Beruflich Dokumente
Kultur Dokumente
Abstract:
This paper describes and analyses the challenges encountered in attempting to
reform public sector accounting in Indonesia, the main objective of which is to
combat corruption and thus help improve governance. Our observations suggest
that this reform has been seriously hindered by a lack of staff with adequate
accounting skills.
a problem exacerbated by the decision to continue to prepare old-style cashbased reports alongside the new accrual-based reports. Our key contribution is to
demonstrate the danger of rushing to copy public sector financial management
techniques from quite different country contexts, especially when there are
significant differences of opinion as to the appropriate design of these reforms
among the influential policy-making agencies.
INTRODUCTION
In the last three decades public sector accounting reforms have been central to
the adoption of New Public Management (NPM) practices in the public sector
(Lapsley and Pallot, 2000; Christensen, 2007; Christiaens and Rommel, 2008;
The first author is Adjunct Associate Professor in the Indonesia Project,
Crawford School of Public Policy, ANU College of Asia and the Pacific, The
Australian National University, Canberra. The second author is Assistant
Professor in the School of Information Systems and Accounting, Faculty of
Business, Government and Law, The University of Canberra, Australia. A shorter
version of this paper was published previously as McLeod, R.H. and H. Harun
(2009), Improving District and Municipal Governance in Indonesia: The Role of
Public Sector Accounting Reform, Policy Brief 3, Australia Indonesia Governance
Research Partnership, The Australian National University: Canberra. Parts of it
also appeared in Kuncoro, M., T. Widodo and R.H. McLeod (2009), Survey of
Recent Developments, Bulletin of Indonesian Economic Studies, pp. 15176. The
authors are grateful to the Australia Indonesia Governance Research Partnership
for financial assistance that facilitated the research reported here. The authors
also benefited from comments by participants in the Indonesia Council Open
Conference at the University of Sydney (1517 July, 2009).
Christensen and Parker, 2010; Ball and Craig, 2010; Qian et al., 2011; and
Pollanena and Loiselle Lappointe, 2012). In New Zealand, the UK and Australia,
for example, accrual accounting was a key feature of the introduction of
businessstyle accounting practices in public sector organisations (Guthrie, 1998;
Lapsley and Pallot, 2000; Baker and Rennie, 2006; ter Bogt, 2008; and
Christensen and Parker, 2010). A similar trend has been apparent recently in
developing nations such as Malaysia (Nor-Aziah and Scapens, 2007; and Saleh,
2007), Thailand (Upping and Oliver, 2010) and Ghana (Rahaman, 2009). Since
2003 Indonesia has followed a similar path, with the promulgation of new laws on
accounting and auditing in the public sector (Marwata and Alam, 2006; Harun,
2007; and Harun and Robinson, 2010).
Indonesias enactment of Law No. 17 on State Finance (Undang-undang
Keuangan Negara) in 2003 is seen as the beginning of a process of radical reform
in the field of public sector financial reporting (Harun et al., 2012). This was
followed by the introduction of two complementary laws: Law No. 1 on State
Treasury (Undang-undang Perbendaharaan Negara) and Law No. 15 on Auditing
of State Finances (Undang-undang Pemeriksaan Keuangan Negara), both in
2004. The essence of these laws was that much greater attention than hitherto
was to be paid to transparency and accountability in relation to the use of
resources entrusted to the state by the people. The new laws were backed up by
the formulation in 2005 of a new set of standards for public sector accounting
(Standar Akuntansi Pemerintahan, SAP). According to the elucidation of Law
17/2003, an important objective of adopting the new accounting system is to
support the governments efforts to combat corruption.
