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Analysis of Regional Financial Information Systems As A Media of

Regional Financial Management Transparency In Indonesia
To cite this article: S Suryanto 2019 IOP Conf. Ser.: Mater. Sci. Eng. 662 022080

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INCITEST 2019 IOP Publishing
IOP Conf. Series: Materials Science and Engineering 662 (2019) 022080 doi:10.1088/1757-899X/662/2/022080

Analysis of Regional Financial Information Systems As A

Media of Regional Financial Management Transparency In
Indonesia

S Suryanto
Department of Business Administration, Universitas Padjadjaran, Indonesia

email: [email protected]

Abstract. This study aims to analyze the transparency of local financial management as an
effort to improve and accountability of regional financial information systems in Indonesia.
The research method used the qualitative approach. The technique of collecting data using
literature study and documentation. As for testing the validity of data using data triangulation.
While the data analysis techniques used are the intensive analysis of the data that has been
obtained with steps of data collection, data reduction, data classification, data presentation, and
conclusion. The results show that the management of local finance in Indonesia has
experienced a thorough correction of its management system. In general, local governments
have applied transparency and accountability in financial management. However, in terms of
accounting recording is still required the existence of coaching and further training, because it
is not fully in accordance with the provisions. Regional Financial Information System (RFIS)
is an information technology-based system that can provide information to the public regarding
the accountability of Local Government in carrying out its duties, especially in the
management of local finances. RFIS is one form of government transparency in local financial
management.

1. Introduction
Regional Financial Information System is a series of procedures starting from the process of collecting
data, recording, summarizing, to financial reporting that can be done manually or using computer
applications [1]. In accordance with Government Regulation Number 105 of 2001, regional
governments have the authority to establish systems and procedures for regional financial management
in the form of Regional Regulations. The system is very necessary for fulfilling the obligations of the
regional government in making the financial accountability report of the region concerned. However,
what needs to be considered at the time of system development is an understanding of user needs [2],
because user satisfaction is one of the important factors to measure the success or effectiveness of
information systems [3].
The quality of good local governance is not only determined by accountability, transparency,
community participation and the rule of law [4]. However, good quality of governance is also
determined by other factors such as responsiveness, consensus orientation, equity-efficiency, and
strategic vision. This is in accordance with the characteristics of the implementation of government as
expected by UNDP and the World Bank. In institutional reform, financial institutions have important
consequences for the performance of government spending, both in terms of expenditure levels,
expenditure composition, and deficit rates. This shows that appropriate institutional design can help

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IOP Conf. Series: Materials Science and Engineering 662 (2019) 022080 doi:10.1088/1757-899X/662/2/022080

reduce problems, the divergence between public preferences and what the public sector providers, as
well as fiscal waste [5].
One of the performances of the local government is shown in the presentation of local government
financial statements [6]. In fact, the mechanism of regional financial accountability does not work
well, especially for the community. Accountability and transparency of local government financial
reports are not well understood by the public as a user. Most people do not have sufficient knowledge
about government activities in financial management, regional assets, and accounting [7]. Therefore,
at the time of preparation of financial statements must be prepared by personnel who have
competencies in the area of regional financial management and accounting systems [8].
The Regional Financial Information System is rationally needed in the provision of comprehensive
regional financial information to the wider community as well as the basis for officials of fiscal
policymakers in making decisions [9]. This is a form of local government responsible for all
development outcomes in accordance with Law No. 14 of 2008 and Government Regulation No. 61 of
2010. Local governments need to optimize the use of information technology advancements to build
network information systems and work processes [10]. This allows regional governments to work in
an integrated manner by simplifying access between work units so that they can improve their
capability in financial management.
The use of information technology will greatly help accelerate the processing of transaction data
and presentation of government financial reports so that the financial statements do not lose the value
of information [11]. Measuring the success or effectiveness of local government SIKD is very
important. This is to provide an understanding of management actions regarding the value and
investment of information systems to be able to support managerial decision making and the
implementation of various regulations related to regional financial management.
In carrying out its duties, the Regional Government is obliged to manage regional finances in
accordance with their needs to improve facilities and infrastructure in the area. But in reality,
according to the results of research by several local governments, they abuse their power in managing
regional finances for their interests [12]. The impact of the abuse of power is the slow pace of
regional development due to reduced regional budgets and diminishing public trust in the government.
To oversee regional financial management, an application is needed that can inform the public
about regional financial management [13]. However, although there is the use of information system
technology, does not effect on the quality of financial management [14]. Therefore, the key to
financial management is the competence of its human resources. The results of the study are in line
with other studies which show that out of the 524 regional governments, 68.89% of the local
governments have used financial information systems, and the remaining 31.11% have not been
known for certain systems used in regional financial management [15]. However, even though as large
as using financial information systems, the quality of financial reports produced is far from being an
element of transparency.

