Thesis seminar

Thesis Advisor : Mr. Efa Yonnedi, SE, MPPM, Phd, Ak.

By:Sari Haryanti

07 153 128

Thesis Seminar Analysis of Performance Based

Budgeting Implementation in Local Government Institution (Case Study in

Bukittinggi Local Government)

Research Background

The enactment of legislation package in the field of Public Finance foundation for the implementation public financial management sector reform : PBB, MTEF and Unified Budget

Ministry of Home Affairs Regulation (Permendagri) No. 29/2002 on technical guidance in arranging, implementating until reporting of implementation PBB

Indonesian Ministry of Finance, 2008 The Performance based Budget approach has been adopted and implemented, but it has encountered several obstacles

Chapter I. Introduction

Research Problem


• To what extent has Bukittinggi City implemented Performance Based Budgeting since 2002?

• What are the factors that influence implementation of Performance Based Budgeting in Bukittinggi Local Government?

Research Objective • Conducting studies in general

towards performance based budgeting in Bukittinggi Local Government compared with the theory and regulation

• Identify the factors that influence the implementation of Performance Based Budgeting in Bukittinggi Local Government

Benefit of research• Get an overview of achievement

preparation and implementation of PBB in Bukittinggi Local Government

• Knowing the factors that influence implementation of PBB in Bukittinggi Local Government

• As the basis for further research on the preparation and implementation of PBB in Indonesia, specifically in Bukittinggi Local Government


Theoretical Framework 2.1.

• Definition Of Performance-Based Budget

2.2.

• Principles For Performance-Based Budget

2.3.

• Elements Of A Performance-Based Budgeting

2.4.

• Supporting Elements Of Performance Based Budget

2.5.

• Performance-Based Budget Precondition

2.6.

• Benefit And Challenges Of Performance Based Budgeting Application

2.7.

• Performance-Based Budget Formulation

2.8.

• Relationship Between Strategic Planning, PBB And The MSS

2.9. • Case Study from Others

Countries2.10.

• Previous Research AnalysisChapter II Theoretical Background

2.10.Previous Research Analysis• Performance Budgeting Resuscitated:”why is it still inviable?”• Journal of Public Budgeting, Accounting & Financial

Management ; Summer 1998;10,2Haoran Lu (1998)

• Condition to implement outcome-oriented performance budgeting: some empirical evidence.

• Journal of Public Budgeting, Accounting & Financial Management, winter 1999;11,4

Xiao Hu Wang (1999)

• Best practice in Performance Budgeting• Discussion Paper no.124 November 2002, Queensland University

of TechnologyMarc Robinson (2002)

• Factors that influence PBB planning in DKI Jakarta Province• University of IndonesiaM. Aris Firmansyah (2007)

• Phenomenology study to Local Budget Preparation Process, Empiric evidence from 1 work unit in in Jambi Province

• Simposium Nasional Akuntansi X, UNHAS Makasar 26-28 Juli 2007

Sri Rahayu & friends (2007)

• The performance budgeting process phenomenon studies at Local Government of Temanggung.

• Thesis for magister Accounting UNDIP Nuraeni Utari (2009)

• Implementation of Performance based budgeting : phenomenon studies (case study at Diponegoro University)

• Thesis for magister Accounting UNDIPAri Eko Widyantoro (2010)

Chapter II Theoretical Background

Research Design• Aims to investigate implementation of PBB in Bukittinggi LG

• Qualitative approach which is descriptive analysis research.

• Conducted from March 2011 until June 2011at local government Institution in Bukittinggi city.Research Objectives

•Respondent:32 head department and staff of planning & finance subunit in work units (SKPD) in Bukittinggi Local Government

Questionnaire

•Respondent : 2 members of budgeting team of Bukittinggi Local Government and 1 member of budgeting team from DPRD

In-depth Interview

Chapter III Research Design

Data Analysis Method


1) validity test : triangulation; include methods, sources and dataMethod Triangulation

Source TriangulationQuestion

naireinterview

Head of Regional Development Planning and Investment (BAPPEDA & PM)

- √

Secretary of Finance and Asset Management Regions - √

Vice Chairman of Bukittinggi House of Representatif - √

Head of Budget Department of Finance and Asset Management Regions (DPKAD)

√ √

Secretary of Regional Development Planning and Investment (BAPPEDA & PM)

√ -

Head of planning & finance Department in unit work √ -

Head of economic & development Department √ -

Staff of planning Department √ -

Staff of finance Department √ -

• level respondent knowledge on PBB: (1)gives score 1 for each correct answer and score 0 for each incorrect answer,(2)analyzed through mean method aimed to finds the average score (mean) and categorized based on: the score exceeds average shows high knowledge, and below average means low knowledge(3) the find percentage of each variable question for detail information.

• Item implementation of some steps in making budget and element of PBB , used scoring system: 1 for never, 2 for seldom, 3 for sometimes, 4 for usually, and 5 for always. To analyze the answers from the respondent, reasearcher also used mean method.

