of public money (Robinson 2002). To
implement it, local governments in Indonesia have started developing:
performance indicators in terms of efficiency and effectiveness, performance
standards, expenditure standards, and benchmarks of service delivery. While the
planning of their budget is based on: job descriptions and functions, job priorities,
and the objectives and measurable performance indicators (Fachrudy 2001:5).

Given the problems in the budget allocating, strategic management can be

developed as a guide in identifying the main mission, goals and performance
information (Kuntadi 2002). Some LGs have developed long-term financial plans
within the framework of the developed strategic plans to secure the annual budget.
Members of DPRD and managers are involved in the creating of strategic plans
and receiving financial reports on a certain time base as part of the performance
management process. A universal problem, however, is that financial information
in many local governments in Indonesia is inadequately provided and hardly
understood. BIGG (2001a) attributes this fact to the inexistence of compulsory
guidance for financial information reporting, while Syahruddin and Taifur (2002)

51

link it to the incapability of local Legislatures to understand and read various

financial reporting formulae and terms.

5.4.2. Financial Accounting System

Accounting is defined as the process of identifying, measuring and
communicating information to permit informed judgements and decisions by
users of information (AAA 1966 cited in Grimsey & Lewis 2002: 246). This
definition implies that financial accounting is oriented toward producing and
communicating information about the activities of organizations to the users of
information. As such, accounting can be seen as a means of accountability, as
input for decision making and as a means in managing public service delivery
(Bastian 2001: 8-9). As a means of accountability, accounting enables the agents
to be accountable to the principals and provides the principals with information
about the activities, performance and how the agents have exercised the delegated
authority and used the resources. For the principals the information can then be
used as inputs for decision making in dealing with the agents, while for the agents
the information can be used in managing and improving public services.

Traditionally public sectors have operated on annual cash-based accounting. This

is also the case in Indonesia; LGs are operating a single entry accounting system
on a cash basis (Nurkholis 2001). Cash accounting records the cash receipts,
payments and balances at the time cash is exchanged, hence its financial
statements showed the sources of cash receipts, its allocation and a comparison of
actual against budgeted expenditures. The account, however, does not show the
amounts of owed or owing; nor does it show assets and liabilities (Guthrie 1998).

52

Asset management merely focuses on acquisition and disposing of assets without

any regard to maintaining and maximising their value, including putting value or
depreciation (Hope 1999). The inexistence of information of long-term liabilities
contributes to further difficulty for the next administration when they become due
and payable (OECD 1993).

The recent emphasis of accountability for performance has favored the use of
accrual-based accounting (Blnd 2003; Guthrie 1998). Accrual accounting is
based on the recognition of revenues and expenses in the accounting period in
which they are earned or incurred respectively rather than when cash is paid or
received. It provides comprehensive information on cash inflows and outflows,
the assets and the liabilities, the long-term impacts of policy and its sustainability,
and enables government to manage its resources and obligations more thoroughly
than on cash alone (Diamond 2002; Guthrie 1998; Hope 1999; Mellor 1996). As
such, accrual accounting has various benefits, among other things; it helps the
managers to create fiscal sustainability and intergenerational equity (Ryan, et al
2000).

For local governments in Indonesia, central government has introduced new

financial standards in 2002 which are expected to be implemented in 2005. The
newly-developed financial accounting standards for local government operate on a
modified accrual basis, which means that revenues and expenditures are recorded
on a cash basis, while assets, liabilities, and equity are recorded on an accrual
basis (Buku 1 SAKD, 2002). The adoption of the modified accrual basis is seen
as the solution to the weaknesses of both cash basis and accrual basis. As
mentioned earlier, accrual basis provides additional information about assets and

53

liabilities, however, inherently it has some weaknesses. First, accrual budgeting

can lead to the risking of budget discipline. In the cash budgeting, expenditure is
based on appropriateness, which means that departments can spend the budget
only as authorised by DPRD, while, accrual budgeting can increase expenditure
for certain projects if they could be voted on with only the commensurate
depreciation expense being reported (Blnd 2003:1). Finally, high complexity of
the accrual method demands depth and breadth of understanding and skills which may lead to the domination of public servants over the legislatures in the
budgetary process, which may produce resistance of its adoption by the legislature
(Peters 1998; Robinson 2000).

5.4.3. Asset Management

The adoption of modified accrual accounting can lead to better practices of asset
management. Modified accrual accounting provides more information on assets as
well as liabilities which are not covered in the cash basis. Cash basis provides
information on the creation of assets but there is not much information statement
on the whole assets portfolio as accrual-based accounting does. In modified
accrual-based accounting assets are seen as resources belonging to an organisation
from past transactions or events which are used to benefit the organisation, while
liabilities are seen as the future obligations as a results of past transaction or
events. Equities are the residual interests in the assets after deducting all liabilities
(Buku 1 SAKD 2002; Hope 1999).