The key feature of SAP is the introduction of double-entry accrual accounting and
reporting systems adapted from recommendations of the International
Federation of Accountants, the International Accounting Standards Committee,
the International Monetary Fund, the Indonesian Institute of Accountants, the
Financial Accounting Standards Board (USA) and Indonesias Generally Accepted
Accounting Principles in place of the single-entry accounting system inherited
from the Dutch.1 In reality, however, the traditional cash-based budgetary or
cameral accounting system (Monsen, 2002) inherited from the colonial era in
the form of Laporan Anggaran dan Realisasi Pendapatan dan Pembelanjaan
Negara/Daerah (Report on Budgeted and Realised State/Region Revenue and
Spending) is still used in parallel with the new system for planning,
authorising, recognising and recording all government spending at central and
regional levels. It seems to be widely believed that all governments and their
agencies are obliged to prepare a cash-based budget realisation report alongside
the full set of accrual based reports, but this is debatable. Articles 30 and 31 of
Law 17/2003 require budget realisation reports to be prepared, but make no
attempt to define such reports or to stipulate the basis on which they are
prepared
are passed on to the central and regional legislatures (Dewan Perwakilan
Rakyat/Dewan Perwakilan Rakyat Daerah, DPR/DPRD) and also made available to
the general public. BPK is required to pass on evidence of evident wrongdoing on
the part of government officials to the relevant law enforcement agencies for
follow-up action. Such developments indicate that Indonesia has chosen to
imitate a number of developed nations that have pioneered the adoption of
accrual accounting in the public sector, such as New Zealand, Australia, the UK
and Canada.
Accounting scholars caution, however, that the intended objectives of public
sector accounting reform cannot be achieved automatically, simply by
implementing a private-sector style accounting system (e.g., Siti-Nabiha and
The [New Order Suharto] government limited the range of audit targets, the
means or methods of audit, and the content and tone of audit reports. BPKs
reports were not even made public. All the goldmines of the New Order
government, like Pertamina [the state oil and gas company], Bank Indonesia [the
central bank] and the state banks and other state enterprises were off limits to
BPK. . . . The New Order government also controlled BPK through its organisation,
personnel and budget. The resources and infrastructure for raising the quality of
work and of human resources of BPK were also very limited (BPK, 2009: p. 6,
authors translation).
Once Suharto had been forced from office in 1998, the opportunity arose for
reform-minded policymakers to move in the direction of accounting reform as a
response to the deliberate suppression of accountability and transparency that
had characterised the Suharto era (Harun and Robinson, 2010). Advocates of
LOCAL GOVERNMENT ACCOUNTING IN INDONESIA
private sector-style accounting systems, especially in the MOF and BPK, saw the
adoption of private sector accounting techniques within the public sector as an
essential part of attempts to raise the quality of management and thus, the
integrity, efficiency and effectiveness of government. Indonesia chose countries
such as Australia, the UK and New Zealand as models for the new approach, all
of which had been pioneers in public sector adoption of accrual accounting
(Harun et al., 2012).
Introduction of Accrual Accounting
According to SAP, all transactions involving public sector agencies are to be
captured, classified and recorded within a double-entry accrual accounting
system, and then presented in summary form in the financial reports of the
entity in question. The new reporting system requires regional (provincial, district
and municipal) governments to prepare budget realisation reports as in the old
system, together with balance sheets, cash flow and change in equity
statements, and accompanying notes to these financial statements. All reports
must be available to the public (Table 2). Reports are required for each
organisational unit (agency, school, hospital etc.), and they must also be merged
into a consolidated report for each local government (Harun and Kamase, 2012).
Once the reports have been prepared they are submitted to BPK for examination.
Any deficiencies or departures from the accounting standards are to be reported
back to the government in question with a view to having them corrected, after
which the auditor forwards the audited reports to the relevant legislature and
head of government, together with its opinion. This can take any of four forms:
unqualified, qualified, adverse, or disclaimer. An unqualified opinion is issued if
the auditor finds the reports have been prepared in conformity with the SAP and
are free of material misstatements; at the other extreme, an adverse opinion
may result from poor record keeping, poor classification of transactions, failure to
adhere to the approved budget, failure to adhere to the SAP, or evidence of
corruption. A qualified opinion is issued if there are minor
Under long-established MENPAN rules, recruits into the bureaucracy may enter
only at the level of new graduates (from high school, technical college,
university, etc), and then slowly make their way to higher levels primarily on the
LOCAL GOVERNMENT ACCOUNTING IN INDONESIA
basis of seniority which precludes an adequate response to sudden new
human resource requirements other than by outsourcing work to outside
consultants.4 In any case, salary scales are utterly unrealistic in relation to those
in the private sector (other than for low level positions), so even if there were
freedom to recruit individuals to fill high-level positions this would be almost
impossible (McLeod, 2011, pp. 459). These practices present an enormous
obstacle to local governments wanting to hire qualified and experienced
accountants. As a senior official in the Palu Municipality lamented:
It is almost impossible for us to hire the staff we need. We have no authority to
hire people, and our system prevents the recruitment of people with the
qualifications and experience we need. These things are determined by the
central government. Salaries are also uncompetitive in comparison with the
salaries of our friends in Astra [a leading national private sector company]. So,
what can we do?
