Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? (ICOPSA 2019) 9780367422523, 9780367822965

Citation preview

PUBLIC SECTOR ACCOUNTANTS

AND QUANTUM LEAP: HOW FAR

WE CAN SURVIVE IN

INDUSTRIAL REVOLUTION 4.0?

Edited by

Akhmad Solikin, Yuniarto Hadiwibowo, Benny Setiawan,

Amrie Firmansyah and Hendrati Dwi Mulyaningsih

PUBLIC SECTOR ACCOUNTANTS AND QUANTUM LEAP: HOW FAR WE CAN SURVIVE IN INDUSTRIAL REVOLUTION 4.0?

PROCEEDINGS OF THE 1ST INTERNATIONAL CONFERENCE ON PUBLIC SECTOR ACCOUNTING (ICOPSA 2019), OCTOBER 29-30, 2019, JAKARTA, INDONESIA

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Edited by Akhmad Solikin, Yuniarto Hadiwibowo, Benny Setiawan, Amrie Firmansyah & Hendrati Dwi Mulyaningsih Polytechnic of State Finance STAN, Indonesia

Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 Taylor & Francis Group, London, UK Typeset by Integra Software Services Pvt. Ltd., Pondicherry, India All rights reserved. No part of this publication or the information contained herein may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, by photocopying, recording or otherwise, without written prior permission from the publisher. Although all care is taken to ensure integrity and the quality of this publication and the information herein, no responsibility is assumed by the publishers nor the author for any damage to the property or persons as a result of operation or use of this publication and/or the information contained herein. Library of Congress Cataloging-in-Publication Data Applied for Published by: CRC Press/Balkema Schipholweg 107C, 2316XC Leiden, The Netherlands e-mail: [email protected] www.routledge.com – www.taylorandfrancis.com ISBN: 978-0-367-42252-3 (Hbk) ISBN: 978-0-367-82296-5 (eBook) DOI: 10.1201/9780367822965 https://doi.org/10.1201/9780367822965

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Table of contents

Preface

xi

Organizing committee

xiii

Scientific review committee

xv

Open innovation in the public sector: Barriers and future perspectives G. Rexhepi The effect of audit quality and self-assessment corporate governance mechanism on banking earning management in Indonesia H.S. Wong & I.A.J. Siwi

1

7

The effect of central government spending on economic function to investment in Indonesia D.P. Sandria & A. Dinarjito

12

Feasibility of financing higher education in Indonesia D.S.B. Bakroh & B. Mulyana

17

Government guarantee probability of default for infrastructure project in Indonesia: A Monte Carlo analysis E.N. Surachman & R. Mahendra

22

Learning impact measurement by linking competency gap to performance in the public sector (case study: MoF, Indonesia) D.S.B. Bakroh & Kusmono

26

The efficiency of the government’s health spending: A case study of Papua Province, Indonesia in 2016 F.F. Qomarayanti & A. Solikin

30

Regional economic analysis of Banten Province from 2011–2016 I. Nur, B. Susilo & M. Prabowo

34

Analysis of factors affecting the construction service procurements performance in Indonesia M.H. Akhmadi & R. Febrian

40

Financial issues in Indonesia’s National Health Insurance program D. Asyrofi & I.G.A. Ariutama

44

Analysis of government office space planning on organizational productivity (Case study at the Jakarta Pesanggrahan Tax Service Office) F.H. Fajriyani & Trisulo

49

Financial distress in local governments in Indonesia C. Cheisviyanny, F.I. Arza, H. Agustin & H. Fitra

53

Valuation of standard chartered tower in Indonesia (income approach) D. Triono

58

v

The implementation of Micro, Small, and Medium Enterprises accounting in Indonesia A. Firmansyah, A. Arham & A.M.E. Nor

64

Public budgetary roles in Iran: Perceptions and consequences F.J. Aliabadi, G. Gal & B. Mashayekhi

71

Corporate Governance and earnings quality of ASEAN nonfinancial industries R. Mawaddati, E. Setiany, Z. Arifin & W. Utami

75

Effects of risk-based internal audit implementation, competence of government’s internal auditors, auditors’ independence and auditors’ ability to detect fraud J. Sisco, E. Setiany & H. Setiyawati The effects of competency and the implementation of good government governance principles on financial statements quality: Study in the Ministry of Marine Affairs and Fisheries of the Republic of Indonesia S. Srianto, E. Setiany & H. Setiyawati

79

84

The good corporate governance mechanism and earnings management: Evidence from Indonesian and Malaysian manufacturing companies W. Wahyudi, E. Setiany & W. Utami

89

Emancipating Homo Pancasilaus principles for resolving obfuscation in designing residency provision policy R.A. Qadri, E. Gunawan & A. Zikrullah

95

Contingent liabilities from government guarantee on SOE’s assignment: Issues and practice from the Fast Track Program Phase 1 D. Handayani & A.A. Damayanti

100

Conceptual framework for blended financing scheme: Public–private partnership and Indonesia sovereign sukuk D. Handayani & E.N. Surachman

105

Potential of Sharia finance in financing a budget deficit by adopting an electronic money transaction scheme in Indonesia R.H. Pratama, H.N. Azizah, N.F. Kuswendah & O.E. Putri

110

Impact of village funds on asset improvement using a sustainable livelihood impact assessment method: Case study of Waru Jaya Village R.H. Pratama, M.I. Syahroni, I. Maulana & F. Azzahra

115

Determinants of financial statements quality of central government institutions: Evidence from Indonesia F. Fachriyandana & P. Wibowo

119

Impact analysis of raw rattan export prohibition M.A. Nurcahyo

124

Morality in upholding tax law Kusmono & S. Zulvina

129

Benford’s law users, beware! An assessment of the suitability of Benford’s law in Value-Added Tax fraud detection in Indonesia K.A. Prasetyo

133

Accountability of village fund management in fiscal year 2017 in Sembawa District, Banyuasin Regency R. Salsabila, H. Burhanuddin & U. Kalsum

138

vi

Paper foreign subsidiaries in the consolidated financial report: Indonesian tax perspective Asqolani

144

The roles of a forensic accountant to assist uncovering a corruption case: Experiences from Indonesia Sopian

149

Indonesia’s anti-corruption policy in a public finance security framework Subagio & A. Solikin

154

Effect of government debt (external debt stock, internal debt, and debt servicing) on economic growth (Case study: Indonesia 2000-2015) R. Yasni & I. Mufti

159

The current state of customer-focused application of Artificial Intelligence in accounting and financial services R. Wibawa & B. Wibawa

164

Public accountability under neoliberal domination: The case of Kulon Progo B. Setiono & A. Barkah

169

The importance of clarity on tax object definition: A case study of tax court decisions on income from building Marsono & H.S. Muamarah

174

Exploring the tax officers’ acceptance of geotagging using the UTAUT model: Study in Indonesia L. Kurniawati & A.F. Rusthadi

179

Modeling and projections of cash and investment in the public health service agency of Kulon Progo using ARIMA in 2030 H.O. Siregar & F.A. Fajri

184

An analysis of the effect of fiscal incentives and IFRS adoption on FDI in Asian developing countries Y. Riyanto Eka & R. Nugroho

189

Appropriate tax policy for health public service agency: A case study in Indonesia J. Sumantri & B. Mulyana

194

Analysis of determinants of success in land acquisition for Central Java power plant public-private partnership project (2 x 1000 MW) M. Suhendra & O. Safitri

199

Analysis of audit tenure limitation policy for public accounting firms in Indonesia E. Suharly & A. Nugroho

206

Application of government regulation number 23 of 2018 and compliance of MSME taxpayers A. Bandiyono & M.A. Khosyi

211

The efficacy of joining Asia Region Funds Passport: Taxation challenges in Indonesia B.G. Ardiansyah & V. Apriliasari

216

Exploring the importance and implementation of COBIT processes in the Inspectorate General of the Ministry of Finance in Indonesia A.S. Marsudi & Y.B. Dionisius

220

XBRL financial statement and corporate tax return: A value-chain Febrian & Supriyadi

226

vii

Government financial data analytics: An Indonesian perspective Febrian & A. Darono

231

The effect of business strategy on tax avoidance in Indonesia’s consumer goods industry P. Aryotama & A. Firmansyah

235

Analysis of Earnings Response Coefficient (ERC) for disclosure of assets and liabilities for tax amnesty: Case study of listed companies in Indonesia D. Purwanti, N. Iswanti & I. Indrawati

240

Corporate earnings management post-implementation of thin capitalization rule in Indonesia D. Purwanti & A. Saputra

245

Determinants of aggressiveness of transfer pricing: Empirical study in foreign capital investment companies in the chemical and processing industry in Indonesia D. Purwanti & A.A. Widyanti

250

Ethics and tax evasion: Is it ethical not to pay taxes in a corrupt country? D. Purwanti & N. Nurhidayati

255

Analysis of the public services agency as an alternative form other than village-owned enterprises S. Wijaya, E.Y.P. Adi & W.N. Azizah

260

Value Added Tax analysis of merchandise sales in political activities (case study society of friends ABC) S. Wijaya, A.O.B. Deceng, A. Suardani & A.K. Sinaga

265

Differences in level of compliance between audited tax payers and their unaudited counterparts in the real estate business sector of Indonesia P. Nauli & Kodirin

270

Fifteen years of public service agency in Indonesia: Developments and problems P. Djunedi & J. Sumantri

275

Fiscal risk of provinces, municipalities, and districts in Indonesia Mas’udin & H. Sugiyanto

281

Measuring possibilities of full self-assessment system implementation in land and building tax: Evidence from Indonesia A. Lukas & H.S. Muamarah

286

Effects of ICT adoption on small and medium enterprise establishments: Evidence from Indonesia’s provincial data A. Solikin & Subagio

291

The effect of central government spending on public services, defense, health, education, economic, and social protection functions on economic growth A. Dinarjto & A.W. Kusumaningtyas

296

State asset managers’ understanding on basic principles of accrual-based government accounting on state assets: Central government of Indonesia current position I. Puspitarini & D. Handayani

302

A proposal to amend ECI taxation in Indonesia A.R. Kuncoro & N.S. Devie

308

Wet place, play, and color: Exploring metaphors in explaining corruption G.A.I. Ratnasari

313

viii

Using commitment, mapping, and innovation as drivers of success in the management of village-owned enterprises (BUMDesa): A case study of BUMDesa Tirta Mandiri, Ponggok Village, Polanharjo District, Klaten Regency, Central Java Province A. Priharjanto, A.P. Hamzah, F. Usman & N. Andriana

319

Analysis of how local leaders’ characteristics influence local government’s performance in Indonesia A. Priharjanto, F.I.W. Niansyah, Y.H. Wibowo & N. Andriana

324

Strengthening coordination among government agencies in a bid to fight against the smuggling of narcotics and psycothropics at the cross-border areas of Indonesia A. Firdiansyah & J. Sumantri

329

What’s wrong with performance-based budgeting implementation in Indonesia? S. Marsus

334

The impact of changes in accounting standards on financial statement: A case study of a state-owned company Asqolani

339

Analysis of financial ratios for businesses owned by state construction sectors that are registered on Indonesian stock exchange from 2016-2018 F.R. Mahendra & R. Kusumawati

344

Theory of constraints: Public sector services for treasury documents R. Gutomo & A.T. Biswan

348

Analysis of the effect of state equity participation and divestment on government’s share of income on profits from state-owned enterprises: Evidence from Indonesia R.D. Handaka & I. Akbar

353

Analysis of the effects of tax aggressiveness on corporate debt maturity structure: Evidence from Indonesia R.D. Handaka & F.A. Darma

358

Analysis of the influence of cash liquidity on corporate tax avoidance (Empirical study on non-financial and non-insurance companies listed in Indonesia stock exchange) R.D. Handaka & Y. Medriansyah

363

Improving e-commerce tax voluntary compliance behavior: An integrated behavioral model approach A.H. Saputra

367

Effectiveness of UKI (Internal Compliance Unit)’s monitoring activities on the preparation of LK-BUN (state’s general treasurer financial reports) in the Ministry of Finance S. Prabowo

371

Evaluating the place of women empowerment in eradicating poverty in Indonesia: A study of the world bank data set (1990–2010) N.F. Liyana

376

The implementation of single identity number in a bid to integrate the existing identity numbers in Indonesia N.A. Nugraha

381

The effect of audit rate on taxpayers compliance in Indonesia S.P. Sari & A. Nugrahanto

386

Tax audit and compliance of Indonesian individual taxpayers A. Nugrahanto & D.A. Cahyono

391

Author index

397

ix

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Preface

Dear Authors, esteemed Readers, It is my great pleasure to write this Foreword to the Proceedings of the ICOPSA 1st Inter­ national Public Sector Accounting Conference, held in Tangerang Selatan, Indonesia, October 29, 2019. ICOPSA started a new tradition in Polytechnic of State Finance STAN and in Indonesia of bringing together researchers, academics and professionals from all over the world, as well as experts in public sector accounting. The conference particularly encouraged the interaction of mostly practitioners and some aca­ demics with the developing academic community in public sector issues to present and to dis­ cuss their current works. Their contributions helped to make the Conference as fruitful as expected. The papers contributed the most recent scientific knowledge known in the field of Government Accounting, Financial Accounting, Accountability and Integrity, Accounting Information System, Auditing and Assurance, Corporate Sustainability, Public and Corporate Finance, Forensic Accounting, Management Accounting, Public and Corporate Governance, Public Sector Accounting, Taxation and Customs, and Open Innovation in Public Sector. This profound conference is celebrated by the opening speech from Head of Finance Educa­ tion and Training Agency, Ministry of Finance, Mr. Rionald Silaban, who elaborated the theme of conference of Public Sector Accountants and Global Quantum Leap. In addition to the contributed papers, five invited keynote presentations were given by Gadaf Rexhepi, PhD. of South East European University, who spoke about open innovation in public: barriers and future perspectives, Professor Rahat Munir of Macquarie University Australia, who spoke about public sector efficiency, transparency and accountability, Prof. Dr.Ruhaya Atan of Universiti Teknologi MARA Malaysia, who spoke about Accounting Profession and Industry 4.0, A/Professor Hadrian Djajadikerta, PhD. of Edith Cowan University Australia who spoke about disruptive technologies: The changing landscape in the public sector governance, and Mr. Manish Gidwani of Association of Chartered Certified Accountants Indonesia who spoke about The Role of Accountants in the era of globalization – Competencies in 4.0. These Proceedings will enrich the academic environment with the latest developments in public sector research. I believe that this will be a pathway to collaborate with other researchers from various disciplines and various parts of the world. We thank all authors and participants for their contributions. Yuniarto Hadiwibowo Conference Chair

xi

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Organizing committee

Conference Chair Yuniarto Hadiwibowo, Ph.D. Co-Conference Chair Dr. Hendrati Dwi Mulyaningsih Organizing Committee Puji Wibowo, Ak., MIDEC, CA.

Raynal Yasni, S.S.T., Ak., M.A., M.Ec.Dev., CA.

Maman Suhendra, S.S.T., Ak., M.P.P.

Akhmad Priharjanto, S.E., M.Si.

Azas Mabrur, Ak, M.Ak.

Pujo Hariyanto

Amik Yuniyanti

Conference Coordinator Santi Rahmawati, MSM Ani Wahyu Rachmawati, MSM Conference Support Rifi Wijayanti Dual Arifin, MSM Astri Amanda, MBA Diah Kusumastuti, MT Information and Technology Support by Scholarvein Team

xiii

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Scientific review committee

Rahmadi Murwanto, Ph.D. Polytechnic of State Finance STAN, Indonesia Tanda Setiya, S.E., M.E. Polytechnic of State Finance STAN, Indonesia Dr. Ali Tafriji Biswan, S.E., S.S.T., Ak., M.Ak. Polytechnic of State Finance STAN, Indonesia Akhmad Solikin, S.E., Ak., M.A., Ph.D. Polytechnic of State Finance STAN, Indonesia Dr. Thariga Pholloke Khon Kaen University, Thailand Dr. Rakan Fuad Aldomy Multimedia University/ FOM, Malaysia Amrie Firmansyah, S.E., M.M. Polytechnic of State Finance STAN, Indonesia Prof. Li-Jiun Chen Feng Chia University, Taiwan Dyah Purwanti, Ak., M.Si. Polytechnic of State Finance STAN, Indonesia Marmah Hadi, Ak., M.B.A. Polytechnic of State Finance STAN, Indonesia Soffan Marsus, S.E., Ak, M.Si. Polytechnic of State Finance STAN, Indonesia Dr. Abdusalam Faraj Yahia Oman Chamber of Commerce and Industry, Oman Zef Arfiansyah, S.E., M.Acc.Fin., CPA. Polytechnic of State Finance STAN, Indonesia Benny Setiawan, S.S.T., Ak., M.A. Polytechnic of State Finance STAN, Indonesia Andy Prasetiawan Hamzah, S.S.T., Ak., M.Si. Polytechnic of State Finance STAN, Indonesia Muhadi Prabowo, Ak., M.B.A. Polytechnic of State Finance STAN, Indonesia Eko Nur Surachman, S.S.T., Ak., M.Comm Polytechnic of State Finance STAN, Indonesia

xv

Ferry Irawan, S.S.T., M.P.P., M.E. Polytechnic of State Finance STAN, Indonesia Mas Nur Mukmin Djuanda University, Indonesia Prof. OmKumar Krishnan IIM Kozhikode India, India Dr. Fayaz Ahmad Bhat Higher Education Department Govt.of Jammu & Kashmir, Kashmir Dr. Siti Nur’ Atikah Zulkiffli Faculty of Business, Economics And Social Development, Universiti Malaysia Terengganu- Malaysia Prof. Jessie I. Quierrez Polytechnic University Of The Philippines, Phillipines Prof. Salina Daud Universiti Tenaga Nasional (Uniten), Malaysia Engr. Dr. Muhammad Mujtaba Asad Universiti Tun Hussein Onn Malaysia, Pakistan Dr. Moawiah Awad Abdulraheem Alghizzawi Universiti Sains Islam Malaysia (Usim), Jordan Arfah Habib Saragih, S.E., M.S.Ak., CA., ACPA. Department of Fiscal Administration, Universitas Indonesia Sita Deliyana Firmialy, MSM School of Business and Management, Institut Teknologi Bandung Dr. Joni Maranatha Christian University Anak Agung Gde Satia Utama SE., M.Ak., Ak., CA Airlangga University Dr. Shumaila Zeb Shaheed Zulfikar Ali Bhutto Institute of Science and Technology

xvi

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Open innovation in the public sector: Barriers and future perspectives Gadaf Rexhepi South East European University, Republic of North Macedonia

ABSTRACT: Recently the open innovation concept has been used by many different types of organizations in both private and public sectors with the primary goal of opening their innovation processes to creation of new value for their stakeholders. Public sector innovation process has started moving from “in-house innovation” to the open innovation concept. This article focuses on the importance of open innovation in the public sector and discusses future perspectives for open innovation in the public sector. It discusses why public sector organiza­ tions should use open innovation and its perspectives for public sector organization.

1 INTRODUCTION Open innovation helps public sector authorities receive new initiatives from two new sources: (1) by learning from other organizations in the public sector and (2) by engaging citizens as their consumers in innovative processes. This helps the public sector to achieve more personal­ ized and more effective use of its resources, which jwill have an effect on societal challenges. The open innovation concept is very much related to the concept that citizens are seen as con­ sumers by public sector organizations; thus increasing cooperation between citizens and public administration is suggested. In this article, we will focus on some positive examples of the use of the open innovation model in the public sector in some cities and countries. Further, we will focus on topics such as the benefits of public sector organizations in using open innov­ ation and why public sector organizations should move from the closed to the open innov­ ation model. It discusses the open innovation 2.0 concept in Europe and its five key elements as well as the necessity of “citizen sourcing” or “open functional platforms” and how they are to be implemented. The article also focuses on barriers to open innovation in EU countries and the future perspectives of open innovators.

2 ROLE OF INNOVATION IN OPEN INNOVATION Innovation has become the new buzzword across the globe. Most international organizations, governments, corporations, academic institutions, and civil societies accept innovation as the answer to major contemporary challenges (Carayannis & Campbell, 2011; Rexhepi et al., 2017). Organizations in today’s economy tend to change and adopt continuously (Rexhepi & Berisha, 2017). However, the main change regarding innovation is the source of innovations. Innov­ ations usually are seen as products that derive from inside organizations and produce competitive advantages, also known as closed innovation. Nevertheless, research has proven that this way of exploring innovation has many boundaries, even though researchers have identified a number of ways in which business strategies can influence innovation activities (Rexhepi, 2014, 2015; Kennedy et al., 2016). Thus, they recommend new sources of innovation, which will come from outside the organization, known as 1

open innovation. The new approach toward the source of innovation for organizations is increasing every day. Parveen et al. (2015) argued that there are some antecedents that helped play a key role in enabling both the ideas of open innovation and its acceptance among managers and scholars. First, innovation scholars have understood since the 1970s that sources of innovative ideas often come from outside the firm. Second, open innovation builds on the profiting from the innovation framework, paying specific atten­ tion to challenges that firms face in capturing returns from their innovative effort. This tradition is rooted in an understanding of the particular features of technology markets, with asymmetric relations between bargaining agents and incomplete information and contracts (Arora et al., 2001; Gans & Stern, 2003; Parveen et al., 2015).

3 UNDERSTANDING OPEN INNOVATION In technology-intensive industries, innovation is a central issue for the competitiveness of the firm (Ferrary, 2011). This is why most successful companies invest huge amounts of their resources in research and development (R&D; for example, in 2008 Microsoft invested $6.4 billion in R&D; Nokia, $5.3 billion; IBM, $4.3 billion; Intel, $4.1 billion, and Motorola, $2.9 billion) (Ferrary, 2011). However, new global challenges in areas such as healthcare, trans­ portation, climate change, youth unemployment, financial stability, prosperity, sustainability, and growth require new, smarter solutions, which can be a great opportunity in generating new shared value (Curley & Salmelin, 2013; Suklev & Rexhepi, 2013). As Joseph Schumpeter (1942) stated in his famous creative destruction model, the failure of old approaches fuels the motiv­ ation for change (Curley & Salmelin, 2013). Open innovation has been shown to be the new model that can help reshape the way organizations use innovation capacity. Institutional openness is becoming increasingly popular in practice and academia, in the forms of open innovation, open R&D, and open business models (Gassmann & Chesbrough, 2010). Organization is an open system; it influences and can be influenced by society. This means that organizations create benefits for others but also can obtain benefits from others. Creativity and innovation are the first areas where organizations should cooperate with others. In the new concept of open innovation introduced by Henry Chesbrough (2003), ideas pass to and from different organizations for exploitation. The open innovation concept assumes that corporate innovation activities are more like an open system than the traditional (20th century) vertically integrated model (Chesbrough, 2003, 2006). Open innovation con­ cepts suggest that innovation can derive not just from inside but also from outside the organ­ ization. Chesbrough and Vanhaverbeke (2011) suggest that companies should find a way to utilize the distributed pools of knowledge possessed by customers, suppliers, universities, national laboratories, consortia, consultants, and even their own competitors. The combin­ ation of diverse knowledge increases the chances of finding creative solutions, leading to innovations that are more radical. From its initial development by a small club of innovation practitioners, active mostly in high-tech industries, the open innovation concept grew into a widely discussed and implemented innovation practice (Gassmann & Chesbrough, 2010). Today, open innovation is cited in strat­ egy, general management, and organization behavior journals (Gassmann & Chesbrough, 2010). The concept of open innovation has penetrated industries such as software, electronics, telecommunications, pharma, and biotech (Chesbrough, 2003) as well as the public sector. Organizations such as SAP and Microsoft have started to build decentralized research labora­ tories on university campuses to increase their absorptive capacity for outside-in innovation pro­ cesses. Apple’s opening up of its proprietary technology to its ardent high-tech users, Philips’ innovation park, Xerox’s Palo Alto Research Center, Siemens’ open innovation program, IBM’s open source initiatives, British Telecom’s incubation activities, Deutsche Telecom, and Swisscom all drive open innovation on a strategic level (Gassmann & Chesbrough, 2010). It is obvious that the era of open innovation has just begun (Gassmann & Chesbrough, 2010). Open innovation has been defined as “. . . the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of 2

innovation, respectively” (Chesbrough et al., 2006). Nevertheless, the definition of open innovation has evolved over time, even Chesbrough’s definition (Parveen et al., 2015). Open innovation is seen also as a “distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mech­ anisms in line with the organization’s business model” (Chesbrough & Bogers, 2014). Open innovation is also seen as a methodology to design and implement solutions collaboratively by engaging all stakeholders in an iterative and inclusive service design process (Carayannis & Campbell, 2011). It is used to address issues for businesses, governments, and many other institutions in order to improve the quality of their innovation activities and increase the qual­ ity of the service that they deliver (Syla & Rexhepi, 2013). Open innovation in risk-laden processes offers some advantages. First, organizations can benefit from early involvement in new technologies or business opportunities. Second, organ­ izations can profit from delayed financial commitment, as they can invest step by step, avoid­ ing investing large up-front costs. Third, they can benefit from early exits, as corporate venturing is a flexible investment instrument. Fourth, investing firms can also delay exit in the case of spins-offs (Vanhaverbeke et al., 2008).

4 INTRODUCTION OF OPEN INNOVATION IN THE PUBLIC SECTOR The growing success of open innovation practices in many firms raises the question of whether these principles can be transferred for the reinvention of public sector organizations. This art­ icle focuses on the importance of open innovation in the public sector and discusses some future perspectives for open innovation in the public sector. Some recent research provides us with models on how external collaboration and innovation between citizens and public admin­ istrations can offer new ways of citizen integration and participation, enhancing public value creation and even the political decision-making process. Linders (2012) explains that open innovation might lead to “a new kind of social contract in which society places greater trust in – and empowers – the public to play a far more active role in the functioning of their gov­ ernment” and where “citizens and communities take on more responsibility in exchange for a greater say.” Bommert (2010) in his research claimed that “there is a need for a new form of innovation in the public sector because bureaucratic (closed) ways of innovating do not yield the quantity and quality of innovations necessary to solve emergent and persistent policy chal­ lenges such as climate change, aging society, obesity and the financial crisis.” The use of open innovation in the public sector is diverse among countries. In countries such as Chile, Colombia, Egypt, and Lebanon open innovation activities are oriented to develop tangible and actionable opportunities for government practitioners to work together with citizens to tackle intractable challenges in issues ranging from urban governance to mobility and water. Other countries, such as Finland, the Republic of Korea, and Spain, use open innovation in cities to support entrepreneurship and build creative confidence among diverse stakeholders such as governments and academia (Carayannis & Campbell, 2011). Based on different reports, public sector organizations that use the open innovation concept show some benefits, such as • Opportunities for service providers (for example, the public sector) to find new approaches in their service provisions, making service creation and personalization more affordable also for them • More innovative ideas and “thinking out of box moments” • More openness and transparency • Greater effect on government spending • Personalized, optimized, and affordable solutions for citizens • Increased competition between different public sector organizations • More satisfied citizens • Much more trust and satisfaction from decision making • Reduced cost of conducting R&D 3

However, in analyzing the use of open innovation in emerging countries we can see that while open approaches to innovation have been increasingly adopted in developed countries (West et al., 2014), firms from emerging markets fall behind this trend. The governments in a number of countries make considerable effort to promote linkages among actors, such as university–industry relations (Guerrero and Urbano, 2017), though reversing the picture of disconnected innovation systems has turned out to be challenging. Fewer than 40% of emer­ ging country executives (versus more than twice the number of Chinese respondents) said they would expand through either strategic alliances or joint ventures (the lowest level among organization for Economic Co-operation and Development [OECD] economies). This figure amounts to 75% in the UK, France, and Germany (Accenture, 2015). An analysis of open innovation articles carried out by de Paulo et al. (2017) revealed a huge discrepancy between developed (i.e., G7 group) and emerging (i.e., BRICS group 1) countries, with the latter group significantly lagging behind both in terms of the quantity and the impact of scientific produc­ tion in the field. During the 2000–2014 timeframe, the G7 countries published 42% of all pub­ lications on open innovation, whereas the figure for BRICS was 16%. Most organizations in emerging countries seem to prefer the “go it alone” mode (Bogers et al., 2019), which means that their governments should invest substantially in promoting the open innovation concept through different programs. 4.1 Open innovation 2.0 in Europe According to the EU’s Open Innovation Strategy and Policy Group (OISPG) yearbooks about current innovation practices in Europe, there is an increase in the level of openness, with increased sophistication and complexity associated with innovation (Curley & Salmelin, 2013). However, in many cases firms hesitate to open their innovation processes or are not able to build the necessary capabilities (Burcharth et al., 2014), either for successful innovation alliances and partnerships or for the integration of their customers’ creativity (Arora & Gam­ bardella, 1990; Bruneel et al., 2010). The EU is very much into the open innovation concept and thus developed Open Innovation 2.0 (OI2) as a new paradigm based on a Quadruple Helix Model where government, industry, academia, and civil participants work together to co-create the future and drive structural changes far beyond the scope of what any one organ­ ization or person could do alone. The new model has a greater concentration in public organ­ izations, involving institutional bodies, the research sphere, the business sector, and citizens in the process. This model also encompasses user-oriented innovation models to take full advan­ tage of cross-fertilization of ideas leading to experimentation and prototyping in a real-world setting. In implementing OI2 they suggest that government should consider 1. 2. 3. 4. 5.

Networking Collaboration: involving partners, competitors, universities, and users Corporate entrepreneurship: enhancing corporate venturing, start-ups, and spin-offs Proactive intellectual property management: creating new markets for technology Research and development (R&D): achieving competitive advantages in the market

The EU created the Open Innovation Strategy and Policy Group (OISPG), which unites industrial groups, academia, governments, and private individuals to support policies for open innovation at the European Commission. This strategy includes open and participative innovation, which offers personalized, optimized, and affordable solutions for citizens. It affords new approaches for service providers in their service provisions, making service cre­ ation and personalization more affordable for them. 4.2 Open innovation in the United States President Barack Obama’s administration has been considered one of the most open data pro­ moting and participatory governments. Aneesh Chopra was the nation’s first chief technology officer in April 2009 responsible for applying technology to make government and society work better. Chopra released an “open innovator’s toolkit” that highlighted 20 different case 4

studies of how he, his staff, and his fellow chief technology officers at federal agencies had been trying to stimulate innovation in government. They created the well-known open govern­ ment platforms for public sector organizations, which yielded very successful results. The United States demonstrated that “open innovation,” the crowdsourcing of citizen expertise to enhance government innovation, delivers great results. 4.3 Open innovation barriers and suggestions in the public sector There are some barriers to open innovation in the public sector, such as • • • • • • •

A change in mindset A paucity of research Resistance to transparency by public sector representatives A perception of a loss of power by public sector representatives Subjectivity in selecting the new ideas Requirements for new investments in creating new sectors Possible delays in project realization, etc.

Based on the literature review and some conference notes, there are some challenges for public sector organizations in using open innovations benefits, such as • The use of open innovation in the public sector requires the involvement of three groups: o Citizens o Private sector companies o Nonprofit organizations • The open innovation concept requires citizens to be seen as partners or customers. • Governmental and local administrations need to be transformed from bureaucratic organ­ izations into public service providers. • Governmental and local administrations need to have a strong focus on transparency, accountability, service orientation, and perceivable output and outcome devoted to the wel­ fare of the citizens. • For open innovation to be implemented in practice it is required that public organizations implement o Crowd-sourcing or o Open functional platforms where all actors

5 CONCLUSION Based on the literature review, in order to increase the use of open innovation in the public sector, some measures need to be taken, including • Implementation and real use of an open government platform • Decentralization of an open innovation government or any open innovation platform to the specific public sector organization • The use of all technologies possible to increase and ease the cooperation between govern­ ment and citizens • Implementation of prizes to motivate citizens to generate new ideas • New programs for increased cooperation between government and universities • New separate departments for open innovation • Programs to promote cooperation between local governments and citizens • Increase in the number of reports given to the public (as short and simple versions) • Use of open innovation in government procurement • Increased research in the use of open innovation in the public sector • More in-depth research in capturing differences between developing and emerging economies 5

REFERENCES Arora, A., Arunachalam, V. S., Asundi, J., & Fernandes, R. (2001). The Indian software services industry. Research Policy, 30(8), 1267–1287. Bogers, M., Burcharth, A., & Chesbrough, H. W. (2019). Open innovation in Brazil: Exploring oppor­ tunities and challenges. International Journal of Innovation: IJI Journal, 7(2), 178–191. Bruneel, J., d’Este, P., & Salter, A. (2010). Investigating the factors that diminish the barriers to univer­ sity–industry collaboration. Research Policy, 39(7), 858–868. Carayannis, E. G., & Campbell, D. F. (2011). Open innovation diplomacy and a 21st century fractal research, education and innovation (FREIE) ecosystem: Building on the quadruple and quintuple helix innovation concepts and the “mode 3” knowledge production system. Journal of the Knowledge Economy, 2(3), 327. Chesbrough, H. (2003). The logic of open innovation: Managing intellectual property. California Man­ agement Review, 33–58. Chesbrough, H., Vanhaverbeke, W., & West, J., eds. (2006). Open Innovation: Researching a New Para­ digm. Oxford University Press on Demand. Cunningham, J. A., Guerrero, M., & Urbano, D. (2017). Entrepreneurial universities—overview, reflec­ tions, and future research agendas. In The World Scientific Reference on Entrepreneurship: Volume 1: Entrepreneurial Universities— Technology and Knowledge Transfer (pp. 3–19). Singapore: World Scientific. Curley, M., & Salmelin, B. (2013). Open Innovation 2.0: a new paradigm. OISPG White Paper, 1–12. de Araújo Burcharth, A. L., Knudsen, M. P., & Søndergaard, H. A. (2014). Neither invented nor shared here: The impact and management of attitudes for the adoption of open innovation practices. Techno­ vation, 34(3), 149–161. de Paulo, A. F., & Porto, G. S. (2017). Solar energy technologies and open innovation: A study based on bibliometric and social network analysis. Energy Policy, 108, 228–238. Ferrary, M. (2011). Specialized organizations and ambidextrous clusters in the open innovation paradigm. European Management Journal, 29(3), 181–192. Gans, J. S., & Stern, S. (2003). The product market and the market for “ideas”: Commercialization strat­ egies for technology entrepreneurs. Research Policy, 32(2), 333–350. Gassmann, O., Enkel, E., & Chesbrough, H. (2010). The future of open innovation. R&D Management, 40(3), 213–221. Kennedy, S., Whiteman, G., & van den Ende, J. (2016). Radical innovation for sustainability: The power of strategy and open innovation. Long Range Planning. Linders, D. (2012). From e-government to we-government: Defining a typology for citizen coproduction in the age of social media. Government Information Quarterly, 29(4), 446–454. Parveen, S., Senin, A. A., & Umar, A. (2015): Organization culture and open innovation: A quadruple Helix open innovation model approach. International Journal of Economics and Financial Issues, 5(1S), 335–342. Rexhepi, G. (2014). Use the right strategy and grow. ACRN Journal of Entrepreneurship Perspectives, 3(1), 19–29. Rexhepi, G. (2015): Entering new markets: Strategies for internationalization of family businesses. In Family Businesses in Transition Economies (pp. 293–303). Cham, Switzerland: Springer. Rexhepi, G., & Berisha, B. (2017). The effects of emotional intelligence in managing changes: An entre­ preneurial perspective. World Review of Entrepreneurship, Management and Sustainable Development, 13(2–3), 237–251. Rexhepi, G., Ramadani, V., Rahdari, A., & Anggadwita, G. (2017). Models and strategies of family busi­ nesses internationalization: A conceptual framework and future research directions. Review of Inter­ national Business and Strategy, 27(2), 248–260. Suklev, B., & Rexhepi, G. (2013). Growth strategies of entrepreneurial businesses: Evidence from Mace­ donia. In Entrepreneurship in the Balkans (pp. 77–87). Berlin, Heidelberg: Springer. Syla, S., & Rexhepi, G. (2013). Quality circles: What do they mean and how to implement them? Inter­ national Journal of Academic Research in Business and Social Sciences, 3(12), 243. Vanhaverbeke, W., Van de Vrande, V., & Chesbrough, H. (2008). Understanding the advantages of open innovation practices in corporate venturing in terms of real options. Creativity and Innovation Man­ agement, 17(4), 251–258.

6

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

The effect of audit quality and self-assessment corporate governance mechanism on banking earning management in Indonesia Heri Sukendar Wong Accounting Department, Faculty of Economics and Communication, Bina Nusantara University, Indonesia

Ian Allen Jehezkiel Siwi Independent Researcher

ABSTRACT: The purpose of this study was to examine the effect of audit quality and selfassessment of corporate governance mechanisms on banking earnings management. The audit quality is proxied by the public accounting firm size (Big 4 and non-Big 4), while corporate governance is proxied by the corporate governance index reported by the bank. This study used secondary data from the financial statements of bank companies listed on the Indonesia Stock Exchange in 2013–2015 and resulted in observations on 34 firms. The technique for examining the hypothesis was multiple regression analysis using Eviews 7.0. The results showed that all independent variables simultaneously affect earnings management and have an influence on the dependent variables of 6.15%, with the rest explained by other variables outside the model. The results indicate that Big 4 auditors and self-assessment corporate gov­ ernance mechanisms do not significantly influence banking earnings management.