In managing and accounting for assets, various methods of capitalisation,

valuation, and depreciation are used in order to get the bigger picture of the whole
value of the capital on an entity during certain reporting periods and/or its lifetime

54

(IFAC 2002; OECD 1993).

planning,

operating,

These methods help the managers in terms of

maintaining,

disposing,

acquiring,

controlling

and

accountability of the assets (Hope 1995). Capitalisation is the process of recording

the acquired goods or service as assets, instead of being expenses. Valuation is
the process of assigning certain values to the assets; while depreciation is the
process of calculating and determining the reduction in value of tangible fixed
assets during their useful lifetime (ANAO 1996). In line with international
practices, Eriantono (2003:72) finds that the newly developed standards meet the
international standards of asset management, but capitalization thresholds and
depreciating capital assets are not covered. The capitalisation threshold is the
minimum value for the recording and reporting of assets in the financial
statements (ANAO 2003:7). A lower capitalisation threshold helps decrease the
cost of collecting data of total number of fixed assets that need to be recorded and
tracked (IFAC 2002).

Some countries have adopted the concept of capital charging in managing assets
(Robinson 1996:20). This concept gives freedom and authority to managers to
pose and dispose of assets without appropriation from Parliament, allowing them
to determine the appropriate mix of capital. But there is a certain amount of
interest rates applied to all capitals as the cost of using them. This concept,
therefore, challenges the managers to balance the usefulness of capitals and their
expenditure in achieving the goals of the entity (Robinson 1998; 1996). This
concept might lead to greater value for money as it reduces the demand for new
assets, raises saving money and maximises the potential benefits of the existing
assets by ensuring their appropriate use and maintenance.

55

Despite its benefits some authors highlight the distinct nature of assets in the
public sectors which have different characters from those of the private sector
(Carnegie & West 2003; Carnegie & Wolnizer 1996). In the private sectors, assets
are for sale; therefore they can be valued financially. In the public sector however,
assets such as those in the library and museum are social in kind, unique,
priceless, irreplaceable and not for sale. Therefore assigning values to them will
be time-consuming, difficult, arbitrary and prone to manipulation (Robinson
1996). Those in military possession are equally difficult to be valued as there is no
certainty of their length of depreciation. Therefore, the newly developed financial
accounting standards for local governments favour various approaches to the
valuation of assets, but there is no reliability of their depreciation (Buku 2 SAKD
2002).

5.5.

Innovation and Learning Management

As the environments, technology and targets of the organizations keep changing,

continual learning and innovation to goods, service and processes are essential if
organizations are to be successful (Senge 1990; Tamin 2003). This is also the
case for newly decentralised local governments in Indonesia. The decentralisation
policy has resulted in unprecedented changes, such as increased responsibility;
increased pressure for greater participation, enhanced accountability and better
public service, amalgamation of some departments and so forth.

The changes are inevitable and inherently risky, but they should be seen as
challenges to learn and innovate (Bartos 2003; Henry & Walker 1991; Plant 1987;
Senge 1990). Yet organizations still have to manage risk associated with not
changing. This is dilemmatic as they might be labelled as rigid if they do not
56

change, but they might also be criticised if a newly adopted approach fails
(Denhardt & Denhardt 2003; Peters 2001).

In order to survive change, staff attitude surveys on a regular basis need to be held
to map changes in attitudes, needed skills and what sort of upgrading training
should be held (Navaratnam & Harris 1994). Some local governments, however,
have not successfully managed the changes. Yudoyono (2001) finds that the lack
of qualified human resources to deal with uncertainty and increased responsibility
is among some factors that have led to the deterioration of quality of public
services.

In more detail, Davis & Salasins (1975 cited in Sharp 1997:36) model can be
used to examine the readiness of an organization for change. The model - A
VICTORY - requires the examination of: A: Ability to change; V: Values
affecting participation (like corporate culture); I: Information (are the date and
information sought available?); C: Circumstances surrounding the conduct of the
change; T: Timing of the change; O: Obligation (i.e. the accountability felt by the
program and its participants); R: Resistance within the organisation against the
change and/or the evaluation; Y: Yield (the expected likelihood of the intended
outcomes and changeability of the organisation). With particular regard to
innovation, Merritt (1985:12) summarises some factors that influence the
governments capacity for innovation: the allocated resources for the purpose,
including the absolute quantity available to the government, their diversity across
social sectors, their replaceability, and their liquidity; its information system,
including indicators of effectiveness, multiplicity and diversity of sources,
rapidity, and noisy levels; its procedures for encouraging nonroutine thinking

57

about public policy; the intensity, limits and rigidity of support for governmental
flexibility on the part of the relevant public;

procedures for evaluating and

choosing proposals for tentative adoption; and the ability to develop behavioural
patterns to institutionalise innovative policies.

5.5.1. Managerialsm
Many have argued in favouring of managerialism that requires a shift from a
bureaucratic to innovative paradigm (Considine & Painter 1997; Dixon et al
1998). Yet this is the area in which the public sector is very weak. There is little
recognition of the need for innovation and learning in formal documentation and
plans (Mugnidin 2001; Purwanto 2002). Some LGs have incorporated innovation
and learning as a key result area into their strategic plan, with performance
indicators such as the number of organizational development programs conducted,
participation in LG forums, the number of initiatives and innovation implemented,
and the number of staff recognized for effective workplace innovations (AF
2002).