Tangerang Municipality employed eleven well qualified accountants, but Palu
Municipality employed only two recent accounting graduates. Likewise in the
District of Bima there were only three accountants who understood the SAP. In
the face of the greatly increased demand for qualified and experienced
accountants, the Bima and Palu governments could do little more than either
outsource their accounting tasks or have the work undertaken by individuals
lacking the necessary skills with the predictable consequences of inefficient
accounting processes and poor quality accounting reports or, at best, delivery of
these reports well beyond the stipulated deadlines (BPK, 2008). One interviewee
in Bima stated that:
Often we need to pay outside consultants to prepare our reports. It is difficult to
hire qualified staff here. It is a long process and recruitment also requires
approval from the central government.
Since we do not have sufficient qualified staff, we just prepare the reports as
best we can, and so our reports do not comply fully with the rules.
The second major problem faced by local governments has been the lack of
consistency in relation to requirements from the centre. According to our
interviewees in the MOF and the three local governments, this inconsistency has
two dimensions: conflicting requirements of different ministries specifically,
the MOF and the MOHA and requirements that change frequently over
understand how MOHA can actually make use of the flood of highly
disaggregated data it demands from hundreds of local governments and their
subsidiary entities. Detailed reporting to the centre (other than for auditing
purposes, which is not the MOHAs responsibility) only makes sense if the centre
intends to involve itself deeply in the management of reporting units. This was
surely not envisaged by the proponents of the far reaching decentralisation of
government functions that began in 2001, who intended rather to modify
incentives such that local governments primary concern would be to serve their
constituents well not to do the bidding of the central government.
MCLEOD AND HARUN
Not only has MOHA imposed unnecessarily detailed financial reporting
requirements on local governments that are inconsistent with the requirements
of MOF (as their main source of funds) and BPK, but at the same time it has
obliged each local government to develop its own accounting system (Regulation
No. 13/2006). Bearing in mind that one of the objectives of accounting reform is
to improve efficiency and effectiveness of government at all levels, this seems
absurd. All local governments for the most part undertake the same kind of
service delivery to their constituents. It follows that an accounting system well
designed for one should be just as suitable for all the others, provided there is
enough flexibility to cope with local idiosyncrasies in service provision. The
MOHA requirement results in enormous wastage due to failure to take advantage
of economies of scale. Specifically, there are something of the order of 500
provincial and local governments, for which it would be possible to develop just
three computerised systems one each for provincial, municipal and district
governments (KPPOD, 2009). These could be developed at the centre, with input
from local government representatives, and without the need for endless
replication of this work across hundreds of lower-level jurisdictions.
Consequences
Two of the immediate consequences of the lack of qualified accountants and the
conflicting rules faced by local governments are a low level of compliance with
SAP and underuse of accrual based-reports for decision making
Many local governments fail to produce their reports when required. BPK (2008:
4) reported that of 469 local governments, only 59% submitted their financial
reports for 2007 on time; of the remainder, 34% had submitted their reports by
mid August 2008, but 7% had still failed to do so. Months later three
governments had still failed to submit their reports (BPK, 2009). In addition,
there is a failure to produce reports of a satisfactory standard. Only a tiny
proportion of local government reports have obtained an unqualified opinion
from BPK and, although the majority obtained a qualified opinion, the proportion
that did so declined significantly through 2009, with corresponding increases in
the proportion obtaining adverse or disclaimer opinions (Table 3). Although there
was some improvement in 2010, there were still only 32 local governments of
about 500 in total (i.e., 6%) that obtained an unqualified opinion for their reports
(JPPN, 2010). Among the three local governments studied, the financial
reason to devote their time to this aspect of their work. As one local
parliamentary member in Bima put it:
We never understand the content of the reports. We are more familiar with the
old type of [cash based] reports.
Two local parliamentary members in Palu expressed similar thoughts.
POLICY RECOMMENDATIONS: SETTING PRIORITIES
Indonesia has an unenviable reputation as one of the most corrupt countries
(Transparency International, 2010; and Suryadarma, 2012), and corruption is a
major concern of private sector firms and the general public. This was one factor
influencing Indonesias decision to adopt accrual accounting, although this
consideration was much less important in developed nations such as Australia or
New Zealand where the emphasis in public sector accounting reform was
much more on the potential role of information generated in the accounting
process as a management tool.