1 INTRODUCTION Agency theory states that the company is a nexus of the contracts of the production factors that exist in the company. A problem arises when decisions are made by the management of the company that is not the company’s owner (Jensen & Meckling, 1976). The objectives of the agent and the principal are different and the principal faces an information risk. Informa­ tion risk is minimized with the help of auditors to ensure the fairness of the financial state­ ments of the agent and reduce the risk faced by the principal. Scott (2009) suggested that earnings management is the actions of management in the process of preparing financial state­ ments to decrease or increase the accounting profit following its interests. One of the systems that protects investors and creditors besides a high-quality audit is the corporate governance system (Anggraita, 2012). Corporate governance is the set of processes, policies, customs, rules, and institutions affecting the direction, management, and control of a company. Fur­ thermore, corporate governance must also provide the appropriate incentives for the board and management to achieve the company’s objectives and to facilitate effective monitoring and encourage the practical use of resources (Kusumawardhani, 2012). The purpose of this study was to determine if the quality of an audit can influence earnings management practice, as well as whether the corporate governance mechanism regulated in Bank Indonesia Regulation No. 8/14/PBI/2006 regarding the implementation of good corporate govern­ ance for commercial banks can limit the earnings management practice of banking in Indonesia.

7

2 LITERATURE REVIEW Scott (2009) mentioned factors that encourage managers in performing earnings management activities: bonus scheme, debt covenant, political motivation, taxation motivations, change of Chief Executive Officer (CEO), and an Initial Public Offering. Also, Scott (2009) suggested seven earnings management patterns: taking a bath, income minimization, income maximiza­ tion, income smoothing, offsetting extraordinary/unusual gains, aggressive accounting appli­ cations, timing revenue, and expense recognition. Anggraita (2012) mentioned that earnings management in banking could be done through discretionary fair value of the credit, com­ monly called the Loan Loss Provision (LLP) on credit. Watkins et al. (2004) suggested that the quality of audit depends on the ability of auditors to minimize noise and bias in the finan­ cial statement, as well as to improve the accuracy of the information in financial statements. Kane and Velury (2005) defined the quality of audit as the capacity of the external auditor to detect material errors and other irregularities. According to DeAngelo (in Oktavianti, 2013), both qualities belong to the big public accounting firms and are often perceived to represent independence and competence; today these firms are often represented as the “Big 4.”. The definition of good corporate governance (GCG), according to Indonesia Bank Regulation No. 8/14/PBI/2006 regarding the implementation of GCG for the commercial bank, is the gov­ ernance of the bank to apply the principles of transparency, accountability, responsibility, inde­ pendence, and fairness. PBI No 8/14/PBI/2006 states that every bank is required to implement GCG, including conducting self-assessment and submitting a report of GCG implementation. Self-assessment of GCG is done by filling out the paperwork of GCG self-assessment that has been established. This study used a composite index of corporate governance of the bank that reported by self-assessment. Indonesia Bank Regulation No. 8/14/PBI/2006 states that each bank is required to implement GCG, including a self-assessment and submitting a report on the imple­ mentation of GCG, by completing the GCG self-assessment working paper that has been set.

3 MATERIALS AND METHODS The sample in this study consisted of the banking companies listed on the Indonesia Stock Exchange. The study employed nonprobability sampling using purposive judgment. The dependent variable used in this study is the variable of earnings management measured using the discretionary fair value of credit (DFVC). To get the discretionary fair value of credit from the LLP that has been predefined by the bank, the approach of Beaver and Engle (1996), Kanagaretnam et al. (2010), and Anggraita (2012) is used, where the amount of discretionary fair value of credit becomes

4 RESULTS AND DISCUSSION The number of discretionary fair value of credit assets shows an average rate of 0.5%. It means that the average banking firm in Indonesia is relatively small to do discretionary 8

determination of the fair value of the credit. The average loan loss provision (LLP) is 1.2%, indicating that the rate of reserve banking loss in Indonesia is low, which means the bank’s credit risk is low. The average of nonperforming credit banks (NPLs) amounted to 1.8%, while the average value of loan charge-offs (CO) is 0.4%, which indicates that the level of credit quality in the Indonesian banking industry is quite good. Descriptive statistics indicate that the index of corporate governance (CG) self-assessment of the banks shows quite good results, with an average CG index of 2.03. For Capital Adequacy Ratio (CAR), the average of the banks is 18.86%, whichgoes far beyond the provi­ sions of Bank Indonesia, which is 8%. For the prior year LLP, the banks on average made an allowance of the fair value of credit assets of 1% of its total credit from 102 samples, with nearly half of the sample (65 banks) using the Big 4 of the public accounting firms to audit their financial statements. The implementation of corporate governance for banks, which is audited by the Big 4 of public accounting firms, is running with quite apparent gaps, where the worst composite score of corporate governance implementation is 4, and the best is 1. The result of the normality test showed the value of Jarque Bera’s probability of 0.6968 is higher than the value of α of 0.05, which indicatesthe residual data have a normal distribution. The result from the multicollinearity test showed all variables have a Variable Inflation Factor (VIF) value below 10, so it is concluded that the independent variable does not have multicol­ linearity. The heteroscedasticity test in this study used the white test. Results showed the prob­ ability value of the chi-square of 0.7469 is higher than the value of α of 0.05. So this study is free from heteroscedasticity. Furthermore, the autocorrelation test uses the Breusch–Godfrey Serial Correlation LM Test. The probability value of the chi-square test is 0.1875, higher than the value of α of 0.05, so this research is free from autocorrelation. The value of adjusted R2 in the Coefficient Determination Test is 0.0615% or 6.15%. It means that the quality of audit and corporate governance has an influence of 6.15% on earnings management in the banking sector. In examining the effect of audit quality on earnings management in Indonesian banks, the proposed hypotheses are as follows. H1: Audit quality will negatively affect earnings management practices of banking in Indonesia. In proving the hypothesis using a research model, by the measurement of audit quality it is expected that α2 < 0, or in other words, the statistical hypothesis established is H0: α2 ≥ 0 H1: α2 < 0 H1 is proved if the statistical H0 is rejected and H1 is accepted. The audit quality (Big 4) is summarized in Table 1. It can be seen that the variable of audit quality does not significantly affect earnings management of the bank, so H1 is not proven. The results of this study prove that audit quality does not affect the earning management of banking. In examining the effect of the Self-Assessment Corporate Governance Mechanism on the Indonesian Banking Earnings Management, the hypothesis is: H2: The Self-Assessment Corporate Governance Mechanism will be a positive influence on earnings management practices of banking in Indonesia. The following measurement of corporate governance expected α3> 0, or in other words, the statistical hypothesis is H0: α3 ≤ 0 H1: α3 > 0 H2 is proven when statistical H0 is rejected and H1 is accepted. Table 2 shows that the variable of Self-Assessment Corporate Governance Mechanism does not significantly affect earnings management of banking and does not have the expected direction, so H2 is not proven. For the control variable, which can be seen in Table 3, the variable of the size of the bank and the Capital Adequacy Ratio (CAR) do not affect earnings management. This might indi­ cate that there is no significant difference between a large bank and a small bank in perform­ ing earnings management.

9

Regression analysis is used to predict how the value of the dependent variable changes when the independent variable value is increased or decreased. The test results of multiple regressions can be expressed in this research: DFVC ¼ 0:0166 þ 0:0038 BIG4  0:0105 CG þ 0:0115 SIZE þ 0:0032 CAR þ0:14 CKPNL þ ε This research is expected to have implications for users of financial statements, including a. For science developers This research will become a reference for subsequent studies related to banking earnings management behavior. b. For investors Investors should be more careful in investing their capital in companies by not looking solely at the profit condition of a company. c. For regulators Input to increase their oversight of the determination of the fair value of bank credit assets and is also expected to be able to monitor the implementation of the corporate governance self-assessment mechanism in Indonesian banking so that it can run well, not only as a fulfillment of central bank regulations. d. For banking The determination of the fair value of credit assets must be done very carefully considering the bank is a trust institution, lest it reduces the level of public confidence in the banking industry.

5 CONCLUSIONS This study examined the effect of audit quality on earnings management of banking in Indo­ nesia. The results proved that there is no significant relationship between audit quality and earnings management of banking in Indonesia. This indicates that the difference in audit qual­ ity between the Big 4 and non-Big 4 of public accounting firms is not a variable that deter­ mines the earnings management of banks in Indonesia. This may be due to Bank Indonesia as a regulator of the banking industry that has determined that public accounting firms that con­ duct audits of banks have to meet the standards of competence and independence. This is because not all public accounting firms can conduct an audit of banks. Moreover, this study examined the effect of the corporate governance mechanism on earnings management in banks in Indonesia. The results proved that there is no significant relationship between cor­ porate governance mechanisms and earning management of banks in Indonesia. This is because the numbers of applications of self-assessment corporate governance mechanisms used in this study are the number of self-assessments. It means that banks conduct their assess­ ment on the application of corporate governance so that the numbers were susceptible to assessment bias. ACKNOWLEDGMENTS This research is funded by Bina Nusantara University. REFERENCES Anggraita, V. (2012). Dampak penerapan PSAK 50/55 (revisi 2006) terhadap manajemen laba diperban­ kan: Peranan Mekanisme Corporate Governance, Struktur Kepemilikan, dan Kualitas Audit. Simpo­ sium Nasional Akuntansi XV, Banjarmasin.

10

Beaver, W., & Engle E. E. (1996). Discretionary behaviour with respect to the allowance for loan losses and the behaviour of securities prices. Journal of Accounting and Economics, 34(1),177–206. DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3, 183–199. Jensen, M. l C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. JFE, 3(4). Jogiyanto, H. (2014). Metodologi Penelitian Bisnis. Yogyakarta: BPFE Yogyakarta. Kanagaretnam, K., Chee, Y. L., & Gerald, J. L. (2010). Auditor reputation and earnings management: International evidence from the banking industry. Journal of Banking and Finance, 34, 2318–2327. Kane, G. D., & Velury, U. (2005). The impact of managerial ownership on the likelihood of provision of high-quality auditing services. Review of Accounting and Finance, 4(2), 88–106. Kusumawardhani, I. (2012). Pengaruh Corporate Governance, Struktur Kepemilikan, dan Ukuran Peru­ sahaan terhadap Manajemen Laba. Jurnal Akuntansi dan Sistem Teknologi Informasi, 9(1). Oktavianti. (2013). Pengaruh Volatilitas Laba Pada Manajemen Laba Perbankan dengan Moderasi Self-Assessment Corporate Governance, Struktur Kepemilikan, dan Kualitas Audit (Thesis). Universi­ tas Indonesia: Program Pascasarjana Ilmu Akuntansi. Scott, W. (2009). Financial Accounting Theory. Toronto: Prentice-Hall. Watkins, A. L., Hillison, W., & Morecroft, S. E. (2004). Audit quality: Ashyntesis of theory and empir­ ical evidence. Journal of Accounting Literature, 23, 153–193.

11

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

The effect of central government spending on economic function to investment in Indonesia Danan Perri Sandria & Agung Dinarjito Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: The Indonesian government has carried out various policies in order to increase investment in Indonesia. One of the policies carried out by the government is spend­ ing on sectors that can attract investor interest. This study aims to determine the effect given by the spending of Ministries/Agencies on economic function in the transportation sector; agriculture, forestry, fisheries, and marine sector; and the watering sector towards investment in Indonesia for the period 2005 to 2017. The analytical method used is regression analysis with a cointegrated Autoregressive Distributed Lag approach. In the long term, partially, Ministries/Agencies spending in the transportation sector has a positive effect on Foreign Direct Investment and Domestic Investment, while Ministries/Agencies spending in the agri­ culture, forestry, fisheries, and marine sectors, partially, has a positive effect only on Foreign Direct Investment. The results showed that Ministries/Agencies spending in the three sectors, simultaneously, had a positive effect on Foreign Direct Investment and Domestic Investment. So, the policy implication that can be implemented is to increase Ministries/Agencies spending allocations in the three sectors in order to increase investment, both Foreign Direct Invest­ ment and Domestic Investment in Indonesia.

1 INTRODUCTION The Indonesian government, every year, targets to increase the number of investments, both foreign direct investment and domestic investment. These targets are listed in the General Investment Plan prepared by the Investment Coordinating Board (BKPM). In 2007, the Indo­ nesian government also issued the latest legislation regarding investment, namely Law No. 25 of concerning Investment. The regulation aims to improve the investment climate that is con­ ducive for investors. In 2018, the government also issued Minister of Finance Decree (PMK) Number 150 of 2018 concerning the Provision of Agency Income Tax Deduction Facilities. The implementation of the PMK is expected to increase the interest of both domestic and for­ eign investors further to invest in Indonesia. In order to continue to achieve the investment realization target, the government imple­ ments fiscal policy in the form of spending on sectors that can increase investor interest in investing in Indonesia. Government expenditure is one of the instruments of fiscal policy that is important for achieving economic targets (Fouladi, 2010). Government spending is carried out through Ministries/Agencies and non-Ministries/Agencies. Spending, including spending on economic functions, issued by the central government, are expected to increase investor interest in investing in Indonesia. Incoming investment can ultimately have a positive influence on economic growth because it plays an essential role in increasing the chances of getting a job and starting a business (Khan, 2017). Government spending has an influence on improving the performance of a private invest­ ment in Kenya (Njuru et al., 2016). Other research stated there is a long-term relationship between private investment and public expenditure in aggregate and public expenditure in

12

the education, defense, health, and transportation and communication sectors in Nigeria (Gbenga, Babatunde, and Esther, 2015). Meanwhile, research from Nigeria (Umar and Ala­ bede, 2017) stated that government spending in the form of capital expenditure has a negative influence on the amount of foreign direct investment in Nigeria. The same results were also shown by research from Estonia, which resulted that there were adverse effects of government spending on private investment in Estonia, Latvia, Lithuania, and Slovenia. However, government spending has a positive influence on private investment in Bulgaria (Sinevičienė, 2014). Ministries/Agencies spending on economic functions used in this study are spending in the transportation sector; agriculture, forestry, fisheries, the marine sector, and watering sector. The reason for taking these three sectors is because 79.3% of Ministries/Agencies spending on eco­ nomic functions is found in the three sectors. The availability of transportation infrastructure in the form of roads has a positive and strong relationship with economic growth in Nigeria (Peter, Rita, and Edith, 2015). Research from Indonesia (Saidi, 2016) stated that the availability of roads has an important role in attracting foreign investors so that economic growth can be stimulated. Research related to spending in the agricultural sector (Chandio and Jiang, 2016) showed that a 1% increase in government spending in the agricultural sector could increase eco­ nomic growth in Pakistan by 9%. The other research stated that government spending in the agricultural sector has a negative effect on private investment (Khan, 2017). Then, research related to expenditure in the watering sector was carried out in West Nusa Tenggara Province concluded that spending in the watering sector had no significant effect on Gross Regional Domestic Income (GRDP) in West Nusa Tenggara Province (Priyantoro, 2012). Based on the explanation above, the researchers wanted to see the effect of government spending on the investment climate. Therefore, the hypothesis that was built was: H1: Expenditures for ministries/institutions in the transportation sector; agriculture, forestry, fisheries, and marine; and the irrigation sector has a significant effect on foreign investment. H2: Expenditures for ministries/institutions in the transportation sector; agriculture, forestry, fisheries, and marine; and the irrigation sector has a significant effect on domestic investment.

2 RESEARCH METHODS 2.1 Research analysis The study uses two dependent variables (Foreign Direct Investment and Domestic Invest­ ment) and three independent variables (Ministries/Agencies spending in the transportation sector; Ministries/Agencies spending in the agriculture, forestry, fisheries, and marine sec­ tors; as well as Ministries/Agencies spending in the watering sector). Data used in this research are secondary data which are collected from the Ministry of Finance, BKPM, and Central Agency of Statistic from 2005-2017. This study is quantitative methods using inferential statistics. The data analysis method used in this study is an associative method, and the authors conducted a regression test using Autoregressive Distributed Lag (ARDL) modeling. 2.2 Research model The research model proposed by the author can be seen in Equations 1 and 2.

13

Information:

3 RESULT AND DISCUSSION 3.1 Stationery test Stationarity tests can be done using the unit root test. The unit root is another name for nonstationary so that data that is not stationary can be said as data that has a unit root (Hakim, 2015). In this study, the root test units used were Augmented Dickey-Fuller (ADF) and Phil­ lips-Perron (PP). The basis of decision making is if the probability is less than 0.05, the data is in a stationary state. The ADF test results show that the research variables, besides PMDN, are stationary after differentiation, while the results of the PP test indicate that the research variables are stationary at level (I(0)). 3.2 Classic assumption test The author conducts a classic assumption test, which includes a normality test, heteroscedasti­ city test, autocorrelation test, CUSUM test, and CUSUMQ test. Based on the testing of clas­ sical assumptions, the ARDL model has fulfilled all classical assumptions. 3.3 Cointegration and ECT testing Based on the results of cointegration testing, the model of the effect of independent variables on foreign direct investment has an F-statistic value of 6.66 (greater than I1 Bound 5%), so that between the research variables there is cointegration. The same thing is also shown by the model of the effect of independent variables on domestic investment, which has a value of 7.76 (greater than I1 Bound 5%), so that between the research variables, there is a long-run or cointegration relationship. 3.4 The effect of independent variables on foreign direct investment and domestic investment The ARDL model that shows the effect of independent variables on foreign direct investment in the short-run can be seen in Equation 3.

Based on Equation 3, government expenditure in the transportation sector has a significant and positive effect on the short run on FDI. While government expenditure in the agriculture, forestry, and marine sectors have a significant negative effect in the short term on FDI. 14

Increasing the realization of Government expenditure in the agriculture, forestry, fisheries, and marine sectors by 1 percent in the previous five quarters (D (LN_THIL) t-5 and two pre­ vious quarters D (LN_THIL) t-2 will reduce the realization of foreign direct investment by 0.36 percent and 0.26 percent, while government expenditure in the transportation sector has a positive influence on FDI. Then, the ARDL model that shows the effect of independent variables on foreign direct investment in the long-run can be seen in Equation 4.

Based on Equation 4, the researchers concluded that in the long run, government spending in the transportation sector government spending in the agriculture, forestry, fisheries, and marine sectors has a significant and positive effect on FDI. On the other hand, The ARDL model that shows the effect of independent variables on domestic investment in the short-run can be seen in Equation 5.

Based on Equation 5, in the short run, government spending in the transportation sector in the current quarter, government spending in the irrigation sector in the current quarter, the previous three quarters, and the previous seven quarters will have a significant and positive influence on domestic investment. Whereas government spend­ ing in the irrigation sector eight quarters earlier had a significant, but negative influence on domestic investment. The ARDL model that shows the effect of independent variables on domestic investment in the long term can be seen in Equation 6.

Based on Equation 6, the interpretation that can be done regarding the effect of independ­ ent variables on domestic investment in the long-run, partially, is the increase in realization of Ministries/Agencies spending in the transportation sector by 1 percent which will increase the realization of domestic investment by 2.98 percent assuming other independent variables do not experience changes in spending realization. From the above discussion, we can conclude that government spending has a various effects on investment. These results are in line with previous research, which is essential that govern­ ment spending is intended to increase investment. Government spending in China has a positive effect on private investment. This influence makes government spending able to stimulate production growth in China because the investment is a factor that plays an import­ ant role in the country’s production growth (Wang and Wen, 2017).

4 CONCLUSIONS Based on the results of testing, data analysis, and discussion, the authors received conclusions on the increase in Ministries/Agencies spending in the transportation sector; agriculture, for­ estry, fisheries, and marine sector and the watering sector for foreign direct investment are: 15

a. Ministries/Agencies spending in the transportation sector; agriculture, forestry, fisheries, and marine sector; and the watering sector, simultaneously, is managed positively on for­ eign direct investment. b. In the short term, Ministries/Agencies spending in the transportation sector and the water­ ing sector has a positive influence on foreign direct investment. Meanwhile, Ministries/ Agencies spending in the agriculture, fisheries, aquaculture, and marine sectors has a diverse influence on foreign direct investment. Meanwhile, based on the results of testing, data analysis, and discussion, the authors obtained conclusions on the effect of Ministries/Agencies spending in the transportation sector; agriculture, forestry, fisheries, and marine sector; and the watering sector for domestic investment, namely: a. Ministries/Agencies spending in the transportation sector; agriculture, forestry, fisheries, and marine sector; and the watering sector, simultaneously, has a positive effect on domes­ tic investment. b. In the short term, Ministries/Agencies spending in the agriculture, forestry, fisheries, and marine sectors has a negative influence on domestic investment. Meanwhile, K/L expend­ iture in the transportation sector and the watering sector has a diverse influence on domes­ tic investment.

REFERENCES Bello, M. Z., Nagwari, A. B. and Saulawa, M. A. (2012) ‘Crowding In or Crowding Out? Government Spending and Private Investment: The Case of Nigeria’, European Scientific Journal, 8(28), pp. 9–23. Chandio, A. A., and Jiang, Y. (2016) ‘Impact of Government Expenditure on Agricultural Sector and Economic Growth in Pakistan,’ 16(8), pp. 1441–1448. Fouladi, M. (2010) ‘The Impact of Government Expenditure on GDP, Employment and Private Invest­ ment a CGE Model Approach,’ Journal of Economic: Iranian Economic Review, 15(27), pp. 53–76. Gbenga, A., Babatunde, O. O. and Esther, L. (2015) ‘The Effect of Sectorial Public Investment Expend­ iture on Private Investment in Nigeria: an Error Correction Analysis,’ 4(04), pp. 87–104. Hakim, A. R. 2015. Stasioneritas, Akar Unit, & Kointegrasi. Jakarta. Khan, M. M. (2017) Effect Of The Government Expenditure On Private Investment: Evidence From Asian Countries. Master of Science in Management Sciences, Capital University of Science & Technol­ ogy, Islamabad. Njuru, S. G., Ombuki, C., Wawire, N. and Okeri, S. (2016) ‘Impact of Government Expenditure on Gross Domestic Product in Kenya,’ Researchjournali’s Journal of Economics, 2(8), pp. 1–19. Peter, S., Rita, E. and Edith, M. (2015) ‘The Impact of Road Transportation Infrastructure on Economic Growth in Nigeria’, International Journal of Management and Commerce Innovations ISSN, 3(1), pp. 673–680. Priyantoro, W. (2012) Analisis Pengaruh Pengeluaran Publik Infrastruktur dan Otonomi Daerah Terha­ dap PDRB (Studi Kasus pada Enam Kabupaten di Provinsi Nusa Tenggara Barat Periode 1990–2008). Available at: http://lib.ui.ac.id/file?file=digital/20290281-T26408-AnalWoSs-pen garuh.pdf. Saidi, S. (2016) ‘Impact of road transport on foreign direct investment and economic growth: Empirical evidence from simultaneous equations model,’ E3 Journal of Business Management and Economics, 7(1), pp. 064–071. Sinevičienė, L. (2014) ‘Testing the Relationship between Government Expenditure and Private Invest­ ment: The Case of Small Open Economies’, Journal of Economics, Business, and Management, 3(6), pp. 628–632. Umar, D. U. O., and Alabede, A. B. (2017) ‘The Impact of Capital Expenditure on Foreign Direct Investment in Nigeria’, IOSR Journal Of Humanities And Social Science (IOSR-JHSS), 22(11), pp. 18–23. Wang, X. and Wen, Y. 2017. Macroeconomic effects of government spending in China. St. Louis.

16

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Feasibility of financing higher education in Indonesia David Syam Budi Bakroh & Budi Mulyana Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: This conceptual paper explores Indonesia’s experience, and lessons learned from other countries on how to set policies for student loans either under the ML or ICL scheme. Also, it provides the foundation for subsequent empirical research to evaluate what scheme is best for Indonesia. It is common knowledge that bringing commercial banks to finance higher education is one alternative for a government that has limited fiscal space, therefore in April 2018, the President of Indonesia encouraged the banking sectors to be involved in providing student loans. However, it has been observed that issues like repayment burden, which is a consequence of loan repayment, could disrupt the smooth running of the scheme in the future. Also, disposable income could fall below the poverty line. Therefore, despite the government’s dwindling contributions, student loans could be a way for the gov­ ernment to provide access for inclusive student’s participation, especially at the tertiary level.

1 INTRODUCTION The President of Indonesia, Joko Widodo, stated that infrastructural development which started in 2014 would continue until the end of 2018. In 2019, the government planned to focus on its second major work, which is an investment in human resources because the Presi­ dent believes that quality human resources are crucial in competition with other countries. One of his concerns is the issue of financing higher education through student loans scheme (Seskab, 2016). In a meeting with national banks, he challenged Indonesian banks to issue student loans just as it is done in the United States of America. He said that the outstanding value of all student loans in the United States had reached about 1.3 trillion USD higher than credit card loans, and this amounts to about 800 billion USD. Therefore, he encouraged the banks to develop schemes for funding student loans so as to give inclusive access to higher education in Indonesia. Even though in 2018, the government had already allocated 4.9 trillion Rupiah through Bidikmisi Scholarship, the Minister of Research, Technology and Higher Education, Mohamad Nasir still invited the banking sectors to support student loans, stating that with the help of banks, the government could alleviate higher education inclusiveness in Indonesia. Education credit is not something new in Indonesia. In fact, Mohamad Nasir also used edu­ cational financing products called Indonesian Student Loans (KMI). Through KMI, he expects more students to be able to finish their studies and get better jobs. Nevertheless, the government persuaded the banks to provide a grace period for student loans and zero or nearly zero interest rates. The grace period would benefit the students because they will start paying their loan installments when they already have work. Hence, the Managing Director of Bank Tabungan Negara (BTN), Maryono, detailed that nowadays, Indonesians do not only place housing as their primary need, rather they have begun to put education as their basic need. However, the level of their education is still hin­ dered by their economic level. As of February 2018, data from the Central Bureau of Statistics revealed that of the population aged 15 years and above, only 2.53% have successfully com­ pleted education for the Academy/Diploma level and only 7.52% for the University level. The 17

Central Bureau of Statistics also recorded a huge educational imbalance in which the percent­ age of the population of 15 years and over with the highest economy was 17 times higher than the same group at the lowest economic level. As of April 2018, only three banks offered student loans in Indonesia, and these were: Bank Rakyat Indonesia (BRI), Bank Mandiri, and BTN. These banks offered different student loans, each with different limits. Bank Mandiri and BTN offered as much as 200 million IDR, while BRI only offered 150 million IDR. Whereas, in terms of tenure, the three banks can provide student loans that will last up to10 years. Furthermore, BTN has collaborated with 101 universities to make it easier for people to access the BTN loan schemes and will continue to partner with other universities. The interest rates on student loans are quite attractive, as, for BTN, the rate is only 6.5%, flat for five years. This rate is almost similar to risk-free secur­ ities issued by the Central Bank (CNBCC, 2019). To provide access for higher education inclusively, the government also established a certain scholarship scheme called the Bidikmisi scholarship. However, the scope of this pro­ gram is still small, and it has not yet reached everyone. As an alternative, the banks are encouraged to distribute student loans to societies with certain schemes. Therefore, the role of the private sector in this banking case is very important.

2 RESEARCH ISSUE OR SIGNIFICANCE There are two student loan schemes known as Mortgage Loan (ML) and Income-Contingent Loan (ICL). These schemes have been operated by the three banks since 2018, especially the ML scheme, but it is still a debatable topic whether these schemes are suitable to the banks or not, and it is a topic for further study. Besides, Mohamad Nasir expects that in the future, student loans can be provided with an ICL scheme. The aim of this paper is to explore the best practice of student loan schemes from other coun­ tries that could serve as a lesson learned for the government of Indonesia. This paper will pro­ vide a literary foundation for subsequent empirical research on student loans scheme. However, subsequent research should simulate and calculate repayment burdens for students who take student loans from different schemes and their certain characteristics such as demography. The next question is; what is the best student loan scheme for Indonesia? The researchers believe that we have to learn the answer to this question from other developed countries, by placing emphasis on how to implement student loans in a way that is appropriate to the con­ texts of Indonesia. We hope this research and the subsequent ones will bridge the gap between the government’s expectations, the implementation by the three banks, and lessons learned from other countries, so that in the future, Indonesian students would be able to acquire higher education, inclusively.

3 LITERATURE REVIEW 3.1 The funding source In Indonesia, education is funded through several sources, which include government budgets, public/private funds, and other sources (Maria and Bleotu, 2014). Education funded by the government budget has many forms, depending on the structure of each budget, and this is mostly an education fund that is concentrically funded by the central government. In Germany, the central government funds more than 88.7% of the total education budget for the university level, while it provides only 74% funding for students before the university level. For countries like Austria, Britain, Sweden, and Norway, education before the univer­ sity level is financed by the central or local government, using the resources that it has. When a local government is well organized, it can provide assistance in the form of subsidies. In gen­ eral, public schools are funded by the government, while private schools are independent or can be partially funded in the form of subsidies by the government. 18

The community can also participate in financing education through either direct or indirect participation. For instance, direct participation includes school fees payment. As for indirect participation, parents can provide facilities to students, such as dropping off to school or pro­ viding school equipment and supplies. Other than public funds, education can also be funded through student loans. Students can apply for student loans while they are studying in college. These loans help students to continue to study and to graduate from college. They enable students to choose specialized majors and to graduate on time. Student loans are very helpful for students who are serious about studying but are not yet able to access scholarships or any other assistance. Student loans can be obtained through commercial banks and some certain institutions that are established specifically to finance student loans. Student loans have provided major aid for students for a long time because they are cheap and guaranteed by the government. For example, student loans are generally given in Nordic countries such as Finland, Denmark, and Norway. In Finland, the interest for education credit is about 3.25% during college, and it increases to 6.25% when the students have gradu­ ated. Repayment of this credit must be made within the period of10 years. Installment pay­ ments are made two years after students graduate from college. While in Denmark, repayment of education credit can be made within 15 years from graduation. The most interesting thing is, in Norway, 80% of students enjoy 0% interest on education credit during their studies, 4% -5% when they graduate, and a very long payment period of 20 years. This is slightly different from what obtains in Europe, in Japan, student loans can be in the form of a loan or a combination of loan and scholarship. Japan’s student loan has the largest share of credit, reaching about 2/3 of total education credit transactions. The United States of America is one of the most generous countries in providing student loans. It has a “Work and Study” program that facilitates students to go to school and work part-time at the same time. The government does not differentiate between students who have the support and those who do not. To ensure that there is no misuse in lending, the government takes time to select beneficiaries. No student loan is given directly by banks to students. The government facilitates the loan by conducting an auction of student loan providers to commer­ cial banks. The government also helps to pay installments for students who work while study­ ing, for those who have issues of late repayments, or who are still in their grace period. 3.2 Previous student loans in Indonesia Actually, student loans are not new in Indonesia. In the 1980s, Indonesia once imple­ mented a program that is similar to student loans, namely KMI, which operated from 1981-1982. At that time, it was distributed by Bank Negara Indonesia. It proffered solu­ tion for undergraduate students who had difficulties in funding their education and helped them to complete their studies. At graduation, their certificates are collected and held as collateral by the bank until the debt is paid. Unfortunately, the program was not successful. The fact that the loan beneficiaries were young teenagers made them unable to pay off their debts. As a result, KMI experienced credit defaults, and it stopped its operations in1982 (Arwildayanto, 2018). The government should learn a lesson from KMI’s failure because the bigger the student loans, the higher the potential of credit default. Arwildayanto also suggested that student loans’ interest should be smaller and approaching to 0%. In addition, the budget used should come from the National Budget and or Regional Budget, disbursed through commercial banks or Indonesia Endowment Fund for Education. With this pattern, the potential for credit default or increase in non-performing loans for the banks can be avoided. 3.3 ML and ICL schemes Students who wish to access loans can be distributed through the ML or ICL scheme. The government usually takes the role of guarantor for commercial banks that provide student loans. The ML scheme requires students to repay their debts with a fixed amount in a set 19

period. Another payment scheme is ICL, where payments are based on potential earnings that are received by the students in the future. In this case, there is uncertainty over the income that will be received. Therefore, students’ income from this scheme is contingent. Under ICL, the installment is generally withdrawn from students through a revenue system for income tax (Chapman and Sinning, 2014). ML is different from ICL because it is not based on initial sources of income before borrow­ ing, but is based on how the education credit is billed. In the ML scheme, the amount of stu­ dent loan installments is fixed up to a certain time, while, under the ICL scheme, it depends on future income and does not depend on time. This means that students under the ML scheme must repay the student loans within a certain period of time. With ICL, it is contingent, or the exact repayment time cannot be determined. The number of installments that must be paid will have implications on some­ one’s disposable income. In this case, the installments can burden the students; we called this the repayment burden. The amount of repayment burden in the ML scheme will vary for each student because the amount of income in the future will vary for each of them. With ICL, the repayment burden will remain the same since the number of installments will adjust to the amount of income received. Furthermore, student loans have the potential to disrupt student’s consumption patterns in the future. Under the ML scheme, if their income is higher than the loan installment, then it won’t be a problem. What if the loan installments are higher than the income? The installments will erode their disposable income for each period. As a consequence, they will have to reduce their consumption rate inevitably. If this reduction is significant, it is not impossible that their disposable income will fall below Non-Taxable Income or even below the poverty line. These two shortcomings of the ML scheme can be overcome by the ICL scheme. ICL requires students to insure the risk of default. In the beginning, it will be burdensome to them because the insurance premiums will be added to the loan principal to be paid. However, this insurance will protect students when they experience financial difficulties in the future. This ICL scheme clearly requires competent third parties, such as insurance companies.

4 RESEARCH METHODOLOGY This conceptual paper used a literature study to ignite further empirical study on financing higher education through student loans either with the ML or ICL scheme. Also, it replicates (Chapman and Sinning, 2014) methodology by employing an influence function with quantile regression. Subsequent research will be at the micro-level using micro survey data from the Central Bureau of Statistics in 2017. Equally important, the variable will be the income level, year of learning experiences, and other household and demography characteristics used as the control variable.

5 DISCUSSION AND OR IMPLICATION The government of Indonesia is expected to learn from past events in our country and also to gather experience from other countries and try to evaluate the student loans scheme that is most feasible for implementation in our country. Under the ML scheme, the students are required to make payments for a fixed amount in the future, even though the income they will receive is still uncertain. This could force the students to reduce their consumption levels, and even the acute level can drop the expenditure below the poverty line. As an alternative to this matter, ICL was established to support students’ installments in proportion to the income that they will receive in the future. With reference to the global trend, it has been observed that the government’s contribution to education expenditure has been dwindling because of budget constraints and the demands of accountability. This encouraged universities, especially private universities, to look for 20

sources for alternative funding in order to fund their activities, but this not in line with the original purpose of education, which is to provide access to inclusive education for all Indonesians. REFERENCES Arwildayanto (2018) ‘Formulasi Pembiayaan Pendidikan Tinggi Melalui Penyaluran Kredit Pendidikan Bagi Mahasiswa Indonesia’, Seminar Nasional Administrasi Pendidikan dan Manajemen Pendidikan. Chapman, B. and Sinning, M. (2014) ‘Student loan reforms for German higher education: financing tuition fees’, Education Economics. Routledge, 22(6), pp. 569–588. doi: 10.1080/09645292.2012.729327. CNBCC (2019) Sejenis KTA, Begini Sejarah Student Loan di Indonesia. Available at:https://www.cnbcin donesia.com/tech/20190216190143-37-55930/sejenis-kta-begini-sejarah-student-loan-di-indonesia. Maria, T. D. and Bleotu, V. (2014) ‘Modern Trends in Higher Education Funding’, Procedia - Social and Behavioral Sciences. Elsevier B.V., 116, pp. 2226–2230. doi: 10.1016/j.sbspro.2014.01.548. Seskab (2016) Risalah Rapat Kerja Pemerintah R-204/DKK/6/2016.

21

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Government guarantee probability of default for infrastructure project in Indonesia: A Monte Carlo analysis Eko Nur Surachman & Rizal Mahendra Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: The aim of this study is to measure the probability of default in the govern­ ment’s guarantee for building infrastructural facilities in Indonesia. This study used the Trans Sumatera Toll Road-Palembang Indralaya Section as a case study. The methodology used is the quantitative approach with Monte Carlo’s financial model simulation. The results show that the probability of default is extremely high with the medium and high-risk profiles, while with the low-risk profile, the figure is relatively small and considerable to be managed.

1 INTRODUCTION Some scientific studies have pointed out the role of the transportation sector in supporting a country’s economic growth. (Démurger, 2001) stated that organized transportation development among 24 provinces in China was the main factor that determined the country’s rapid economic growth rate in the last eight years. This also happened in Africa (Peter, Rita, and Edith, 2015 2015) as well as in Indonesia (Savitri, 2014). It has always been the duty of the government to provide road infrastructure in order to deliver quality services to society, but the government is facing some constraints in the areas of efficiency and availability of budget. In order to solve these problems, the government introduced the public-private partnership scheme. However, not all the road project entities picked up a strong interest in the private sector because some projects that were economic­ ally feasible were not financially viable i.e., the Trans Sumatera toll road project, which connected all of the capital cities in Sumatera Island. Hence, the Government assigned State-Owned Enterprise (SOE) to build the Trans Sumatera toll road, namely HutamaKarya (HK), and now, there is a glimpse of hope since this assignment has been given to HK from the government. However, even with a huge contribution from the government to HK in the form of equity contribution from the state budget, there is still a wide gap in the cash that is needed. Sharing the payment of some huge amount of debts will help to fill this gap, though acquiring loans would be the most preferred solu­ tion to the problem. However, the bank needs to be assured that the project has the capacity to pay back the loan. Therefore, the government issued a government guarantee to increase the credit­ worthiness of the project so that it can become more bankable. The government’s guarantee was intended to cover all the debts that HK will incur in a bid to execute the project. However, this guarantee poses risks to the government in the form of contingent liabilities. Therefore, it will have to be managed and measured properly in order to mitigate the risks involved.