Associated with managerialism are increased empowerment and freedom of lowlevel managers (Dixon et al 1998; Peters & Pierre 2001). Managerialism can
encourage staff to innovate and take a greater role in facing new challenges.
Employees need to have freedom to trying new ideas without being punished. It
is essential to assure staff that failing for a few times in implementing new ideas
does not accrue demerit points on them.

In many LGs in Indonesia, many argue that hierarchical power is still dominant
(AF 2002; SMERU 2002). Senior managers are still reluctant to empower the

58

staff, as they fear that they might lose control over them (Antlov 2002; Purwasito
2001; Yudoyono 2001). In addition, gaining commitment from empowered staff
can be problematic. Staff and managers may have different perspective of
empowerment. Managers believe that they have empowered staff to change
processes, but if there is no measurement of performance, managers will not know
the impact of empowerment.

5.5.2. Reward and Recognition

One key to successful learning and innovation is adequate linkage to employees
rewards and recognition (Shih-Jen & Yee-Ching 2002). Some LGs have
developed a formal recognition program to encourage new ideas (AF 2002;
SMERU 2002). Others award promotion for the best new idea, and money, movie
tickets and dinner vouchers for other innovations. Every new idea gains some
form of recognition and rewards. At national level, the central government
introduced the Municipality Innovation Management Award which rewards the
winners with airfares and fees for training and benchmarking overseas
(Inovasipemda 2003a). The criteria used in granting rewards to the best ideas are:
(1) contemporariness and uniqueness, (2) benefits to the community, (3), quality
of process, (4) degree of inclusiveness and (5) sustainability. The scope of the
award includes issues such as institutions, human resources, public service,
community empowerment and environmental aspects (Inovasipemda 2003a:1-2).

Some authors argue that recognition is more powerful than reward in encouraging
innovation (Luthans 2000). The benefits and motivational effects of celebrating
success are recognized although the mechanism for doing so is lacking. At LG if
something goes well, it is the politicians and the senior public servants only get

59

the praise. Normally recognition and awards are granted to the lower-level of
management only when the Mayor is about to step down from the throne. The
public sector in Indonesia lacks the mechanism to award talented public servants.
The promotion is based on the period of working, and not on the merit system
(Falaakh 2002). In order to be promoted, public servants simply work for four
years, and they will be automatically promoted to a higher position regardless of
their performance.

5.5.3. Training
Excessively heavy workloads together with low level of education, are among
some reasons why there is a low level of innovation at LG in Indonesia (SMERU
2002; Swisher 1999). It is important to train people to reflect on what they are
doing so they can better manage their workloads rather than doing their job as
routine only. Training that focuses on continuous improvement and human
resource development is expected to lead to innovation. Some have realized this,
but many are still occupied by the old legacy of public management.

There is an enormous problem with the training system in many LGs. Training is
seen as an annual project that has to be held - the budget has to be spent - many
trainers are recruited from retired civil servants who are employed because of
their proximity to decision-makers and in order to continually help them feed their
family after retiring - not from professional trainers and the trainees are those who
do not have much of a workload, who do not really need it, instead of those who
need it the most (Nur 2001).

60

A relatively strong emphasis on learning by individuals is evident in most LGs.

LGs have formal staff development programs used as tools to connect individuals
with organizations goals, by enhancing skills and knowledge to equip staff to
achieve these goals (Mugnidin 2001; Nur 2001; Tamim 2003). Programs will
inform staff about organisational goals and objectives. Some LG identified a
range of skill shortages and training needs such as managing work teams, holding
meetings, and how to make decisions. Training and learning are necessary to
replace lost intellectual capital following downsizing/amalgamation of some
departments. To be innovative, however, training and learning should be directed
in anticipating the future and not simply to adjust to the changed environment
(Roth 1996).

5.6.

Sustainability Management

The concept of sustainability is used interchangeably with other terms such as

corporate

social

responsibility

(CSR),

corporate

citizenship,

corporate

accountability, and triple bottom line as they address the same theme; the
interaction and independency among economy, society and environment
(Banerjee 2002; Sutton 2000). Essentially these concepts can be defined as
achieving success and meeting current needs in ways that honour ethical values
and respect people, communities, and the natural environment for the interests of
the organization itself, current and future generations (Banerjee 2002).

5.6.1. The Urgency of Sustainability Management

Sustainability management is not only about disclosing information on social and
environmental performance aspects, including the organizations impact on them,

61

how it manages those impacts but also the organizations role in promoting
ecologically sustainable development as well as how it engages stakeholders in
shaping its policy (see Appendix 6, 8). It is also communication, dialogue,
learning and decision-making processes which make the organization more
transparent and accountable (Gray, Owen and Maunders 1987).

It is acknowledged that the pursuit for economic benefits in the interest of social
and environmental aspects in the long-term will result in the so-called
externalities that will boomerang for the organizations and future generations.
As Elkington argues (1998:109) (at) the heart of the emerging value creation
concept is a recognition that for a company to prosper over the long term, it must
continuously meet societys needs for goods and services without destroying
natural and social capital.