Given the high priority of fighting corruption in present-day Indonesia (McLeod,
2005; and KPPOD, 2009) we argue that the usefulness of having accrual-based
balance sheets and income statements depends little on having accurate
valuations of all government entities individual assets and liabilities (which is
much more important if accounting data are to be used for management
purposes, such as financial decision-making). Rather, it depends on having
accurate lists of these especially the assets. It is often the case that corruption
and irregularities take the form of diverting funds away from the purchase of
assets intended to be used to deliver services to the public (Harun et al., 2012,
p. 274). Alternatively, as our interviewees in BPK observed, it may take the form
of the transfer of assets (such as motor vehicles, housing and land) to the
ownership, or at least control, of particular individuals, without proper
compensation to the government. If the reporting system shows the purchase or
sale of such assets, this will show up in the balance sheet, but if there is no
balance sheet it will be very difficult for anybody reading the budget statement
to check whether any resources have been misappropriated. What is crucial,
therefore, is that any assets that potentially could be misappropriated be listed
in the balance sheet; putting accurate values on all of them is less important.
After an initial balance sheet has been created, every subsequent purchase or
disposal of any kind of asset will necessarily be recorded in both the cash flow
statement and the balance sheet, thus providing a useful body of evidence that
can be checked by the auditor.
LOCAL GOVERNMENT ACCOUNTING IN INDONESIA
Indonesias accounting reforms have been radical, and it can be argued in
retrospect perhaps more for the benefit of other countries contemplating
similar reforms that it would have been more realistic to prioritise them rather
than trying to achieve full-fledged accrual accounting perfection at a stroke: that
is, to have focused at first on transforming the accounting system so as to make
it much more systematic and accurate, and its reports more easily verifiable, in
order to further the aim of cutting back on public sector corruption. This is not to
deny that there is enormous scope for improvement in the management of
government operations and policies using sophisticated accounting data, but
simply to emphasise that one of the most severe problems faced by Indonesia
today is the high level of corruption. If officials responsible for implementing the
accounting process must spend a great deal of their time trying to estimate the
value of all assets already owned by government bodies including things as
diverse as roads and railways, dams and drainage systems, parks and garbage
dumps they will have correspondingly less time to deal with this more urgent
priority.
Setting of priorities is of course one of the important functions of management in
any field. In the present context, one of the unhappy realities is the fact that
accounting was given so little attention during the three decades under Suharto
that the bureaucracy emerged from this period with desperately few qualified
accountants relative to the enormity of the task of properly recording and
reporting the financial aspects of public sector activity. The lack of accounting
skills throughout government in Indonesia is perhaps the greatest obstacle to
public sector accounting reform, and this is not something that should have
escaped the attention of those who introduced these reforms. Requiring all
government bodies suddenly to start producing financial reports based on
sophisticated accrual accounting techniques seems akin to expecting a baby to
perform ballet before it has even learned to walk.
Our case studies strongly suggest that the design of public sector accounting
reform has placed too much emphasis on the nature and content of reports to be
produced by government entities relative to issues of implementation. The
reforms implicitly call for tens of thousands of unnecessarily sophisticated
reports to be produced and audited each semester, whereas the number of
qualified accountants available to all levels of the bureaucracy combined seems
to be of the order of hundreds, or possibly even less. If the objectives of reform
are to be achieved, then, there would appear to be only three conceivable means
of doing so. First, large numbers of current civil servants could be given crash
courses in the basic essentials of accountancy. Second, large parts of the
accounting function could be outsourced to private sector firms specialising in
accounting. Third, large numbers of qualified and experienced accountants could
be recruited from outside the civil service and placed in appropriately high-level
positions.
The first approach is not out of the question, provided it is implemented sensibly.
A crash course lasting for a few weeks is no substitute for a bachelors
MCLEOD AND HARUN
degree in accountancy requiring five years of university study. If this approach is
adopted, therefore, it will be important to design simple, standardised
accounting systems and software at the central level to be applied at all levels of
government, users of which would require relatively little training since they
would only be required to undertake straightforward electronic data entry tasks
The second approach also has some merit, in the sense that, if policy-making
inertia in relation to personnel recruitment, redeployment and promotion
precludes the internal reforms that would enable the bureaucracy to prepare its
own accounting reports, at least those reports would be prepared to adequate
standards if this work were farmed out to reputable accounting firms. Indeed,
this was the approach initially followed in Australia, when it faced the same
problem of a lack of accountants with sufficient experience to be able to
implement accrual accounting. However, the evidence so far suggests that this
has not always been the case. Individual accountants with no great reputation to
protect have often been given this work on a one-off basis, resulting in poor
quality reports that do not meet the standards required by the auditor. In
addition, there has been little continuity, such that the learning process needs to
be repeated in each successive accounting period.