2 RESEARCH METHOD The methodology used in this study is a quantitative method using financial model analysis. Financial covenant parameter such as DSCR (Debt Service Coverage Ratio) was used to draw a conclusion on the financial strength as a proxy of the government’s guarantee. DSCR represents the ratio between the cash available before debt repayment and the amount to be repaid in a period (Gatti et al., 2007 & Senati, 2007). It provides lenders with a measure of the project’s 22

capability to repay the loan. If the corporate entity exceeds the agreed DSCR, then the lenders can propose a bankruptcy (project default). The critical point in this step is how to make this assumption that is built into the financial model possible to mimic or represent the real-world situ­ ation so that the financial parameters resulting from the model do not bias. Monte Carlos analysis was used in this context to prevent the randomness of variable input from changing in the future so that the model can be transformed into the stochastic model. The Monte Carlo simulation is a technique used to understand the impact of risk and uncertainty in financial, project manage­ ment, cost, and other forecasting models (RiskAmp, 2012). Using this probability statistic model, a random value is selected for each of the tasks based on the range of estimates. Then, the finan­ cial model is calculated based on this random value. So that it can represent the possible event that might happen in the future. Palembang-Indralaya section is chosen as a case study to repre­ sents the Trans Sumatera Toll Road Project, as the section is the readiest project, among others. 3 FINDINGS AND DISCUSSION The Ministry of Finance issued the government’s guarantee to the project. The government’s guarantee assured the bank that the project would be able to pay back all of the debt obligation Table 1. Average annual daily traffic risk profile: Palembang-Indralaya’s scenario. low-Risk Profile Projected Average Annual Daily Traffic SubYear Section 1

SubSection 2

SubSection 3

2017 18698 2018 20381

23027 25099

21505 23440

Adjusted Average Annual Daily Traffic

Adjustment

Correction 20%

Revised Growth

SubSection 1

SubSection 2

SubSection 3

0% 31,25%

14858 19501

19193 25191

17450 22903

Medium Risk Profile Projected Average Annual Daily Traffic SubYear Section 1

SubSection 2

SubSection 3

2017 2018 2019 2020 2021 2022

23027 25099 26980 28600 30030 31532

21505 23440 25197 26710 28045 29448

18698 20381 21909 23224 24385 25605

Adjusted Average Annual Daily Traffic

Adjustment

Correction 35%

Revised Growth

SubSection 1

SubSection 2

SubSection 3

0% 20,62% 12,95% 10,24% 8,87% 8,05%

11685 14094 15920 17552 19110 20649

17244 20800 23495 25902 28201 30347

11084 12270 15102 16650 18128 19588

High-Risk Profile Projected Average Annual Daily Traffic SubYear Section 1

SubSection 2

SubSection 3

2017 2018 2019 2020 2021 2022 2023 2024

23027 25099 26980 28600 30030 31532 33108 34763

21505 23440 25197 26710 28045 29448 30920 32466

18698 20381 21909 23224 24385 25605 26885 28229

Adjusted Average Annual Daily Traffic

Adjustment

Correction 55%

23

Revised Growth

SubSection 1

SubSection 2

SubSection 3

0% 32,22% 17,65% 13,01% 10,77% 9,47% 8,62% 8,04%

8414 11125 13088 14791 16384 17936 19483 21048

10362 13701 16119 18215 20177 22088 23993 25921

9677 12795 15053 17011 18844 20628 22407 24208

payments, including principal value, interest expense, and other payable expenses related to the financing until the maturity date. In addition, the government’s guarantee also set up debt coven­ ants for the project. The debt covenants consist of Debt Service Coverage Ratio (DSCR) and Debt to Equity Ratio (Romp and Haan). The covenants were set both in the ratio of 1. Whenever the ratios breach a number lesser than 1, it will trigger a default scheme. When a default scheme plays out, all the debts belonging to the project entity will be covered by the government. In order to measure the probability of the government’s guarantee default, which is represented as DSCR, the financial model is shocked with the simulation of assumptions and revenue adjustment model to portray possible events that could occur in the future and give impact to the project. Each financial model scenario represents the general threshold traffic levels of toll roads in Indonesia (Wibowo, 2005). The traffic growths vary according to the traffic risk profile suggested by (Bain and Wilkins, 2002), which is used as a revenue adjustment model. This is the most major of the risks that affect the financial viability of the toll road project (Alfian, 2013). The adjusted traffic is presented in Table 1. Based on the revenue adjustment, as shown in the result of traffic revision above, the simu­ lation of the financial model to measure the project’s DSCR is taken using Crystal Ball to conduct Monte Carlo’s Analysis. The results are as follow:

Figure 1.

Probability of default under low-risk Profile.

Figure 2.

Probability of default under medium risk profile.

Figure 3.

Probability of default under high-risk profile.

24

Under the low-risk profile, the probability of the DSCR falling below 1 will lead to the pro­ ject default if the government’s guarantee is about 38%. This figure is quite small and manage­ able to be mitigated by the government. However, the probability of the project’s default will increase significantly to 84% and 99% under the medium and high-risk profiles, respectively. These figures are quite big and should be taken into consideration by the government.

4 CONCLUSION Road infrastructure is critical for economic growth in Indonesia, like in any other part of the world. The construction of the Trans Sumatera toll road stands out as a case study among several modes used by the government for providing funding for infrastructural facilities. The government gave an assignment to the SOE to build, operate, and manage the toll road. Therefore, it is expected that the government should empower the SOE by leveraging their financial capabilities. One of the options for doing so is by providing the government’s guar­ antee for the SOE’s debts and obligations. This is represented by the DSCR as a financial cov­ enant. Using Monte Carlo analysis and revenue adjustment model from average annual daily traffic, the probability of DSCR falling below the figure that the government has guaranteed is extremely high in the medium and high-risk profiles. Further research is needed to identify and measure the factors that affect the medium and high-risk profiles so that the government can manage and mitigate the risks that could lead to the project default. REFERENCES Alfian (2013) ‘Analisa Sensitivitas Pertumbuhan Lalu Lintas Dan Probabilitas Risiko Pada Pembangu­ nan Jalan Tol’, Jurnal Teknik Sipil, 12(3), pp.181–191. Bain, R. and Wilkins, M. (2002) ‘Traffic Risk in Start-Up Toll Facilities’, Standard & Poor’s Infrastruc­ ture Finance, (September), pp. 30–30. Démurger, S. (2001) ‘Infrastructure Development and Economic Growth: An Explanation for Regional Disparities in China?’, Journal of Comparative Economics, 29, pp. 95–117. Gatti, S., Rigamonti, A., Saita, F. and Senati, M. (2007) ‘Measuring value-at-risk in project finance transactions’, European Financial Management, 13(1), pp. 135–158. Peter, S., Rita, E. and Edith, M. (2015) ‘The Impact of Road Transportation Infrastructure on Economic Growth in Nigeria’, International Journal of Management and Commerce Innovations ISSN, 3(1), pp. 673–680. RiskAmp 2012. RE: What is Monte Carlo Simulation ? Romp, W. and Haan, J. D. (2007) ‘Public Capital and Economic Growth: A Critical Survey’, Perspekti­ ven der Wirtschaftspolitik, 8(S1), pp. 6–52. Savitri, N. M. O. H. M. (2014) ‘Pengaruh Infrastruktur Terhadap Pertumbuhan Ekonomi di Indonesia’, Buletin Ekonomi Moneter dan Perbankan, 17(1), pp. 61–98. Wibowo, A. (2005) ‘Estimating general threshold traffic levels of typical build, operate, and transfer toll road projects in Indonesia’, Construction Management and Economics, 23(6), pp. 621–630.

25

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Learning impact measurement by linking competency gap to performance in the public sector (case study: MoF, Indonesia) David Syam Budi Bakroh Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia Ph.D. awardee from LPDP scholarship

Kusmono Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia Ph.D. Candidate on Law from Brawijaya University

ABSTRACT: This paper aims to provide preliminary findings on evidence-based policy evaluation that uses applied micro econometric tools to measure the impact of Corporate Uni­ versity and Knowledge Management initiatives made by MoF in 2017. The 4th level of Kirk­ patrick impact evaluation could be measured with RCT or any other casualty method. Findings revealed how golden standard impact evaluation could be achieved. However, these impacts’ predictions seem to be overestimated for the survey data with the Likert scale. Results show that training has a significant positive effect on individual performance, and individual performance also has a significant positive impact on organizational performance. We hope this research gives a second opinion to the Minister of Finance on the continuity of Corporate University strategy before its scaling up to other line ministries. There is a need for subsequent research to eliminate subjective and selection bias, and to collect as many respond­ ents as are eligible.

1 INTRODUCTION Since July 2015, the Ministry of Finance of Indonesia (MoF) has been transforming into Cor­ porate University (CorpU) as a strategy to accelerate human resources development by linking employee development programs to the organization’s performance. There are two pillars to prop up the CorpU initiative, which are Knowledge Management (KM) and Smart Learning Infrastructure. To bring this strategy into reality, CorpU has set many initiatives. Therefore, if CorpU’s initiatives are working well, they would reduce the competency gap between employ­ ee’s expectations and current individual competency. The gap is denoted as a competency gap index (CGI). MoF wants to improve the organization’s performance as time goes on. Since 2007, MoF has been using the Balance Score Card (BSC) mechanism to watch over organiza­ tion performance. It emerged from the lowest level to support its strategic level unit. Equally important, the organization faces the risk of losing its knowledge, including tacit and explicit knowledge. Hence, MoF uses KM as a tool to guard organization knowledge. In this era of digital disruption, we cannot separate KM from technology. This forced us to change, shifting from traditional to a modern approach. Our maturity on KM depicts how far we had evolved. According to the American Productivity & Quality Center, there is an international standard to measure the maturity level of KM, which starts from the level of the initiate, develop, standardize, optimize, and to innovate. MoF was already aware of the importance of KM, because of that, MoF implements KM initiatives within the CorpU strategy. Additionally, MoF was the first public sector entity that implemented the concept of KM and CorpU. Somehow, the Ministry for State Apparatus Reforms follows and designs 26

a concept of CorpU for line ministries. They pilot CorpU on MoF, so that other line ministry could benchmark and mimic from MoF. But who bears this responsibility within MoF? Even though the CorpU strategy is addressed to all Directorate Generals (DGs), Financial Education and Training Agency (FETA) has the mandate to turn this idea into reality. For years, FETA has been responsible for employee devel­ opment programs, in particular for education and training. Since CorpU’s implementation plan rolled-out, FETA has changed a lot. One significant change is the transformation from classical to blended learning; in some cases, they even use the e-learning method during the delivery. Under the learning and development model, the effectiveness of learning is only 10% from coursework and training, 20% from developmental relationships, and 70% from challenging assignments at the workplace. While FETA keeps improving its assessment, design, delivery, and evaluation in training, they were also shifting its focus into action learning and post-training evaluation as it was learned from the study of (Lombardo, Michael M; Eichinger, 1996). On top of that, FETA uses Kirkpatrick’s Four Levels of Training Evaluation as an evalu­ ation tool. The evaluation levels are designed to improve 1) training event, 2) content and delivery, 3) drivers, and 4) redefined goals/objectives. Nowadays, FETA has been trying to measure the 4th level (Smidt et al., 2009). As a result, the current Minister of Finance, Sri Mulyani Indrawati, considered CorpU ini­ tiatives ran by FETA as important. On many occasions, she emphasized the importance of KM initiatives and how they contribute to organizational performance, but because it is new, there is less evidence to prove KM’s contributions. Some say it has been significant, while others believe otherwise. Consequently, there is a big question of how we can relate macro objectives with micro initiatives. In addition, MoF expects that micro initiatives like blended and or fully e-learning, action learning, and post-training evaluation (Kirkpatrick’s 4th level) can support the achievements of macro objectives such as achieved CorpU objectives, reduced CGI, and improved KM maturity.

2 RESEARCH ISSUE OR SIGNIFICANCE This research aims to provide a second opinion about the continuity of CorpU and KM initia­ tives. MoF is a big institution with more than 72 thousand employees with 13 DGs, while CorpU, as one of the ministerial initiatives, should be supported by another DG, but actually, there are silos among them. Besides, it is not easy to conduct experimental research on humans. This research contributes to a new perspective that CorpU, KM, and CGI can use in the public sector. It adds an additional horizontal brick to the pyramid of research in a developing country like Indonesia, broadens peoples’ insight on training effectiveness, and explains the impact of training from conventional to a modern approach.

3 LITERATURE REVIEW The concept of CorpU is designed to maintain the company’s best practices and core compe­ tencies, understanding issues, and designing strategies in order to become a knowledge-based institution. It has been observed that companies prefer to create their own workers despite absorbing university alumni into their workforce. They build their own universities within the company’s structure. In the case of MoF, as a holding company, the organization has evolved to become too big and too fast to be compared with other “conventional” ministries. There is less reference for CorpU in the public sector. What we have done so far is to mimic other successful companies like Schlumberger, Pertamina, Telkom, etc. Because each organization is unique, the best way of mimicking them is to mimic them from other similar organizations (Fresina, 1997). Subsequent research will give evidence to show whether link and match between training and organization’s performance can support CorpU or not. If the findings from this proposal strongly justify this issue, perhaps other line ministries will follow or mimic what MoF has done. 27

The major challenge of knowledge management (KM) is in the process of capture and inte­ gration. In order to be successful, an organization must first concentrate on changing the mindset of its followers. The goal of using knowledge management is to aid staff in the per­ formance of their duties. Indeed, KM had started with a change of mindset, followed by a change in training methods. MoF intends to close the competency gap and get the returns in the form of performance (Grant, 1996).

4 RESEARCH METHODOLOGY The approach to this research is quantitative, and it will assess the causal effect relationship needed to capture the current research environment/problems. The treatment method will be to learn as a realization of KM initiatives and utilize it as a proxy to improve organization performance. First, the research will start by identifying the employee’s competency gap. Based on MoF’s officer development program, there are many treatments to close the gap, such as training pro­ grams, non-training programs (like coaching and mentoring), and other assignments (like secondment and internship). Theoretically, all of these treatments should have an impact on indi­ vidual performance directly, followed by indirect improvement on organizational performance. In order to become successful, this research had to consider three things, which are Experi­ mental Design, Control Variables, and try to avoid selection bias. To allocate an employee to be enrolled in treatment (say training), it will require the use of the RCT method as the golden standard for experimental research. A leader’s commitment is crucial in this approach. If the research could not allocate employees randomly to treatment (training), then we shall consider another approach, such as Probability Score Matching (PSM), Difference in Difference (DID), or Regression Discontinuity (RD). Judging by the limit of the research scope, the cred­ ibility of this research could only be guaranteed through training with a different approach, such as the classical method, blended learning method, or fully e-learning method. Also, it is important to control other disturbing variables and avoid selection bias as much as possible. Another control variable will be used to increase reliability and make the model more robust. For example, there are phenomena that DG will send people who are less productive in the office, and because of that, the impact of training will seem to be at the underperformance level. On the contrary, competent employees apply for training only because they want a vacation. In this case, some classes will be unbalanced between employees with low and high competency levels at the initial stage. Based on FETA experience, many problems often distract training effectiveness; therefore, it is equally important to be able to summarize the root cause of these problems from year to year. The data comes from post-training evaluation reports. The potential bottleneck will be criteria/tools to measure the competency gap. Even though MoF already has the standard, both for soft and technical competency, yet it is not standard­ ized when compared with the other DG’s. It will be challenging to find similarities and pat­ terns, and this makes it difficult to compare employees’ competency gaps with others to the DGs. If there is no good baseline to measure the CGI, the research will limit the scope only to FETA’s employees.

5 DISCUSSION AND OR IMPLICATION As a preliminary, we evaluated some empirical data to indicate whether the RCT is feasible to be implemented or not. From 2017’s post-training evaluation, we collected survey data from 89 respondents in 5 data sets from different training programs. Out of this number, only nine persons were eligible for the 4th level of Kirkpatrick’s evaluation. This is because only those who passed the 1st level, Kirkpatrick’s evaluation may continue to be evaluated for the 2nd level, and to move from 2nd to 3rd, and 3rd to 4th respectively. By employing a Structural Equation Modelling (SEM) with SPSS-AMOS, we tried to confirm the factor analysis derived from a post-training evaluation of individual/organizational performance. The dependent 28

variable will be the organizational performance, while the independent variable will be indi­ vidual performance. The enrolment for certain training will be the treatment and will be cat­ egorized as a dummy variable. Basically, we regress the Individual Key Performance Score on Post Training/Examination Score, then regress organizational performance Score on Individual Key Performance Score. The SEM was used to evaluate the statistical significance of each equation. We ran some data on two different regressions “paths.” In the first path, we used survey data for organizational performance with a Likert Scale, which is very subjective. On the other path, we used detailed/real data from the Key Performance Indicator report, which is confidential but shows a “real” pose. And the results are: Training has a significant positive impact on individual performance. This impact amounted to 87% contribution gathered from the upper path (survey data) with only 18% for the lower path (real data). Equally important is the fact that individual performance has a significant positive impact on organizational performance. For the upper part, the coefficient was incredibly high, with 94%, but for the lower path, the impact was low, with only 5% contribution. These preliminary findings confirmed that the model is quite feasible, but it needs more (and more), valid respondents, from RCT’s experiment to make it robust. Also, the sample is not representative enough to generalize its conclusion to the ministerial level. Comparing survey and “real” data is good enough to justify that there was a subjective bias in the post-training evaluation report, and subsequent research should eliminate that bias because the independent variable (training score) comes only from one period, any failure on RCT’s requirement will require us to change the methodology. For example, if the data cannot be used for RCTs, we plan to use the Difference in Difference approach, which needs at least two periods of data. For instance, we will require a pre and post-training result. Fur­ ther, in the case of Regression Discontinuity, we will need more data on the specific threshold, and that’s another challenge. From the preliminary findings, we want to scale up this research to the ministerial level and restrict input variables so that we can answer some questions concerning assess-causality, such as: o Was there any impact of a training intervention on individual/organizational performance? o How big is the impact on individual/organizational performance for any different training delivery method that was used to be it classical, blended, or fully e-learning? o Among many control variables, what factor could have influenced/disturbed the training impact? This conceptual paper aims to answer the questions above by conducting an evidence-based policy evaluation and some applied micro econometric methods like Structural Equation Model and Randomized Controlled Trial. As a result, we were able to relate between Compe­ tency Gap and the Organization’s Performance for public sector entities. In the future, we hope this research, and it is subsequent, could serve as the foundation for computing Returns on Training Evaluation (and provide a recommendation to the Minister of Finance about the continuity of CorpU and KM related initiatives. REFERENCES Fresina, A. (1997) ‘The Three Prototypes of Corporate Universities’, The Corporate University Review, Jan/Feb. Grant, R. (1996) ‘Toward A Knowledge-Based Theory of the Firm’, Strategic Management Journal, 17, pp. 109–122. doi: 10.1002/smj.4250171110. Lombardo, Michael M; Eichinger, R. W. (1996) The Career Architect Development Planner (1st ed.). Minneapolis: Lominger. p. Smidt, A. et al. (2009) ‘The Kirkpatrick model: A useful tool for evaluating training out-comes’, Journal of Intellectual & developmental disability, 34, pp. 266–274. doi: 10.1080/13668250903093125.

29

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

The efficiency of the government’s health spending: A case study of Papua Province, Indonesia in 2016 F.F. Qomarayanti Ministry of Finance, Fiscal Policy Agency, Indonesia

A. Solikin Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: Indonesia aspires to achieve sustainable development goals, including healthrelated goals through the mandatory allocation of a minimum of 5 percent of the national budget and 10 percent of the provincial/local budget for health expenditure. However, health performances for several provincial/local governments have been poor, probably due to ineffi­ ciency in the use of the allocation. This research measures the budget efficiency of each dis­ trict/city in the Province of Papua, Indonesia, by using the Data Envelopment Analysis (DEA) for the 2016 budget data. Results showed inefficiencies in Papua Province, especially in translating budget expenditure to intermediate outputs rather than from provisioning inter­ mediate outputs to achieve health outcomes. However, negative returns to scales indicated that the government should also consider other issues such as topographic condition and safety issues in order to improve the efficiency of health expenditures.

1 INTRODUCTION United Nations’ Sustainable Development Goals number 3 aims to guarantee healthy lives and encourage well-being for all people (United Nations, 2015). In Indonesia, health spending is a top priority. As stipulated in Law 36/2009 on Health, a minimum of 5 percent of the national budget and 10 percent of province/district/city budget should be allocated for health spending. However, several local governments do not comply. For example, among the 26 districts/cities in Papua Province, only 13 districts/cities allocate the required expenditure. Moreover, the performance of the health sector is not encouraging when measured by the rate of children undernutrition, stunting prevalence, life expectancy, and human development index (Kementerian Kesehatan, 2018, 2017). There is an indication that the health sector in Papua Province should get some serious attention. Thus, the government’s performance to improve community welfare in the health sector through health expenditure warrants further research. This article aims at adding views from the literature regarding the efficiency of health expenditure in Indonesia. Several studies have analyzed the efficiency of budget expenditure in the health sector in provinces in Indonesia (Yanti and Kustiani, 2016, Prasetyowati and Haryanto, 2018, Puspitasari and Pujiati, 2017, Putri, 2015, Yatiman and Pujiyono, 2013). However, research on health expenditure efficiency in Papua is still limited amid pressing needs to improve health performance.

2 HEALTH EXPENDITURE AND HEALTH OUTCOME Health is both a resource for and outcome of sustainable development since healthy human resources are required for development (Boyacıoğlu, 2012). Health spending correlates 30

positively to gross domestic product (GDP), especially for countries with health spending below the optimal level (Wang, 2015), albeit one should be cautious about bidirectional rela­ tionship between budget expenditure and GDP (Solikin, 2018). Besides, empirical studies show that increasing health expenditure correlates positively to the health status of the com­ munity (Nixon and Ulmann, 2006). In general, for poorer countries, the issue is the need for additional resources, while for richer countries, the issue is efficiency in health spending (WHO, 2012), although the efficiency of budget spending is always an important consider­ ation (Boyacıoğlu, 2012).

3 METHODS 3.1 Data Envelopment Analysis When a resource is scarce, one should allocate it based on concepts of value for money, i.e., the best use of every unit of money. Efficiency criterion means achieving a maximum goal with provided resources, while effectiveness means that the goal is fully achieved by using the resources. The efficiency concept ensures that costs do not exceed the plan and that the goal is achieved in terms of quantity and quality. It compares observed and optimal values of inputs and outputs and can be divided into price efficiency (i.e., optimal selection of inputs) and tech­ nical efficiency (i.e., producing maximum outputs from a given set of inputs). A popular method to measure efficiency is Data Envelopment Analysis (DEA) (Charnes et al. 1979; Hollingsworth, 2003). DEA is chosen because the method is capable of producing a single score of efficiency for each observation, which is called a decision-making unit (DMU) (Ozcan, 2014). For health care studies, DEA can be used to assess the relative per­ formance of health care organizations, identify the top performers, and seek strategies to improve performances for low performers (Ozcan, 2014). Efficiency analysis in DEA can com­ pare inputs and outputs (Asandului et al., 2014) or inputs, intermediate inputs, and outputs (Jafarov and Gunnarsson, 2008). DMU with efficiency score unity is considered as efficient relative to other DMUs. 3.2 Data sources Technical efficiency is broken down into cost-effectiveness and system efficiency. Costeffectiveness compares the input variable and intermediate output variable in terms of real health resources, while system efficiency compares real health resources and health outcomes. The variables refer to previous studies (Yanti and Kustiani, 2016; Prasetyowati and Haryanto, 2018; Puspitasari and Pujiati, 2017, Putri, 2015; Yatiman and Pujiyono, 2013). Input variable used in this research is health expenditure per capita of each district in Papua Province; inter­ mediate output variables are ratio of health workers per 100,000 people, ratio of Community Health Center per 100,000 people, and ratio of Maternal and Child Service per 1,000 babies aged five years; while health outcomes comprise of life expectancy per district, percentage of stunting per district, and percentage of children with malnutrition per district. Objects of research are 26 districts of 29 districts in Papua Province, excluding three districts (i.e., Paniai, KepulauanYapen, and Intan Jaya) due to data unavailability. Data was gathered from the Ministry of Finance, Ministry of Health, Papua Province, and Central Agency on Statistics for the year 2016 and was analyzed using Max DEA Basic (Cheng, 2014). 4 RESULTS AND DISCUSSION 4.1 Descriptive statistics As shown in Table 1, health expenditure per capita, the ratio of health staff, and the ratio of health centers vary greatly between 26 districts in Papua Province, while variables of life expect­ ancy and proxy of stunting are two variables that differ in the least. Among 26 districts, only 13 31

Table 1. Descriptive statistics of input, intermediate and output variables. Variables

Min

Max

Average

Std. Dev.

Coeff. Var.

Health expenditure per capita The ratio of health staff The ratio of health center The ratio of maternal & child service Life expectancy Percentage of stunting Percentage of undernutrition

208,869 74.87 13.16 3.47 54.50 48.20 15.60

2,997,135 1,206.32 151.47 18.94 71.90 86.40 18.94

1,055,524 368.21 51.46 10.29 64.14 72.50 10.29

639,733 255.57 36.68 4.59 4.14 8.35 4.59

61% 69% 69% 45% 6% 12% 45%

Source: Authors’ compilation.

districts (50%) met the demand of the law, which stipulates that a minimum of 10% of the annual budget should be allocated to health expenditure. As for output variables, 15 districts have life expectancy below province average, 12 districts have the stunting percentage above province average, and 11 districts observe underweight percentage above the province average. 4.2 Results and discussion As for costs-technical efficiency, four districts have score 1, meaning that they relatively and efficiently used their health budgets toward providing health staff, health centers, and mater­ nal and child services when compared to other districts. Average costs-technical efficiency is 0.68, and 13 districts (50%) have costs efficiency that is above average. The lowest costtechnical efficiency is 0.25 for Nduga Districts. Moreover, returns to scale (RTSs) are decreas­ ing for all districts (except Keerom Districts) which means, that improvement in intermediate outputs would be lower than the addition of health budgets. Ten districts observe system-technical efficiency of unity, meaning that they have efficiently translated intermediate health outputs to health outcomes. Average systems-technical effi­ ciency is 0.97, and 17 districts are above the average. Asmat District has the lowest technicalsystem efficiency of 0.89, which indicates system-technical efficiency is more evenly distributed than costs-technical efficiency. Five districts have constant RTS, while 21 districts observe decreasing RTS. The decreasing RTS indicates that strategies to improve intermediate outputs should not only add to the number of staff, health centers, and maternal and child services but should also tackle other factors that are pertinent to improving intermediate outputs. As illustrated by Le Blanc (2015), sustainable development goals in health could be seen as a network of goals which means that achieving health outcomes should consider other goals such as poverty, inequality, production and consumption pattern, education, and gender equality, water and sanitation, city condition, and peaceful and inclusive society. Two local governments, i.e., Yahukimo District and Jayapura City, have a total-technical efficiency of 1. The average total-technical efficiency is 0.65, and 13 of the districts are below the average. The three lowest total technical efficiencies are for Deiyai Districts, Memberamo Tengah Districts, and Nduga Districts, which happen to have the lowest coststechnical efficiencies. This result indicates that cost-technical efficiency significantly influ­ ences total-technical efficiency. This result implies that improving efficiency in translating budget expenditure to intermediate output is more essential than improving the provision of health staff, health centers, and maternal and child centers to achieve health outcomes. Cost-technical inefficiency is greater than system-technical efficiency, and it is observed in other studies such as in Croatia (Jafarov and Gunnarsson, 2008) and in other studies in Indo­ nesia (Putri, 2015, Yanti and Kustiani, 2016, Yatiman and Pujiyono, 2013). However, a similar problem may urge different strategies to improve spending efficiency in each prov­ ince due to different province conditions. Papua Province’s unique conditions include its vast area with mountainous regions that hamper the distribution of supplies and human resources, as well as unfavorable safety conditions in several districts. 32

5 CONCLUSION Inefficiencies are observed in Papua Province in using health spending to achieve intermediate health output and in translating intermediate output to achieve health outcomes. Coststechnical inefficiencies are higher than system-technical efficiency, as observed in other stud­ ies. Papua Province can improve health outcomes by focusing on efficiency in using the budget to achieve intermediate health outputs, i.e., health staff, health center, and maternal and childcare. However, negative returns to scale are observed, and thus, the government should consider other factors, such as topographic condition and safety issues in order to improve budget efficiency. REFERENCES Asandului, L., Roman, M. & Fatulescu, P. 2014. The Efficiency of Healthcare Systems in Europe: A Data Envelopment Analysis Approach. Procedia Economics and Finance, 10, 261–268. Boyacıoğlu, E. Z. 2012. The Importance of Health Expenditures On Sustainable Development. Inter­ national Journal of Social Sciences and Humanity Studies, 4, 147–158. Charnes, A., Cooper, W. W. & Rhodes, E. 1979. Measuring Efficiency of Decision Making Units. Euro­ pean Journal of Operational Research, 3, 429–444. Cheng, G. 2014. Data Envelopment Analysis: Methods and Maxdea Software, Beijing: Intellectual Prop­ erty Publication. Hollingsworth, B. 2003. Non-Parametric and Parametric Applications Measuring Efficiency in Health Care. Health Care Management Science, 6, 203–218. Jafarov, E. & Gunnarsson, V. 2008. Efficiency of Government Social Spending in Croatia. Financial Theory and Practice, 32, 289–320. Kementerian Kesehatan 2018. Hasil Pemantauan Status Gizi (Psg) Tahun 2017, Jakarta: Kementerian Kesehatan. Kementrian Kesehatan 2017. Data Dan Informasi Profil Kesehatan Indonesia Tahun 2016, Jakarta: Kementrian Kesehatan. Le Blanc, D. 2015. Towards Integration at Last? The Sustainable Development Goals as A Network of Targets. Sustainable Development, 23, 176–187. Nixon, J. & Ulmann, P. 2006. The Relationship Between Health Care Expenditure and Health Outcomes. The European Journal of Health Economics, 7, 7–18. Ozcan, Y. A. 2014. Health Care Benchmarking and Performance Evaluation: An Assessment Using Data Envelopment Analysis (Dea), New York: Springer. Prasetyowati, Y. W. & Haryanto, T. 2018. Determinan Efisiensi Teknis Belanja Pemerintah Sektor Pen­ didikan Dan Kesehatan Kabupaten/Kota Di Provinsi Jawa Timur. Assets: Jurnal Ilmiah Ilmu Akun­ tansi, Keuangan Dan Pajak, 2, 47–55. Puspitasari, E. D. & Pujiati, A. 2017. Analysis of Efficiency of Government Expenditure in Health Sector in Central Java Province in 2012-2014. Economics Development Analysis Journal, 6, 30–39. Putri, A. 2015. Efisiensi Teknis Anggaran Belanja Sektor Kesehatan Propinsi Jawa Barat. Signifikan: Jurnal Ilmu Ekonomi, 4, 127–150. Solikin, A. 2018. Pengeluaran Pemerintah Dan Perkembangan Perekonomian (Hukum Wagner) Di Negara Sedang Berkembang: Tinjauan Sistematis. Info Artha, 2, 65–89. United Nations 2015. Transforming Our World: The 2030 Agenda for Sustainable Development. New York: United Nations. Wang, F. 2015. More Health Expenditure, Better Economic Performance? Empirical Evidence from Oecd Countries. Inquiry: The Journal of Health Care Organization, Provision, And Financing, 52, 1–5. S. Who 2012. Who Global Health Expenditure Atlas, Geneva: Who. Yanti, P. & Kustiani, N. A. 2016. Analisis Efisiensi Belanja Daerah Urusan Kesehatan Dengan Metode Data Envelopment Analysis (Dea): Studi Pada Pemerintah Kabupaten/Kota Di Provinsi Banten. Info Artha, 4, 81–96. Yatiman, N. & Pujiyono, A. 2013. Analisis Efisiensi Teknis Anggaran Belanja Sektor Kesehatan Pemer­ intah Daerah Kabupaten/Kota Di Provinsi Daerah Istimewa Yogyakarta Tahun 2008-2010. Dipone­ goro Journal of Economics, 2, 1–13.

33

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Regional economic analysis of Banten Province from 2011–2016 Indrayansyah Nur, Budi Susilo & Muhadi Prabowo Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: Regional economy often requires a different approach from the national eco­ nomic approach. In Indonesia, the development of the regional economy became an interest­ ing study after the enactment of the Regional Autonomy Law, one of which is the division of regions. Banten, as a new province, makes an interesting study for this research since it is related to the leading sector. This study uses the sectoral analysis approach, Klassen Typ­ ology, to identify the sectors that are superior by photographing advanced sectors and then comparing them to national regions. Results showed the leading sectors like water supply, wholesale trade, financial services, and real estate. As priority sectors, these sectors are expected to spur other sectors. The construction sector and education services need to come under a developed sector. Also, further regional growth analysis should be carried out by using the Location Quotient (LQ) analysis, which is also a regional growth analysis tool.

1 INTRODUCTION Regional economies are used to map regional economic growth and to refer to leading sectors in the area. By comparing the share and growth of each sector, one can see which sector is the leading sector of each region. A regional economic tool that can be used is the Klassen Typ­ ology. Banten is one of the new provinces close to the provincial capital chosen for this study because of its good economic development from 2010 to 2016. The aim of this study is to discover the leading sector and use it as a priority study for regional development in Banten Province.

2 THEORETICAL BASIS 2.1 Literature review 2.1.1 Typology Klassen* Typology Klassen is an analytical tool in Regional Economics that is used to identify sectors, sub-sectors, businesses, or leading commodities. This investigation is likewise used to discover a picture of the arrangement and construction of economic growth in an area. Klassen’s typ­ ology is done by comparing regional economic growth with regional economic growth as a reference, or by comparing the regional GDP per capita with the regional GDP per capita as a reference. Klassen’s Typological Analysis is a combination of analysis Location Quotient (LQ) *and Growth Ratio Model (MRP). This analysis is carried out with two approaches, sectoral and regional. a. Sectoral Approach Klassen’s Typological Analysis in this approach will produce four different sector classifi­ cations of characteristics, and the four classifications are as follows:

34

1. The Sectors developed and increasing very quickly (quadrant I). This sector means a potential sector because it has better economic and economic growth than the refer­ ence area. 2. The sector is progressive but depressed (quadrant II). In this sector, an area has eco­ nomic growth or GRDP (gi), which is less than the reference region (g), but the improve­ ment to regional GRDP (si) is better than the contribution of the sector’s value to the reference region GRDP (s) — symbolized by gi s. This quadrant shows that the sector has been saturated. 3. Potential or still developing sectors (quadrant III). In this quadrant, the sector has a GDP growth (gi) higher than the GDP growth in the reference region (g), but the sector’s contribution to the GRDP (si) is less than the value of the sector’s contribu­ tion to the GDP of the reference area (s). This classification is denoted by gi> g and si g and gki>gk. 2. Developed, but depressed regions (quadrant II). Regions in this quadrant show that GRDP growth (gi) is lower than the growth of the reference region (g) but has a GDP per capita (gki) which is better than the GRDP growth per capita of the reference area (gk), or symbolized by gigk. 3. Regions that can still develop expeditiously (quadrant III).This quadrant is a regional quadrant that has a GRDP growth (gi) higher than the growth of the reference area (g) but per capita GRDP growth (gki) which is less than the GRDP per capita growth in the reference area (gk), or symbolized by gi> g and gki g and si 1 with a cumulative 70.931% that each has a value of 6.480, 2.104, and 1.347. There­ fore, three factors affect the timeliness of completion of construction services procurement while the electronic variable is eliminated.

Table 1.

Total variance explained. Initial Eigenvalues

Extraction Sums of Squared Loadings

Component Total

% of Variance

Cumulative %

1 2 3 4 5 6 7 8 9 10 11 12 13 14

46.286 15.026 9.619 5.644 4.245 3.792 2.796 2.716 2.219 2.062 1.824 1.532 1.152 1.086

46.286 61.312 70.931 76.575 80.820 84.613 87.408 90.125 92.344 94.406 96.230 97.761 98.914 100.000

Table 2.

6.480 2.104 1.347 .790 .594 .531 .391 .380 .311 .289 .255 .214 .161 .152

Total

% of Variance

Cumulative %

6.480 2.104 1.347

46.286 15.026 9.619

46.286 61.312 70.931

Rotated component matrix. Component

Item

Description

1

2

3

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14

Preparation general procurement plan Self-estimated prices Technical specification of goods & services Supplier selection method Supplier qualification Tender schedule E-Proc performance expectancy E-Proc effort expectancy E-Proc social influence E-Proc facilitating conditions Human resources Budget Facilities and infrastructure Leadership

.180 .218 .073 .767 .835 .802 .730 .680 .723 .586 .163 .109 .110 .111

.252 .242 .259 -.092 -.064 .140 .470 .559 .399 .613 .654 .721 .690 .701

.823 .799 .773 .401 .296 .178 -.005 -.012 .046 -.059 .403 .331 .491 .273

42

To explain the three factors that determined the completion of government construction services procurement, the Rotated Component Matrix is used to identify the strong correl­ ation between the elements that shape them. Indicator variables with a high level of signifi­ cance are part of the factor construction. From the results of data analysis, the variables that determine the three factors of govern­ ment construction service procurements performance are classified as 1st factor: “Complexity procurement system” consists of the supplier selection method, qualification, and tender schedule, and E-proc performance and effort, and social influence. 2nd factor: “Organizational support” consists of E-Proc facilitating conditions, Human resources, Budget, Facilities and infrastructure, and Leadership. 3rd factor: “Procurement planning” consists of Preparation of the general plan, Selfestimated prices, and Technical specification of goods & services.