For public organizations, there are wide ranges of benefits from promoting
sustainability development (ACG 2002:15-16; Gray, Owen and Maunders 1988):
1. Licence to operate: (sustaining legitimacy with the community; a culture of
support for government; heightened self regulation);
2. Data for management improvement: (better insight into outcomes; basis for
performance review; forces rationalisation of indicators);
3. Employer of choice: (heightened social relevance welcomed; personal
contribution more understandable);
4. Enhanced reputation: (community relevance heightened; seen as responsive
government);
5. Reduced Operating Cost: (recycling initiatives cut waste-disposal costs and
generate income by selling recycled materials; retaining of employee save
monies for hiring and training costs);

62

6. Increased Productivity and Quality: (better working condition increase

employee involvement in decision making leads to increased productivity and
reduced error rate);
7. Competitive advantage: (securing funding)

5.6.2. Sustainability Management in Local Government

Sustainability management has been widely adopted in public sectors including
LG. Some LGs in Australia have facilitated and encouraged sustainability
reporting by providing simple and effective guidance (ACG 2002; EA 2000). The
application of international statistical standards such as CEPA (Classification of
Environment Protection Activities to initiate EMA (Environmental Management
Account) has been widely used (Osborne 2001). Some have also aligned their
operations with social and environmental priorities in managing, operating and
reporting their activities. These include economic aspects such as procurement
policies; social aspects such as health, safety and education, access and equity; the
environmental aspect such as power and water consumption, use of vehicles,
wastes management and paper recycling (see Appendix 9).

Others have played a regulatory role through legislation and other activities such
as in the conduct of social audits mainly directed towards the excesses of
development and the social impact of both public and private organizations
policies (Gray et al 1996; Gray et al 1993). This social auditing has empowered
the community in shaping the accountability relationship with organizations, and
enabled the latter to assess its performance with regard to the formers expectation
(Deegan 2002; Gao & Zhang 2001). Thus the emphasis is on an internal reflective

63

review rather than on external investigation. Yet stakeholders are involved in

identifying the criteria for measuring their performance (Gao & Zhang 2001).

In the UK, LGs have gone further in addressing sustainability accounting. They
started with Social Audit, Environmental Audit, Environmental Management
System (EMS), Quality of Life Reporting and Experiments with sustainability
accounting tools (Lewis 2000; Harte & Owen 1987). Apart from these practices,
many LGs have also developed Local Agenda 21 strategies on sustainable
development. However, as Lewis (2000) indicates that from the very beginning
most LGs in the UK have struggled to meet Local Agenda 21 requirements as a
consequence of financial resources shortages and the increasing demand of central
government to address other policy initiatives. At LG itself, there are various
other barriers such as the resistance from politicians as sustainability is at odds
with their own political values, lack of understanding of sustainability among
public servants, and lack of public pressure on the sustainability agenda (ACCA
2002).

Furthermore, many LGs have worked closely with environmental groups as well
as with industry in order to advance the social and environmental agenda.
However, what is far from clear as yet is how the potentially conflicting roles of
development - meaning economic growth and expansion of traditional forms of
employment - and enhancement of the environment will be reconciled (Argy
1998; Hadiz & Robinson 2003). The growing local enterprise companies
established to generate business development are facing tensions about jobs and
growth versus environment. Another measure that has been taken is requirement

64

for providers to be certified to be able to take part in calls for tender procedures to
obtain contracts. The granting of government contracts in some LGs in Europe
includes social as well as economic considerations. For example, companies must
meet their commitments regarding the social security of employees and deal
adequately with safety and health at work. Companies who have been subject to
enforcement measures can be excluded from public contract (EASHW 2003).

Indonesias government, for example, has increasingly built the capacity of both
private and LGs companies to meet the requirement of voluntary Corporate
Social Reporting (CSR) such as SA8000 (SAI 2002). However, tools of CSR such
as certification schemes and labeling could be seen as barriers even as business
ploys by developed countries, to dominate profit making (Donovan 2001). In
addition, the continuing economic crisis has reordered the government priority to
privilege economic interest over the other aspects. The government has more
interest in addressing unemployment and income generation than social and
environmental issues (Hadiz & Robinson 2003). Therefore, it addresses economic
priority first, and then compensating the losers and repairing the environment.
Lack of political will and capacity to enforce minimum standards are the keys to
the prevalent problems in Indonesia (Fox, Ward & Howard 2002).

Some LGs in Indonesia have taken unprecedented measures in balancing central

government prolonged domination in public policy. Empowerment and
employment of local/indigenous people, review of working hours, better
remuneration, improvement of forest policy, and better health and safety policy
are among some positive progresses that have been made (GTZ 2000). The

65

increased powers and responsibilities to LGs have enabled them to take some
serious initiatives in the control of transport, planning applications, and a whole
range of environmental activities. Irawan (2001) finds that three measures that
have been taken by some local governments in improving the environment are:
pollution prevention, product stewardship, and clean technology.

