Wed, 07 Oct 2009
From: The Jakarta Globe
By Harun
In a democratic nation, transparent financial reporting is a crucial tool for citizens to use in monitoring the way the government spends their money.

The Indonesian government, however, is regularly criticized for the low quality of its financial reports and the lack of competency within its bureaucracy.

In Singapore, South Korea and Hong Kong, the quality of government financial statements indicate overall management practices in their relatively healthy economies. States collect and control large amounts of resources and their efficient use helps drive their economies. In countries with low corruption indexes, such as New Zealand, the quality of government financial reports reflects the level of financial management and overall operations of hospitals, police and other public institutions.

In the aftermath of Suharto’s New Order regime, administrations that succeeded it have tried to implement legal and administrative reforms to enhance accountability and transparency.

However, after nearly a decade of reforms, the results have been disappointing. What is most disappointing is that the law enforcement institutions - the Supreme Court, the National Police and the Attorney General’s Office - are among the worst offenders.

At the local government level the process is constrained by the lack of experienced accountants. Most local governments are failing to produce satisfactory financial statements.

In 2007 and 2008, for example, 25 percent of all local government reports were issued with disclaimers, indicating that they were so deficient in their preparation that the auditor was simply unable to determine whether they were an accurate record of the government’s operations and financial position.

The lack of accounting expertise at the local level is also is indicated by the failure of local governments to present the required budget-realization reports on deadline.

According to a 2008 BPK report, only 59 percent of 469 local governments produced their financial reports for 2007 on time. Seven percent failed to submit them at all.

Although reforms in financial reporting are also aimed at enhancing public sector efficiency, the lack of expertise within the civil service typically results in the reports being outsourced to consultants or accounting firms, at a considerable cost to the local administrations.

This lack of professional expertise among public servants at the national and local levels and, importantly, the lack of a comprehensive strategy to alleviate the problem, is one of the primary reasons governments fail to present better financial reports.

This lack of professionalism at the local level can be attributed to the old-fashioned human resource management system still in use at all levels of government.

This system effectively prevents the recruitment of qualified and experienced accountants from the private sector.

By contrast, Australia’s and New Zealand’s success in providing better financial reports was facilitated by competitive human resource management in the public sector.

Unfortunately for Indonesia, the State Ministry for Administrative Reform is clinging to its control over the recruitment process at the local-government level.

Likewise, the Home Ministry continues to assert control over local governments by requiring them to submit financial reports in a format different than that required by the 2005 government regulation.

As a consequence, local governments are obliged to implement two conflicting regulations on reporting.

These observations clearly indicate inconsistency within the central government’s approach to decentralization. It loads significant additional responsibilities on local governments, but it fails to provide them with sufficient autonomy to allow them to implement these additional responsibilities as they see fit. The end result is a failure to a make public sector organizations at local government level more transparent and accountable.

Harun is a doctoral candidate at the Waikato Management School at the University of Waikato in New Zealand.



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