4 CONCLUSION This study investigates the determinant of government construction service procurements per­ formance in Indonesia. The result demonstrated that procurement planning, complexity pro­ curement system, and organizational support influence government procurement performance, especially in construction services. This study is essential in providing knowledge and understanding of the factors that determine the completion of government construction service procurements. The government should pay attention to the success of the procurement process by emphasizing several variables discussed in this study. REFERENCES Akhmadi, M. H. 2017. Evaluation of organizational support to e-government: a case study on the state financial application system. Jurnal Manajemen Keuangan Publik, 1, 51–57. Basheka, B. C. 2008. Procurement planning and accountability of local government procurement systems in developing countries: evidence from uganda. Journal of Public Procurement, 8, 379–406. Cerny, B. A. & Kaiser, H. F. 1977. A Study of a Measure of Sampling Adequacy for Factor-Analytic Correlation Matrices. Multivariate behavioral research, 12, 43–47. EskandariaN, M., Marthandan, G., Malarvizhi, C. A. & Tehrani, S. Z. 2016. Quality in E-Procurement Success. International Journal of Management & Information Systems (Online), 20, 73-n/a. Gagola, L., Sondakh, J. & Warongan, J. 2017. Analysis of Factors Affecting the Absoprtion of Regional Budget of Revenue and Expenditure (APBD) the local government of Talaud Islands. Jurnal Riset Akuntansi Dan Auditing “Goodwill”, 8. Hsin Hsin, C., Yao-Chuan, T. & Che-Hao, H. 2013. E-procurement and supply chain performance. Supply Chain Management, 18, 34–51. Lewis-Faupel, S., Neggers, Y., Olken, B. A. & Pande, R. 2016. Can Electronic Procurement Improve Infrastructure Provision? Evidence from Public Works in India and Indonesia. American Economic Journal. Economic Policy, 8, 258–283. Song, Y. & Qi, L. 2016. Eigenvalue analysis of constrained minimization problem for homogeneous polynomial. Journal of Global Optimization, 64, 563–575. Van Der Vaart, J. T., De Vries, J. & Wijngaard, J. 1996. Complexity and uncertainty of materials pro­ curement in assembly situations. International Journal of Production Economics, 46-47, 137–152. Venkatesh, V., Morris, M. G., Davis, G. B. & Davis, F. D. 2003. User acceptance of information tech­ nology: Toward a unified view. MIS quarterly, 425–478. Wickramasinghe, V. & Perera, S. 2014. Effects of perceived organisation support, employee engagement and organisation citizenship behaviour on quality performance. Total Quality Management & Busi­ ness Excellence, 25, 1280. World Bank, G. 2015. Benchmarking Public Procurement 2016:   Assessing Public Procurement Systems in 77 Economies, Washington, World Bank Publications.

43

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Financial issues in Indonesia’s National Health Insurance program Dinil Asyrofi Directorate General of Budget, Jakarta, Indonesia

I Gede Agus Ariutama Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: The Healthcare Social Security Agency (BPJS Kesehatan) was established to implement national health insurance (JKN). As mandated by PP No. 87/2013, BPJS Keseha­ tan manages two types of assets carried out separately, namely BPJS Kesehatan Assets and Health Social Security Fund (DJSK) Assets with the latest fighting a more problematic finan­ cial issue, specifically financial deficits. Thus, this research focuses on the deficits that occur in the DJSK. This study employs a qualitative case study by interviewing several parties related to the funding of the JKN program. The results indicate that the factors causing the deficits include: inappropriate structure of the contribution-benefit scheme, adverse selection, and insurance effect. The contribution of this study is geared toward the proper evaluation of the factors causing DJSK deficits so that the government can anticipate their effects on the state budget, which will truthfully reduce the central government’s fiscal burden.

1 INTRODUCTION National Health Insurance (JKN), the universal health coverage (UHC) policy in Indonesia, aims at ensuring that people received healthcare benefits and protection in meeting their basic health needs. To achieve UHC, an implementation guide was made in the form of the Road Map 2012-2019 by the government, specifically with the following aims: (1) establishment of BPJS Kesehatan, and (2) coverage of all citizens in JKN membership in 2019 (Simmonds and Hort 2013). BPJS Kesehatan manages two types of assets, namely assets of BPJS Kesehatan and assets of the Health Social Security Fund (DJSK), with the latest being utilized to pay for health insurance services. From the beginning of its operations, specifically from 2014 to 2016, DJSK had received equity capital or grants from the state budget to overcome the cumulative deficits in BPJS Kesehatan. From the Indonesian Financial Note (Indonesia, 2018), the government allo­ cates funding each year to control the deficits in DJSK with an increasing percentage when com­ pared to the realization of the APBN. This makes the allocation seem to be part of the government’s mandatory spending outside of government contributions to BPJS participants receiving contribution assistance (PBI participants) as mandated by law. This condition makes the burden of state budget quite huge, resulting in a more limited fiscal space and posing a threat to the sustainability of the government’s financial capacity (Heller, 2005). Thus, this study is an attempt to analyze factors causing the deficits in DJSK so that policymakers can anticipate them. 2 THEORETICAL REVIEW Social insurance is a government program that offers insurance by providing protection to the public against adverse conditions. One of such conditions is health insurance (Harvey & Gayer, 2013; Gruber, 2013). However, Harvey and Gayer (2013) explained that the implemen­ tation of social insurance could lead to moral hazard for the community when there are 44

deviations from one’s behavior, which goes beyond the will of the government as the insurer, which then makes the program inefficient. Therefore, the provision of the National Health Insurance program in Indonesia requires supervision and preparation of more prudent pol­ icies in order to minimize the possibility of moral hazard among the beneficiaries. The discus­ sion about insurance is certainly not different from the concept of consumption smoothing, which means a method carried out by individuals or groups by reducing consumption when the income earned is high in order to transfer the savings to be used as an additional financial ability to consume when income is low.

3 METHODS The research approach in this study is qualitative. Additionally, the research method used in this study is a case study that carefully investigates a program, event, activity, process, or group of individuals (Creswell, 2010) in order to understand a particular problem or situation very deeply and identify information-rich cases (Patton, Priyadi and Kamdani, 2006). The con­ sideration for choosing the case study in this research is because this study aims to look care­ fully and completely at the condition of the DJSK deficits, which is managed by BPJS Kesehatan. The proposition in this study is in the form of empirical evidence verification based on different perspectives on the root causes of deficits and the application of alternative solu­ tions between parties that are related to the implementation of National Health Insurance. The data to be used is derived from primary data obtained from interviews, while secondary data is in the form of a literature study by reviewing relevant documents and literature. In this study, the participants are from three parties, specifically policymakers (government), the organ­ ization implementing the program, and experts. The parties involved in this study were selected based on their knowledge and experience related to the problem of the DJSK deficits. The informants are 1) two managers from Directorate General of Budget (DJA)whose duties are preparing policy studies, recommendations, evaluations and preparation of budgeting regula­ tions in the Healthcare Social Security and SJSN; 2) a manager from Ministry of Health whose duty is to prepare policy and evaluation in healthcare financing and insurance; 3) a member of National Social Security Council (DJSN) who is an external trustee whose duty is to monitor and evaluate the financial condition of BPJS Kesehatan; 4) Assistant Deputy for Treasury and Investment of BPJS Kesehatan; 5) two experts in Health Economics from Fiscal Policy Board (BKF) and Institute for Economic and Social Research (LPEM), University of Indonesia.

4 RESULTS AND DISCUSSION 4.1 General description of National Health Insurance (JKN) The discrepancies are existing between contribution fees and benefit payments, with the latter being higher in the implementation of the JKN program, result in deficits every year. The con­ tribution structure is currently applied to each group of participants based on the Presidential Regulation on Health Insurance. For the benefits of health services in the JKN program, the participants, according to the member of DJSN, can access unlimited health services as long as meeting the requirements are done in accordance with medical needs. The description of the claims ratio, which means the gap between contributions paid by participants to BPJS Kesehatan and claims for the cost of health services received are explained in Table 1. It is observed that for several segments, the JKN participants have a very high claims ratio of more or less 300% above the contributions paid. 4.2 Analysis of factors causing the deficit of DJSK Before discussing the factors leading to the DJSK deficits, it is important to identify its impact on the national health insurance (JKN) system. The informant from the Ministry of Health 45

Tabel 1. Claims ratio per classification of participants. Classification of Participants

Cost of Health Service

Contribution

Claims Ratio

PBI from State Budget PBI from Local Budget Wage Recipients Independent Workers Non Workers

17.402.841.793.434 4.375.495.464.507 20.663.811.132.223 18.508.930.356.211 6.296.807.176.232

24.814.983.852.125 3.658.718.619.463 31.565.841.175.054 6.150.288.624.110 1.607.579.906.784

70,13% 119,59% 65,46% 300,94% 391,69%

Source: compiled from program management report of BPJS Kesehatan

mentioned that the impact of the deficits was considered to be quite systemic to health services due to the fact that claims for reimbursements by the hospitals to BPJS Kesehatan usually take months to be attended to, meaning that hospitals cash flow does not run properly. This is in line with the statement from a member of DJSN who stated that the period of payment for claims submitted by hospitals exceeded the time limit, thus impacting on health services pro­ vided, reducing benefits, and increasing the waiting time for services. After discussing the effect of the deficit on the JKN system, the causal factors related to the deficits of DJSK here­ after will be discussed. 4.2.1 Unmatched contribution and benefit structures As regards the causes of DJSK deficits, the member of DJSN explained that the deficits are caused by the inappropriate structure of contributions and benefits, reflected by particularly low contributions from insurance members who still go for unlimited benefits based on their medical needs. The medical needs of the recipients are not limited to the number of benefits per person per period, and everyone can use these benefits in full if they have medical needs and conditions. For the calculation of current contributions, the establishment is still using the old rates, which are now obsolete so that the amount paid for contributions needs to be reviewed. In line with the discussion above, interviewees from the Directorate General of Budget and expert from the University of Indonesia also mentioned that deficits would certainly occur in DJSK, as the contributions paid are always smaller than the benefits received. Furthermore, an expert from BKF added that the average ratio between contributions and benefits of each participant is one in two; for example, someone pays a premium fee of Rp 1,000, - while the benefits he receives are valued at Rp. 2,000. This condition is in accordance with the study of Situmorang (2016), which estimated that there was a funding gap between contributions and benefits with an increase of 58% per year. This means that the contributions that are currently applied in the JKN program are smaller when compared to the benefits of the services pro­ vided so that it impacts the gap. 4.2.2 Insurance effect Another causal factor of DJSK deficits is the existence of insurance effects, specifically the condition whereby people compete to use their health insurance as a result of the implementa­ tion of a new health insurance program. This phenomenon, according to the interviewee from UI, DJA, and Ministry of Health are like overutilization of health facilities such as visiting doctors more often, which was a common thing in countries implementing national health insurance. Furthermore, Head of Sub Directorate of State Budget Expenditures I added that this condition occurred due to the existence of an imperfect referral system resulting in partici­ pants being able to directly seek treatment at advanced health facilities without going through first-level health facilities. However, a different opinion was expressed by the informant from BKF. Though he basic­ ally agreed with the existence of insurance effects, he added that these effects actually have a positive side, particularly when directing participants to get preventive services in order to reduce the possibility of getting more severe treatment in the future, which can prevent a larger claim later on. Preventive services, in a more concise sense, are efforts to prevent dis­ ease (Goetzel, 2009). 46

4.2.3 Adverse selection Based on the information from several sources, there was another factor contributing to the health social security fund deficits, namely adverse selection. The interviewee from the Minis­ try of Health explained that social insurance is inseparable from the presence of adverse selec­ tion, especially for catastrophic diseases because these types of diseases require a huge amount of money and long-term treatment. In line with this, the Head of Sub Directorate of State Budget Expenditure I mentioned the same thing that those who register are people who are sick or who are at high risk, and they are usually independent participants. This opinion is similar to the opinion of the interviewee from UI who revealed that adverse selection does occur, especially for voluntary participants such as independent participants. He said it is due to the nature of independent participants who use volun­ tary registration, meaning that people who are at high risk have a tendency to register. If someone is healthy, he will be unwilling to register because the risk of being sick is low. In other words, he will feel that there is no need to register as a member because he will not use the insurance. Consequently, the adverse selection phenomenon also contributes to the causes of DJSK deficits. Harvey and Gayer (2013) described the adverse selection phenomenon by stating that participants with low risk, in this case, a healthy community, are reluctant to become insur­ ance participants, but the opposite condition occurs in high-risk communities where people are interested in becoming insurance participants since one of the considerations is that the medical expenses will be borne by the health insurance program.

5 CONCLUSION UHC has been implemented in Indonesia since 2014 to provide health protection for all citi­ zens and prevent them from experiencing financial difficulties. However, it is faced with a sustainability issue in terms of insurance funding, specifically deficits in Health Social Secur­ ity Fund (DJSK). Thus, this study aims at investigating the factors causing deficits in DJSK. Based on the results and discussion in this study, it can be concluded that there are several factors related to the causal factors of the Health Social Security Fund (DJSK) deficits. The main factor causing the DJSK deficits is the unpaired nature of the contribution and benefit structures. The premiums obtained from participants were always smaller than the payment of health service for JKN administration, especially for PBI (non-contributing participants) premiums. Another problem is that a lot of public euphorias was generated at the time of the initial implementation of JKN, encouraging people to use health services more often even though they were only slightly ill. In contrast, one interviewee argued that such a phenomenon was not too problematic since it could be considered as preventative care that will reduce the burden of future service. The last factor is the adverse selection factor, which occurs when members of the BPJS Kesehatan are people who are already sick or are regarded as a high risk, thereby contributing to more deficits. This happens mostly with the voluntary registration participants, such as the independent recipients, who become members when they are already sick, especially those who require huge sums of money, such as people with cata­ strophic diseases. However, among other things, this study does not include quantitative calculations to assess the appropriate amount of premium to be applied in the national health insurance pro­ gram for each type of participant. So, the next study is expected to consider using quantitative calculation analysis in order to complete the analysis of this study. In addition, this research focuses on the factors causing DJSK deficits, so the analysis used does not cover the solutions to the problem. Therefore, it is expected that the next study identifies the solutions to DJSK deficits in order to guarantee the implementation and sustainability of the national health insurance program. In fact, this study provides insights for BPJS Kesehatan and government regarding the impacts of DJSK deficits and causal factors from a number of parties respon­ sible for designing and executing policies related to the funding of BPJS Kesehatan. Following the results of the study, it is suggested that BPJS Kesehatan and the government increase 47

preventive services to the community in order to reduce the potential for greater claims in the future. In addition, the design of the benefits in the JKN program should also be reviewed in order to adjust the amount paid as a contribution. REFERENCES BPJS Kesehatan. 2014. Panduan Praktis Sistem Rujukan Berjenjang. Creswell, J.W., 2010. Research design pendekatan kualitatif, kuantitatif, dan mixed. Yogyakarta: Pustaka Pelajar. Goetzel. Ron Z. 2009. Do Prevention or Treatment Services Save Money? The Wrong Debate. Health Affairs, 28, no.1:37–41. Gruber, J. 2005. Public Finance and Public Policy. New York: Worth Publisher. Harvey, R. and Gayer, T., 2013. Public finance. McGraw-Hill Higher Education. Heller, M. P. S. 2005. Understanding fiscal space. Washington, DC:International Monetary Fund. Indonesia, K.K.R., 2018. Nota Keuangan APBN 2018. Patton, M.Q., Priyadi, B.P. and Kamdani, 2006. Metode evaluasi kualitatif. Pustaka Pelajar. Simmonds, A. and Hort, K., 2013. Institutional analysis of Indonesia’s proposed road map to universal health coverage. Health Policy and Health Finance Knowledge Hub, The Nossal Institute for Global Health, The University of Melbourne. Situmorang, C.H., 2016. Kesinambungan Pendanaan JKN-BPJS Kesehatan. Jurnal Farmasi Indonesia, 8(1).

48

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Analysis of government office space planning on organizational productivity (Case study at the Jakarta Pesanggrahan Tax Service Office) F.H. Fajriyani & Trisulo Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: The effectiveness and efficiency of workspace is a consideration for govern­ ment and private work units with adequate management positively correlated to employee productivity. During planning, the Need for State Property (BMN) is not separated from the implementation of Strategic Asset Management. Therefore, BMN management is expected to be integrated with the duties and functions of Ministries/Institutions. Government agencies use APBN/APBD funding sources to determine their minimum limits for the workspace. Fur­ thermore, BMN integrated with the budgeting system is expected to increase the effectiveness, efficiency, and optimization of the state budget. However, no correlation was obtained from office space planning based on the existing regulations on organizational productivity.

1 INTRODUCTION 1.1 Background According to Law Number 1/2004 of the State Treasury, all goods are purchased at the expense of the State Budget or from other legitimate gains. These are also known as BMN, which are in the form of buildings, land, and transportation. It needs planning and budgeting, which is further regulated according to Number 150/PMK.06/2014 of the Ministry of Finance on BMN. The RKBMN (BMN Requirement Plan) is guided by the Ministry/Agency Strategic Plan (Renstra-K/L), as well as the Goods and Requirements Standards, which are aimed at making plans for an effective and efficient budget approach. In determining the standard of building or workplace, the Goods and Requirement Standards are used to consider employee work productivity. Several studies found that a conducive work­ ing environment has the ability to increase employee and organization productivity. The use of budgeting approach, effectiveness, and efficiency are measured by compliance with regulations. For example, space and building sizes are specified in the standard of goods and needs. How­ ever, the most common question asked is, “Can the standard criteria for goods and BMN need have a positive impact on employee and organizational performance?” This paper reveals the planning of government office space at The Jakarta Pesanggrahan Tax Service Office, which is applicable to other government offices. Furthermore, it revealed the research on business com­ panies that consider employee productivity as a reference for effectiveness and efficiency. 1.2 Previous research Yockey (Suryo, 2017) reported that the size of office space also influences the health and stress level of its inhabitants. Office structuring, according to the identified principle, facili­ tates the implementation of work and improves efficiency as well as the effectiveness of organ­ izational work (NURNOVITASARI, 2011). Research on the effect of setting the interior physical elements on the productivity of employees working in the office of the Daily Public 49

Mind in Bandung stated that employee productivity tends to be improved through appropri­ ate interior settings (Zavani and Rahardjo, 2016). In general, the results of several studies show that office layout has a positive influence on the work effectiveness of employees and organizations. When the spatial office conditions are improved, productivity also increases, and vice versa (Anggraeni and Yuniarsih, 2017).

2 THEORY AND FACTS 2.1 Definition of effective and efficient Hans Kartikahadi, defined effectiveness as “the final product of an operational activity which has achieved its objectives in terms of quality, quantity, and target time limit” (Cicilia, Murni and Engka, 2015). According to Ruchyat Kosasih, it is a comparison of input-output in vari­ ous activities to achieve set goals both in terms of the quantity (volume), quality, and target time limit” (Cicilia, Murni, and Engka, 2015). Therefore, effective is concluded as business products that have met its objectives in compliance with applicable regulations. Cicilia et al. (2015.5) defined efficiency as “a way of minimizing the waste of resources during production.” The definition of efficiency, according to Cicilia et al. (2015,5), which quotes Ruchyat Kosasih in Agoes Sukirno (2000; 180) is an act used to make the most appropriate sacri­ fice compared to the desired outcome. An organization is considered effective, assuming it has the ability to achieve its objectives efficiently, economically, and in compliance with applicable regula­ tions. Therefore, efficiency is interpreted as an act to achieve goals without wasting resources. 2.2 Field facts A review of the effectiveness and efficiency of state properties and the practice of implement­ ing standards for goods were carried out at the Jakarta Pesanggrahan Tax Service Office with 72 employees to obtain an overview of RKBMN. Each part of the organizational structure has its respective duties regulated in Article 58 Number 206.2/PMK.01/2014 of the Ministry of Finance concerning Organization and Work Procedures of the Vertical Agency of the Direct­ orate General of Taxes. The preparation of the RKBMN is carried out by the Budget User to calculate the total building area in accordance with its requirements and standard. It is also based on Number 7/ PMK.06/2016 and Number 248/PMK.06/2011 amendments on Standard Goods and Needs of BMN in the form of land and buildings in the Republic of Indonesia. The standard value of goods obtained and the requirement for procurement of building leases by The Jakarta Pesanggrahan Tax Service Office is worth 1956 m2. These include Building Height, Office Unit Requirements, Land, and Work Space. 2.3 Analysis of effectiveness and efficiency based on goods standards The buildings occupied by The Jakarta Pesanggrahan Tax Service Office were rented, with an annual lease on users to create RKBMN for buildings every year. 2.3.1 Classification of the building based on the level of complexity The Jakarta Tax Office Pesanggrahan is a 6-floor building that includes a basement with a total area of 1950 m2 and a total surface area above 500m2. Low-rise buildings are located in the unutilized standard area, with a maximum gross of 25%. The total area of the room is 517.71 m2, with a26.54% of the gross building area. Due to the non-fulfillment of broad standard requirements, it is defined as ineffective and inefficient. 2.3.2 Classifications based on users

Classifications based on users of Jakarta Pesanggrahan Tax Service Office building is type E1.

However, the Office does not have a country house for employees, due to lack of land space.

50

Based on the initial search results, there is no physical evidence regarding the requirements; therefore, the efficiency of floor height standards has not been achieved. The Jakarta Pesang­ grahan Tax Service Office occupies a leased building with an area of 1950 mgross2, and total net space amounted to 1489.23 m2with a gross standard of 1985.08 m2 The SBSK value stated in the RKBMN is due to differences in applicable standards. Based on the results of the interview, RKBMN was conducted in 2015 with provisions based on the Regulation of the Minister of Finance in accordance with Number 248/PMK.06/2011 regard­ ing Goods and Standards for BMN in Land and Buildings. It utilized a standard net building area of 1130.34 m2, which amounted to 1489.23 m2. This shows that the Office fails to meet the standards, thereby making it inefficient with applicable regulations. The land area standard uses the basic building coefficient based on the location of the Jakarta Pesanggrahan Tax Service Office as stipulated in the Provincial Regulation Number 1 of 2014 concerning Spatial Details and Zoning Regulations. KDB was used as an office, with trade and service zones values as high as 30% (thirty percent). Its ground floor area is 325 m2, and when divided by the gross building, it amounted to 1950 m2 with 6 floors. The standard minimum area is at 1083.33 m2, which shows that the minimal area of 1083.33 m2 is required. The area The Office of 900 m2 shows that it is not following applicable regulations. The maximum land area standard is calculated with provisions similar to the minimum standard, but with a different numerator value that is equal to five times the floor area of the building. Furthermore, the obtained maximum amount of land area standard for The Jakarta Pesanggrahan Tax Service Office is 5,416.67 m2. From these values, it is found that The Office already meets the regulations set out for the land area occupied by the building, which is 900 m2. However, the area remains smaller than the maximum land that has been set. The working area standard is calculated and produces a value of 893 m2. When compared to a spacious room used to work in the location, which is worth 621.96 m2, meaning that it has met the maximum limit specified. Calculation of the total standard area of the supporting area found to exceed the standard above 100 m2, with some space less than the standard amount of between 50-100 m2. Cumulatively, the total supporting space in the location is greater than the required stand­ ard. This shows that The Jakarta Pesanggrahan Tax Service Office has not met the maximum limit of the supporting space and is not efficient.

3 CONCLUSIONS Analysis of the effectiveness and efficiency of space conducted at The Jakarta Pesanggrahan Tax Service Office is assumed to represent the analytical method applied to all central govern­ ment agencies because the basis of the analysis is the legislation. The results from the calcula­ tions do not show the effective and efficient spaces of buildings according to regulations with a positive impact on the organization. Previous studies have found that the effectiveness and efficiency of space affect employee and organizational performance. Regulations on the requirements standards, only consider the complexity and users of BMN. However, this study found that some buildings were cat­ egorized as effective and efficient, though the effectiveness and efficiency cannot be concluded to have a positive impact on employee or organizational performance according to the laws and regulations. REFERENCES Law of the Republic of Indonesia Number 17 the year 2003 concerning State Finance. Law of the Republic of Indonesia Number 1 of 2004 concerning the State Treasury.

51

Government Regulation of the Republic of Indonesia Number 27 of 2014 concerning Management of BMN/Regional. Regulation of the Minister of Finance Number 150/PMK.06/2014 concerning Planning for BMN Needs. Regulation of the Minister of Finance of the Republic of Indonesia Number 7/PMK.06/2016 Regarding Amendments to the Minister of Finance Regulation Number 248/PMK.06/2011 Regarding Standards of Goods and Standards for BMN Needs in the Form of Land and/or Buildings. Regulation of the Minister of Finance of the Republic of Indonesia Number 76/PMK.06/2015 About Goods Standards and Standards for BMN Needs in the Form of Motorized Land Transport Equipment Office of Domestic Office Operations. Decisions Minister of Finance of the Republic of Indonesia Number 311 KM.6/2015 Regarding the BMN Need Planning Module for the Preparation of BMN Need Plans in the form of Motorized Land Transport Equipment Operational Position in Domestic. Regional Regulations Province of Jakarta Special Capital Region Number 1 of 2014 Concerning Spatial Planning and Regulation Detailszoning. BMN Directorate. 2017. BMN Needs Planning Handbook. Jakarta: Directorate General of State Assets of the. Supreme Court of the Republic of Indonesia. 2016. Guide to the State Asset Management Information System Planning Features. Vol, 3.0.5. Jakarta: Indonesian Supreme Court. Margono. 2016. Material for Planning BMN Needs. Jakarta: State Wealth Training Center and Financial Balance. Agoes, Sukirno, 2000. Auditing, Second Edition, Publisher of the Faculty of Economics, University of Indonesia, Volume I, Jakarta. Anggraeni, W. and Yuniarsih, T. (2017) ‘Impact of office layout on the work effectiveness of Bandung city education office employees’, Journal of Office Management Education, 2 (2), pp. 1–7. Cicilia, VSE, Murni, S. and Engka, D. (2015) ‘Analysis of Efficiency and Effectiveness and Independence of Regional Financial Management in North Minahasa Regency’, JOURNAL OF ECONOMIC AND REGIONAL FINANCIAL DEVELOPMENT, 17 (2). NURNOVITASARI, NN (2011) ADMINISTRATION ANALYSIS OFOF SPACE OF BUSINESS OFFICES IN ACHIEVING EMPLOYEE WORK EFFICIENCY (Case Study at the Administrative Office of the FKIP Dean of UNS Surakarta in 2010). Sebelas Maret University. Suryo, MS (2017) ‘Analysis of the Minimum Area Needs of Simple House Patterns in Indonesia’, Journal of Settlements, 12 (2), pp. 116–123. Zavani, MN and Rahardjo, S. (2016) ‘THE EFFECT OF PHYSICAL ELEMENT SETTING OFFICE SPACE ON EMPLOYEE WORK PRODUCTIVITY (Case Study: Daily Editorial Office of the Public Mind, Bandung)’, Idealog: Ideas and Design Dialogues of Indonesia, 1 (1), pp. 34–36.

52

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Financial distress in local governments in Indonesia Charoline Cheisviyanny, Fefri Indra Arza, Henri Agustin & Halkadri Fitra Universitas Negeri Padang, Indonesia

ABSTRACT: This research aimed to identify the characteristics of regional governments that tend to experience financial distress. The population was all municipalities and cities in Indonesia. The samples were selected by using Slovin’s formula, cluster sampling, and simple random sampling. We had access to 149 cities as samples, which consisted of 111 cities with financial distress and 38 cities with no financial distress in a three-year period (2015–2017). Data were analyzed using an independent sample t-test. The results showed that cities that tend to experience financial distress were those with high financial independence, a high level of decentralization, a large number of citizens, older age of the government, and small areas.

1 INTRODUCTION The term financial distress was first known in the private sector and is defined as a condition in which a company fails to fulfill its financial obligations. However, the same term is also found in the public sector. Jones and Walker (2007) explained financial distress in the context of the public sector as a failure of the government to provide standardized public services or facilities. The inadequacy of regional funds for providing public infrastructures is caused by a larger portion in the revenue expenditures budget than in the capital expenditures budget, where revenue expenditures are relatively less productive than capital expenditures (Arif & Arza, 2018). There were numerous previous research works on financial distress in the public sector, although not as many as those in private sector, which analyzed financial distress in terms of many factors such as financial factors (Sutaryo et al., 2010; Atmaja, 2012; Wibowo dan Sumekto, 2013), nonfinancial factors (Jones & Walker, 2007; dan Syurmita, 2014), and both (Clark, 1997; Carmeli, 2008; Pratiwi, 2014; Tubels, 2015; Wicaksono, 2015; Husniati et al., 2016). This study only used factors that are characteristic of local governments because we wanted to identify the characteristics of local governments that are experiencing financial dis­ tress. Information about these characteristics can help the central government to do its map­ ping, to design preventive actions, and to do budget monitoring. Five characteristics were analyzed in this study: financial independence, fiscal decentralization, the complexity of local government, government age, and government size. According to Halim in Supriyadi and Selamet (2013), financial independence shows the ability of local governments to finance their own activities, development, and services to the community. Financial independence is measured by comparing the local revenue and total expenditure. If a local government has high local revenue, it means that it is more independent and has a higher ability to finance its needs; therefore, its capital expenditure is expected to be more than 30% so as not to experience financial distress. The level of fiscal decentralization shows the level of authority and power of local governments in carrying out policies to pro­ vide standardized services for the community. The level of fiscal decentralization is measured by the contribution of local revenue in the implementation of decentralization. If a local gov­ ernment has high local revenue, it means it has a greater power to carry out good governance, so that it is expected not to experience financial distress. 53

The complexity of the local government describes the level of complexity of an area due to a large population. If a local government has a large number of citizens, it means it has a higher complexity of the need to provide services to the community, so it has a higher possi­ bility of becoming financially distressed. The age of the government illustrates how long a local government has been running. Since the issuance of regional autonomy regulations, many new regions have been formed. These newly established regions are still struggling with routine needs and have not been able to focus on the provision of facilities and infrastructure, so they tend to experience financial distress. The size of the government describes the wide nature of an area owned and managed by a local government. If a local government has a wider area, it means it has a wider scope of services to be provided, so it has a higher possi­ bility of experiencing financial distress. This research is a continuation of previous research that tested the effects of local govern­ ment characteristics on financial distress. The previous research used multiple regression analysis techniques and found that financial independence, level of decentralization, number of citizens, age of the government, and wide areas all encouraged financial distress. Based on the results of previous research, we conducted this research to identify the charac­ teristics of local governments that tend to experience financial distress. This research used independent t-test analysis techniques. The information about the characteristics of regions that tend to experience financial distress is expected to be able to give descriptions and sug­ gestions to the central government in order to properly evaluate its policies, especially budgeting policy. Based on the foregoing explanation, the question addressed in this research is: What are the characteristics of local governments that tend to experience finan­ cial distress?

2 RESEARCH METHOD A comparative research method was used. The population was all municipalities and cities in Indonesia, numbering 508. Because of the large population, we used Slovin’s formula to deter­ mine the sample, and we obtained 224 samples. The sample was selected using cluster sam­ pling and simple random sampling. Since Indonesia has 34 provinces, we ensured that selected municipalities and cities are in each province. After that, we counted the financial distress of each municipality/city for three years (2015–2017). We clustered the cities into two groups: cities with financial distress (group 1) and cities with no financial distress (group 2) in three years, respectively. We had 111 cities in group 1 and 38 cities in group 2. The rest, 75 cities, had fluctuating conditions in the three-year observation time, so they were excluded from the data. The measurement of variables is described in the Table 1. The analysis technique used in this study was the average difference test with an independ­ ent test of the t-test sample. The test criteria are: 1. If t stat < t table, H1 is rejected. 2. If t stat ≥ t table, H1 is accepted.

Table 1 .

The measurement of variables.

No.

Variables

Measurement

1 2 3 4 5 6

Financial distress Financial independence Level of decentralization Government’s complexity Government’s age Wide area

Capital expenditure/total expenditure Local revenue/total expenditure Local revenue/total revenue Number of citizens Age based on regional formation law Wide area in km2

54

3 RESULTS AND DISCUSSION Table 2 shows the results of data analysis with an independent t-test. The table shows the value of sig 0.000 < 0.05 for all variables, which means there are signifi­ cant differences between the two compared items in each variable. Looking at the value of the mean of financial independence (x1), it is seen that cities with high financial independence (mean 0.1512) tend to experience more financial distress than cities with low financial inde­ pendence (mean 0.0756). Thus, H1 is rejected. This result indicates that regions that tend to experience financial distress are regions that have high local revenue. Descriptive data show that the average level of independence of the area sampled in this study is only 15% for regions that experience financial distress and 7.5% for regions that experience no financial distress. The 15% figure shows that the level of regional independence is actually still low even though the local revenue is higher than average. The mean value of fiscal independence level (x2) shows that cities with a high level of decen­ tralization (mean 0.1391) tend to experience more financial distress than cities with a low level of decentralization (mean 0.0715). Thus, H2 is rejected. This result indicates that regions that tend to experience financial distress are precisely regions that have a high level of decentraliza­ tion. Descriptive data show that the average level of regional decentralization in this study sample is only 14% for regions experiencing financial distress and 7% for regions that are not experiencing financial distress. The figure of 14% shows that the level of regional decentraliza­ tion is still low even though the local revenue is higher than average. On the other hand, the mean value of the number of citizens (x3) depicts that cities with a large number of citizens (mean 12.9948) tend to experience more financial distress than cities with a small number of citizens (mean 11.8169). Thus, H3 is accepted. This result indi­ cates that areas that tend to experience financial distress are areas that have a large popula­ tion. The large population reflects the large needs of public services. This causes high revenue expenditure, so the government does not have a sufficient budget for capital expenditure. This condition is the reason why regions with large populations tend to experi­ ence financial distress. Looking further at the mean value of governmental age (x4), it was observed that cities with older ages (mean 48.1622) tend to experience more financial distress than cities with younger ages (mean 15.6842). Thus, H4 is rejected. This result indicates that areas that tend to experi­ ence financial distress are areas that have older ages. This might be because the longestablished local governments assumed that they no longer need facilities and infrastructures. They completed all facilities and infrastructure development in previous periods, and now they are allocating the budget to revenue expenditure in order to manage and maintain the

Table 2. Results of data analysis with independent t-test.

Financial independence Level of fiscal decentralization Number of citizens Age Large

Financial distress No financial distress Financial distress No financial distress Financial distress No financial distress Financial distress No financial distress Financial distress No financial distress

Group statistic

Independent sample t-test

N

Mean

F

Sig.

t

Sig. (2-tailed)

333 114 333 114 333 114 333 114 333 114

0.1512 0.0756 0.1391 0.0715 12.9948 11.8169 48.1622 15.6842 6.9126 7.6863

13.408

0.000

9.987

0.002

9.332

0.002

69.920

0.000

21.787

0.000

7.312 8.062 6.778 7.245 13.024 13.726 15.295 18.306 −4.627 −5.701

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

55

facilities and infrastructures that have been built. This condition makes revenue expenditure bigger and capital expenditure less than 30%. Lastly, the mean value of the large area (x5) shows that cities with large areas (mean 6.9126) tend not to become more financially distressed than cities with small areas (mean 7.6863). Thus, H5 is rejected. This result indicates that regions that tend to experience finan­ cial distress are regions that have small areas. This is because regions with large areas have several needs for facilities and infrastructures so that more expenditure allocations are budgeted for capital expenditure. Regions with small areas do not have the required facilities and infrastructure needs as much as large areas do, so their allocation of capital expenditure is not more than 30%.

4 CONCLUSION AND SUGGESTIONS Based on the analysis in the previous section, we conclude by stating that municipalities and cities that tend to experience financial distress have the following characteristics: higher finan­ cial independence, higher level of decentralization, large number of citizens, older ages of the government, and small areas. From the foregoing discussion, it seems that the central govern­ ment has not played an active role in controlling the financial distress that is plaguing local governments in Indonesia. Consequently, it is expected that the central government should control the transfer of funds and conduct training in order to explore the potential of local governments fully. REFERENCES Amitabh, Joshi. (2006). Disclosure in corporate reporting of public sector financial institutions (PSFs). www.ssrn.com. Arif, M., & Arza, F. I. (2018). Pengaruh Kinerja Keuangan Terhadap Alokasi Belanja Modal Pemerin­ tah Daerah di Kabupaten dan Kota Provinsi Sumatera Barat Tahun 2013–2017. Riset Manajemen dan Akuntansi, 9(2). Atmaja, Khoirul Fariz. (2012). Analisis Rasio Keuangan untuk Memprediksi Kemungkinan financial distress. Accounting Journal. Carmeli, A., & Cohen, A. (2001). The financial crisis of the local authorities in Israel: A resource-based analysis. Public Administration, 79(4), 893–913. Christiaens, Johan. (1999). Financial accounting reform in Flemish municipalities: An empirical investigation. Financial Accountability & Management, 15(1), 0267–4424. Christiaens, Johan, & Pateghem, Vincent V. (2007). Governmental accounting reform: Evolution of the implementation in Flemish municipalities. Financial Accountability & Management, 23(4), 0267–4424. Clark, T. N. (1977). Fiscal management of American cities funds flow indicator. Journal of Accounting Research, 15. Husniati, Sri, Fitriasuri, & Wahasusmiah, Rolia. (2016). Faktor-Faktor yang Mempengaruhi financial distress. In Seminar Nasional Ekonomi dan Bisnis Global Competitive Advantage, April 6, 2016, Palembang. Jones, Steward, & Walker, R. G. (2007). Explanators of local government distress. ABACUS 43(3), 396–418. Kleine, et al. (2005). Developing and testing a composite model to predict local fiscal distress. Public Administration Review, 65(3), 313–323. DOI: 10.1111/j.1540-6210.2005.00456.x. Pratiwi, Mutiara Galuh. (2014). Prediksi Status financial distress Pemerintah Daerah. E-journal Univer­ sitas Muhammadiyah Surakarta. Supriyadi, Armandelis dan Selamet Rahmadi. (2013). Analisis Desentralisasi Fiskal di Kabupaten Bungo. Program Magister Ilmu Ekonomi Fakultas Ekonomi Universitas Jambi. Jurnal Perspektif Pembiayaan dan Pembangunan Daerah, 1(1). Sutaryo, et al. (2010). Nilai Relevan Informasi Laporan Keuangan Terkait financial distress Pemerintah Daerah. In Simposium Nasional Akuntansi XIII. Purwokerto. Syurmita. (2014). Pengaruh karakteristk Pemerintah Daerah terhadap Prediksi financial distress. In Sem­ inar Nasional Akuntansi XVII. Mataram.