At the same time, NGOs have increasingly put more pressure on local
governments to bring sustainable issues into the government agenda. The
increased pressure and power of the government have led to the establishment of
social and environmental departments in some local governments to oversee
sustainability issues (UNS 2001). This new development is good progress, as
sustainability-related issues are equally recognized and addressed. Nevertheless,
there have been some unwanted setbacks in some aspects. Some newly growing
issues are the increasing discrimination of external ethnic groups, widespread
corruption including the partiality of LG for local companies for government
contracts and the increasing massive exploitation of natural resources (Alm, Aten
& Bahl 2001; Marks 2002; Purnomo 2001). Furthermore, most LGs have not
adopted and applied sustainability management, even there is no specific
requirement on environment reporting for the private sector (Kurniawan &
Indriantoro 2000).

5.6.3. Some Challenges to Its Sustainability

The law is very clear in establishing the rights and responsibilities for actions of
organizations with regard to social and environmental issues. Public organizations
are legally responsible for social and environmental issues. Yet, there is no legal

66

specification to be accountable for those responsibilities. The legal responsibility

for action does not necessarily follow a moral responsibility to account (Tilt &
Lubansky 1999). As such, there is imbalance between responsibility and
accountability. This is one reason for sustainable management to be a mandatory
activity (EA 2000). However, it is not easy to specify in law as the nature of nonlegal or moral rights and responsibilities is constantly changing and developing
(Gray et al 1996). Therefore, Fisse and Braithwaite (1993) argue that it is more
likely to be effective if there is an ethic of social responsibility built into a
corporates culture, rather than simply reliance upon legal standards and a
sanctioning system should the corporation fail to meet certain standards.

Another barrier to accountability is the ambiguous concept of sustainability.

Ultimately, reporting for sustainability must consist of statements about the extent
to which corporations are reducing (or increasing) the options available to future
generations. This is a profoundly complex, if not impossible, task (Gray et al
1993:268) as there are various interpretations about sustainability. Questions such
as: sustainable for what, sustainable for whom, sustainable in what way,
sustainable for how long and sustainable at what level of resolution have a wide
range of answers, depending on the assumptions and beliefs (Gray et al 1993:282285). There are various definitions of sustainability because the concept is always
being redefined to serve changing needs and times (Stigson 2003).

Similarly the social performance of an organization is defined according to a wide

range of criteria (Belkaoui & Karpik 1989). The performance of an organization
is measured from various criteria, inter alia, the ability to encourage stakeholder

67

relationships, respect of human rights, ensure appropriate employment conditions,

and foster an environment of anti-corruption (Sarre & Treuren 2001). Some
efforts have been made to promote and standardize social and ethical accounting
and reporting, such as the issuance of AA1000 Social Accounting Standards
(ISEA 1999), a process standard to assists organizations in the definition of goals
and targets, the measurement of progress made against these targets, the auditing
and reporting of performance, and feedback mechanisms, and the introduction of
the UK social reporting awards scheme (ACCA 2002). However, some authors
argue that these new practices, in fact, are not really new. They have been
practised for a quite while with a number of criticisms (Doane 2002; Owen, Swift
& Hunt 2001; NEF 2000).

68

Chapter 6
DISCUSSION

69

Chapter 7
CONCLUSION AND RECOMMENDATIONS

The study has demonstrated that the nature of accountability in the new public
management era has experienced profound changes. The emphasis of
accountability for many aspects to various parties has been narrowed down to the
financial dimension of the management. The study has shown that the new foci of
accountability have to some extent increased value for money, in terms of
economy and efficiency, but not necessarily the case with effectiveness. In many
countries the emphasis on accountability for performance has privileged
consumers over citizens and financial aspects over non-financial aspects and other
ethical values.

In looking at accountability systems in local governments in Indonesia, the study

has showed that ever since the implementation of decentralisation policy, Laws 22
and 28 of 1999 have been the milestones for addressing accountability of local
governments. Accountability of the Executive branch of the government has been
acknowledged by its importance in assuring the achievement of performance as
well as in building clean and good governance. The mechanisms by which the
executive is accountable for the delegated responsibilities and allocated resources
have been addressed. DPRD, as the principal, has assumed a greater role with
greater authority to hold the government accountable. However, the study has also
shown that the mechanisms in terms of the details about the presented accounts,
how the public can influence public policy through the accounts and how it
improves performance are some ongoing issues

70

The study has explored how the elements of SBSC have been implemented in
local governments. Some local governments in some developed countries have
adopted both BSC and TBL in addressing performance. Similarly local
governments in Indonesia have also kept pace with international practices. Terms
such as Joined-Up Government, Public-Private Partnership, Accrual-based
Accounting, Performance Budgeting, Asset Management, TQM and ISO are
among some practices that have been increasingly adopted recently. These
practices, however, are still not adopted in an integrated approach under the term
SBSC; rather they are secludedly managed. It also found that sustainability is
poorly addressed in many local governments, as they are still privileging
economic aspects over social and environmental-related issues.

Some of the aforementioned practices are seen to be essential in improving

performance and accountability. However, it is also acknowledged that they are
inherently problematic. Adopting practices that are designed for a different
environment is not easy and can be unsuccessful. Learning from experience, the
uniform centrally designed policies have always failed to succeed. Furthermore, it
is very obvious that human resources, political stability, corruption and red tape
are among some issues that are still rampant and need to be addressed firstly.