2. Research Method
This study uses a qualitative approach by analyzing the transparency of local financial management as
an effort to improve and accountability of regional financial information system in Indonesia. With the
qualitative research design, the author will analyze the actual state of transparency in the financial
management of local governments as an effort to improve and account for information systems.
Sources of data were obtained from literature study studies relating to the object under study. Data
analysis is done by triangulation of source and data type. Interpretation is done refers to the theory, the
results of previous research, the opinions of experts, and the sharpness of the researcher's thinking.

3. Result and Discussion

3.1. Regional Financial Management
To improve transparency and accountability of local financial management, the central government
has made a thorough correction of the local financial system. The first correction is to integrate local

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IOP Conf. Series: Materials Science and Engineering 662 (2019) 022080 doi:10.1088/1757-899X/662/2/022080

budgets by eliminating the distinction between routine budgets and development budgets. The budget
year is now revised in accordance with the calendar year from the previous ending on March 31.
Regional financial administration and accountability are fundamentally changed. The type and
format of local financial statements now enforce a paired bookkeeping system, using a computerized
integrated accounting system. The second correction was to socialize Government Accounting
Standards (GAS) on June 13, 2005. This GAS was the first issued by the government after sixty years
of the Republic of Indonesia was established. The third correction is by issuing Law no. 15 of 2006
which restores the independence and independence of the Supreme Audit Board and at the same time
expands its examination object.
Later in the Law of the Republic of Indonesia, Number 32 the Year 2004 on Regional Government
requires several improvements in the management of regional finances, especially in aspects of
budgeting, accounting, and examination. The series of changes leads to the management of regional
finances based on the concept of money follow function, which is economical, effective, efficient,
transparent and accountable for the financial management implemented in a performance-based
budgeting system. The concept itself contains three elements that must be done by the local
government in carrying out its public service functions, namely; can economically minimize the input
resources used, efficiency achieve optimal results with minimal cost (output/input) and effectiveness
to achieve the set target (outcome/output).
Based on budgeting in accordance with local financial capacity, directed and managed based on the
authorization function as a basis for carrying out revenues and expenditures for the year. The functions
include: (1) The function of planning, as a guide for management in planning activities in the year
concerned; (2) The function of supervision, a guide to assess whether the implementation of local
government activities in accordance with the stipulated provisions; (3) Allocation Functions, directing
local budgets to create jobs, reducing unemployment and wasting resources, and improving economic
efficiency and effectiveness; (4) Distribution function, ie the regional budget policy should pay
attention to the sense of justice and properness; and (4) Stabilization Function, a tool to maintain and
strive for a fundamental balance of the regional economy.
The preparation of regional budgets and expenditures shall be based several of budgetary norms
and principles as guidelines and terms of reference in the preparation. A number of these norms and
principles, including transparency and accountability of local budgets, budget discipline, budgetary
justice, efficiency and budget effectiveness [16].
Public accountability demands local governments not only to do vertical reporting but more
importantly to do horizontal reporting as a form of public accountability, covering some basic matters,
namely the accountability of local regulations, process accountability, program accountability and
policy accountability.
The regional accountability is related to the guarantee of compliance with other laws and
regulations in the use of public resources. Accountability processes associated with the procedures
used have provided fast, responsive and low-cost public services. Program accountability relates to the
consideration of whether the objectives set are flexible and realistic, where the local government has
considered alternative programs that can provide optimal results with minimal cost. Policy
accountability relates to government accountability to political policies adopted by governments and
legislatures.
Starting from the norms and principles of the budget, the budget policy in terms of income,
expenditure, and financing to pay attention to the following matters:
(1). The budgetary fiscal gap in the form of deficit/surplus between income and expenditure.
The magnitude of the deficit is allowed as long as it remains below the threshold limit, which is
permitted by legislation. The budget deficit contributes to the regional inflation rate.
(2). Local budget allocations illustrate the comparison between apparatus and public expenditure with
direct expenditure and indirect spending.
This comparison is an indicator to measure the alignment of local government budgets to the
interests of community services. Indirect spending consists of personnel expenditures, revenue-