56

Tubels, Agus. (2015). Evaluasi financial distress pada Pemerintah Kota Bandar Lampung. Jurnal Akuntansi. Wibowo dan Samekto. (2013). The relevance of accounting information and financial distress of local government In East Java. The Indonesian Accounting Review, 3(1), 43–52. Wicaksono, Adhi. 2015. Financial distress pada Pemerintah Daerah Kabupaten dan Kota di Indonesia. E-journal digilib UNS. S2 Thesis.

57

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Valuation of standard chartered tower in Indonesia (income approach) Doni Triono Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: Valuing a property is a challenging job because the results of the assessment are important for not only the asset owners but also for the banks, and the prospective investors. This study aims to provide an opinion on the market value of the standard chartered tower building in Jakarta. This study uses the income approach, with the discounted cash flow (DCF) method in con­ ducting valuations. DCF is used because it has been proven effective for valuing assets with an income approach. Data is obtained through literature studies in the form of annual reports, research institute reports, and other sources of information. This research assumes that assets are valued for sales purposes. Based on the calculation, the market value of the object is Rp1,1126,970,000,000.00 (one trillion one hundred twenty-six billion nine hundred seventy million rupiahs).

1 INTRODUCTION Due to the rate of economic development and growing population densities in the South East Asian countries, the majority of these cities are dominated by high-rise apartment buildings (Cheung, Fuller, & Luther, 2005; Mirrahimi et al., 2016). Jakarta, as the capital of Indonesia, has also experienced a growth in the number of high-rise buildings that function as residential or commercial. Parties that have ownership of high-rise buildings are government, private, or individuals. For various economic reasons, usually, the building owner wants to sell or use the asset as collateral, and this is where the valuation is needed. The owner has a huge interest in the valuation results, so this is a challenge for the valuer. Like other properties, high rise buildings valuation can be executed using the market data approach, income approach, and cost approach (Millington, 2013; Shapiro, Mackmin, & Sams, 2019). The best approach is determined by several factors, such as the characteristics of the valuation object and the availability of data. For the purpose of selling or investing assets, this study uses an income approach in valuing standard chartered tower buildings at Prof. Dr. Satrio street number 164, Setiabudi, South Jakarta, at 9,908 m2 for the land, and 67,790 m2 for the building, with 30 floors, owned and man­ aged by RDTX Group (PT Chitatex Peni). The income approach is used because a property that generates income is usually bought as an investment, and from the perspective of investors, the ability to obtain income is an important factor that increases the value of the property (Institute, 2013). One basic investment premise holds that the higher the earnings, the higher the value, pro­ vided the amount of risk remains constant. An investor who purchases income-producing real estate is essentially trading present money for the expectation of receiving future money.

2 RESEARCH METHODOLOGY In estimating the value, the approach used in valuation is the income approach with the dis­ counted cash flow (DCF) method. According to Baum, Baum, Nunnington, & Mackmin (2013), the process of valuation with income approach is: 58

1. 2. 3. 4.

Calculating net operating income Determining annual income trends Determining annual operational cost trends Determining the discount rate a. Cost of equity b. Cost of debt 5. Determining the level of capitalization 6. Estimating values The DCF method is a powerful tool for analyzing even complex situations (Steiger, 2008). DCF is also recognized in the real estate and construction sector as the most popular commer­ cial property investment valuation method (Christersson, Vimpari, & Junnila, 2015). Using the DCF method, the appraiser must estimate the future flow of funds of the property being valued. Future funds flow is the entire potential income derived from the property. Further­ more, all future fund flows are calculated for their present value (Baum et al., 2013).

3 DISCUSSION AND FINDING 3.1 Calculating net operating income Net operating income is obtained by subtracting effective gross income from operational costs. Based on the company’s financial statements, the effective gross income of the Jakarta Standard Chartered Tower office building in 2018 amounted to Rp198,900,000,000.00. Oper­ ational costs consist of fixed costs, variable costs, and building reserve costs, the magnitude of the building operating costs is Rp. 57,090,136,054.00, with the following details:

Table 1. Weighting the operational costs of office buildings. Description

Value

Depreciation Energy and water Salaries and allowances Repair and maintenance Security Property tax Miscellaneous Building operational costs

15.140.852.884 14.899.111.864 10.993.714.545 6.571.228.770 4.616.264.926 3.846.192.105 1.022.770.960 57.090.136.054

3.2 Determining annual income trends The increase in income per year can be obtained by using the historical data of the previous year’s income or by using the average comparative property data in the area of the valuation object. Based on the data from Colliers research institutions, the average price for leasing office buildings in the next few years in the CBD area and outside the CBD is projected to increase by 2.153%.

59

3.3 Determining annual operating costs trends The increase in operational costs per year is obtained from the average increase in the cost of service charities that are imposed on office buildings. The service charge fee is calculated based on the total operational and maintenance costs for objects, areas, and land each year, divided by the total area of all units. Based on Colliers research institute data, the average service charge price of office buildings in the CBD area and outside the CBD historically and future projections show an upward trend in the next few years at 1.707%. 3.4 Determining the discount rate Capitalization of income is calculated using the band of investment method (BOIM), which is a combination of the level of capital investment of loan capital and the level of capitalization of own capital. BOIM is used because the assessment is done using the net income before tax. To determine the discount rate, you must first calculate the cost of equity, the cost of debt, and the portion of your own capital and loans. Determination of the discount rate using BOIM is formulated with the following equation:

where Ke = Cost of equity; We = Weighted of equity; Kd = Cost of debt; Wd = Weighted of debt. 3.5 Cost of equity Cost of equity is obtained using the capital asset pricing model (CAPM), with the following equation:

Risk-free rate (Rf) is the return on a risk-free investment. Rf figures are obtained from the rate of return on government bonds (SUN), retail savings bonds (SBR) series SBR006 with the date of the determination of sales results April 22, 2019, and due on April 10, 2021, with a coupon rate of 7.95%, originating from tribes the reference interest at the time of the coupon determination, which is 6.00% plus a fixed spread of 195 bps (1.95%). β (beta) is a stock coefficient as a systematic risk gauge for a stock or portfolio relative to market risk. The β coefficient is obtained from the Damodorant research institute, in the real estate sector (operation and service), the January 2019 update is 1.35. The market risk premium is the rate of return to guarantee investors’ compensation for risk-free interest rates in the face of the average risk found in the market. The market risk premium is obtained by calculating the market risk premium reduced by the premium rating based on Indonesia’s default spread. The amount of market risk premium obtained is 6.45%. The data obtained is the latest update for January 2019.

3.6 Cost of debt The cost of debt is the loan interest rate, which is sourced from the average investment interest rate of banks. The data used comes from the corporate prime lending rate (SBDK) by large state-owned banks, such as Bank Rakyat Indonesia, Bank Negara Indonesia, and Bank Man­ diri, from calculations calculated at an interest rate of 9.95%. 60

The weighing portion of the company’s own capital and loan capital resulted in a value of 61.19% compared to 38.81%. Therefore, the discount rate is as follows:

3.7 Determining the capitalization rate The capitalization rate is the rate of return to determine the terminal value (estimated endur­ ing value of the property at the end of the projection period). The capitalization rate is obtained from the determination of the discount rate level reduced by the expected average growth rate of net operating income, so that capitalization rates are formulated:

Where DR = Discount Rate; and D NOI = Expected change in net operating income. Based on the data from the Colliers research institute, the amount of expected growth in the EBIT real estate sector in the operations and services category is -0.65%. So the amount of capitalization rate is:

3.8 Estimating values of the property market The process of calculating the market value of the property using the discounted cash flow method income approach is obtained by discounting (multiplying by a discount of certain fac­ tors) the future income series into the present value. If within a certain period of time income can be considered fixed, then in the calculation process, a terminal value will be determined, which is an estimation of the enduring value of the property at the end of the projection period (Levin & Olsson, 2000; Penman, 1998). The general income approach formula can be stated as follows:

where V = Property market value; Vt = Terminal value; r = Discount rate; g = Growth; and PBT = annual net income. From the calculation above, the recapitulation is: – – – – –

Net operating income: IDR 141,809,863,946.00 Increase in annual income: 2.153% Increase in annual operating costs: 1.707% Discount rate: 14.05% Capitalization rate: 14.70%

Based on the data above, we can make a projection of future cash flows for 10 years plus terminal values, which are then assessed. The calculation results can be seen in Table 2. below.

61

Table 2. Projections and the present value of property cash flow for 10 years.

Cash flow Operational cost NOI Disc factor Present value Cash flow Operational cost NOI Disc factor Present value Cash flow Operational cost NOI Disc factor Terminal value Present value

2018

2019

2020

2021

198,900,000,000 57,090,136,054 141,809,863,946 0.877 124,340,082,373

203,182,317,000 58,064,664,676 145,117,652,324 0.769 111,565,435,392

207,556,832,285 59,055,828,502 148,501,003,783 0.674 100,102,176,513

212,025,530,884 60,063,911,495 151,961,619,389 0.591 89,815,802,478

2022

2023

2024

2025

216,590,440,564 61,089,202,464 155,501,238,100 0.518 80,585,592,460

221,253,632,749 62,131,995,150 159,121,637,599 0.454 72,303,197,211

226,017,223,462 63,192,588,308 162,824,635,155 0.398 64,871,372,488

230,883,374,284 64,271,285,790 166,612,088,494 0.349 58,202,841,999

2022

2023

2024

235,854,293,332 65,368,396,638 170,485,896,694 0.306 52,219,276,654

240,932,236,267 66,484,235,169 174,448,001,098 0.269 46,850,378,229

246,119,507,314 67,619,121,063 178,500,386,251 1,214,288,341,843 326,113,614,005

4 CONCLUSION Property value is obtained from the sum of all present values of cash flow projections for 10 years plus the terminal value. Taking into account various assumptions and limits on the valu­ ation date, May 24, 2019, an estimated market value of the property is Rp 1,126,970,000,000.00 (one trillion one hundred twenty-six million nine hundred seventy thou­ sand rupiahs). The resulting value is the opinion of the appraisal of the valuation object based on the financial statements and the existing valuation rules. In the future, assessment can be done with another approach, namely the market data approach or income approach with pri­ mary data (taking data directly through building management), so that the results of this assessment can be compared with the assessment using another approach. REFERENCES Baum, A., Baum, C. M., Nunnington, N., & Mackmin, D. (2013). The income approach to property valuation: Estates Gazette. Cheung, C. K., Fuller, R. J., & Luther, M. B. (2005). Energy-efficient envelope design for high-rise apartments. Energy and buildings, 37(1), 37–48. Christersson, M., Vimpari, J., & Junnila, S. (2015). Assessment of financial potential of real estate energy efficiency investments–A discounted cash flow approach. Sustainable Cities and Society, 18, 66–73. Institute, A. (2013). The Appraisal of Real Estate (14th ed. ed.).

62

Levin, J., & Olsson, P. (2000). Terminal value techniques in equity valuation: implications of the steady state assumption. SSE/EFI Working Paper Series in Business Administration, 7. Millington, A. (2013). An introduction to property valuation: Estates Gazette. Mirrahimi, S., Mohamed, M. F., Haw, L. C., Ibrahim, N. L. N., Yusoff, W. F. M., & Aflaki, A. (2016). The effect of building envelope on the thermal comfort and energy saving for high-rise buildings in hot–humid climate. Renewable and Sustainable Energy Reviews, 53, 1508–1519. Penman, S. H. (1998). A synthesis of equity valuation techniques and the terminal value calculation for the dividend discount model. Review of accounting studies, 2(4), 303–323. Shapiro, E., Mackmin, D., & Sams, G. (2019). Modern methods of valuation: Estates Gazette. Steiger, F. (2008). The Validity of Company Valuation Using Discounted Cash Flow Methods.

63

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

The implementation of Micro, Small, and Medium Enterprises accounting in Indonesia Amrie Firmansyah, Amardianto Arham & Aji M. Elvin Nor Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: This study reviews the implementation of the preparation of financial state­ ments at MSMEs in Indonesia. The Financial Accounting Standards for Micro, Small, and Medium Enterprises (SAK EMKM) was established by the Indonesian Institute of Account­ ants, which took effect from January 1, 2018. The research methodology was a qualitative approach through interviews. Objects used were two UMKM XYZs, with business operations in interior design. Informants used were owners of MSMEs that run their entity’s businesses. This study concludes that the preparation of financial statements conducted by UMKM XYZ is only related to recording revenues and expenditures on a cash basis. Therefore, other finan­ cial statements information, such as the statement of financial position and statement of cash flow, are not available. Also, UMKM XYZ still does not recognize SAK EMKM in its accounting transactions. The entity will find it difficult to pay employees who have an accounting background considering its sales turnover, which is still relatively small.

1 INTRODUCTION Micro, Small, and Medium Enterprises (MSMEs) have essential roles to play in the economy of the citizens of Indonesia (https://www.kompasiana.com). First, MSMEs are a means of alleviating people from poverty because MSMEs can absorb high employment rates. This statement is supported by data from the Ministry of Cooperatives and SMEs in 2011, which showed that more than 55.2 million MSME units were able to absorb around 101.7 million people. This number increased to approximately 57.8 million MSME units, with a workforce of 114 million people. Second, MSMEs are a means to upgrade the economic level of small communities. In contrast to large companies, MSMEs have locations in various places, includ­ ing in remote areas. The existence of MSMEs in 34 provinces in Indonesia has reduced the economic gap because small communities do not need to move to cities to get a decent living. Third, MSMEs provide foreign exchange income for the country because the MSMEs’ market share covers national and international scale. Data from the Indonesia Ministry of Coopera­ tives and SMEs in 2017 suggested that the country’s high foreign exchange earnings from MSME actors reached Rp88.45 billion (http://www.depkop.go.id/data-umkm). This figure has increased eight times since 2016. The contribution of MSMEs to the national Gross Domestic Product (GDP) is projected to grow by 5% throughout 2019 (https://ekonomi.bisnis.com). According to the Chairperson of the Indonesian Association of Small and Medium Enterprises, with the estimated growth, the total contribution of MSMEs to the national GDP in 2019 could reach 65% or get to about Rp2,394.5 trillion, primarily from beginner MSMEs with marketing through online platforms, followed by micro business from the courier service sector (https://ekonomi.bisnis.com). The realization of the contribution of MSMEs to national GDP in 2018 was about 60.34%. To achieve this projection, the Chairman of the Indonesian Association of Small and Medium Enterprises stated that MSMEs need support from the government to access additional fund­ ing. The People’s Business Credit Policy facilitated by the government has not been effective 64

enough to boost MSME’s performance because it is only given to trade businesses, and not production businesses (https://ekonomi.bisnis.com). Furthermore, from the taxation sector, with the number of MSME actors reaching about 60%, it is projected that there are still many tax potentials that can be explored. Although cur­ rently, the contribution of the MSME tax to total state revenue is still very limited, the poten­ tial for tax revenue from the MSME sector is still very large considering that MSMEs are very numerous and are spread throughout Indonesia (https://nasional.kontan.co.id). If traced deeper, it could be observed that tax payments in Indonesia are dominated by corporate rev­ enues. This means that the conditions of the Indonesia State Budget often follow the economic cycle that occurs in Indonesia. When the economy improves, tax revenue is encouraged. How­ ever, when the economic cycle slows down, tax revenues also shrink. This is due to the corpor­ ate pattern that depends on economic conditions. Meanwhile, taxpayers whose taxes are relatively small, such as MSMEs, are far more resistant to economic shocks. Therefore, the Indonesia Tax Authority should increase tax revenues on a broader base for taxpayers, espe­ cially MSMEs’ (https://republika.co.id). Based on the description above, MSMEs play essential roles in Indonesia’s economy, both in providing employment, foreign exchange, and potential tax revenues in the Indonesia State Budget. The existence and sustainability of MSME cannot be separated from how the MSME manages its business. Associated with its business activities, which are predicted to be carried out continuously, MSMEs also have to conduct financial management properly. The prepar­ ation of MSME’s financial statements entails proper MSME’s financial management. MSME’s financial reports can be used by several stakeholders such as investors who need con­ fidence that the capital deposited into MSME can be used transparently and accountably. Also, financial statements can be used by creditors to assess the feasibility of granting credit to MSMEs. The studies which are reviewed in relation to the application of accounting for MSMEs in Indonesia have been discussed. Savitri & Saifudin (2017) concluded that in preparing financial statements, MSME owners would be burdened with operating costs because they have to pay salaries of employees who have expertise in accounting. Purwanti (2017) concluded that MSME owners have sufficient knowledge of financial statements even though it is only limited to the payment of bills and salaries of employees. However, MSME owners are still unable to make financial reports in the context of business performance. Barus et al. (2018) reviewed the activ­ ities of 33 MSMEs and discovered that only 10 MSMEs carried out an accounting cycle in their business operations. However, these MSMEs only used simple books or records to record busi­ ness finances. The reason MSMEs do not prepare financial reports is that accounting is con­ sidered to be complicated and difficult to implement, and most owners of MSMEs have limited understanding and skills in preparing financial statements (Hetika & Mahmudah, 2018). Meanwhile, Kirowati & Amir (2019) observed that MSME actors had not implemented MSME accounting in preparing financial reports due to the lack of understanding of MSME actors towards MSME accounting. Lestari (2018) stated that MSME objects in her research were not ready to apply MSME accounting in their financial statements because they did not know and understand about MSME accounting yet. On the other hand, Salmiah et al. (2018) stated that MSME actors’ understanding of MSME accounting conducted through surveys at MSMEs in Pekanbaru City was still at a sufficient level. However, as for the concept of histor­ ical cost measurement, business continuity assumptions, and financial report components, MSME actors have a high understanding. The implementation of proper accounting methods for MSMEs has also been discussed in other countries. Albu et al. (2013) investigated the perceptions of stakeholders involved in financial reporting in four emerging economies (the Czech Republic, Hungary, Romania, and Turkey) and found more support for IFRS for SMEs implementation than what was sug­ gested by the results of the European Commission’s 2010 consultation for the European Union. Abate (2018) explored factors affecting the implementation of Accounting Informa­ tion Systems (AISs) among SMEs in Ethiopia, taking SMEs in Bahidar City as a reference. This study reveals that the application of AISs is at its lowest level among SMEs in Ethiopia, and factors such as government support, employees’ IT competence, the complexity of AISs, 65

organizational readiness, and owner (manager) support were found to be significantly influen­ cing AISs implementation in Ethiopia. MSMEs have constraints in preparing financial reports both in terms of human resources and the operational expenses of the entity. The availability of MSMEs’ financial reports can encourage stakeholders such as investors and creditors to channel their funds so that they can increase the production capacity of MSMEs through additional capital or debt. Also, finan­ cial reports for MSMEs can be used to calculate taxation, performance evaluations, and finan­ cial projections for MSME entities in the future. This is in line with stakeholder theory, which states that financial statements can have benefits for related parties, especially on financial information from MSMEs. Based on this, this study aims to review the application of accounting at MSMEs by the Financial Accounting Standards of Micro, Small and Medium Enterprises (SAK EMKM) established by the Indonesian Institute of Accountants, which came into force on January 1, 2018. Some research that reviewed the application of accounting at MSMEs in Indonesia, in gen­ eral, used a lot of objects and accounting rules in general. Also, these studies did not use SAK EMKM as the basis in their research. Previous studies that have used SAK EMKM as their basis include Salmiah et al. (2018) and Kirowati & Amir (2018). However, this particular study used UMKM XYZ as an object that has business operations in the field of interior design services and the sale of design accessories. Therefore, this study is different from the previous studies, which only used one MSME object because it was able to gain more compre­ hensive reviews in the practice of accounting implementation at MSME, which has not been discussed in previous studies. Therefore, this research can contribute to a complete description of accounting practices at MSMEs in Indonesia as a developing country.

2 LITERATURE REVIEW 2.1 Stakeholder theory According to Freeman (1984), corporate stakeholders are not only limited to owners but include other parties who have different interests with the company, such as shareholders, creditors, consumers, suppliers, government, society, analysts, and others with particular interests. Meanwhile, Mitchell et al. (1997) defined stakeholders in a narrower perspective as those that guarantee the survival of the company. Deegan (2004) stated that stakeholder theory is a theory which states that all stakeholders have the right to obtain information about company activities that can influence the decision-making process. Stakeholder theory aims to assist company management in maximizing value-added services for company activ­ ities and minimizing losses that arise for stakeholders. 2.2 The definition of MSMEs In Indonesia, the definition of Micro, Small and Medium Enterprises (MSMEs or UMKM in Bahasa) is regulated in Law Number 20 of 2008 concerning Micro, Small and Medium Enter­ prises. Micro businesses are productive businesses owned by individuals and/or individual business entities that have a net worth of Rp50 million (excluding buildings and land of busi­ ness premises) and have annual sales of at most Rp300 million. Meanwhile, small businesses are productive economic businesses that stand-alone, which are carried out by individuals or business entities that are not subsidiaries or branch companies that are owned, controlled, or become either directly or indirectly a part of medium or large businesses. Businesses that are categorized as small businesses are businesses that have a net worth of more than Rp50 million to Rp500 million with annual sales results of more than Rp300 million to Rp2.5 billion. As for medium-sized businesses, the definition is almost the same as small busi­ nesses. However, the criteria for a medium business is having a net worth of more than IDR 500 million to IDR 10 billion and having annual sales results of more than IDR 2.5 billion to IDR 50 billion. 66

2.3 Financial Accounting Standards of Micro, Small and Medium Enterprises (SAK EMKM) The Financial Accounting Standards for Micro, Small and Medium Enterprises (SAK EMKM) were prepared by the Indonesian Institute of Accountants to meet the financial reporting needs of micro, small, and medium entities. SAK EMKM is arranged by topic and is stated in a book consisting of eighteen chapters. In SAK EMKM, the entity’s financial statements are prepared using the assumptions based on accruals and business continuity, as used by objects other than micro, small and medium entities, and using the concept of busi­ ness entities. The entity’s financial statements consist of the statement of financial position, the income statement, and notes to the financial statements. SAK EMKM is equipped with illustrative examples of financial statements. An entity can use illustrative examples of the financial statements as a guide to facilitate and gain an understanding in preparing the finan­ cial statements. SAK EMKM became effective from January 1, 2018.

3 RESEARCH METHODOLOGY This study used a qualitative approach to the interview method. The informants in this study are two UMKM XYZ owners with the consideration that these owners are directly involved in accounting records of the entity and that they also run their entity’s business operations. This research was conducted from July to August 2019. The interviews were conducted from 22 to 23 July 2019. The interview questions referred to the Financial Accounting Standards of Micro, Small and Medium Enterprises (SAK EMKM) issued by the Indonesian Institute of Accountants. The questions were directed to the informants with the intention to find out the level of understanding of accounting and accounting implementation by MSMEs, which includes accounting equations, the treatment of assets, liabilities, equity, revenues, expenses, and financial statement presentation.

4 DISCUSSION The main business operation of UMKM XYZ is the delivery of interior design services and the sale of design accessories. Based on Law Number 20 of 2008 concerning Micro, Small, and Medium Enterprises, UMKM XYZ is classified as a micro-scale business, which is a productive business owned by individuals. Judging from the characteristics of an entity, UMKM XYZ tends to approach a partnership model. However, in reality, UMKM XYZ does not have an agreement on the business model. UMKM XYZ does not have an engage­ ment among its members as a partnership. Although UMKM XYZ has been established since 2014, business operations have only begun to run optimally in 2018. UMKM XYZ had two types of revenue sources since 2018, namely the delivery of interior design services and the sale of design goods. Income obtained from the delivery of interior design services is sometimes used to finance the production of accessories, and vice versa. However, to date, UMKM XYZ has not separated income records from interior design services and sales of accessories designed products. Based on the results of interviews with owners who run business operations, UMKM XYZ still does not have an adequate understanding of accounting. UMKM XYZ only compiles an income statement per project. UMKM XYZ does not prepare the income statements every period. In preparing the financial statements, UMKM XYZ has not used the accounting equation by financial accounting standards, so that transaction information is restricted only to income and expenses. Therefore, the recording of all accounting transactions is done using the cash basis, not an accrual basis. The financial statements prepared by UMKM XYZ only serve to make projections for further entity projects and aim to control the marketing costs incurred. Each project report is used as a basis for consideration in assessing projects that have the highest level of demand. The assessment results are then used as a basis for allocating costs, including marketing costs, which are expected to determine costs optimally. 67

In carrying out its business operations, UMKM XYZ records information from each trans­ action in a simple manner, namely recording the purchase of goods, receiving money, and spending money related to transportation costs. UMKM XYZ has separated wealth and obli­ gations between the owner and the entity. When the MSME receives income, the MSME owner shares the income to be allocated to the MSME itself and each partner by the agreed portion of the distribution. However, UMKM XYZ has not been able to classify current assets and fixed assets properly and still cannot separate records from cash, equipment, and equipment. In its operations, UMKM XYZ does not have account receivables, so it does not have a policy related to uncollectible accounts. Thus, UMKM XYZ does not have a strategy or policy in paying off loans in the future. UMKM XYZ cannot identify its fixed assets because it does not prepare financial reports. In carrying out its business activities, UMKM XYZ uses a building owned by one of its owners. Therefore, the building is not an asset of UMKM XYZ and does not need to be recorded. UMKM XYZ does not pay rent for the use of the building but incurs maintenance costs. Also, UMKM XYZ does not recognize intangible assets. Regarding the entity’s capital structure, UMKM XYZ only uses a capital source from its owners. UMKM XYZ has no debt in running its business activities. As long as business oper­ ation financing can still be met from the owner’s capital source, the entity does not consider making a loan to a financial institution. UMKM XYZ’s income depends on the project received. One project requires about three to four months to complete. Income obtained in each project is divided among all members consisting of four people with a greater proportion for one member who is responsible for the project or Person in Charge (PIC). The income from UMKM XYZ received by members is allocated based on the profit-sharing principle. Revenues are recorded when cash is received, and expenses are recorded when cash is issued. UMKM XYZ has given different treatment for cash received in advance for goods and service orders. UMKM XYZ separates the cash from income. UMKM XYZ only treats the money as income when the project is completed and has received payment by the agreed price of goods or services. Meanwhile, recognized operating expenses are only directly related to revenue generation and recorded when cash is issued. Other costs related to UMKM XYZ business operations are not recorded. The calculation of the selling price of UMKM XYZ products comes from the purchase costs of each item added to the design service fee based on the standards of the association and the addition of profit margins. Inventories are not recorded in the financial statements because UMKM XYZ does not prepare a balance sheet or statement of financial position. Additional costs, such as freight costs for goods purchased, are included as additional inven­ tory value. As for damaged or unsold inventory, it can still be reused (can be recycled), for example, dried flowers. UMKM XYZ applies upcycling and sustainable design business. Financial statements for MSMEs are essential because they have benefits both for the entity’s internal parties and for the entity’s external parties. The presentation of financial statements should meet the qualitative characteristics of financial statements, namely, rele­ vance and faithful representation (Kieso et al., 2018). The preparation of financial statements by UMKM XYZ uses a cash basis, which results in the assets and liabilities of the entity that can not be known reliably, as well as the actual income and expenses. The preparation of the income statement by UMKM XYZ still does not meet financial accounting standards. Also, UMKM XYZ has not prepared financial position reports and cash flow statements yet, which results in users of financial statements not being able to assess the entity’s financial position. Financial statements that are presented are reasonable things to be done by MSMEs, and this is in line with the findings of Barus et al. (2018) and Hetika & Mahmudah (2018). The effect of a simple financial statement presentation or even the unavailability of financial reports from UMKM XYZ is that prospective investors and owners of UMKM XYZ cannot assess the financial performance of the entity or predict the future of financial performance of the entity. Besides, creditors also cannot assess the entity’s creditworthiness if, in the future, UMKM XYZ makes loans. From the taxation aspect, UMKM XYZ also has problems in calculating its income tax. 68

The main problem faced by UMKM XYZ in financial management, especially the provi­ sion of financial reporting, is related to salary costs that must be generated to pay employees who have accounting education backgrounds. This is in line with the findings of Savitri & Sai­ fudin (2017), which concluded that if MSME owners have to employ employees who are experts in accounting, it will have an effect on increasing the salary costs and MSME’s oper­ ational expenses. This is a problem for UMKM XYZ considering the fact that the entity’s sales turnover is still relatively low, and it will burden the entity. Meanwhile, the owners of UMKM XYZ, who directly run the entity’s business operations, do not have an adequate accounting understanding. Knowledge of bookkeeping acquired by the owners of UMKM XYZ is obtained through self-taught efforts. The owners of UMKM XYZ have never attended formal training in accounting.

5 CONCLUSIONS, LIMITATIONS, AND IMPLICATIONS Based on the review of the discussion above, this study concludes that MSME actors in Indonesia, which are reflected by UMKM XYZ, still have not compiled financial reports as required by SAK EMKM. The financial statements prepared by UMKM XYZ are limited to the income statement per project prepared on a cash basis. Therefore, informa­ tion on the performance and financial position of UMKM XYZ cannot be reliably known. This study only employs one object so that it cannot generalize the conditions of other MSMEs in the preparation of financial statements and in the understanding of SAK EMKM in Indonesia. Future studies can use more objects to get more varied findings. Also, further research can use the triangulation method by confirming the findings of the implementation of financial statements at MSMEs to the Indonesia Line Ministry that fosters MSMEs in Indonesia and the Indonesian Institute of Accountants to get a more comprehensive dis­ cussion. Future studies can also use questionnaires by using more MSME objects to cap­ ture MSMEs’ perceptions in preparing financial reports and understanding of SAK EMKM in Indonesia. REFERENCES Abate, A. A. (2018). Implementation of Accounting Information Systems in Ethiopia: Evidence from Small and Medium Enterprises in Bahir Dar City. Science Journal of Business and Management, 6 (6), 107–115. Albu, C. N., Albu, N., Pali-Pista, S. F., Girbina, M. M., Selimoglu, S. K., Kovacs, D. M., Lukacs, J., Mohl, G., Mullerova, L., Pasekova, M., Arsoy, A. P., Sipahi, B., & Strouhal, J. (2013). Implementa­ tion of IFRS for SMEs in Emerging Economies: Stakeholder Perceptions in Czech Republic, Hun­ gary, Romania, and Turkey. Journal of International Financial Management & Accounting, 24 (2), 141–175. Barus, I. N. E., Indrawaty, A., & Solihin, D. (2018). Implementasi SAK EMKM (Entitas Mikro, Kecil, dan Menengah) pada UMKM Borneo Food Truck Samarinda Community. Research Journal of Accounting and Business Management (RJABM), 2 (2), 176–183. Deegan, C. (2004). Financial Accounting Theory. Sydney: McGraw-Hill Book Company. Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman. Hetika & Mahmudah, N. (2018). Penerapan Standar Akuntansi Entitas Mikro Kecil dan Menengah (SAK EMKM) dalam Menyusun Laporan Keuangan. Jurnal Bisnis Terapan, 2 (1), 81–104. Kieso, D.E., Weygandt, J. E., & Kimmel, P. D. (2018). Accounting Principles IFRS Version, Global Edi­ tion. United States of America: Wiley. Kirowati, D. & Amir, V. (2019). Implemntasi Standar Akuntansi Keuangan Entitas Mikro, Kecil, dan Menengah (SAK EMKM) pada Laporan Keuangan di Era Revolusi Industri 4.0 (Studi Kasus pada UMKM di Kota Madiun). Jurnal AKSI (Akuntansi dan SIstem Informasi), 4 (1), 48–58. Lestari, E. P. (2018). Kesiapan UMKM dalam Implementasi SAK EMKM Pengrajin Mebel Desa Catak Gayam, Mojowarno. Jurnal SENMAKOMBIS (Seminar Mahasiswa Nasional Ekonomi dan Bisnis), 2 (1), 48–57.

69

Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a Theory of Stakeholder Identification and Science: Defining the Principle of Who and What Really Counts. Academy of Management Review, 22, 853–886. Purwanti, E. (2017). AnalisisPengetahuanLaporanKeuanganpada UMKM IndustriKonveksi di Salatiga. Among Makarti, 10(20), 55–72. Salmiah, N., Nanda, S. T., & Adino, I. (2018). Pemahaman Pelaku UMKM terhadap SAK EMKM: Survey pada UMKM yang Terdaftar di Dinas Koperasi dan UMKM Kota Pekanbaru. Jurnal Akun­ tansi Dewantara, 2 (2), 194–204. Savitri, V. R., &Saifudin. (2018). PencatatanAkuntansipada Usaha Mikro, Kecil danMenengah (Studi­ pada UMKM Mr. Pelangi Semarang. JurnalManajemenBisnisdanInovasi, 5(2),117–125. StandarAkuntansiKeuanganEntitasMikro, Kecil, danMenengah (SAK EMKM). Undang UndangNomor 20 Tahun 2008 tentang Usaha Mikro, Kecil, danMenengah. https://ekonomi.bisnis.com/read/20190109/12/876943/kontribusi-umkm-terhadap-pdb-2019-diproyeksi­ tumbuh-5 accessed on July 10, 2019. https://nasional.kontan.co.id/news/pasca-tarif-pajak-umkm-turun-jadi-05-jumlah-wajib-pajak-meningka taccessed on August 9, 2019. https://republika.co.id/berita/pqryve382/pajak-umkm-ditarget-naik-rp-100-miliaraccessed on August 9, 2019. https://www.kompasiana.com/hikhman/599eabfae728e442d60622e2/3-peran-penting-umkm-penggerak­ penting-ekonomi-indonesia accessed on July 10, 2019. http://www.depkop.go.id/data-umkmaccessed on August 13, 2019.

70

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Public budgetary roles in Iran: Perceptions and consequences Farzaneh Jalali Aliabadi Latrobe Business school, Victoria, Australia

Graham Gal Massachusetts University, Amherst, USA

Bita Mashayekhi University of Tehran, Iran

ABSTRACT: This research examines the public budgeting process and budgetary roles in the higher education and research sectors in Iran. This examination focuses on the actors’ point of view to determine the deficits within the budgeting process that have led to a delay in its transition to a performance-based system. Using Wildavsky (1964) paradigm advocators and guardians were identified and their perceptions toward the public budgeting processes described. The results illustrate a decoupling between the actors’ perceptions based of their budgetary roles. Program advocators or spenders perceive budgeting as a negotiation-based process, while from guardians’ perception the budgeting process decisions are based primarily on “outputs” and “information”. This research illustrates how the disagreement on the per­ ceived budget between different budgetary roles and their application to the budgeting prac­ tices causes important outcomes in the transformation of the budget processes at Iranian public universities and research institutes.

1 INTRODUCTION Iran’s central government is pushing Public universities and research institutions (hereafter PURI) to obtain more of their operating funds from non-government sources (MPO, 2015; Article 60). In addition, the fourth (Article 138), fifth (Article 219) and sixth (Article 7 section P) Development Plans of Iran (MPO, 2006, 2010, 2015), indicate that PURI must begin using performance-based budgeting procedures. While performance-based budgeting implementa­ tion is mandated, a review of the current budgeting process at PURI in Iran illustrates that it is based on an incremental budgeting process. The budgeting process for PURI, involves three main organizations: PURI budget department, Ministry of Science, Research and Technology (hereafter MSRT), and the Management and Planning Organization (hereafter MPO). Pressure from the central government for PURI to move to performance-based budgeting is to improve reports on their performance (Parker, 2011). In addition, there is a need to make this sector more efficient and to reduce the dependence of these institutions on governmental funds (Parker, 2011; Parker, 2013). For these institutions to make this transition, the central budgeting and executive organizations in Iran have tried for about twenty years to prepare PURI to adapt their infrastructures and facilities for these transitions; which to date has not been successful. This research aims to document and to understand the behaviors which have created the barriers to the implementation of performance-based budgeting. This examination focuses on the actors’ role point of view to determine the deficits within the budgeting process that have led to a delay in its transition to a performance-based system. Wildavsky (1964) argues that “Roles” include the expectation of behavior of actors that occupy institutional posi­ tions. The roles of budget preparers can be categorized as either “guardians” or “advocates” 71

(Wildavsky, 1964). Budget guardians include those actors, from central agencies, that control the budgeted resources, and advocates include the actors that will use the resources and perform the budgeted actions (Trimble, 2010). Advocates seek resources to improve services, while guardians consider whether the funds will be used appropriately (Jönsson, 1982). Various researchers have used Wildavsky’s budgetary roles as a basis for investigating budgetary pro­ cesses at different institutions (Ahrens & Ferry, 2016; Ahrens et al., 2018; Imbeau, 2006, 2014; Jönsson, 1982). While it has been useful as a framework, Wildavsky’s (1984) framework has been modified (Czarniawska-Joerges & Jacobsson, 1989), and criticized by others (Rosenberg & Tomkins, 1983). This research continues the inquiry of Wildavsky’s budgetary roles framework by applying it to the investigation of the budgetary processes at Iranian PURI.