This study, therefore, concludes with some recommendations that need to be

considered in addressing accountability and performance, as well as in adopting
and keeping harmony with international practices:
1. Central government which has played a significant role in providing guidance
and financial assistance needs to take into account the diverse peculiarity of

71

local governments. Law 22 of 1999 has devolved unprecedented greater

power to local governments; therefore central government should allow
flexibility and incorporation of local initiatives in adopting centrally imposed
requirements. Local governments need to be involved in developing best
practices in order to sustain their viability. Furthermore, Law 22 of 1999 needs
to be revised to provide more power to local people and NGOs in participating
in policy-making and in holding the government accountable. The law should
provide a clear, but flexible, framework for holding the government
accountable.
2. Upgrading the skills and knowledge of the members of DPRD through
training as well as overseeing and ensuring their accountability by an
independent institution on behalf of the voters, are essential to enable them to
cope with the increasing workload and to encourage them to ensure the
accountability of the government.
3. Apart from central government, provincial government and DPRD, other
parties roles should not be ignored. On the contrary, they should be
strengthened. Some of them are Internal, External and Private Audits,
Ombudsman, Press, Non-Government Organizations and the Citizens. Private
Audit and Ombudsman have been proven essential, however, they are not yet
established in local governments. Accountability is a contested concept that
needs to be established and strengthened in partnership that involves various
parties.
4. In implementing SBSC and some other best practices, such as Accrual-based
Accounting, Performance Budgeting, CSR, TQM, and ISO 9000, there are
various factors that need to be taken into account, inter alia, political support,

72

human resources, financial resources, management commitment, cost-benefit

analysis, institutional design, organizational culture and so forth.

An

incremental approach to public policy and a pilot project of change and reform
are seen sensible when the driver of change is externally imposed and a
philosophical one.
5. This study also recommends that local governments need to consider and
provide a mutually agreed and understandable accountability framework as
discussed in Figure 2. Local people themselves need to be well informed and
empowered to understand the meaning of accountability and their rights in
holding the government accountable. Transparency in the processes and
documents is an inseparable condition in strengthening accountability of both
the government and DPRD.
6. Partnership with
universities,

private sectors, non-government

coupled

with

strong

continuous

organizations

learning

culture

and
and

benchmarking are believed to be the key factors in managing change,

innovation, public reform as well as solving social issues. The newly
increased practices, such as public-private partnership and joined-up
government, are seen as a fertile source for innovation and learning as they
enable local governments to learn from others and to be innovative.

73

Appendix 1. Local Government Accountability (LGA) Index Subjective Weight

by Criteria
Overview

Statement of Objectives
Mayors Report
CEOs Report
Corporate Structure
Internal Control
Environment Report
Personnel
Occupational Health & Safety
Equal Employment Opportunity
Summary Facts

3
2
2
1
2
2
2
2
2
1

Performance

Performance Measurement
Actual to Budget Comparison
Financial Performance Ratios

3
3
3

Financial Information

Financial Review
Statement of Financial Performance
Statement of Financial Position
Statement of Cash Flows
Accounting Policies
Non-Current Assets
Investments
Commitments and Contingencies
Remuneration
Sum of Weights

1
3
3
3
2
1
1
1
2_
45

Source: Ryan, Stanley, and Nelson (2002:269).

74

Appendix 2. Accountability Definition, Orientation and Processes

Accountability To Whom?
Orientation

For What?

Authority From?

Responsibility to?

Upward

Supervisors/
superiors?
Managerial/
Political Master

Resources:
Human; Financial
Governments
Policy outcomes

Westminster System The Public

Acts & Regulations;
The Parliament
Delegations;
Position/ Designation

Outward

Clients Needs;
External
Stakeholders

Clients Outcomes
Stakeholders
Reaction

Programs Goals
Governments Policy
Whistleblower Act

Programs
steering
committee

Downward

Subordinates

Employee
participation
fair days work
for a fair days
pay,
Safe working
conditions

Governments policy;
Dept. of Industrial
Relations (Employer)

Dept. of Industrial
Relations
(Employer)
Employees
rights under
Common Law

Inward

Personal
conscience;
Professional
Associations

Professional ethics; Professional

Associations
Protection of
stakeholders right

Professional
Associations;
Personal
conscience;
Stakeholders

Scrutiny Mechanism?

Budgets;
Management Reports;
Internal Evaluation
Financial Auditing:
- Budget balance;
- True & Fair Accounts:
Ombudsman
Freedom of Information Act
External Evaluation
Common Law;
DIR (GADD);
Freedom of Information Act;
Unions;
Enterprise bargaining;
Industrial Commissions;
Merit Protection agency
Common Law;
Ethics Committees;
News media

Source: Sharp (1997:20)

75

Appendix 3. Main Channels of Accountability in LG in Indonesia (Adapted from

Mulgan 1997:30).
The Public

Central
Government

FOI

Court/
PTUN

Mayor

DPR

AG

DPRD

Chief
Executive

IG

LG Departments/Agencies

Public Sector Employees

Line of Accountability
Line of Direction or Control
Line of Reporting or Provision of Information
FOI
PTUN
AG
DPRD
DPR