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IOP Conf. Series: Materials Science and Engineering 662 (2019) 022080 doi:10.1088/1757-899X/662/2/022080

sharing, social assistance spending, financial aid expenditures and unexpected expenditures. While
direct expenditure consists of personnel expenditure, goods/services expenditures and capital
expenditures which are used to finance the implementation of government affairs which become
the authority of the district.

3.2. Transparency and Public Accountability

Transparency and public accountability are one of the key requirements to create a good, clean and
responsible government. Transparency and accountability are also instrumental in evaluating the
achievement of local government performance and responsibility in the prosperity of the people.
Therefore, the Regional Revenue and Expenditure budget should be able to provide clear information
about the objectives, targets, and benefits the community derives from an activity or budgeted.
The phenomenon that occurs in the development of the public sector in Indonesia today is the
strengthening of accountability demands for public institutions, both at central and regional levels.
Accountability can be interpreted as a form of obligation to account for the success or failure of
organizational mission implementation in achieving predetermined goals and targets, through a
periodic accountability media [17].
Basically, accountability is the provision of information and disclosure of financial activity and
performance to interested parties [18]. Governments, both central and local, should be subject to the
information given in the context of the fulfillment of public rights, namely the right to know, the right
to be informed, and the right to be heard of his aspirations.
The dimensions of public accountability include legal accountability and honesty, managerial
accountability, program accountability, policy accountability, and financial accountability. Managerial
accountability is the most important part of creating the credibility of local government management.
The non-fulfillment of the principle of accountability can have widespread implications. If the
community views the local government as unacceptable, the community may demand a change of
government, the replacement of officials, and so forth. Low levels of accountability also increase the
risk of investing and reduce the ability to compete and perform efficiencies.
Management is responsible for the community because the funds used in the provision of services
come directly from the community, or indirectly. The pattern of accountability of local governments is
now more horizontal, in which local governments are accountable both to the Regional Parliament and
to the wider community. However, in reality, most local governments are more concerned with
accountability to the Regional Parliament than the wider community [19].
Governmental Accounting Standards Board in Concepts Statement No. 1 on Objectives of
Financial Reporting states that accountability is the basis of financial reporting in government based
on the right of the community to know and accept explanations for the collection of resources and
their use [20]. The statement shows that accountability allows the public to assess government
accountability for all activities undertaken. Concepts Statement No. 1 stressed also that government
financial reports should be able to assist users in economic, social, and political decision making. It is
then able to compare actual financial performance with the budgeted, assess the financial condition
and results of operations, help to determine the level of compliance with laws and regulations related
to financial issues and other provisions, and assist in evaluating the level of efficiency and
effectiveness.
The preparation of financial statements is a form of transparency requirement which is a supporting
condition of accountability in the form of government openness to public resource management
activities. Transparency of information, especially financial and fiscal information, should be done in a
relevant and easily understood form [18]. Transparency can be done if there is clarity of duties and
authority, the availability of information to the public, an open budgeting process, and an independent
party's integrity guarantee on fiscal forecasts, information and its elaboration. At present, the
Government already has Government Accounting Standards which are the accounting principles
applied in preparing and presenting the financial statements (Government Regulation No. 24 of 2005).