2 METHODOLOGY This study uses an interpretive research paradigm. The grounded theory methodology was used to analyze interviews from individuals responsible for developing budgets at Iranian public universities and research institutes. The results were interpreted using Wildavsky’s (1964) budgetary roles paradigm. The study attempts to answer the question: “how does the perception of the budget among actors in various budgetary roles and their application to the organization’s budgeting practices affect the budget transformation in PURI”? Data for this research comes from deep interviews conducted with individuals who are dir­ ectly involved in Iran’s PURI budgeting processes. The budget experts and managers come from three organizations: 1) budget departments at PURI, 2) the planning and budget depart­ ment of MSRT, and 3) the higher education and research sectors of MPO. Participants included eleven women and twelve men with an average age of forty-three. The selection of participants continued until theoretical saturation was achieved from individuals that were willing and available. Interviews varied from ten minutes to two hours and averaged fortyeight minutes (Table 2). The interviews were semi-structured and unstructured because the aim was to understand participants’ intellectual perceptions. The participants were asked to describe the budgeting process in their organization and their experience with the process. The questions allowed participants to explain their normal daily activities (Elharidy et al., 2008). Interviews were recorded (except for one) and were converted to text documents for use in the coding procedure. The text documents were then imported to MAXQDA to support the auto­ mated coding procedures. According to the systematic process of the grounded theory method (Elharidy et al., 2008), three different coding procedures (open, axial, and selective) were per­ formed (Strauss & Corbin, 2016).

3 FINDING Using Wildavsky’s (1964) paradigm, advocators and guardians were identified and their percep­ tions toward the public budgeting processes described. A primary result is that budget actors’ perceptions illustrated that although the regulation requires PURIs to use a performance-based budgeting process, budget spenders perceived budgeting as a “negotiation-based process.” This finding suggests the existence of a loose coupling between rules and routines in this sector. An additional result is that because budget spenders perceive budgeting as a negotiation, slack cre­ ation in budgeting is the consequence. Another important result is the identification of “output-oriented budget” and “informa­ tion-based budget” from the perceptions of the budget guardian. These concepts imply that due to regulations, the importance and necessity of performance-based budgeting are more institutionalized in guardians’ perceptions than in spenders. This result suggests a problematic gap among budget actors’ perceptions according to their roles, which can be interpreted as an inconsistency that impedes the implementation of performance-based budgeting at PURIs. These different perceptions between spenders and guardians indicate a lack of trust between budget spenders and guardians. The spenders’ perception leads to budgetary slack, which can 72

be considered as a loose coupling that limits the flow of authentic information and creates information asymmetry. In contrast, the perceptions of budget guardians are on information and output, and interest in standardized processes. This creates a vicious cycle as one group of actors sees a need for budgetary slack while the other looks for standardization of are import­ ant to understand the failure of budgeting transition in PURI. Wildavsky’s budgetary roles have been a particularly useful tool to analyze the results of the budget actors’ perceptions. This analysis, from the perspective of budgetary roles, is help­ ful in interpreting the relationship between the failure of performance-based budgeting imple­ mentation and the actors’ perceptions of the current budgeting process. A significant result is a difference between actors’ perception and consequences extracted from the interviews and the effect on the loose coupling between rules and routines in PURI’s budgeting procedures. This result is consistent with the previous literature on the practical understanding of budget actors based on their budgetary roles (Ahrens et al., 2018). The study contributes to public budget literature from a few perspectives. First, the study contributes to the performance-based budgeting literature by demonstrating an impact of the relationship between budgetary roles and their perceptions on the failure of performancebased budgeting implementation. Another contribution of this study is the examination of cul­ tural issues in changes to budgetary processes. There is not a great deal of literature that examines public budgeting in different countries. This research of Iranian PURIs provides some insights into the contexts of the cultural impact on public budgeting and to transitions in the budgeting process. Finally, as a contribution to budgetary role literature, this research adds an examination of a new context for budgetary role framework and illustrates the dis­ agreement on perceived budget among budgetary roles and its application in budgeting prac­ tices results in an understanding of the budget transformation process. This contribution shows that the budgetary role literature in budget transformation, adds a new application for considering budgetary roles. The results illustrate a decoupling between the actors’ percep­ tions based of their budgetary roles.

4 RESEARCH IMPLICATIONS There are a number of implications of this research that examined the budgeting process at Iranian PURI. First, for any change to established organizational processes, the perception of actors’ roles needs consideration. This study examined budgeting, but changes to established processes involve some type of negotiation. From a spenders’ point of view, the change to the performance-based budgeting system involves a different approach to obtain resources. The guardians’ point of view concerns their perception that negotiation is an information-based process and that budgeting is output-oriented. This makes guardians’ perceptions of the budget negotiations very similar to the objectives of performance-based budgeting. So, guard­ ians perceive that the spenders need to become more informed about performance-based budgeting, and this would increase their cooperation in the implementation process. Part of the limitations of this research arises from its research methodology and data gathering. Parti­ cipants were selected based upon their willingness and availability. Certainly, any study which requires participation from a limited population has this limitation. Although an attempt was made to obtain a variety of participants with different positions in the three organizations, more subjects might be beneficial. While there was an attempt to obtain a sample of individuals with different roles and responsibilities, the selection was limited by participants’ willingness and availability. Thus, the size and variability of the sample is a potential limitation of this study. When organiza­ tions attempt to transition to performance-based budgeting, it is critical to understand the cur­ rent budgeting process in order to detect potential impediments and to identify solutions. This is particularly critical for universities that receive most of their funding from governmental budgets (as is the case in Iran). The results of this research demonstrate contradictory percep­ tions between the budget actors that have a noticeable effect on the budgeting transition and need consideration when attempting to understand budgeting decisions. 73

REFERENCES Ahrens, T., & Ferry, L. (2016). Institutional entrepreneurship, practice memory, and cultural memory: Choice and creativity in the pursuit of endogenous change of local authority budgeting. Management Accounting Research. doi:http://dx.doi.org/10.1016/j.mar.2016.11.001 Ahrens, T., Ferry, L., & Khalifa, R. (2018). The hybridising of financial and service expertise in English local authority budget control: A practice perspective. Qualitative Research in Accounting & Management. Czarniawska-Joerges, B., & Jacobsson, B. (1989). Budget in a cold climate. Accounting, Organizations and Society, 14(1–2), 29–39. doi:http://dx.doi.org/10.1016/0361-3682(89)90031-7 Elharidy, A. M., Nicholson, B., & Scapens, R. W. (2008). Using grounded theory in interpretive manage­ ment accounting research. Qualitative Research in Accounting & Management, 5(2), 139–155. Imbeau, L. M. (2006). Are Wildavsky’s Budgetary Roles Still Relevant: A content analysis of policy speeches in Quebec, 1980-2004. Paper presented at the Annual conference of the Canadian Political Science Association, Torento. Imbeau, L. M. (2014). Policy Instruments and Budgetary Processes: A Reflection on the Deficit Elimin­ ation Experience in the Canadian Provinces. Open Journal of Political Science, 2014. Jönsson, S. (1982). Budgetary behaviour in local government — A case study over 3 years. Accounting, Organizations and Society, 7(3), 287–304. doi:http://dx.doi.org/10.1016/0361-3682(82)90005-8 MPO, MPO. (2006). Law on the forth Five-Year Economic, Cultural, and Social Development Plan of Iran for 1384-1390 (2007 – 2011). Iran: (in persian). MPO, MPO. (2010). Law on the fifth Five-Year Economic, Cultural, and Social Development Plan of Iran for 1391-1395 (2011 – 2016). Iran: (in persian). MPO, MPO. (2015). Law on the Sixth Five-Year Economic, Cultural, and Social Development Plan of Iran for 1396-1400 (2016 – 2021). Iran: (in persian). Parker, L. D. (2013). Contemporary university strategising: the financial imperative. Financial Account­ ability and Management, 29(1), 1–25. Rosenberg, D., & Tomkins, C. (1983). The budget liaison officer in local government—guardian or advo­ cate? Local Government Studies, 9(5), 51–64. Strauss, A., & Corbin, J. (2016). Basics of qualitative research: Techniqes and procedures for developing Grounded Theory (I. Afshar, Trans.). Tehran: Ney (in Persian). Strauss, A., & Corbin, J. M. (1990). Basics of qualitative research: Grounded theory procedures and tech­ niques: Sage Publications, Inc. Trimble, T. E. (2010). Determining Source-Based and Party-Based Perspectives in the Federal Budget Process: A Content Analysis of United States Executive, Congressional, and Agential Budget Commu­ nication from 1998-2000 (Virginia Polytechnic Institute and State University). Wildavsky, A. (1964). The politics of the budgetary process. Boston: Little, Brown and Companey.

74

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Corporate governance and earnings quality of ASEAN nonfinancial industries R. Mawaddati, E. Setiany, Z. Arifin & W. Utami Universitas Mercu Buana, Jakarta, Indonesia

ABSTRACT: This study examined the mechanism of good corporate governance on earn­ ings quality. Good corporate governance is measured by the proportion of independent com­ missioners, the proportion of audit committees, the proportion of the board of directors, and audit quality. Discretionary Accruals (DACC) is a proxy for earnings quality. The population of this study is Top 50 and Top 30 in the 2015 ASEAN CG’s Scorecard Assessment and reports of financial sectors published from 2014 to 2017. We used a purposive sampling method and obtained sample data of 32 companies. The method of analysis used is multiple linear regression. Results showed that the proportion of the audit committee and the propor­ tion of the board of directors influence the quality of earnings, while the proportion of inde­ pendent commissioners and audit quality do not affect the quality of earnings.

1 INTRODUCTION Corporate Governance (CG)’s scorecard assessment for Association of Southeast Asian (ASEAN) countries shows that the average score increases from the previous years. With the phe­ nomenon of an increasing CG scorecard, it is expected that there will be a reduction in the prac­ tice of earnings management in companies going public in ASEAN countries. The components of this corporate governance mechanism can improve earnings quality and will control the nature and motivation of managers in carrying out the company’s operational performance. Therefore, the effects of strong corporate governance in a company are expected to affect the relationship between earnings management and earnings quality (Chtourou, 2001). There are four corporate governance mechanisms that are used in this study to overcome agency problems: the audit com­ mittee, independent board of directors, audit quality, and the size of the board of directors. Previous research showed inconsistencies in results, which can be due to differences in research samples, years of research, and economic conditions. Therefore, the motivation of this research was to conduct further research on earnings quality, which is expected to provide an explanation for the inconsistencies in the results. Another difference between this study and previous research is seen in the scope of the study. Previous studies were carried out in companies within a country, whereas we conducted a cross-country study in ASEAN countries, namely Indonesia, Malaysia, Singapore, Philip­ pines, Vietnam, and Thailand, which contributes to the development of this field, especially in countries that are related to these. In practice, this field can be used as a consideration by stakeholders in making investment decisions, especially in assessing earnings quality. Based on the foregoing explanation, this research focused on the quality of earnings between the coun­ tries studied and analysis related to other aspects.

75

2 LITERATURE REVIEW Corporate governance is a set of rules that regulate the relationships among shareholders, company managers, creditors, government, employees, and other internal and external stake­ holders related to their rights and obligations, or in other words, a system that regulates and controls the company (FCGI, 2001). 2.1 Proportion of independent commissioners From the perspective of agency theory, the board of commissioners or internal management organizations can help align roles and managers (Jensen, 1993), and the external directors would be more effective in monitoring while also giving more expert knowledge and added value to the company (Jensen & Meckling, 1976). This is supported by the research of Herma­ lin et al. (1991) and Boone et al. (2007), which stated that external directors who are more effective in monitoring are also a means to discipline managers who carry out opportunistic behavior in pursuit of their own interests so that such managers’ excesses can be reduced. This is reinforced by the research conducted by Chtourou et al. (2001), Anderson et al. (2003), Boe­ diono (2005), Siallagan and Macfoedz (2006), Oktapiyani (2009), and Nadirsyah et al. (2015), which stated that the board of commissioners proved to be of quality to earnings quality. Based on these studies, the following hypothesis is proposed: H1: A proportion of independent commissioners affects earnings quality. 2.2 Proportion of the audit committee The audit committee is a monitoring mechanism that is voluntarily formed in a high agency cost situation to improve the quality of information between the principal and the agent (Hadi & Sabeni, 2002). Therefore, managers acting as agents will disclose more transparent company infor­ mation based on the effectiveness of the audit committee’s performance. Research conducted by Wedari (2004), Hermawan and Sulistyo (2005), Siallagan and Macfoedz (2006), Nasution and Setiawan (2007), Oktapiyani (2009), Ismail et al. (2010), Susanti et al. (2010), and Setiany (2013), stated that there was an influence of the audit committee on the quality of earnings. They con­ cluded in their studies that a larger audit committee could provide considerable supervision over the financial reporting process. The second hypothesis is: H2: A proportion of the audit committee affects earnings quality. 2.3 Proportion of the board of directors A larger size of the board of directors can reduce the effectiveness of supervision because com­ munication and coordination and the ability of the board to control management can lead to agency problems (Jensen, 1993). This is supported by the research conducted by Oktapiyani (2009) and Annisa and Kurniasih (2012) regarding the influence of the board of directors on earnings quality. Based on these studies, the following hypothesis is proposed: H3: The board of directors affects earnings quality. 2.4 Audit quality Auditing can reduce information asymmetry between managers and stakeholders of the com­ pany by allowing outsiders to check the validity of financial statements and increasing the credibility of information to support good corporate governance with the principle of trans­ parency (Jensen, 1993). This is supported by the research conducted by Becker et al. (1998), Francis et al. (2001), Krishnan et al. (2003), Herni and Susanto (2008), and Guna and Hera­ waty (2010) regarding the effects of audit quality on earnings quality. Based on the findings of these previous studies, the following hypothesis is proposed: H4: Audit quality affects earnings quality. 76

3 METHOD The population in this study comprised all companies in six ASEAN countries (Indonesia, Singapore, Malaysia, Thailand, Philippines, and Vietnam), which became the Top 50 and Top 30 in the 2015 ASEAN CG’s Scorecard assessment of nonfinancial sectors. The sample selec­ tion in this study was conducted using a purposive sampling technique, which is a method of determining or sampling with certain considerations (Sugiyono, 2011). Based on the table above, because researchers used purposive sampling in this study, much of data in this study were 32 companies multiplied by the time series from 2014 to 2017, so that the total data con­ sisted of 128 observation data components. This research will explain the effects of Good Cor­ porate Governance Mechanism (Proportion of Independent Commissioners, Audit Committee Proportion, Proportion of Board of Directors, and Audit Quality) on earnings quality as the dependent variables and Debt Level, Sales Growth, and Legal System as control variables. The data were analyzed with descriptive analysis to describe various characteristics of the variables studied. The verification analysis for hypothesis testing of this research was the test of goodness of fit (SPSS).

4 RESULTS AND DISCUSSION The first hypothesis (H1) proposed in this study states that the independent board of directors influences the quality of earnings. After testing, the proportion of the independent board of commissioners showed a significance probability value of 0.322, which was greater than the specified significance value of 0.05 (0.322 > 0.05). So it can be concluded that the independent board of directors does not affect the quality of earnings. The results of this study are consist­ ent with the results of previous studies by Muid (2009) and Indrawati and Yulianti (2010), which stated that a proportion of the independent board of commissioners has no effect on profit quality. The second hypothesis (H2) proposed in this study states that the audit commit­ tee influences the quality of earnings. After testing, the results showed that the significance probability value of 0.007 is smaller than the significant value that has been determined at 0.05 (0.007 < 0.05). It can therefore be concluded that the audit committee influences the quality of earnings. The third hypothesis (H3) proposed in this study states that the board of directors influences earnings quality. After testing, the board of directors showed a significance probabil­ ity value of 0.049, which was smaller than the significant value that was determined at 0.05 (0.049 < 0.05). It can therefore be concluded that the board of directors has an effect on earn­ ings quality. The fourth hypothesis (H4) proposed in this study states that audit quality influ­ ences earnings quality. After testing, the audit quality showed a significance probability value of 0.148, which is greater than the significant value that was determined at 0.05 (0.148 > 0.05). It can therefore be concluded that audit quality does not affect earnings quality.

5 CONCLUSION Based on the results of data analysis and discussion on the effects of good corporate govern­ ance mechanism on earnings quality with variables of control by debt levels, sales growth, and legal system (study across ASEAN countries), the results showed that a proportion of the audit committees and a proportion of the board of directors affect the quality of earnings in ASEAN countries, while a proportion of independent commissioners and audit quality does not. ACKNOWLEDGMENTS The authors would like to thank the Ministry of Research, Technology, and Higher Education (Kemenristekdikti) for funding the Student Thesis Grant, as well as Universitas Mercu Buana for facilitating this grant. 77

REFERENCES Anderson, Kirsten L., Deli, Daniel N., & Gillan, Stuart L. (2003). Boards of directors, audit committee, and the information content of earnings. Working Paper, September. Annisa, N. A., & Kurniasih, dan l. (2012). Pengaruh Corporate Governance Terhadap Tax Avoidance. Jurnal Akuntansi & Auditing, 8(2), 95–189. Boediono, Gideon S. B. (2005). Kualitas Laba Studi Pengaruh Mekanisme Corporate Governance dan

Dampak Manajemen Laba dengan menggunakan Analisis Jalur. Simposium Nasional Akuntansi 8. Solo.

Boone, A. L., Field, L. C., Karpoff, J. M., Raheja, C. G. (2007). The determinants of corporate board

size and composition: An empirical analysis. Journal of Financial Economics, 85, 65–101. Chtourou, S., Marrakchi, Jean Bedard, & Courteau, Lucie. (2001). Corporate governance and earnings management. Working Paper. http://papers.ssrn.com. Forum for Corporate Governance in Indonesia. (2001). Tata Kelola Perusahaan. Seri Tata Kelola Perusahaan, Jilid I. Edisi ke – 3. Jakarta. Francis, J. R., Khurana, I. K., & Pereira, R. (2005). Disclosure incentive and effects on cost of capital around the world. Journal of Accounting Review, 80(4), 1125–1162. Guna, Welvin I., Herawaty, Arleen. (2010). Pengaruh Mekanisme good corporate governance, Indepen­ densi Auditor,Kualitas Audit, dan Faktor Lainnya terhadap Manajemen Laba. Jurnal Bisnis dan Akuntansi, 12(1), 53–68. Hadi, N. dan A. Sabeni. (2002). Analisa Faktor-Faktor yang Mempengaruhi Luas Pengungkapan Sukar­ ela Dalam Laporan Tahunan Perusahaan Go Publik di Bursa Efek Jakarta. Jurnal Maksi, 1, 90–105. Hermalin, Benjamin E., & Weisbach, Michael S. (1991). The effects of board composition and direct incentives on firm performance. Financial Management, 20, IOI–112. Hermawan, D., & Sulistyanto, S. (2005). Analisis Faktor-Faktor yang Berpengaruh Terhadap Earning Management. Jurnal Akuntansi Bisnis, 3(6),102–125. Herni, dan Yulius, Kurnia Susanto. (2008). Pengaruh Struktur Kepemilikan Publik, Praktek Pengelolaan Perusahaan, Jenis Industri, Ukuran Perusahaan, Profitabilitas, dan Risiko Keuangan terhadap Tinda­ kan Perataan Laba. (Studi Empiris Pada Industri Yang Listing di Bursa Efek Jakarta). Jurnal Eko­ nomi dan Bisnis Indonesia, 23(3), 302–314. Indrawati, Novita dan Yulianti, Lilla. (2010). Mekanisme Corporate Governance Dan Kualitas Laba. Pekbis Jurnal, 22, 283–291. http://ejournal.unri.ac.id/index.php/JPEB/article/download/391/385. Ismail, W. A., Dunstan, K., & Zijl, T. V. (2010). Earnings quality and corporate governance surrounding implementation the Code of Corporate Governance Malaysia. Working Paper, School of Accounting and Commercial Law, Victoria University of Wellington, andSchool of Business, Bond University, Australia. Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal Control System. Journal of Finance, 48(July), 831–880. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. Krishnan, J., Balsam, S., & Yang, J. S. (2003). Auditor industry specialization and earnings quality. Auditing: A Journal of Practice, 422, 71–97. Muid, Dul. (2009). Pengaruh Mekanisme Corporate Governance Terhadap Kualitas Laba. Fokus Eko­ nomi Universitas Diponegoro, 4(2), 94–108. Nadirsyah, Fadlan Nur Muharram. (2015). Pengaruh Struktur modal, dan Good Corporate Governance Terhadap Kualitas Laba. Jurnal Dinamika Akuntansi dan Bisnis, 2(2), 184–198. Nasution, Marihot dan Doddy Setiawan. (2007). Pengaruh Corporate GovernanceTerhadap Manajemen Laba di Industri Perbankan Indonesia. Simposium Nasional Akuntansi X. Oktapiyani, Desi. (2009). Pengaruh Penerapan Corporate Governance Terhadap Likuiditas Perbankan Nasional. Fakultas Ekonomi Universitas Diponegoro Semarang. (Tidak Dipublikasikan). Setiany, Erna, et al. (2013). Audit committee characteristics and voluntary financial disclosure. Review of Integrative Business and Economics Research, 6(3), 239–253. Siallagan, Halnonangan dan Mas’ud Macfoedz. (2006). ‘Mekanislne Corporate Governance, Kualitas Laba, dan Nilai Perusahaan. Simposium Nasional Akuntansi IX Padang, 1–23. Sugiyono. (2017). Metode Penelitian Kuantitatif, Kualitatif dan R&D. Bandung: PT Alfabet. Susanti, A. N., Rahmawati, &Aryani, A. (2010). Analisis Pengaruh Jalur Mekanisme Corporate Govern­ ancen Terhadap Nilai Perusahaan dengan Kualitas Laba sebagai Variable Intervening pada Perusa­ haan Manufaktur yang Terdaftar di Bursa Efek Indonesia Periode 2004–2007. Simposium NasionalKeuangan I. Wedari, Linda Kusumaning (2004). Analisis Pengaruh Proporsi Dewan Komisaris Dan Keberadaan Komite Audit Terhadap Aktivitas Manajemen Laba. Simposium Nasional Akuntansi VII Denpasar Bali, 963–974.

78

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Effects of risk-based internal audit implementation, competence of government’s internal auditors, auditors’ independence and auditors’ ability to detect fraud J. Sisco, E. Setiany & H. Setiyawati Universitas Mercu Buana, Jakarta, Indonesia

ABSTRACT: This study examines the effects of applying risk-based internal audit, govern­ ment’s internal auditors’ competence, auditors’ independence, and the auditors’ ability to detect fraud. A questionnaire was used to collect data for the auditors working at the National Popu­ lation and Family Planning Agency (BKKBN), Jakarta. We also used a saturated sample for the selection of 52 target respondents comprising of all structural officials and auditors who are domicile at the central or provincial representative offices. Results showed that the application of risk-based internal audit, government’s internal auditors’ competence, auditors’ independence all influence the auditors’ ability to detect fraud significantly and positively. These are all related to agency policies, which have increased the auditors’ ability to detect fraud. Future studies are expected to broaden the scope of the survey area and research object variables. 1 INTRODUCTION Indonesia commemorates Anti-Corruption Day (HAKI) on October 9. The government’s commitment to fighting corruption is often faced with various obstacles and challenges. This condition can be seen from the Corruption Perception Index score released by Transparency International, where Indonesia is ranked 89th out of 180 countries. Alexander Marwata (2017), one of the commissioners of the Indonesia Corruption Eradica­ tion Commission, stated that the number of regional heads involved in corruption is almost certain because the inspectorate has not been functioning well. Legal cases such as corruption are rampant because, currently, the Government Internal Supervisory Apparatus (APIP) is structurally not yet independent. Vice President Jusuf Kalla (2017) complained about his pos­ ition in the inspectorate or internal supervision agency, stating that this is a government agency that was often filled with officials who did not have competence in the field of supervision. Various efforts have been made by the leadership of the BKKBN to improve the quality of financial management and suppress corrupt practices within the BKKBN environment, among others is the efforts to strengthen the role of government’s internal auditors. This research was conducted to answer the following research questions; 1. Does the Imple­ mentation of Risk-Based Internal Audit have a significant effect on the ability of auditors to detect fraud? 2. Does the competence of the government’s internal auditors have a significant effect on the ability of auditors to detect fraud? 3. Does the independence of Auditors have a significant effect on the ability of auditors to detect fraud? 2 LITERATURE REVIEW 2.1 The concept of fraud According to Mark F Zimbelman (2017: 7), cheating is a general term that includes all kinds of ways that can be used with certain shrewdness, chosen by an individual, to benefit from 79

other parties by making a wrong representation. The definition of fraud, according to BPK RI (2007), is a type of unlawful act that is done intentionally to obtain something by decep­ tion. The Association of Certified Fraud Examination categorizes fraud into three groups as follows: 1) Financial Statement Fraud, which is defined as fraud committed by management in the form of material misstatement of Financial Statements that could harm investors and creditors. This fraud can be financial or non-financial fraud. 2) Asset Misappropriation, misuse of assets can be classified as fraudulent cash and fraudulent inventories and other assets as well as fraudulent expenses (fraudulent disbursement). 3) Corruption, according to ACFE, corruption is divided into the conflict of interest, bribery, illegal gratuity, and extor­ tion (economic extortion). 2.2 The implementation of Risk-Based Internal Audit (RBIA) According to the IIA Risk Based Internal Audit (RBIA), risk-based internal auditing (RBIA) is a methodology that links internal auditing to the organization’s overall risk management framework. The implementation of an individual audit assurance on such organizational con­ ditions uses a control-based audit. According to Hoesada (2005), AIBR guarantees the quality of risk management built by organizations. Research conducted by D. Paul Newman (2017) stated that the level of the financial report of fraud is reduced when the audit plan is based on information that is not influenced or controlled by management, that information increases auditors’ ability to detect or prevent the report of fraud. H1: Implementation of risk-based internal audit affects the ability of auditors to detect fraud. 2.3 The competence of government’s internal audit Mc Schanes and Glinow (2010) stated that competence is a skill, knowledge, talent, and other personnel characteristics that produce superior performance. According to Mayangsari (2003), experienced auditors have advantages in terms of detecting errors, understanding errors accur­ ately, and looking for causes of errors. Nur Gamal Djamhuri’s research found that auditors who are considered as doctors of fraud have not been able to carry out their roles optimally due to the lack of internal auditors’ competence. From the research conducted in Nigeria by Popoola (2016), two capability requirements (knowledge and skills) were found to correlate with competency requirements in the Nigerian public sector. H2: Competence of the Government’s Internal Audit influences the ability of auditors to detect fraud. 2.4 Auditors’ independence Arens (2015:103) stated that independence is taking an unbiased perspective in conducting audit testing, evaluating the results of testing, and publishing audit reports. According to the research of Khotib and Ahmad (2018), partially speaking, there is no significant effect of inde­ pendence on audit responsibilities in detecting financial statement of fraud. This is not much different from the results of Pranggono’s research (2016). Conclusion: There is no direct effect between Auditors’ Independence and fraud detection. While from Widyastuti’s (2009)’s research, it was concluded that Auditors’ Independence had a positive effect on the ability of auditors to detect fraud. H3: Independensi auditor berpengaruhterhadapkemampuan auditor mendeteksi fraud.

3 METHOD Based on the type of analysis, the research conducted is quantitative research, where we pre­ sented data obtained through statistical procedures or by using quantification methods that 80

produced data in the form of numbers. This research is focused on the application of risk-based internal audit, increasing the competence of the government’s internal control apparatus, and auditors’ independence on the ability of auditors to detect fraud by surveying auditors and structural officials in the Main Inspectorate of the BKKBN RI, the population of this study was 47 employees. This research will be carried out by taking a sample as a whole or by census/ saturated sample where a survey will be conducted on all employees. The data used in this study are primary data. The questionnaire used contains closed questions, which means that the answers were limited to the choice of answers that the researchers have provided.

4 RESULTS AND DISCUSSION 4.1 Results The object of research used in this study was the structural officials led by APIP and all audi­ tors in the BKKBN both at the center and at the provincial representative office. The sample used in this study was 47 employees. The instrument used in this study was a questionnaire given directly to respondents who were the target of the study. H1 stated that the variable implementation of risk-based internal audit (X1) is a variable that is thought to influence the ability of auditors to detect fraud. Hypothesis testing results obtained by t count value of -0.484 | t |) with the principle of one-tailed test for the GAAP_ETR variable against SHORT_RATIO is 0.2654, or with the principle of two-tailed test would be 0.5308, its larger than the significance level of alpha 0.05, with a coefficient value of -0.1315. Thus, the conclusion of this research is to reject H1 or accept H0, i.e., the aggressiveness of the company’s tax does not have a positive effect on the structure of the company’s debt maturity. One reason why the creditors shorten the debt period is to avoid the risk of uncer­ tainty caused by Tax Aggressiveness that can be found by Tax Audits. In Indonesia, based on data from the Directorate General of Taxes, the national audit coverage ratio in 2016 was only 2.06%, meaning that only a small proportion of taxpayers were examined. So, it can be said that the risk of disclosure of tax avoidance by a company is very small and quite reasonable if the creditor does not consider this as a risk due to a very small audit coverage ratio.

4 CONCLUSION The conclusion that can be drawn based on the results of research and discussion is to reject the first hypothesis proposed, or in other words, to agree that tax aggressiveness does not have a positive effect on the structure of corporate debt maturity in companies registered in Indo­ nesia. The results of this study indicate that there are differences with the results of the main research references from Platikanova (2015) and also Kubick et al. (2016), whose results suggest that there is a positive relationship between tax avoidance and the structure of corporate debt maturity. This is alleged because the existence of tax aggressiveness can result in an increase in 361

cash from savings in tax payments so that the liquidity ratio increases, and it is considered a good thing for creditors to provide loans to debtors. Also, the very small audit coverage ratio in Indonesia causes the potential for the discovery of tax aggressiveness activities to be missed. REFERENCES Alm, J. (2015) Understanding and Combating Tax Evasion. 1508. Available at: http://repec.tulane.edu/ RePEc/pdf/tul1509.pdf. Balakrishnan, K., Blouin, J. and Guay, W. (2017) ‘Tax Aggressiveness and Corporate Transparency’. Dyreng, S. D., Hanlon, M. and Maydew, E. L. (2008) ‘Long-Run Corporate Tax Avoidance’, The Accounting Review, (February 2014). DOI: 10.2308/accr.2008.83.1.61. Gujarati, D. and Porter, D. (2009) Basic Econometrics. Fifth. New York: McGraw-Hill Inc. Hanlon, M. and Heitzman, S. (2010) ‘A Review of Tax Research’, Journal of Accounting and Economics Conference. DOI: 10.2139/ssrn.1476561. Hanlon, M., Maydew, E. L. and Saavedra, D. (2017) ‘The taxman cometh: Does tax uncertainty affect corporate cash holdings?’, Review of Accounting Studies, 22(3), pp. 1198–1228. DOI:10.1007/s11142­ 017-9398-y. Hanlon, M. and Slemrod, J. (2009) ‘What does tax aggressiveness signal? Evidence from stock price reac­ tions to news about tax shelter involvement’, Journal of Public Economics. Elsevier B.V., 93(1–2), pp. 126–141. DOI: 10.1016/j.jpubeco.2008.09.004. Hasan, I. et al. (2014) ‘Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans’, Journal of Financial Economics. Elsevier, pp. 1–22. DOI: 10.1016/j. jfineco.2014.03.004. Kim, J., Li, Y. and Zhang, L. (2011) ‘Corporate Tax Avoidance and Stock Price Crash Risk: Firm-Level Analysis’, Journal of Financial Economics. Elsevier, 100(3), pp. 639–662. DOI: 10.1016/j. jfineco.2010.07.007. Kubick, T. R. and Lockhart, G. B. (2016) ‘Corporate Tax Aggressiveness and The Maturity Structure of Debt’, Advances in Accounting. Elsevier Ltd, 36, pp. 50–57. DOI: 10.1016/j.adiac.2016.10.001. Mills, L. F. (1998) ‘Book-Tax Differences and Internal Revenue Service Adjustments’, Journal of Accounting Research, 36(2), pp. 343–356. DOI: 10.2307/2491481. Platikanova, P. (2015) ‘Debt Maturity and Tax Avoidance’, European Accounting Review, 8180(Decem­ ber). DOI: 10.1080/09638180.2015.1106329. Prebble, Z. M. and Prebble, J. (2012) ‘Victoria University of Wellington Legal Research Papers’, Victoria University of Wellington Legal Research Papers, 2(2). Shevlin, T., Urcan, O. and Vasvari, F. (2019) ‘Corporate Tax Avoidance and Debt Costs’, Forthcoming Journal of the American Taxation Association Abstract, pp. 1–53. Available at: https://ssrn.com/ abstract=2228601.

362

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Analysis of the influence of cash liquidity on corporate tax avoidance (Empirical study on non-financial and non-insurance companies listed in Indonesia stock exchange) Riya Dwi Handaka Polytechnic of State Finance STAN, South Tangerang, Indonesia

Yandri Medriansyah Directorate General of Taxes, Jakarta, Indonesia

ABSTRACT: One of the principles of tax collection is convenience, which means that tax payments are supposed to be done at the time when the Taxpayer feels comfortable paying it. In the case of income tax, the right time is when the income is earned. By considering the tax in the company’s cash outflow, issues such as the company’s cash condition becoming a motive for taxpayers in their decision to avoid taxes started to crop up. This study aims to prove whether the condition of the company’s cash situation can be a taxpayer’s motive for tax avoidance. By using Stanfield’s model, we studied non-financial and non-insurance com­ panies that are listed on the Indonesia Stock Exchange from 2012 – 2017. Results found no evidence of the relationship between the company’s cash conditions for the three proxies, and the behavior of taxpayers in avoiding tax payments.

1 INTRODUCTION As a fundamental source of state revenue, tax revenue realization in Indonesia from 2012 to 2018 has not reached its performance target. In that period, the realization of tax revenue ranged from 81% -94% with a trend in the percentage of achievement that continued to decline, and the lowest was in 2016 with 81.6% while experiencing an improvement in 2017 with 89.4%. For the state, tax revenue is the main income that must be optimized. But on the contrary, for taxpayers taxation is a heavy burden that must be significantly reduced as much as possible so that it will not affect their company’s economic situations because the tax burden is a large component in the company’s cash outflows (Dyreng, Hanlon and Maydew, 2008). Therefore, taxpayers will tend to try to streamline expenditure on the tax burden, both in ways that can be used, namely tax evasion and tax avoidance. The source of the problem of tax avoidance is the underlying motive. The traditional motive for tax avoidance is to increase net income so that it “increases” the company’s financial statements, which will ultimately benefit the management and owners (Stanfield, 2011). So according to Stanfield (2011), additional incentives come from the desire to avoid paying taxes. By minimizing tax cash payments, performance as measured by net cash flow from operations increases, having a positive impact on cash position, company liquidity, and of course, the company’s market value. Simply put, humans must become rational economic creatures. When they feel there is a lack of resources, one of which is cash, there will be a tendency to make savings in various ways, such as by spending the cash for tax payments efficiently. If cash difficulties are indeed a motive or simple reason for taxpayers to avoid taxes, the government must be able to improve the taxation system in Indonesia so that it can impose taxes that must be paid following the cash con­ ditions of the taxpayers themselves. 363

So far, the government has designed a mechanism to pay taxes through deductions and installments in order to reduce the taxpayer’s heavy burdens of paying taxes, so that taxes arising at the end of the year (income tax Article 29) do not accumulate and burden taxpayers. However, the payment mechanism is not always burdensome when taxpayers have to pay it. In the book, An Inquiry to Nature and Causes of Wealth of Nations, one of the recommended principles of tax collection that will help to reduce or remove the psychological burden from taxpayers is to collect the tax when taxpayers generate taxable income (Smith, 1776). This principle was introduced by Adam Smith (1776, 371) in The Four Maxims as a convenient principle or better known as the Pay as You Earn (PAYE) principle. In Indonesian taxation, the types of taxes that meet the PAYE principle are income tax Article 21, section 22, Article 23, and Article 4 paragraph (2), while parts of income tax Article 22 and income tax install­ ments Article 25 do not meet the principle (Direktorat Penyuluhan, Pelayanan, 2013). There­ fore it can be said that the tax payment system in Indonesia still feels psychologically burdensome for taxpayers. The importance of cash in economic decisions, including tax planning decisions, is also dis­ cussed by Godfrey et al. in his book Accounting Theory (2006,111). He argued that the statement of cash flows that still exists today is evidence of the importance of cash performance for stake­ holders in making economic decisions when the accounting system used is based on an accrual basis (Godfrey et al., 2006). Godfrey added that even companies in Australia and the United States do voluntarily report their cash flow even though the cash flow statements did not need to be reported at that time. This is an indication of the importance of cash for stakeholders because the company will not incur costs to make a report if there are no benefits to be gained. Therefore, based on the above considerations, the authors are interested in researching the effect of the company’s cash condition, which is modeled by cash liquidity on its effect on the practice of tax avoidance on non-financial and non-insurance companies on the Indonesia Stock Exchange (IDX). Companies listed on the IDX are sampled based on data availability and diver­ sity of the business sector so that it is an appropriate sample to represent the population of com­ panies in Indonesia. This study will dominantly use Stanfield’s research model (2011) to analyze the effects of cash liquidity on tax avoidance practices following the conditions in Indonesia.