= Freedom of Information
= AAT (Administrative Appeals Tribunal)
= Auditor General
= Legislature at LG
= Legislature at Central Government

76

Appendix 4. A Possible Checklist of Accountability Instruments for LG

From DPRD to Citizens and NGOs
o Election of DPRD members
o Meeting of the DPRD open to the
public
o Invitation of citizens and NGOs to
participate in selected committee
meetings
o Code of Conduct of the DPRD
(including conflict of interest etc)
o Monitoring of performance of
DPRD members (e.g. attendance)
o Consultation with citizens,
communities and NGOs
o Participatory development planning
o Complaints procedure
o DPRD information center
o Public disclosure of information
(e.g. in the media, in public places)
o Rules ensuring honest tendering
process
o Public right to inspect register of
members interest
Source: Turner (2000: 24-25).

From Executive to Citizens and

NGOs
o Complaints procedure for
individual agencies
o Public disclosure of information
on agency performance (e.g. in the
media, newsletters, in public
places, in government offices)
o Public disclosure on performance
standards
o Survey of client satisfaction
o Use of user reference groups
o Participatory development
planning
o Responsiveness to request for
information
o Code of ethics for regional public
servants
o Performance appraisal for regional
public servants
o Monitoring work processes for
transparency
o Clients or Citizens charters

From Executive to
DPRD

From DPRD to
National Government

o Mayors end-ofo Financial reports of

service
regional
accountability report
government
o Sectoral reports from o Recommendation
executive agencies
for dismissal of
(e.g. health,
mayor
education)
o Compliance with
o Mayors other
central government
accountability
regulations and the
reports (e.g. on
law
specific development
projects)
o Budget and other
financial reports
o Responsiveness of
executive agencies
to DPRDs requests
for information

77

Appendix 5. Accountability mechanism Available to the DPRD in relation to the

Auditing (Adapted from English and Guthrie 2000).
Accountable Mechanism Available to
Power Required by IG to Conduct
DPRD/Executive
Audit
Scope of audit in the public sector
Mandate to perform audits
No impediment to IG conducting 1. Financial statement audits of
agencies
financial statement and performance
2. Performance audits of agencies
audits of all government entities
3. Financial statement audits of
authorities and companies
4. Performance audits of authorities
and companies
Power in relation to audit
Executive not DPRD has power to
appoint, oversee IG and his/her
office,
DPRD has power to request audits
All audit report to be tabled in the
Executive and DPRD.

Independence from direction by the

executive
1. Independence enshrined in law
2. Free of direction/control from
executive
3. Discretion to determine type of
audit and auditee
4. Reporting to the executive not the
DPRD
5. Wide
information
gathering
powers
6. Executive to advise on audit
priorities and oversee audit
function
7. Appointment of the IG by
Executive not by DPR/DPRD
8. IG is an officer of the Executive
and not the DPRD

Funding of IG
Funding determination
Funding determined by executive 1. Sufficient to enable IG to exercise
effective mandate
not by DPRD
2. Funding level recommended by
treasury not by PAC
3. No cost recovery from auditees
Oversight of IG
No independent audit of IG

1. No audit by independent auditor to

IG
2. Independent auditor to report to
PAC
Source: English and Guthrie (2000 cited in Clark and De Martinis 2003:36)

78

Appendix 6. An Organization's Ripple Effect

An Organisation Impact
Economic
Local and
National
Community,
Consumers,
Shareholders,
Suppliers/
Contracts
Product Value,
Income and
wealth
generation,
Jobs,
Ethical trading
standards,
Advertising
standards

Environment

Social

Local
Community,
Issue
Community,
Employees,
Customers

Local Community, Issue community,

Employees, Customers

Sustainable
development,
Waste control,
Emissions,
Energy use,
Product lifecycle

Business human
relationships and resourcing
policies:
- Equal
opportunities
- Human rights
- Educational
development of
staff

Involvement in
external social
issues:
- Social
exclusion
- Community
regeneration
- Education
- Culture
- Employee
volunteering

Source: Andriof and McIntosh (2001:15).

79

Appendix 7. The Magical 7 Steps (Plus or Minus 2) in Benchmarking

5
Continuos
monitoring and
evaluation

How do we
adapt &
improve?

What to
Benchmark?

Do you know
your own
processes?

Who is the
best
partner?

What do
they do
better?

What is
best
practice?

What can we
learn?

Source: Sharp (1994:3).