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IOP Conf. Series: Materials Science and Engineering 662 (2019) 022080 doi:10.1088/1757-899X/662/2/022080

3.3. Transparency as an Improvement of Regional Financial Information System

The weaknesses in the local financial system in Indonesia have been in effect for a long time. These
weaknesses include the design and implementation of internal control systems, non-compliance with
statutory regulations, irregular state financial storage, lack of information about state assets and debts,
and disclosure of more budgetary remainder.
Local governments usually do not report accurate and timely local financial position. Therefore, the
people and the Regional Parliament cannot effectively use the budgetary rights. The people and the
local parliament do not know exactly how much the local budget is, the spending structure and its use.
Information about the contingencies of state revenue and expenditure is unknown because it is not
disclosed by the local government in its revenue and expenditure budget. Such a bad system is not
informative to know the local financial position so it can not be used as a basis for decision-makers
and to anticipate the future.
One of the main pillars of regional autonomy is the regional authority to manage independently the
regional finances. In managing regional finance, local governments need to pay attention to the
principles of state financial management, especially the transparent principle [21].
The transparent principle is the principle that open to the right of the people to obtain correct,
honest and non-discriminatory information about the implementation of local government while still
paying attention to the protection of private rights, class, and the secret of local government.
But in reality, the principle of transparency has not been fully able to guarantee the public to obtain
information on what policies are taken by the local government. The lack of transparency has led to
widespread local government abuses its power, especially in the management of local finance. To
minimize the increasingly widespread local government that abuse its power, through Law Number 33
the Year 2004 on Financial Balance between Central Government and Local Government mandates
the support of a system to support the formulation of national fiscal policy and increase transparency
and accountability in regional development.
Given the mandate of the law on the financial balance between the central government and local
governments, a government regulation on the integrated application can be made available to inform
the public about the management of regional finance called the Regional Financial Management
Information System (RFMIS).
According to Article 1 paragraph (15) of the Government Regulation of the Republic of Indonesia
Number 65 Year 2010 concerning Amendment to Government Regulation Number 56 Year 2005
concerning Regional Financial Information System, what is meant by RFMIS is a system that
documents, administers and processes local financial management data and other relevant data into
information presented to the community and as a decision-making material in the framework of
planning, implementing and reporting local government accountability.
As meant in Article 12 letter e of the Government Regulation, the government is obliged to present
the Regional Finance Information openly to the public. by presenting the report to the public through
information technology-based systems, the community will be able to know the work of Local
Government, especially in managing local finance.
The advantages of RFMIS is to facilitate the public to obtain information about the performance of
local government in the management of state finances. This, of course, can help the community in
overseeing the performance of Local Government to be better. In addition, the RFMIS can facilitate
the Central Government to examine all reports of accountability made by the Regional Government.

4. Conclusion
Regional financial management in Indonesia has undergone a complete overhaul of its management
system. These improvements include (1) Structure, format, and financial reporting period; (2)
Accounting policies adopted by the enactment of government accounting standards, and (3) Providing
the freedom and independence of the Supreme Audit Agency while expanding the object of its
examination. Transparency and accountability of local government have been realized by delivering
financial reports appropriately in accordance with the laws and regulations. Regional financial

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IOP Conf. Series: Materials Science and Engineering 662 (2019) 022080 doi:10.1088/1757-899X/662/2/022080

information systems have been widely applied by each local government. With the information
technology-based regional financial information system, the community will easily access the
performance of the Regional Government both in terms of successes and failures in regional financial
management. However, budget leaks still occur in some local governments because they have not been
in accordance with the provisions.

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