2 RESEARCH METHOD The research method used is a quantitative method while using panel data regression to assess the effect of the hypotheses that are built, namely: H1 = Company’s cash liquidity has a negative effect on tax avoidance. The independent variable of this research is the Cash Liquidity, proxied by the Quick Ratio (QUICK), in the form of the amount of Cash, Cash Equivalent, and Receivables divided by Total Current Liabilities. While the dependent vari­ able is Tax Avoidance, proxied by Cash Effective Tax Rates (CETR), in the form of a percentage change in dividends from Total Cash Income Taxes Paid divided by Pretax Income. The object of this research is Non-Financial and Non-Insurance Companies Listed in Indonesia Stock Exchange. The data used are secondary data in the form of the Financial Statements, which were taken from the Indonesia Stock Exchange website in the periods from 20012 to 2017. Based on the hypotheses built, the research model is formed as follows: CETRit ¼ α0 þ β1 QUICKit þ β2 ROAit þ β3 LEVit þ β4 ΔNOLit þ β5 NOLit þ β6 ΔPPEit þ β7 INTANGit þ β8 EQht þ β9 SIZEi;t  1 þ β10 MTBi;t  1 þ β11 DGDPit þ β12 CETR1it þ εit Where, CETR= Cash effective tax rates; QUICK= Quick ratio; ROA= Return on assets; LEV= Value of leverages; NOL= tax loss carryforward; PPE= Property, Plant, and Equip­ ment; INTANG= Intangible assets; EQ= Income from equity; SIZE= Value of firm size; MTB= Market to book ratio; GDP= Gross Domestic Product; CETR-1= log transformation of CETR; ɛ= Error; α= Constant. 364

3 FINDINGS AND DISCUSSION 62 companies listed on the Indonesia Stock Exchange from 2002 – 2017 were sampled in this study, by using a purposive sampling technique on all company data in various sectors. Thus, with an observation period of six years, from 2012 to 2017, the 62 companies were multiplied by six years of 372 observations. The results of the descriptive analysis of secondary data are revealed in Table 1. as shown in the following: Table 1. Results of descriptive analysis of research variables descriptive statistics. Variable

N

Minimum

Maximum

Mean

Std. Deviation

CETR QUICK

372 372

0.000278 0.09656

0.98099 25.8253

0.2966 1.6629

0.1380

1.9556

Data description from Table 1. shows that the CETR variable has an average value of 0.2966; the middle value of 0.2662; and a standard deviation of 0.1380. The minimum value for this variable is 0.000278 owned by TLKM companies in 2017, and the max­ imum value for this variable is 0.9809 owned by AALI companies in 2015. As for the QUICK variable, the average observation is 1.6629; the middle value of 1.1869; and with a standard deviation of 1.9556. The minimum value for this variable is 0.0965 owned by AALI companies in 2015, and the maximum value for this variable is 25.8253 owned by INTD companies in 2016. In order to test the existing hypothesis, in addition to analyzing the data descrip­ tively, the next step was to determine the method of the regression model with panel data that will be used before testing the hypothesis. Through a series of Chow tests, Hausman Test, and Langrage Multiplier Test, it was concluded that this study used a random-effects model. Then a classic assumption test was performed on the research variables to measure the Best, Linear, Unlimited, Estimated (BLUE) categories. How­ ever, the classic assumption test that was performed depended on the panel data regression estimation model that was chosen. Because the panel data regression estima­ tion model uses random effects, the autocorrelation test and the heteroscedasticity test were not performed since the Generalized Least Square (GLS)/random effect assumed the autocorrelation test and the heteroscedasticity test have assumed Best, Linear, Unlocked, Estimator (BLUE) (Gujarati and Porter, 2009). After fulfilling the BLUE element, a hypothesis test was carried out in the form of a simultaneous test (F-Test) and a partial test (T-Test). F test was performed to show the effect of QUICK and other control variables as independent variables on CETR as the dependent variable. Partial test (T-Test) was conducted to show the extent of the influence of one independent variable partially in explaining the dependent variable. Based on the results of processing with a significance level of α = 5% or 0.05, the results of the partial significance test of the hypothesis are as follows:

Table 2.

Hypothesis test results.

Independent Var.

Dependent Var.

R2

F-Test

T-Test

QUICK

CETR

0.1838

0.0000

0.3691

The coefficient of determination (R2) of 0.1838 indicates that all independent variables in the research model experienced 18.38% changes in the dependent variable. The F test value was obtained at 0.000 or smaller than the significance level of alpha 0.05 so that it can be agreed simultaneously that the independent variables of this study follow the control variables 365

and it is significantly influenced by the dependent variable. However, the results of the T- test or hypothesis test partially showed a value of 0.3691. The results of hypothesis testing indi­ cated that the coefficient for the interaction variable between QUICK and CETR is not sig­ nificant, so the condition of the company’s cash liquidation does not trigger the motive to be involved in the tax avoidance scheme. The results of this study contradict the research con­ ducted by Stanfield (2011). Stanfield’s Research (2011) had a significant effect on tax avoid­ ance measures on cash liquidity proxies. This shows that when a company is in a good cash condition (good cash liquidity, is insufficient cash condition, and good cash performance), it tends not to take the act of vice versa tax avoidance.

4 CONCLUSION This study aims to determine the behavior of companies in Indonesia, through testing the effect of corporate cash liquidity on corporate tax avoidance by using a sample of companies listed on the Indonesia Stock Exchange in the periods from 2012-2017. The results of the regression analysis in this study showed that cash liquidity partially did not significantly influ­ ence tax avoidance. This means that the company’s cash liquidity condition will not cause the company’s motives to avoid tax. Thus, these results indicate that this study cannot yet support the results of Stanfield’s research (2011) in the form of modeling the relationship of influence between tax avoidance and cash liquidity, which forms the basis of the first hypothesis (H1). REFERENCES Direktorat Penyuluhan, Pelayanan, dan H. M. (2013) Arrangement In One Tax Law. Jakarta: Director­ ate General of Tax. Dyreng, S. D., Hanlon, M. and Maydew, E. L. (2008) ‘Long-Run Corporate Tax Avoidance’, The Accounting Review, (February 2014). DOI: 10.2308/accr.2008.83.1.61. Godfrey, J. et al. (2006) Accounting Theory. Sixth. Edited by J. Whelan. Australia: John Wiley & Sons Inc. Gujarati, D. and Porter, D. (2009) Basic Econometrics. Fifth. New York: McGraw-Hill Inc. Smith, A. (1776) An Inquiry Into The Nature and Causes of The Wealth Of Nations. First. London: Edinburgh, Published by Adam & Charles Hla k & William Tait. Stanfield, J. W. (2011) Cash Liquidity, Holdings, and Performance as Determinants of Corporate Tax Avoidance. Purdue University. Available at: http://www.purdue.edu/policies/pages/teach_res_ou treach/c_22.html.

366

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Improving e-commerce tax voluntary compliance behavior: An integrated behavioral model approach Acwin Hendra Saputra Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: This study evaluates the behavior patterns of e-commerce sector business actors in carrying out tax obligations. Their voluntary compliance in the e-commerce sector is assessed using the Integrated Behavior Model approach to examine whether voluntary compli­ ance can be realized in the self- assessment tax collection system or whether it is more influ­ enced by the possibility of tax audits. This is very important in encouraging efforts to increase tax revenue, especially since the e-commerce business is becoming one of the business schemes that dominate the market. But the magnitude of this development has not been followed by the development of tax compliance in this sector. This condition is certainly alarming and implies the government’s inability to collect taxes as measured by the tax ratio. The solution offered is to use a socio-cultural approach with an integrated behavioral model approach; this theory is the development of planned behavior theory.

1 INTRODUCTION E-commerce business, which is often also referred to as online trading, has developed very sig­ nificantly in recent years. Technological advances and the development of social media increasingly expand the scale of the e-commerce market. Zwass (1996) said that “e-commerce is sharing business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks”. Meanwhile, Turban and Lee (2015) defined e-commerce as “a business model in which transactions take place over electronic net­ works, mostly the Internet. It includes the process of electronically buying and selling goods, services, and information”. The characteristics of e-commerce are divided into 4: Business to Business (B2B), Business to Consumer (B2C), Consumer to Consumer (C2C), Consumer to Business (C2B) Turban, and Lee (2015, 10-11). In Indonesia, e-commerce transactions have developed significantly from year to year. In 2017, organizations engaged in digital research, social and mobile media namely We Are Social in collaboration with Hootsuite published a report titled Digital In 2017: Southeast Asia, A Study of the Internet, Social Media, and Mobile Use Throughout the Region, and stated in it that in 2016 the number of Indonesians who used the internet reached 132.7 million with a penetration of 51%. Out of this number, a total of 24.74 million people made purchases through e-commerce, with the value of e-commerce transactions reaching the US $ 5.6 billion or equivalent to 75.6 trillion rupiahs. Statista, a statistical company based in Hamburg, Germany, published a report on the potential of e-commerce in Indonesia in 2015­ 2021. In 2017, e-commerce revenue in Indonesia was predicted to reach the US $ 6.963 billion. The revenue was projected to show annual growth of 20.1% in the 2017-2021 periods so that in 2021 the value of e-commerce will surge to the US $ 14.474 billion. As a developing country, Indonesia also has problems with tax compliance. Indonesia’s tax ratio is also below the standard set by the International Monetary Fund (IMF) for developing countries, which is 19%. With a tax ratio of 12.4%, Indonesia has actually lagged behind some poor countries that have an average tax ratio of 14.3%. This condition provides a warning 367

that extending the tax base to the e-commerce sector cannot only be solved by law enforce­ ment. One form of approach that can be used is the socio-cultural approach with the Inte­ grated Behavioral Model approach, and this theory is the development of the Theory of Planned Behavior. Theory of Planned Behavior was developed by IcekAjzen (1987), built on the critique of the Theory of Reasoned Action (TRA) by Martin Fishbein and IcekAjzen him­ self (1975, 1980) by including an additional construction, namely Perceived Behavioral Con­ trol (PBC) to take into account the situation where an individual can have control over targeted behavior. According to the Theory of Planned Behavior, individual behavioral inten­ tions are jointly influenced by subjective norms and perceived behavioral control. This study uses a qualitative approach to case studies because the researcher wants to focus on a context that can provide a picture and form an understanding of the phenomenon being studied.

2 THEORETICAL REVIEW AND DISCUSSION 2.1 Taxation principles Caoutinho (2001) described Adam Smith’s four general principles in taxation, known as “The Four Maxims”, that is: (1) equality, Taxes should be fair and equitable to private persons in proportion to their ability to pay the tax and also in accordance with the benefits it receives; (2) certainty, taxes are not arbitrarily determined but must be clear to all taxpayers and the whole society; (3) convenience, when the taxpayer must pay taxes should be determined at a time that will not complicate the taxpayer; (4) economy, the cost for collection of taxes and the cost of fulfilling tax obligations for taxpayers should be as small as possible. 2.2 The concept of tax compliance Tax compliance is defined simply as the rate at which the Taxpayer complies with tax laws (James and Alley, 2004). Voluntary compliance is part of the self-assessment system because the Taxpayer is responsible for his tax obligations, which is calculating the amount of tax pay­ able appropriately, depositing, and reporting tax payable in a timely manner. Tax compliance depends not only on technical issues that are related to the method of collection, examination, investigation or sanction implementation, but it also depends on the taxpayer’s intent to the extent to which the Taxpayer will comply with applicable tax laws so as to create a sound tax­ ation climate (Zain, 2008). The Center for Tax Policy and Administration or CTPA-OECD (1999, 3) divides tax com­ pliance into two categories: (1) administrative compliance; (2) technical compliance. Alling­ ham &Sandmo(1972) mentioned that peoples’ tendency not to pay taxes or to pay taxes that are not in accordance with their actual income is due to government’s oversight and also because sanctions imposed on non-compliant taxpayers are still very small. Measurement of compliance is closely related to the fulfillment of tax obligations made by the Taxpayer. The expected compliance is voluntary compliance and not compulsory compliance. 2.3 E-commerce definition Zwass (1996) reiterated that “e-commerce is sharing business information, maintaining busi­ ness relationships, and conducting business transactions by means of telecommunications net­ works”. While Turban & Lee (2015) defined e-commerce in the strict sense as a process of selling and buying or exchanging products, services, and information through computer net­ works, including the internet. Meanwhile, OECD (2013) defined e-commerce as a transaction that involves the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for receiving or placing orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organizations. To be 368

included are orders made over the web, extranet, or electronic data interchange. This type is defined by the method of placing the order, but there are orders that made through telephone calls, facsimile, or manually typed-mails that are not included. 2.4 Theory of planned behavior/reasoned action Theory of Planned Behavior (TPB) is a theory created by Ajzen(1991) that is used to predict and explain individual behavior. This theory is the development of the Theory of Reasoned Action (TRA), which emphasizes the rational behavior in which an individual has control in him. Theory of Reasoned Action (TRA) has a disadvantage in not considering a person’s per­ ception of the ease or difficulty of doing certain behaviors more specifically (Ajzen, 1991). Theory of Reasoned Action, which only gives emphasis to attitude and subjective norm, then added with perceived behavioral control, which, when perceived, will influence the interest and behavior of the individual in more specific ways. This construct is added in the Theory of Planned Behavior to control individual behavior limited by the shortcomings and limitations of the resource deficiencies used to conduct behavior (Chau and Hu, 2002 in Jogiyanto, 2007). Theory of Planned Behavior model explains that the behaviors performed by individuals arise because of the interest to behave. With the addition of perceived behavioral control in the theory of planned behavior (Ajzen, 2005), the intentions of human behavior are shaped by three main factors: (1) behavioral beliefs, (2) normative beliefs, and (3) control beliefs. 2.5 Attitude Ajzen (1991) stated that attitudes relate to mental and nervous states of readiness, which are gov­ erned by experiences that give dynamic or directional influence on the individual’s response to all objects and situations associated with it. Allport (1935) mentioned that attitude is a person’s mental readiness that is composed through experience, using dynamic influences and directives that arise when a person responds to an object or situation that is related to his experience. 2.6 Perceived norm Fishbein (2007) observed that perceived norms reflect the social pressure that a person per­ ceives to perform or not perform certain behaviors. The theory of planned behavior explains subjective norms as determinants of intent, which refers to the social pressures facing the indi­ vidual to be able to display or not display certain behaviors. While Rimal and Real (2005) provided the concept of perceived norms, related either to the individual’s understanding of the prevalence of behavior or social approval for the behavior of essential references and con­ sisting of two different ideas: descriptive norm and injunctive norm. Perceived Norm also deals with social motives and deals with the individual’s interest or desire to engage in a behavior because of others or to gain respect from others in the immediate environment. The perceived norm of e-commerce entrepreneurs in carrying out their tax compliance behavior is shaped by normative beliefs and the motivation to follow. The normative beliefs of e-commerce entrepreneurs in conducting tax compliance behavior come from colleagues and business associates with the same types of business activities that have a positive and tan­ gible influence on them. 2.7 Personal agency Bandura (2006) stated that the personal agency brings one’s influence to bear its own activities and environment. In the integrated behavioral model, the personal agency consisted of two constructs, namely self- efficacy and perceived control, influenced by belief. The theory of Planned Behavior assumes that perception of behavioral control has motivational implica­ tions for behavioral interest. People who do not believe they have the resources or opportun­ ities to engage in behavior will certainly not form a strong interest in behavior (Jogiyanto, 2007). 369

2.8 Intention to perform the behavior Ajzen (2005) stated that intention is a function of beliefs and/or information that is important about the tendency of displaying a particular behavior that will lead to a specific outcome. He further explained that it is expected from the theory of planned behavior that the stronger the intention of someone to display a certain behavior, the more successful is the individual’s abil­ ity to do it.

3 CONCLUSION This study was conducted to determine the behavior patterns of e-commerce sector business actors in carrying out tax obligations that affect voluntary compliance based on the Integrated Behavioral Model. Based on the research and discussion described in the previous chapters, the author concludes that perceived norms and attitudes have positive results and have a strong influ­ ence on the tax compliance behavior of business actors in the e-commerce sector. It is hoped that in subsequent research, the concepts in this study can be validated to e-commerce actors in order to get an integral picture of what triggers the voluntary tax compliance of e-commerce businesses. REFERENCES Ajzen, Icek. Attitudes, traits, and actions: Dispositional prediction of behavior in personality and social psychology. Advances in experimental social psychology, 20 (1987) pp.1–63. Ajzen, Icek. Attitudes, Personality and Behavior (Second Edition). New York: McGraw Hill. (2005). Ajzen, Icek. The theory of planned behavior. Organizational behavior and human decision processes, 50(2), (1991) pp.179–211. Allingham, Michael G. dan AgnarSandmo. Income Tax Evasion: A Theoretical Analysis. Journal of Public Economic 1, (1972) 323–338. Allport, Gordon W. Attitudes, Handbook of Social Psychology. Worcester, MA: Clark University Press. (1935). Bandura, Albert. Guide for constructing self-efficacy scales. Self-efficacy beliefs of adolescent’s (2006) pp. 307–337. Cahyonowati, Nur. Model Moral dan KepatuhanPerpajakan: WajibPajak Orang Pribadi. JAAI Volume 15 No.2 (2011) 161–177. Coutinho, Maurício C. “Adam Smith on public expenditure and taxation.” Nova Economia 11, no. 2 (2001). Fishbein, M., &IcekAjzen. Belief, Attitude, Intention and Behavior: an Introduction to Theory Research. Massachusetts: Addison-Wesley Publishing Company. (1975). Fishbein, M., &IcekAjzen. Understanding Attitudes and Predicting Social Behavior. New Jersey: Prentice-Hall. (1980). Fishbein, M. Prediction and change of health behavior: Applying the reasoned action approach.Psych­ ology Press. (2007). James, Simon dan Clinton Alley. Tax Compliance, Self-Assessment and Tax Administration. Journal of Finance and Management in Public Services. Vol. 2, No. 2 (2004). Jogiyanto, H.M. SistemInformasiKeperilakuan. Yogyakarta: Penerbit Andi. (2007). Organisation for Economic Co-operation and Development Electronic Commerce. https://stats.oecd.org/ glossary/detail.asp?-ID=4721 (accessed 20 May 2017). (2013). Rimal, R. N., & Real, K. Understanding the influence of perceived norms on behaviors. Communication Research Vol. 32 No. 3 (2005) 184–203. Turban, Efraim. David King, Jae Kyu Lee, Ting-Peng Liang, Deborrah C. Turban. Electronic Com­ merce: A Managerial and Social Networks Perspective. Eighth Edition. Springer International Pub­ lishing Switzerland. (2015). Waluyo. Perpajakan Indonesia. Edisi ke-11. Jakarta: SalembaEmpat. (2013).

Yin, Robert. K. Case Study Research Design and Method Third Edition. London: SAGE Publications.

(2003). Zain, Mohammad. 2008. ManajemenPerpajakan ed.3. Jakarta: SalembaEmpat. Zwass Vladimir. Electronic Commerce: Structures and Issues. International Journal of Electronic Com­ merce. No 1 (1996) 3–23.

370

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Effectiveness of UKI (Internal Compliance Unit)’s monitoring activities on the preparation of LK-BUN (state’s general treasurer financial reports) in the Ministry of Finance Sakti Prabowo Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: In order to implement targets for maturity performance indicators (maturity) in accordance with the 2015 - 2019 RPJMN, the Ministry of Finance assessed the Internal control system (SPI) maturity of their Ministry in 2016. From the results obtained in 2016, the value of the Ministry of Finance’s SPI was 4,274. However, not all of the echelon I units effectively achieved the target performance. There were two ineffective IKUs that were related to the BPK opinion index on LKPP and the BPK opinion index on LK BUN. The preparation of the two reports should be the priority for the improvement of the Ministry of Finance. Using a qualitative method, we interviewed some employees in UKI and LK-BUN in the Ministry of Finance that could give related information. Results showed that monitoring of all types of reports should be the top priority for improvement.

1 INTRODUCTION One of the targets of the 5-years regime of Jokowi-Kalla (2015-2019) as outlined in RPJMN (National Medium-Term Development Plan in Indonesia) was to ensure that every govern­ ment agency had a performance indicator in the form of maturity to implement SPIP(Govern­ ment’s Internal Control System in Indonesia). From a scale of 1-5, each government agency needed to reach scale three by 2019. In order to implement these targets, the Ministry of Finance had to assess SPI(Internal Control System in Indonesia)’s maturity in the Ministry of Finance in 2016. From the results obtained in 2016, the value of the Ministry of Finance’s SPI was 4,274. This value had exceeded the expected target in the RPJMN in 2019 by 3. This result indicates that the SPI carried out by the Ministry of Finance has been very good. However, not all of the echelon I units in the Ministry of Finance could achieve the target performance effectively. One of the discrepancies of the SPI’s maturity level that prevents it from achieving the Ministry of Finance’s strategic objectives is related to the management of the central government’s balance sheet and the optimal BUN(State’s General Treasurer in Indonesia). The Minister of Finance as BUN and as the fiscal manager compiles LKPP(Cen­ tral Government’s Financial Report in Indonesia) from the consolidation of the State Ministry/Institution Financial Statements (LK K/L in Indonesia) and LK BUN(State’s General Treasurer Financial Statements in Indonesia) as a form of APBN(Accountability for State Expenditure Budget in Indonesia) implementation. LKPP’s accountability is generated from an adequate internal control system, prepared based on guidelines for implementing, evaluat­ ing, reviewing internal controls, and according to the government’s accounting standards. Based on the Ministry of Finance’s Performance Report (Indonesia, 2016), from a total of 26 Ministry of Finance’s IKU(Main Performance Indicators in Indonesia), there were 20 IKU that met expectations (green status), 4 IKUslightly did not meet expectations (yellow status), and 2 IKU did not meet expectations (red status). The two red status IKU were related to the BPK opinion index on LKPP and the BPK opinion index on LK BUN which is the IKU on the Ministry of Finance’s strategic objectives in terms of the management of the central 371

government’s balance sheet and the optimal BUN. Furthermore, the WDP(Fair with Excep­ tion in Indonesia)’s opinion from the BPK for LKPP for 12 years up to 2015 was the highest WDP(Indonesia, 2016). In particular, the LK-BUN has the opinion of the BPK WDP since at least 2012 (2017). Based on the report, it can be said that the WDP’s status in the preparation of LK-BUN has lasted for four years or more. These conditions became the main source of concern for the Ministry of Finance RI. The preparation of the two reports should be the priority of the Ministry of Finance, specifically the Directorate General of Treasury and the Inspectorate General, as the echelon I units that received derivatives of the IKU(Indonesia, 2016) for immediate improvement. With the enact­ ment of KMK number 32/KMK.09/2013, the Ministry of Finance should be able to implement the internal control framework to give feedback on BPK findings of LKPP and LK-BUN.

2 LITERATURE REVIEW Effectiveness refers to the production of a decided effect, while efficiency looks more at how to achieve the results achieved by comparing the input and output (Siagian, 2001). So, effect­ iveness can be said to be an influence that brings results in accordance with the intended target. Effectiveness is a measure that illustrates how far the target can be achieved. Based on Government’s Regulation Number 60 (Sistem Pengendalian Intern Pemerintah 2008), what is meant by the Internal Control System is an integral process of actions and activities that are carried out continuously by the leadership and all employees for the achieve­ ment of organizational goals through effective and efficient activities, reliability of financial reporting, safeguarding state assets, and compliance with laws and regulations. The Ministry of Finance has sought improvements in internal control with the form of UKI (Internal Com­ pliance Unit). The appointment of units given internal control responsibilities and their duties as stipulated in the Decree of the Minister of Finance Number 152 (2011) concerning increas­ ing the implementation of internal controls within the Ministry of Finance. Based on the Decree, the work unit and the task of monitoring the Ministry of Finance’s internal control are carried out in echelon I units. SPIP(Government’s Internal Control System) is defined as the Internal Control System, which is carried out thoroughly within the central government and regional governments. SPIP at the Ministry of Finance of The Republic of Indonesia adopted five elements from the (Committee of Sponsoring Organization of the Treadway, 2013)’s Internal Control-Integrated Framework and paid attention to General Control Information and Communication Technol­ ogy - Information Technology General Control (ITGC), namely control environment, risk assessment, control activities, communication, and information, monitoring. COSO describes four elements (control environment, risk management, control activities, monitoring) as hori­ zontal layers that are interconnected with elements of information and communication. Based on the framework, the five elements of the internal control system are applied in all work units and in all activities of an entity in order to provide adequate confidence that the object­ ives of the entity can be achieved. UKI(Internal Compliance Unit) is a unit authorized to carry out the monitoring process as part of the internal control process. Based on the Decree of the Minister of Finance Number 32 (Decree of the Minister of Finance of the Republic of Indonesia Number 32/KMK.09/2013 concerning the Framework for the Implementation of Internal Control and the Technical Guide­ lines for Monitoring Internal Control within the Ministry of Finance, 2013), Internal Compli­ ance Unit is the work unit in each echelon I that is appointed or has the duty to assist management in carrying out internal control monitoring. In the Decree, it is also stated that monitoring internal control is the process of evaluating the quality of the performance of the internal control system from time to time. Monitoring is carried out through ongoing moni­ toring, separate evaluation, or a combination of both. Many evaluations of internal audits have been carried out by researchers. One example of an internal audit evaluation was carried out by (Messier and Schneider, 1988). Their research evaluates the external auditor’s assessment of the internal audit function. The study used the 372

Analytical Hierarchy Process method. The choice of the method aims to measure attributes that have the highest level of importance or priority up to the lowest in internal audit func­ tions based on the assessment of the external auditor. Based on the Statement of the Auditing Standards (SAS) no.9 and experimental studies, they conducted evaluation analysis of internal audit using the Analytical Hierarchy Process (AHP) attribute structure on the strength or abil­ ity of the internal audit team. Another example of an internal audit evaluation was carried out by (Kewo and Afiah, 2017). They analyzed the effects of internal audit and internal control systems. The study used Path Analyses and found that internal audit and internal control system partially and simul­ taneously improve the quality of financial reports. In accordance with the evaluation of internal control, an organization needs to specify some attributes that conform to it. Essen­ tially, the attributes depend on every organization’s needs. Therefore, it could be different for each organization. Several studies on the effectiveness of internal controls on financial reports have also been carried out. (Kanyamon Wittayapoom, Wittayapoom and Limsuwan, 2012) examined the level of effectiveness of internal controls in determining the reliability of financial statements from companies in Thailand. By using simple regression analysis, the study shows that the effectiveness of internal controls affects the reliability of financial statements. In addition to efficient risk management, the quality of internal compliance, the level of internal communica­ tion, and periodic monitoring significantly influenced the effectiveness of internal controls. To determine the effectiveness of the internal control, we needed to know the attributes that were related to internal control. In principle, internal control attributes depend on the needs of each organization. It can be different from other organizations because of its specialized nature, the internal control attributes in the Ministry of Finance need to be clearly defined first. Internal control can be said to be effective if all internal control attributes have been car­ ried out according to needs.

3 RESEARCH METHODOLOGY This study used a qualitative approach through an interview process. It required the researchers to be directly involved with the subject of research, where the sensitivity of researchers to the scope of research is needed to obtain more valid research results. In qualitative research, there is no standard form of research format because the research process on qualitative methods is spe­ cific. However, there are still stages that need to be understood to be able to carry out qualitative research properly. According to (Yin 2009), the questions in qualitative research are not only just asking “what”, (what), but also “how” (how) and “why” (why). Interviews were conducted with those in the UKI unit and those authorized to prepare LK-BUN as beneficiaries of the appeals made by UKI. For those in charge of UKI, the researcher conducted interviews with official employees who were authorized to provide information about the duties and functions in UKI in each echelon I unit relating to moni­ toring the preparation of LK-BUN. Data collection was done through interviews with resource persons from 5 echelons I that have the authority to prepare LK-BUN, and to Interview with interviewees from each UKI in echelon I units conducting LK-BUN monitor­ ing activities. Internal control activities are principally related to activities carried out in internal audits. Based on the Decree of the Minister of Finance Number 32(Decree of the Minister of Finance of the Republic of Indonesia Number 32/KMK.09/2013 concerning the Framework for the Implemen­ tation of Internal Control and the Technical Guidelines for Monitoring Internal Control within the Ministry of Finance, 2013), the government established the Framework for Implementation of Internal Control in the Ministry of Finance, as a reference for each echelon I unit leader in designing, implementing, monitoring, evaluating, and making continuous improvements to the implementation of internal control in each unit within the Ministry of Finance. The duties and responsibilities of monitoring implementers for every echelon I units are sequential as follows:1. to determine the activities to be monitored;2. mapping the control design;3. to developing 373

monitoring devices;4. to draw up an annual monitoring plan;5. to compile a schedule and to monitor resource requirements;6. to carry out primary control monitoring;7. to carry out an entity level internal control evaluation;8. to carry out monitoring of implementation effective­ ness;9. to carry out adequacy evaluation of the control design;10. to carry out monitoring follow-up on recommendations;11. to submit reports to the leaders of echelon I units and the Inspectorate General.

4 RESULTS Based on the results of the study, UKI has monitored the preparation of LK-BUN. However, based on the Level of Interest Satisfaction Analysis, the average level of satisfaction is still below the level of importance. Thus, UKI still needs to make improvements in the preparation of LK-BUN to ensure a better quality of financial reports. More specifically, the results of research on the effectiveness of UKI monitoring of the preparation of LK-BUN are as follows: 1. Monitoring of all types of reports, including BUN Budget Implementation Reports, Finan­ cial Reports, BUN Consolidated Financial Reports, and Notes to Financial Statements, should be a top priority. 2. Mapping the controls used for the preparation of LK-BUN is too general. Monitoring devices as a follow-up of control mapping are also carried out after the financial statements have been compiled, so it is not possible to make a reported improvement. Thus, repairs still need to be made, although not as a top priority. 3. The variable attributes related to the control plan are at the level of importance that is below the average. Improvement can be made by communicating the control plan with the constituent party. 4. The UKI monitoring team has met the minimum requirements of the chairman and mem­ bers. For the technical control team and the quality control team, it is not needed in the UKI team. 5. Coordination of discussions as part of the implementation of the main controls has been carried out between the UKI Team and LK-BUN compilers. But the discussion needs to be more detailed to anticipate errors in the preparation. 6. The implementation of Entity-level Internal Control Evaluation (EPITE) has also been carried out by UKI. However, EPITE can still be improved upon by including it in PMK 14/PMK.09/2017 so that all K/L can have rules in internal control. 7. Continuing EPITE, Monitoring of Effectiveness of Implementation (PEI) has also been carried out by UKI, and only repairs if there are still needs. 8. The UKI has already monitored the follow-up of recommendations so that it only needs to maintain the performance of these activities and provide improvements if it is still needed. 9. Submission of Reports to Leaders is a process in the preparation that has been regularly monitored, and variable attributes relating to the submission of reports have the best level of satisfaction.

REFERENCES Committee of Sponsoring Organization of the Treadway, C. (2013) Internal Control — Integrated Frame­ work. Available at: https://na.theiia.org/standards-guidance/topics/Documents/Executive_Sum mary.pdf. Indonesia, B. P. K. R. (2017) Laporan Hasil Pemeriksaan BPK RI atas Laporan Keuangan Pemerintah Pusat 2016, Jakarta. Indonesia, K. K. R. (2016) Laporan Kinerja Kementerian Keuangan Tahun 2016. Available at: https:// www.kemenkeu.go.id/Publikasi/laporan-kinerja-kementerian-keuangan-2016. Indonesia, M. K. R. (2011) Peningkatan Penerapan Pengendalian Intern di Lingkungan Kementerian Keuangan.

374

Kanyamon Wittayapoom, S. L., Wittayapoom, K. and Limsuwan, S. (2012) ‘How Does Internal Control Effectiveness Create Reliability Of Financial Reporting? An Empirical Research Of Thai Listed Firms’, Journal Of International Business And Economics, 12(2), pp. 80–97. Keputusan Menteri Keuangan RI Nomor 32/KMK.09/2013 tentang Kerangka Kerja Penerapan Pengenda­ lian Intern dan Pedoman Teknis Pemantauan Pengendalian Intern di Lingkungan Kementerian Keuangan (2013). Kewo, C. L. and Afiah, N. N. (2017) ‘Does Quality of Financial Statement Affected By Internal Control System and Internal Audit ?’, International Journal of Eonomics and Financial Issues, 7(2), pp. 568–573. Messier, W. F. and Schneider, A. (1988) ‘A hierarchical approach to the external auditor's evaluation of the intemal auditing function *’, Contemporary Accounting Research, 4(2), pp. 337–353. Siagian, S. P. (2001) Manajemen Sumber Daya Manusia. Jakarta: Bumi Aksara. Indonesia, Sistem Pengendalian Intern Pemerintah (2008). Yin, R. K. (2009) Case study research: design and methods/Robert K. Yin.

375

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Evaluating the place of women empowerment in eradicating poverty in Indonesia: A study of the world bank data set (1990–2010) Nur Farida Liyana Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: Poverty as a global phenomenon has become a real nightmare for everybody, and women are not left out in its web. Thus, the Indonesian government is determined to deal with the issue of gender inequality, which is one of the factors that fuel poverty among its citizens. Consequently, many programs have been established to support women’s emancipa­ tion. Women’s participation in education, employment, and also politics, is becoming better by the day. This article examines how women empowerment programs have fared in eradicat­ ing poverty by evaluating the variables that have influence it. To achieve this, the World Bank Data Set from 1990 to 2010 was used to do a regression analysis between poverty and three independent variables: labor force, education, and health/survival. Results showed that empowerment among women by increasing education and employment could reduce poverty. However, further research is required to determine the mortality rate of women. Keywords:

education, employment, empowerment, poverty, women

1 INTRODUCTION Poverty has become a nightmare for every single human being. Indeed, people want to be prosperous, to be able to afford all their necessities, and to have a better life. Reducing pov­ erty is not just about sustaining growth, but it is a strong government role. One major source of concern, particularly from the bottom up, is how to support poor people to be able to fight poverty. The government has to consider the poor people themselves who are willing to over­ come their own situations. The main duty of the government is to support them with good policies so that they can achieve a better life and become prosperous and wealthy. Thus, there is a need to empower poor people. Empowerment is an extension of assets and capacities that poor individuals are to partake in, consult with, impact, control, and value as the dividend of good governance from institutions that are established to influence their lives. (Narayan et al., 2002). All over the world, women are the main victims of poverty. They are often left behind com­ pared to men. They have fewer opportunities in education, social, and political environments. Gender inequality is a very serious issue in many societies, and women are expected to keep on enduring a lack of education, survive on limited job opportunities, and be discriminated against in their bid to participate in the running of the government. Data from the Hunger Project revealed that more than half of the world’s uneducated people are women. In addition, millions of school-age girls are not sent to school; rather, they are forced by their parents to help them in their work, such as farming, fishing, etc. This has led to many studies on the topic of women empowerment. These studies show that when women have the same oppor­ tunities as men (empowered), society will progress better and faster, and poverty will be dras­ tically reduced. Families will have better health, education, and their incomes will increase. In Indonesia, based on 2018 data, 10.6% of the population is categorized as poor people (28.3 million from 266.67 million), and 50% of the population is categorized as “near-poor,” 376

which means their consumption per day is under US$2. The data showed that in terms of pov­ erty in Indonesia when males are compared to the females, the females are left far behind. Based on the Gender Development Index of 2017, Indonesia ranked 109 among 164 countries. The data revealed the fact that in Indonesia, women have lower education, fewer opportun­ ities to get jobs, high maternal death rates, and little participation in political representations. Therefore, this article tries to show the women empowerment figures in Indonesia by exam­ ining the variables which influence it. Furthermore, using empirical data, this article also tries to prove that empowering women in Indonesia has a significant role to play in terms of pov­ erty reduction. Finally, using the results gathered as a reference point, this article will also make recommendations that will enable the government to reduce poverty and have a better society in line with the main goal of social welfare.