80

Appendix 8. A Map of Participation Types

Participation Objective
Key Instruments
Type
Consultation - to gauge
- key contacts
community
- surveys
reaction to a
- interest group
proposal and
meetings
invite feedback
- public meetings
- consultation is
- discussion papers
only participation - public hearings
when information
gathered can
influence
subsequent policy
choices
Partnership - involving citizens - advisory boards
and interest
- citizens advisory
groups in aspects
committees
of government
- policy community
decision making
forum
- public inquires

Limitations
- delay between
consultation and any
outcomes
- communities feel
betrayed if they do not
like the decision

- issue of who can seek

for a community
- bias toward established
interest groups
- legitimacy issues with
those excluded from the
process
Standing
- allowing third
- review courts and - only relevant for those
parties to become
tribunal
issue which come to
involved in the
- open and third
court
review process
party standing
- expensive and time
- statuary processes consuming
for social and
- bias toward well funded
environmental
interests
impact
- legal approach may be
assessment
inappropriate for some
issues
Consumer - allowing customer - surveys, focus
- relevant only for service
Choice
preferences to
groups
delivery issues
shape a service
- purchaser/provide
through choices of r splits
products and
- competition
providers
between suppliers
- vouchers
- case management
Control
- to hand control of - referendum
- costly, time consuming
an issue to the
- community
and often divisive
electorate
parliaments
- are issue votes the best
- electronic voting
way to encourage
deliberation?
Source: Bishop & Davis (2002:27).

81

Appendix 9. A Summary of Social and Environmental Reporting (SER) Practices

Generic Elements
1. Entity definition for the purpose of reporting
2. Scope of reporting by the entity
3. Accounting/information gathering policies with regard to data for entity for the
scope defined
4. Information about the organization (its corporate context, activities undertaken,
geographical location (s) and summary financial statistics/performance)
5. CEO (or similar) statement with regard to economic, environmental and/or social
performance of the organization
6. Identification of the key impacts and effects which arise from activities and/or
which are associated with products/services of the organization
7. Policies in place and organisational practices (such as assigning responsibility and
management systems) to manage the issues identified
8. Performance data on issue identified as being important (usually includes
absolute, normalised, comparative, trend and comparison with sector data)
9. Targets ands objectives (in terms of compliance with previous and future targets
and objectives)
10. Assurance or verification statement by a third party
11. Description of the ways in which the organization has communicated with report
audiences (such as providing contact names and addresses, tear of reply forms and
more formal stakeholder engagement data)
Examples of Environmental Reporting Elements
1. Environmental performance data (and indicators) including data on inputs,
product/service outputs, leakages (in term of wastes and emissions)
2. Consideration of transportation impacts
3. Other aspects, such as land contamination status, biodiversity issues,
environmental complaints, breaches of consents, compliance with standards,
prosecutions and fines
Examples of Social Reporting Elements
1. Employee reporting (considering issues such as, diversity, job satisfaction,
employee consultation, pensions, fairness of pay levels, training, redundancies)
2. Other employment issues (such as, forced labour, child labour and freedom of
association)
3. Health and safety of employees and other individuals (such as costumers and
contractors)
4. Local (and broader) community interactions
5. Human rights information (such as interactions with indigenous populations and
relationships with local security forces
Source: GRI (2000:1).

82

Appendix 10. Comparison of Common Types of Performance Audits

Type

Unit of analysis

Efficiency
audit

Organisational
function, or
program
element

Program
effectiveness
audit

Policy,
program, or
major program
element

Performance
management
capacity audit

Organisation

Mode of
Scope of
review
evaluation
Inspection Aspect of
governmental
and third
party
operations
Inspection Selected
aspects of
program
design and
operation
Inspection That which
affects
performance
of managerial
functions

Focus of effort
Identify
opportunities to
lower budgetary
cost of delivering
program outputs
Assess impact of
public policies;
evaluate program
effectiveness
Assess capacity
to achieve
generic goals of
economy,
efficiency and
effectiveness

Source: Barzelay (1996:23).

83

Appendix 11. Approach to Effectiveness Auditing

SEETING OUT THE AUTHORITYS POLICY OBJECTIVES
Are they stated clearly?
Are the decision made on sufficient and accurate date?
Have other options been considered?

YES

NO
Are the policies based on
accepted custom and
practice?
NO

YES
Are the costs of
alternative service levels
considered?
YES

NO
Audit report on
benefits of
changed
service levels

NO

INTERPRETATION
Do the instructions to
officers accord with
approved policy aims?

YES
MEASUREMENT
Are there adequate
measures of policy achievement?
Are the data collection systems accurate?

Audit
Repor
t

YES
REPORTING SYSTEM
Does an efficient
reporting system exist?

NO
Audit
Report

Audit
Report

Audit Report
on
shortcomings

NO

YES

NO
Audit to carry out
own ad-hoc tests
Audit
on effectiveness
Report
or policy objectives
where possible
1. On areas where
objectives are not being
met
2. To recommend new or
additional effectiveness
measures

Is there evidence of
corrective action being taken
on areas where correctives
are not being met?

YES

Auditor
moves to
next subject

Source: Butt and Palmer (1985 cited in Glynn 1987:115).

84

Appendix 12. Approach to Efficiency Auditing

Reasonable to expect efficiency measurement?
YES

NO

Measured by Auditees?
YES

NO

Measured by properly?
YES

NO

AG to measure efficiency?
- Satisfactory level of efficiency?

- Efficiency related controls adequate?

- Quality and level of service monitored?
- Is performance information (where available) used
adequately for planning, budgeting and controlling?
- Efforts to improve productivity adequate?

YES

Measure

NO

Explain why not

KEY: Report either present conditions/practices satisfactory or unsatisfactory and recommend

appropriate action
Source: Glynn (1985:19).

85

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