The third approach seems capable, in principle, of allowing Indonesia to make
more rapid progress with public sector accounting reform, but in the absence of
very strong support from the highest level of government it is unlikely to be
implemented. For the time being any movement in this direction remains
stymied because it requires not only that the existing, long-established
recruitment and promotion practices be overturned, but also the implementation
of huge increases in salaries to match those available in the private sector. Over
the last few years there have been some highly circumscribed attempts (pilot
projects) to undertake reform of these aspects of personnel management, but
there remains a reluctance to extend these to the bureaucracy as a whole
(Harun, 2007). One possibility would be to conduct a different kind of pilot
project, where the focus would be on a specific profession accountancy
rather than a specific part of the bureaucracy. This would involve recognising
accountancy positions as functional ones (i.e., to be filled only by qualified
accountants) and remunerating these positions at levels similar to private sector
pay scales.7 Failing this, it would be highly desirable for MENPAN to at least
relinquish its control over human resource management policy at sub-national
government level more generally than it has done hitherto.
CONCLUSION
The collapse of the Suharto regime in 1998 provided an opportunity for
Indonesias Ministry of Finance and Supreme Audit Agency to promote the
adoption of private sector-style accounting and auditing in the public sector. Our
observations of the experience of three local governments in moving to
LOCAL GOVERNMENT ACCOUNTING IN INDONESIA
implement the new accounting system suggests that these reforms have been
seriously hindered by the lack of staff with the required accounting skills and
that this problem has been made worse by the insistence on continuing to
prepare old-style cash-based reports alongside the new accrual-based reports,
and by MOHAs insistence on imposing its own, much more complex, chart of
accounts for reporting to itself. As a consequence, the level of compliance of
local government reports with the SAP has been low, and little use has been
made of accrual-based reports for decision making and other management
purposes, or for holding governments to account for their financial performance
The key contribution of this study is therefore a further exemplification of the
dangers inherent in rushing to copy public sector financial management
techniques from quite different country contexts, especially when there are
significant differences of opinion as to the appropriate design of these reforms
and even the need for them among the influential policy-making agencies. In
particular, the study illustrates the crucial importance of ensuring that the
conditions necessary to support the implementation of reforms such as this are
met in advance of their introduction or of prioritising less ambitious reforms to
begin with if they are not. Public sector accounting reform is certainly highly
desirable in Indonesia, but it is naive to imagine that much can be achieved in
the absence of complementary reform of existing human resource management
practices, and if the widely divergent approaches of MOF and BPK, on the one
hand, and MOHA, on the other, cannot be resolved satisfactorily.
NOTES
1 Prior to the reforms, the entire financial information and accountability reports
were . . . based on the single-entry recording method and administered in
fragmented cash-based bookkeeping systems (Manao, 2008, p. 1).
2 Indonesian public sector accounting covers three areas: the central
government; regional governments; and non-profit organisations owned by the
government, such as schools and hospitals. State owned-companies use the
private sectors Statement of Financial Accounting Standards to prepare and
present their financial statements (Harun, 2007, p. 366).
3 Even if an unqualified opinion is issued, it is possible for the auditor to also
issue a Letter of Improvement (Surat Perbaikan) to mention minor issues, areas
of potential risk, etc. This document is used to prepare the future audit program
of the entity in question.
4 To make matters worse, transferring staff between departments, not to
mention between different levels of government, is extremely difficult.
5 For an extended critique of the MOHA position see Telaah Kritis Permendagri
No. 13/2006, dan Implementasinya di Daerah [A Critical Analysis of Home Affairs
Ministry Regulation 13/2006 and its Implementation in the Regions], Tribun
Timur, 23 March, 2007).
6 Thus the statement in Law 17/2003 that one of its objectives is to inform
taxpayers and users of public sector services regarding the effectiveness and
efficiency of public sector agencies operations is unrealistic.