2 LITERATURE REVIEW Different concepts of poverty circulate across countries and institutions of the world. Indones­ ian Dictionary defines poverty as a situation wherein all the population, or part of it, can only fulfill food, clothing, and housing needs – which are very necessary to maintain a minimum standard of living. Furthermore, Ravallion (2009) categorized poverty into different aspects: political, cultural, social, economic, and how to get assets. Poverty is usually related to hunger, homelessness, and pain and the inability to afford a good life. In terms of politics, poverty means to be powerless and to have no freedom of choice. Sen (1987) mentioned that welfare could be achieved when all citizens have the capacity to participate in building their society. It means when people do not have the necessary competencies to afford education, and when they are powerless and have no freedom of speech, they are regarded as poor. Meth (2006) argued that poverty has also become a political issue. It happens when a country cannot allocate resources properly, thereby leading to inequality. An average per-capita approach for poverty measurement has been developed over time. In 1990, World Bank proposed US$1 in terms of PPP per capita per day as the poverty line. In 2005, the new international poverty line was proposed to be $1.25 a day consumption (Raval­ lion, Chen, & Sangraula, 2008). This $1.25 was $1.00 consumption a day in 1996 US prices. Furthermore, Ravallion (2009) stated that a person would be categorized as middle class in the developing-countries class when his consumption is above $2 a day (based on the poverty line index in developing countries) and above $13 if we use US standard. In Indonesia, the poverty line is approached using a minimum food expenditure equivalent to 2100 kilocalories per capita per day with the addition of minimum non-food expenditure. When it comes to empowerment, it is difficult to measure. Empowerment is a process, and it is hard to measure the process. As mentioned by Malhotra, Schuler, and Boender (2002), most of the indicators tend to measure the empowerment factors in terms of (1) participation in the labor force, (2) education, including literacy, (3) marriage, and (4) women delegation in politics. In addition, Malhotra, Schuler, and Boender (2002) classified the indicators for measuring empowerment as follows: (1) labor force including wage, participation, childcare, and how many women have high positions in their jobs; (2) education, which includes secondary educa­ tion; (3) marriage systems including the average of women getting married; (4) social norms regarding women’s mobility in the society; (5) health related to female mortality index; and (6) political indicators evaluating the number of women who participate in the House of Representatives. Based on data gathered from the Hunger Project, studies have shown that when women are empowered, society will benefit. This tends to reduce poverty. Their families will have better health, education, and their incomes will increase. Furthermore, the World Bank mentioned that when countries give more attention to empowering and developing women in economics and social education, the women will contribute to reducing poverty rates, because increasing the level of girls in secondary education alone can improve their future salaries by 10% to 20%. 377

3 DATA AND METHODOLOGY This article used data from the World Bank Data Set that are available in time series data from 1990 to 2010. This article is an empirical study that used regression analysis by using dependent variable poverty (based on the World Bank Data set, the poverty line has been set for people who live under $2 per day), while independent variables refer to labor force, education, and health/ survival.

4 EMPIRICAL RESULTS Indonesia is the largest country in the South East Asia region. Based on the World Bank Data Set in 2011, the population was 242 million people. Population growth of Indonesia is about 1% per year since the last decade. In total, the female population and male population in 2011 account for 49.63% and 50.37%, respectively. Previously, the female population was more than the male population, but recently from 2010 onward, the condition has changed, and the male population is now slightly higher than the female population. Table 1. Indonesia’s poverty data (urban and rural 1976–2006).

Source: Central Biro of Statistic

According to the table above, the poverty data showed a decline in poverty both in percent­ age and number. The condition was different in 1998 when the Asian crisis happened. The harsh conditions prevalent in Indonesia at that time led to an increase in the poverty figure. A careful look at Indonesia’s poverty figures reveals that rural areas are still suffering from four times more poverty than urban areas. This number should be of great concern to the gov­ ernment of Indonesia. In 2011, the female labor force only accounted for 38% of the total labor force in Indonesia, while the male accounted for 62%. In the area of education, second­ ary education enrollment for females is also less than for males all the time. This condition is an indicator that females are poorer than males. The mortality rate among children showed different figures. The mortality rate among male children is more than females. But in terms of number, the mortality rate is declining year by year. The result from the regression analysis (Table 2) between poverty and the variables related to women empowerment includes secondary education, and the mortality rates among women have a negative impact on poverty. According to Table 2, we can look at the coefficient, which shows negative. This model shows that if employment among women increases, poverty will decrease. Secondary education enrollment among women also has a negative impact on 378

Table 2. Regression result for females’ poverty.

poverty, shown by the negative coefficient on it. If secondary education among women increases, then poverty will be reduced. This result is in line with other studies’ results. Such a study was conducted by Sari and Kawashima regarding poverty mapping in Indonesia. They found that higher education is negatively correlated with severe poverty. What happens with the mortality rate is slightly obvious. The results reveal that if the mor­ tality rate increases, instead of increasing poverty, it will reduce poverty. Many studies show that poor people relate to high mortality rates. For example, Messner, Raffalovich, and Sutton (2010) mentioned that infant mortality has a strong correlation with poverty. Infant mortality is one of the agents used to detect poverty. However, this result shows a different way of fighting poverty. This might be because of the reliability of the data itself, and the rates were used rather than the actual numbers. The researcher was not able to get all the data that is required for this study, therefore, further research is recommended with the use of actual numbers, or otherwise, transformation in the data should be applied. To sum up the regression analysis among the women empowerment variables on poverty reduction, the result proved that empowerment among women, which was detected by an increase in education and employment among women, could reduce poverty. The result of the mortality rate that was not collated due to insufficient data should be fixed in a future study.

5 CONCLUSIONS AND POLICY IMPLICATIONS From the empirical result in the previous part, we can conclude as follows: (1) Poverty in Indonesia is already declining year by year recently, but rural areas still suffer more poverty than urban areas; (2) Women are still left slightly behind men in terms of the labor force and education; (3) Secondary education enrollment of women has a significant role to play in pov­ erty reduction; (4) Increasing employment for women can reduce poverty, but from the regres­ sion analysis the result is non-significant; (5) From the result, there is no significance in model for the men’s result but for women there are two variables that have a significant role in pov­ erty reduction. This is proof that empowering women has a better effect on poverty reduction. Since giving secondary school education to women has a significant role to play in poverty reduction, the government should show more concern on this matter. Improving the 379

enrollment of women in secondary school education is important. Giving more opportunities to women in high school and university is one of the best policies. The government can pro­ vide more university scholarships for women since university education is costly, and women tend to give up after they finish high school. Even though employment among women gives insignificant result but giving more opportun­ ities to women in the labor force will also reduce the poverty incidence. The government should provide more jobs for women and check all forms of discrimination against women in the labor force. Further research should use a proper data set that can accurately measure all the variables for empowering women, and with such a quality data set and good analyzing skills, we are certain that better results will be achieved,providing good policy recommendations to the policymakers. REFERENCES Malhotra, A., Schuler, S. R., & Boender, C. “Measuring women’s empowerment as a variable in inter­ national development.” Background paper prepared for the World Bank Workshop on Poverty and Gender: New Perspectives. Messner, S. F., Raffalovich, L. E., & Sutton, G. M. (2010). “Poverty, infant mortality, and homicide rates in cross-national perspective: Assessments of criterion and construct validity.” Criminology, 48(2),509–537. Meth, C. (2006). Income Poverty in 2004: A Second Engagement with the Recent Van der Berg et al Fig­ ures. School of Development Studies, University of Kwazulu-Natal. Ministry of National Development Planning. (2006). Poverty Reduction in Indonesia: A Brief Review of Facts, Efforts, and Ways Forward. Forum on National Plans and PRSPs in East Asia. Vientiane, Lao. Narayan, D., Stern, N., Nankani, G., Page, J., & Jorgensen, S. (2002). Empowerment and Poverty Reduc­ tion: A Source Book. The World Bank, PREM Washington, DC: Google Scholar. Ravallion, M. (2009). Do Poorer Countries Have Less Capacity for Redistribution? The World Bank. Ravallion, M., Chen, S., & Sangraula, P. (2008). Dollar a Day Revisited. The World Bank. Sen, A. (1987). Food and Freedom. Sir John Crawford Memorial Lecture, Washington, DC. October.

380

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

The implementation of single identity number in a bid to integrate the existing identity numbers in Indonesia Nur Arif Nugraha Polytechnic of State Finance STAN, Tangerang Selatan, Indonesia

ABSTRACT: This article suggests the use of a single identity number as a primary key to open other identification, such as a driver’s license and family card. This is because so many identity cards issued by institutions in Indonesia have fields that are of the same data, such as name, address, and birth date. The numerous forms of citizen identification imply minimum citizenship data integrity, and there is also no identity guarantee validation. This has resulted in problems of inconsistencies and unsynchronized data in the use of identity cards. There is a policy to implement a single identity number to integrate existing identity numbers. The method is to create a main server as data storage and to observe some key data to link all collected data. Ultimately, the single identity number can be used for all purposes, both for the country and the citizens.

1 INTRODUCTION Indonesia has many rudimentary single identity numbers (SIN) scattered in many institu­ tions. There are many identity cards issued in Indonesia, each containing similar informa­ tion such as name, address, and birth date. Some identification is based on personal data such as citizens’ identity number and driver’s license, whereas others are based on spatial data such as land certificate and land and building tax. Each identification has a different purposes, depending on the issuing institution. The replication and redun­ dancy of citizenship data are inevitable because there is no integration in information systems (IS) among institutions. This article proposes the implementation of a single identity number in Indonesia. In the first part, it explains the policy problem and why it is needed, the problem significance, and the literature review of a single identity number. In the second part, it focuses on the policy itself, ranging from the proposed policy to parties involved in the policy implementation. Finally, the article describes the process and stages of SIN implementation.

2 POLICY PROBLEM The numerous forms of identification owned by citizens imply minimal citizenship data integ­ rity, and there is also no guarantee of identity validation. Individuals have a variety of activ­ ities that are related to their political, economic, and social-cultural features. The government is challenged to provide excellent services so that people can conduct their daily activities effectively. Consequently, various services provided to public sectors depend on their inherent responsibilities and objectives (Andiwiana, 2013). The single identity number is the concept of governance whereby each resident in a country is expected to have a unique identification number as his/her identity as a citizen. In the United States, this is called the Social Security Number (SSN). There are many embryonic SINs, such as ID cards, and because there is no system integration, individuals can have more 381

than one ID card. However, implementing an integrated SIN can eliminate this problem (Sutanta, 2012). From an economic point of view, particularly in banking transactions, there are many cases of identity verification that often crop up. Banks have difficulty tracing the real identity given by their clients because, at times, they make the mistake of accepting fake identity cards instead of the original ones. In Indonesia, there is an institution called the Centre of Report and Analysis of Financial Transaction that monitors suspicious financial transactions that may occur in the banking sector (Husein, 2008). Indonesia can learn from some countries that have already applied SIN, such as Singapore, Malaysia, Thailand, the United States, and Canada. In those countries, every resident from birth to death has a SIN. This facilitates a wide range of matters. As a result, it is easier to detect the SIN presence if someone is dead. It may not be easy to identify fraud or crime with the SIN implementation, but it is easy to manage social security, immigration, and taxation matters with the efficient and effective method of SIN implementation (Lusmiarwan, 2006).

3 RESEARCH METHOD This research applied qualitative research methods. The techniques that I used to analyze the data were interviews, document analysis, and observation. This study employed an interpret­ ive policy analysis method as described by Yanow (2007), which provided an opportunity for users to access and acquire the meaning of what needs to be analyzed. Thus, it brings up vari­ ous relevant elements between the definitions and policies that are being analyzed. Lofgren (2007) noted how the interpretive policy analysis could identify meanings as expressed in the policy document to engage policy-stakeholders in order to gain an understanding of the policy and how they behave and act. According to Yanow (2007), data should be interpreted from the perspective of researchers’ involvement in the situation under observation. This research is study documentation that used discourse analysis to examine various documents that have been collected and processed (Glynos et al. 2009). In a more detailed and technical way, Jones (2003) stated that studies that used discourse analysis actually perform a kind of “archaeology of knowledge” by exam­ ining the various documents collected for the purpose of achieving an understanding of their discursive practices. This study used secondary data documentation study in a broad sense, as proposed by Bowen (2009). Documents are a form of legislation as well as their technical implementation rules. The sourced document is the government’s regulations on SIN, journal articles, and other relevant academic literature. The data that is sourced will go hand in hand with the gov­ ernment’s policies, which are related to single identity numbers.

4 POLICY DESIGN The source of SIN can be obtained from multiple data entities. The common ones are based on identification from taxpayers identification number (TIN), citizenship identification number population (CIN), birth certificate number (BCN), passport number, driver’s license number, or voter ID. Although SIN is often a topic of debate among the working groups that make up the National Information System, those who are responsible for it have not been explicitly decided upon. Moreover, alternative technical solutions that can be used to solve problems of excess information within the system have not been established. However, SIN is implicitly mentioned as part of existing systems in the National Information System, such as the Popula­ tion Information System and Social Security System. There are two concepts, and the first is the National Information System classification and application information, for example, node central, provincial, and district levels, which describe the management division and data ownership. Another substantial concept in the 382

National Information System is the definition of “information channel” as a medium of com­ munication between application systems. Information channel is the IS integration backbone where inter-agency information can be integrated into a single system. Both concepts have sig­ nificant implications in terms of technical solutions to the SIN system, both at the central and local levels. It leads to a demand for an autonomous government to provide excellent public services. To fill the gap, data is grouped into four; national strategic data, data agencies and national agencies, local government strategic data, and data agencies and regional institutions (Statis­ tics Indonesia, 2012). The first data group is set for a strategic impact on national interests. The determination should be based on the presidential decree because the data is inter-agency. The groups of data that impact directly on government institutions should enter a second data group. The determination is strongly influenced by the data structure or the National Strategic Data Group, for example, a taxpayer. The third is a data group that has direct impacts on local governments, such as regional land ownership data. Meanwhile, the fourth data group is data that affect central or local agencies, such as personal taxation data regions. The most crucial thing is to decide who is responsible for controlling the database manage­ ment. Since the Ministry of Internal Affairs has initiated a major project to implement elec­ tronic identity cards (E-ID) in Indonesia, I think that it will be all right for them to become the central gateway to open all database links because they have an authority to collect SINrelated data. Furthermore, they have many regional offices throughout the country, not only at the provincial level but also at the regency level. There are some final targets for the implementation of SIN. First is the convenience of access, data sharing, and data integration. Second is cross-sectoral information extraction among government institutions. Third is as a monitoring instrument of citizen’s compliance to their various obligations. Fourth is a large contribution to development planning because of detailed information about social and economic aspects. Fifth is an analysis of income resource potential. The final target is as a tool towards e-government (Josang, 2005). SIN policy implementation involves many institutions that have different functions. The central institution as a management database control should be the Ministry of Internal Affairs because this institution initiated the implementation of the E-ID. The E-ID is a card with a built-in chip that contains citizens’ personal data such as name, birth date, and blood type. Furthermore, the chip stores the fingerprint data and retinal scan of each citizen, which are unique to the person. There are nine institutions involved in the SIN implementation process. First, the Civil Registration Office, under the Ministry of Internal Affairs which deals with citizens’ birth certificates; second, Directorate General of Taxes (DGT), under the Ministry of Finance which manages taxpayers’ data; third, the Immigration Office, under the Ministry of Law and Human Rights, which authorizes citizens’ passport; fourth, the Religion Affairs Office, under the Ministry of Religion which administers marriage certificates; fifth, the District Police Office, under the National Police Office which manages driver’s license; sixth, the Health Insurance Office, under the Ministry of Health, which deals with health insurance; seventh, banking institutions, under the Central Bank’s supervision which manages bank accounts; eighth, the General Election Commission which authorizes citizens’ voter cards; finally, ninth, the Ministry of Communication and Information, which provides IT procurements and tech­ nical operations.

5 POLICY IMPLEMENTATION The implementation of SIN requires an ultimate synergy and coordination among government institutions, but there is a current problem of sectoral egoism among government institutions. The better way to implement this policy is a top-down procedure because the system is avail­ able. The President should publish a Presidential Decree to command government institutions in relation to the policy implementation. The President can also apply firm sanctions on those who do not comply with this policy. 383

There are five steps that the government should follow: The first is consultation with related government institutions. This is the most crucial aspect because sectoral egoism is a primary problem related to SIN implementation. The Ministry of Internal Affairs is the central actor because it initiated and discussed the concept of memorandums of understanding from con­ ceptual to technical aspects. In terms of conceptual aspects, each ministry should not only arrange serious coordination for this policy implementation but should also discuss risk miti­ gation if there are fraud-related problems during implementation. The second stage is to create a common identity number, which has already been imple­ mented in the electronic identity card (E-ID). The current numbering method is already well applied because it consists of 16 digits. According to the Law of the Republic of Indonesia Number 23 the Year 2006 concerning Population Administration, Nomor Induk Kependudu­ kan (NIK) is a resident identification number that is unique, single and attached to a person who registered as a resident of Indonesia and it is valid forever. The number is managed by the Director-General of Civil Registration under the Ministry of Internal Affairs. The SIN consists of sixteen digits where the first six-digit represents the place where the NIK was published (two-digit province code, two-digit code of the city/district, and sub-district two-digit code). The following six digits are the birth date with a format of “month-date-year” (for women, date added by 40), while the last four digits are the serial number, which starts from 0001. One problem of the current SIN policy is the six digits, which represent the location code where the SIN is published. It becomes ambiguous between the birthplace and the issuing place. For instance, there is a woman born in Bandung on 17 August 1990, and she is issued with a SIN that reads: 10 50 24 570890 0001: if there is another woman with the same birth date and residence address, then her SIN would read: 1050 24 570890 0002. If it is a six-digit code for the first residence, and the person moves from the city or province, then the six-digit prefix becomes irrelevant. For example, if an owner of code 01 60 Central Jakarta moves to Jayapura regency in Papua, his/her code will read 25 01, thereby rendering the six-digits prefix irrelevant and making it prone to problems of administration. The third stage is to introduce the Quick Response Code (QR Code), a two-dimension code developed by Japan in 1994. It is not only beneficial to store a large amount of information, has an error correction ability, can be printed out on an ID card, has many reader devices, and is cheaper (Ridwan et al., 2010), but it is also available on any mobile devices, and it is mostly free. The technical application is to store the data in a two-dimension barcode. To secure the information inside the QR code, the information is encrypted with the algorithm, which is specifically designed. There are two alternatives to add the QR code to the electronic identity card. The first alternative is conducted in every sub-district office, printed in a small size, and attached to the electronic ID. The second one is to insert the QR code in a newly issued electronic ID. Therefore, a camera phone can easily access it with an installed QR code application. Furthermore, fingerprint data is stored in a specific database accessed through a virtual pri­ vate network (VPN), which serves as a gateway to connect the sub-district office to the data­ base center within the Ministry of Internal Affairs. Security can be guaranteed because there is a physical separation of data storage between sub-district offices and the Ministry of Internal Affairs. The fingerprint data is taken from each district office and then linked with the registered data in the system. The fingerprint data is nationally accessed, so it may assist during a verification process. The fourth stage is a process of opening and linking the SIN database between the Ministry of Internal Affairs and other government institutions. This is crucial because each ministry has to secure data encryption inside the system. Therefore, a periodic upgrade and mainten­ ance of security enhancement should be directed. The Ministry of Internal Affairs should establish a specific division to deal with database management. This means that there will be nine sections because of the nine government institutions that are involved in the SIN imple­ mentation process. The last stage is the procurement of QR readers, and the SIN implementation to all public services, and the central government should be responsible for this. If the reader is already provided, the implementation of SIN can be optimal because every institution would then be 384

able to access the SIN-contained data. People will receive many benefits from this policy implementation by showing one single SIN card for all purposes. REFERENCES A, C. (2012). Previlege Pemegang Kartu NPWP. [Online] http://www.pajak.go.id/content/article/previ lege-pemegang-kartu-npwp. [Accessed September 2019]. Andiwiana. (2013). Utilisation of a National Identity Number, Census Data and Electronic ID Cards (e-KTP) in Bank Indonesia’s Scope of Services. [Online] http://www.bi.go.id/web/en/Ruang±Media/ Siaran±Pers/sp_151613.htm. Ashari, E. S. &. A. (2012). Indonesia dan Kartu Identitas. Jurnal Ilmu Komputer, 5(1), 1–9. Communications, I. (2003). Strategi Penciptaan Single Identity Number. [Online] http://www.ebizzasia. com/0212-2003/itc,0212,01.htm. [Accessed September 2019]. Edhy Sutanta, R. W. K. m. &. E. W. (2012). Model Integrasi Antar Sistem E-Government Dengan Mem­ anfaatkan Database Kependudukan Nasional. Jurnal Teknologi, 5(1), 76–84. Fridh Zurriadi Ridwan, H. S. &. W. A. (2010). Mengamankan Single Identity Number (SIN) Mengguna­ kan QR Code dan Sidik Jari. Indonesia Internetworking Journal, 2(2), 17–20. Husein, Y. (2008). Pentingnya Single Identification Number Bagi Indonesia. [Online] from http://yunushusein. wordpress.com/2008/01/07/pentingnya-single-identification-number-bagi-indonesia/. [Accessed September 2019]. Indonesia, M. o. I. A. o. R. o. (2013). e-KTP Dites di Card Reader, Ini Data yang Muncul. [Online] http:// www.kemendagri.go.id/news/2013/05/16/e-ktp-dites-di-card-reader-ini-data-yang-muncul. [Accessed Sep­ tember 2019]. Indonesia, S. (2012). Statistics Indonesia Strategic Data, Jakarta: Statistics Indonesia. Mahendra, R. (2007). Single Identity Number: Sebuah Solusi Permasalahan Identitas Kependudukan di Indonesia. Komunitas e-Learning Ilmu Komputer, 1(6). Nasional, D. T. I. d. K. (2010). Mendagri: Pemerintah Terapkan E-KTP pada 2013. [Online] http://www. detiknas.org/index.php/flagship/c/9/80/Mendagri-Pemerintah-Terapkan-E-KTP-pada-2013/. [Accessed September 2019]. Pacific, U. N. E. a. S. C. f. A. a. t. (2012). Country Reports on Local Government Systems: Indonesia, Bangkok: United Nations Economic and Social Commission for Asia and the Pacific. Pope, A. J., &. S. (2005). User Centric Identity Management. Brisbane, CERT Conference. Primanita, A. (2013). E-KTP Deadline Delayed Until 2014. [Online] http://www.thejakartaglobe.com/arch ive/e-ktp-deadline-delayed-until-2014/ [Accessed September 2019]. Rahardjo, B. (2005). Single Identity Number di Indonesia. [Online] http://rahard.wordpress.com/2005/12/ 04/single-identity-number-di-indonesia/ [Accessed September 2019]. Supangkat, D. L. &. S. (2006). Perancangan Prototype Single Identity Number untuk Menunjang E-Gov­ ernment. Bandung, Konferensi Nasional Teknologi Informasi & Komunikasi untuk Indonesia, Bandung. Sutrisno, E. (2013). Anggaran e-KTP Lebih dari Rp 6 T, Mendagri Harus Profesional. [Online] http:// news.detik.com/read/2013/05/08/105158/2240843/10/anggaran-e-ktp-lebih-dari-rp-6-t-mendagri-harus­ profesional. [Accessed September 2019]. Swastika, I. P. A. (2013). Single Identity Number (SIN) dari Wacana ke Realita. [Online] http://www.ber itabali.com/index.php/page/berita/dps/detail/06/04/2013/Single-Identity-Number-awalSINakhir-dari­ Wacana-ke-Realita/201107022381. [Accessed September 2019]. Team, C. (2012). e-KTP, Kartu Identitas Pintar Indonesia. [Online] http://www.chip.co.id/news/general/ 1764/e-ktp_kartu_identitas_pintar_indonesia. [Accessed September 2019].

385

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0?

Solikin et al. – (eds)

© 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

The effect of audit rate on taxpayers compliance in Indonesia Serly Puspita Sari & Arif Nugrahanto Polytechnic of State Finance STAN, Banten, Indonesia

ABSTRACT: One of the main problems of not achieving the tax revenue target is that the existing tax policies have not been able to encourage compliance. One of the strategies used by the tax authority to minimize the noncompliant taxpayers is conducting an audit. How much impact a tax audit has on compliance is the main issue of this study. Using the OLS to esti­ mate the impact of audit rate on tax compliance, the study adopted Birskyte (2013). The dependent variable is corporate taxpayer compliance, and the independent variable is the audit rate. The findings of this study are that audit rate has a significant effect on compliance, especially for corporate taxpayers. This study also suggests that an increase of 1 percentage point in the audit rate will increase income tax 1.37 percentage points, reported by the Corpor­ ate Taxpayer in Indonesia.

1 INTRODUCTION One of the main problems of not achieving the tax revenue target is that the existing tax pol­ icies have not been able to encourage compliance. One of the strategies used by the tax author­ ity to minimize noncompliant taxpayers is conducting an audit. The Director-General of Tax has identified the problem and implemented the Circular Letter Number SE-15/PJ/2014 regarding the 2014 Examination Strategy Plan. According to the circular, in the selfassessment system, there is a risk of noncompliance that can have an impact on tax revenue. Then, conducting audits is inevitable for the tax authority. There is a lot of research that discusses the effect of examinations on the level of compliance. Dubin et al. (1990) found that the changes in audit rates that occurred in the United States in 1977–1986, could reduce Federal state tax collection revenue. Referring to research by Dubin et al. (1990), Tagkalakis (2014) in his research also found evidence that a 1% increase in the audit rate of large companies, wealthy individuals, and VAT reporters in Greece could increase tax revenue from audits by 0.4% and 0.1% for total taxes. Research conducted by Birskyte (2013) also confirms that the higher audit rate conducted by the IRS can increase taxpayer compliance in the state. Audits conducted by the IRS on federal taxpayers have a strong positive influence on taxpayer compliance in the state. Based on this rationale, the study intends to investigate the effect of the audit rate on tax­ payers’ compliance in Indonesia, especially corporate taxpayers.

2 LITERATURE REVIEW 2.1 Tax audit Arens et al. (2012) defines auditing as an accumulation and evaluation of evidence to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent and independent person. Moreover, Arens et al. (2012) stated that one of the typical audit categories is a compliance audit, which is an examin­ ation conducted to determine whether the auditee has followed certain procedures and rules 386

established by an authority. The tax audit is included in this category. The goal of the tax audit is to find out whether the taxpayers have carried out their tax obligations following the provi­ sions set. The results of this typical audit are to evaluate the level of taxpayer compliance. In the Indonesian context, the definition of tax examination is provided in Law Number 6 of 1983 junction Law Number 16 of 2009 concerning General Provisions and Tax Procedures Article 1 number 25. The tax examination is a series of activities to collect and analyze data, information, and/or evidence, conducted objectively and professionally, following particular standards in order to assess compliance with tax regulations and/or for other purposes. 2.2 Taxpayer compliance According to James et al. in Gunadi (2005), tax compliance is taxpayer willingness to fulfill their tax obligations following the regulations without any examinations, investigations, warnings, threats, or sanctions. Nurmantu (2005) presents a similar definition, namely that tax compliance is a condition wherein taxpayers fulfill all their tax obligations and according to their rights. In Indonesia, according to Nurmantu (2005), tax compliance is usually categorized into two types, namely formal compliance and material compliance. Formal compliance is a condition wherein taxpayers fulfill tax obligations formally following the provisions in tax laws. This compliance emphasizes administrative compliance, including fulfilling the requirements for registering and submitting SPT. Material compliance is a condition wherein taxpayers fulfill all substantive provisions of taxation, that is, to report income according to the regulation and meet the spirit of the law. Thus, a taxpayers can be said to be materially compliant if their tax returns are reported honestly, soundly, and correctly. 2.3 Prior research There are a number of previous empirical studies relating to the effect of tax audits. Some of them, utilized as a reference in this study, are as follows: a. Dubin et al. (1990), The Effects of Audit Rates on the Federal Individual Income Tax, 1977–1986. In this study, Dubin et al. (1990) conducted an empirical analysis to identify the relationship between level of tax audits and taxpayer compliance. Using the generalized least square (GLS) estimation model, they found a relationship between audit rates and tax collec­ tion rates during 1977–1986. They estimated an increase of around 4% of total reported income tax when the audit rate is considered constant as in 1977. b. Tagkalakis (2014), The Direct and Indirect Effects of Audits on the Tax Revenue in Greece. The study examines the direct and indirect effects of tax audits on tax revenues in Greece. Using the three-stages least square estimator (3SLS) approach, Tagkalakis found that a 1% increase in the number of audits could increase tax revenue from audits by 0.4% for direct impact and by 0.1% for indirect impact. c. Howard (2013), IRS Enforcement and State Corporation Income Tax Revenues. Using data from 43 states in the 1995–2010 period, Howard found that IRS enforcement had a positive effect on state tax revenues. d. Birskyte (2013), Effect of Auditing: Does the Deterrence Deter? With 41 state panel data (IRS data) during the 1997–2001 period and using the OLS method, it shows that a 1% increase in the federal audit rate can increase the amount of income tax by 1.74 dollars. This finding is also strong evidence that the federal audit has a deterrent effect on noncom­ pliant taxpayers.

3 METHODOLOGY Based on Birskyte (2013), Howard (2013), and Taglakakis (2014) to determine the effect of audits on compliance, this study investigates the effect by comparing the audit rate to taxpayer 387

compliance. The compliance variable is measured by the amount of income tax collected by the tax authority. Adopted Birskyte (2013) research, the model for this study is as follows: Y;t ¼ β0 þ β1 Xit þ γZit þ T þ εit where: Y = tax compliance X = audit rate done by tax authority Z = dummy variable, the type of tax office T = fixed effect estimator εit = error The dependent variable of this study is the compliance of corporate taxpayer (Y), as meas­ ured by the amount of income tax divided by the total number of tax returns (SPT). The inde­ pendent variable is represented by the audit rate (X), the extent of the audit carried out by the tax authority. The value of the audit rate is obtained from the quotient between the number of audits and the number of corporate taxpayers.

4 DATA Research data include the following: a. ALPP data on audit activities conducted on corporate taxpayers during 2010–2013. b. Annual Tax Returns for Corporate Taxpayers 2010–2013 containing the amount of taxable income and income tax. The data collected consists of the total amount of taxable income and the total amount of income tax payable by the corporate taxpayer at each tax office for the period 2010–2013. c. Administration data including the number of registered corporate taxpayers, the number of corporate taxpayers who are required to report tax returns, and the number of corporate taxpayer returns received by the tax office during the period 2010–2013.

5 RESULTS AND DISCUSSIONS 5.1 Results This study used the OLS to estimate the impact of audit rate on tax compliance. After estimated parameters were freed from violations of the classical assumptions, the next step was to test the hypothesis through statistical tests, including the model suitability test (R2), simultaneous test (F-test), and partial test (t-test). Partial test results looking at the p-value for the audit rate is 0.0000. The p-value probability for the audit rate is significant because it is t)] = 0.3047 with a significance level of α = 0.05 and an error standard of 0.0182472. Then it can be concluded that the two groups have different averages. Furthermore, to identify the magnitude of differences in income from the two groups being compared, I conducted the Ordinary Least Squares (OLS) regression. To overcome the prob­ lem of heterokedasticity and autocorrelation, Davidson and MacKinnon’s robust standard errors are used for heteroscedasticity using the hc3 option. In interpreting the regression results, the coefficient of the interaction between treatment groups and time became the most important coefficient. This coefficient reflects the influence of a policy, the audit, on gross income reported by the taxpayer. By using a significance level α = 0.05, the value (P> t) = 0.882 with a standard error of 0.238, I failed to reject the null hypothesis. Then it can be said that the coefficient of the interaction variable between the dummy group and the time dummy (Dg.Dt) is not different from zero. However, when the significance level is adjusted to α = 0.15, a significant coefficient and positive value of the interaction is obtained, that is 0.035. Discussion From the regression results, I obtained an interaction coefficient of 0.035, although only significance at α = 0.15. It shows that there is a difference in the growth of gross income reporting from taxpayers who are audited (treatment group) when compared to the growth in gross income reports from taxpayers who did not undergo audit (control group). With a coefficient of 0.035, it can be interpreted that the gross income report of the audited tax­ payer is 3.56 percentage points higher than those who were not audited. It also can be seen that the audit, in general, have a positive effect on the growth of gross income. The coefficient value of the interaction dummy checked with the dummy time that had a positive sign and can be interpreted to increase the number of audits that are likely to increase the amount of gross income reported by taxpayers when compared with the gross income reported by taxpayers who were not audited. The increase in the gross income reported by taxpayers after audits is in line with the results of the research conducted by Norman Gemmel and Marisa Ratto (2012). 5 CONCLUSIONS This research is conducted to answer the question of whether audits increase tax compliance or not, as is reflected in gross income reports. Though the result is a little bit weak, the ana­ lysis shows that there is an increase in the amount of gross income reported by the taxpayers after the audit. REFERENCES Allingham, M.G. and Sandmo, A. 1972, “Income Tax Evasion: A Theoretical Analysis,” Journal of Public Economics, 1, 323–338. Alm, James and McKee, Michael, 2006“Audit Certainty, Audit Productivity, and Taxpayer Compliance,” Andrew Young School of Policy Studies Research Paper No. 06-43. Directorate General of Tax, 2012. “2012Annual Report.” Michele Bernasconi, 1998. “Tax Evasion and Orders of Risk Aversion,” Journal of Public Economics, 67, (1), 123–134.

395

Gemmell, Norman & Ratto, Marisa, 2012. “Behavioral Responses to Taxpayer Audits: Evidence From Random Taxpayer Inquiries,” National Tax Journal, National Tax Association; National Tax Jour­ nal, vol. 65 (1),pages 33–57, March. Lechner, Michael, 2011. “The Estimation of Causal Effects by Difference-in-Difference Methods,” Foun­ dations and Trends in Econometrics, Vol. 4, No. 3 165–224. Niu, Yongzhi, 2010. “Tax audit impact on voluntary compliance,” MPRA Paper 22651, University Library of Munich, Germany. Niu, Yongzhi, 2010. “Taxpayers’ Response to Warnings of a Possible Tax Audit: Do They Change Their Compliance Behavior?” MPRA Paper 25551, University Library of Munich, Germany.

396

Public Sector Accountants and Quantum Leap: How Far We Can Survive in Industrial Revolution 4.0? Solikin et al. – (eds) © 2020 Taylor & Francis Group, London, ISBN 978-0-367-42252-3

Author Index

Adi, E.Y.P. 260

Agustin, H. 53

Akbar, I. 353

Akhmadi, M.H. 40

Aliabadi, F.J. 71

Andriana, N. 319, 324

Apriliasari, V. 216

Ardiansyah, B.G. 216

Arham, A. 64

Arifin, Z. 75

Ariutama, I.G.A. 44

Aryotama, P. 235

Arza, F.I. 53

Asqolani 144, 339

Asyrofi, D. 44

Azizah, H.N. 110

Azizah, W.N. 260

Azzahra, F. 115

Bakroh, D.S.B. 17, 26

Bandiyono, A. 211

Barkah, A. 169

Biswan, A.T. 348

Burhanuddin, H. 138

Cahyono, D.A. 391

Cheisviyanny, C. 53

Damayanti, A.A. 100

Darma, F.A. 358

Darono, A. 231

Deceng, A.O.B. 265

Devie, N.S. 308

Dinarjito, A. 12

Dinarjto, A. 296

Dionisius, Y.B. 220

Djunedi, P. 275

Fachriyandana, F. 119

Fajri, F.A. 184

Fajriyani, F.H. 49

Febrian 226, 231

Febrian, R. 40

Firmansyah, A. 64, 235, 329

Fitra, H. 53

Gal, G. 71

Gunawan, E. 95

Gutomo, R. 348

Hamzah, A.P. 319

Handaka, R.D. 353, 358, 363

Handayani, D. 100, 105, 302

Indrawati, I. 240

Iswanti, N. 240

Kalsum, U. 138

Khosyi, M.A. 211

Kodirin 270

Kuncoro, A.R. 308

Kurniawati, L. 179

Kusmono 26, 129

Kusumaningtyas, A.W. 296

Kusumawati, R. 344

Kuswendah, N.F. 110

Liyana, N.F. 376

Lukas, A. 286

Mahendra, F.R. 344

Mahendra, R. 22

Marsudi, A.S. 220

Marsus, S. 334

Mashayekhi, B. 71

Mas’udin 281

Maulana, I. 115

Mawaddati, R. 75

Medriansyah, Y. 363

Marsono 174

Muamarah, H.S. 174, 286

Mufti, I. 159

Mulyana, B. 17, 194

Nauli, P. 270

Niansyah, F.I.W. 324

Nor, A.M.E. 64

Nugraha, N.A. 381

397

Nugrahanto, A. 386, 391

Nugroho, A. 206

Nugroho, R. 189

Nur, I. 34

Nurcahyo, M.A. 124

Nurhidayati, N. 255

Prabowo, M. 34

Prabowo, S. 371

Prasetyo, K.A. 133

Pratama, R.H. 110, 115

Priharjanto, A. 319, 324

Purwanti, D. 240, 245, 250,

255

Puspitarini, I. 302

Putri, O.E. 110

Qadri, R.A. 95

Qomarayanti, F.F. 30

Ratnasari, G.A.I. 313

Rexhepi, G. 1

Riyanto Eka, Y. 189

Rusthadi, A.F. 179

Safitri, O. 199

Salsabila, R. 138

Sandria, D.P. 12

Saputra, A.H. 367

Saputra, A. 245

Sari, S.P. 386

Setiany, E. 75, 79,

84, 89

Setiono, B. 169

Setiyawati, H. 79, 84

Sinaga, A.K. 265

Siregar, H.O. 184

Sisco, J. 79

Siwi, I.A.J. 7

Solikin, A. 30, 154,

291

Sopian 149

Srianto, S. 84

Suardani, A. 265

Subagio 154, 291

Sugiyanto, H. 281

Suharly, E. 206

Suhendra, M. 199

Sumantri, J. 194, 275,

329

Supriyadi 226

Surachman, E.N. 22, 105

Susilo, B. 34

Syahroni, M.I. 115

Triono, D. 58

Trisulo 49

Usman, F. 319

Utami, W. 75, 89

Wibowo, Y.H. 324

Widyanti, A.A. 250

Wijaya, S. 260, 265

Wong, H.S. 7

Yasni, R. 159

Wahyudi, W. 89

Wibawa, B. 164

Wibawa, R. 164

Wibowo, P. 119

398

Zikrullah, A. 95

Zulvina, S. 129