• Item of the challenges in the implementation of performance-based budgeting in Bukittinggi Local Government:defines the frequency then finds the percentage

• Item of solutions that officer have done and recommendations : analyzed by making a list and group of respondent answer.

The process and analysis of the data are conducted with the following ways:

• Describe the informant• Collect all the data obtained from

sources• Organize and create a sequence of data

in accordance with the purposes of research

• Categorize data which has similar characteristics or patterns

• Summarize in the form of matrix• Analyze each items and then analyzes

refer to the theory and the results of other studies

In-depth Interview

Questionaire


• 4.1.General Description of Bukittinggi Budget Institution=> TAPD and BANGGAR

• 4.2. Respondent Descriptiona. Questionnaire Respondent

Table 4.2. Frequency Distribution of Questionnaires

Respondent Knowledge on PBB

b. In-depth interview RespondentAll respondent educational background :

Master degree

• 4.3. Results and Discussion

• 4.3.1. Respondent Knowledge

Table 4.4

Frequency Distribution of Budget Preparation

Process

Chapter IV. Result & Discussion

Respondent Education

Frequency

Percentage

Senior High School 1 3.1%

Diploma III 1 3.1%

Bachelor Degree 20 62.5%

Master Degree 10 31.3%

total 32 100%

Respondent Knowledge

Frequency

Percentage

High 15 46.9%Low 17 53.1%total 32 100%

No Statement % True % False

1 Budgets are prepared in accordance with the requirements and ability of local revenue 100 0

2 Preparation of Budgets guided by RKPD in order to realize a service to the community to achieve the purpose of the state 100 0

3 Budget function : function of planning, supervision, allocation, and distribution 93.8 6.2

4 Budget, budget changes, and accountability for implementation of the budget each year is determined by local government regulations

90.6 9.4

5 Local expenditure which used for government activity authorize by province or regency/city consist of obligatory affair which stated by regulation

12.5 87.5

6 Total revenues are budgeted in the budget are estimates measured in a rational way that can be achieved for each source of income

96.9 3.1

7 All local government income, local expenditure, and local funding are budgeted on a net basis in the budget 21.9 78.1

8 In preparing the budget, budgetary expenditures should be supported by the estimating of revenue availability in sufficient quantities

9.4 90.6

9 RPJMD for a period of 5 (five) years are the elaboration of the vision, mission and programs of regional head of the preparation is guided by the Regional RPJP with due regard to National Development Plan and minimum service standards set by the government

96.9 3.1

10 RKA-SKPD prepared using the approach of regional medium-term expenditure framework and integrated budgeting 56.3 43.8

11 What is a performance based budget? 78.1 21.9

12 Which is not including the principles of performance based budget 'Value for money'? 25 75

13 The appropriate elements of PBB is 34.4 65.6

14 The supporting elements of PBB, except 18.8 81.3

15 Performance-Based Budget Preconditions By Allen Schick, except ... 18.8 81.3

16 The newest rules are still used as a regional financial guidance is ... 37.5 62.5

17 Which is includes Income Balance Fund based on article 23 of Government Regulation Number 58 of 2005

is, except ..

75 25

18 Local government expenditure referred to in Article 20 paragraph (3) Government Regulation Number 58 of 2005 are classified according to ..., unless..

50 50

19 Which does not include local funding in Article 28 of Government Regulation No. 58 year 2005 are 37.5 62.5

20 The rules are guidelines for the preparation of budget year 2010 is... 50 50

Table 4.3Percentage of Respondent Knowledge on PBB

4.3.2. Analysis of Budget Preparation Process in Bukittinggi Local Government

4.3.2.1. Budget ProcessTable 4.4

Frequency Distribution of Budget Preparation Process

4.3.2.2. Time Allocation in The Budget ProcessIn line with regulation & theory time allocation in making budget is started by collecting society aspiration which called Musrenbang since Januari untill March, after that the latest discussion held on April, then on June all document entered to DPRD and on November it has been legally authorized for next year budget

Budget Preparation process

Frequency

Percentage

Good 17 53.1%

Not Good 15 46.9%

total 32 100%


4.3.2.3. Time Realization in Budget Preparation-Almost all respondent said there is a delay in the implementation the time allocation of buget preparation

- Reason : late audit BPK results, inability of SKPD staff and less of discipline in running the agreed schedule

4.3.3. Analysis of Performance Based Implementation in Bukittinggi Local Government

• 4.3.3.1. Early implementation of PBB : since 2001and also chatagorized as the first region that implemented it

• 4.3.3.2. Implementation of PBB in Bukittinggi Local Government : based on theory and regulation : in practice there are several things that are still inappropriate with the rule such as additional activity plan in mid of budgeting year; doing the stages not on time; It is already appropriate format, clear input, outputs, outcomes but still cannot identify impact and benefit;

• 4.3.3.3. Analysis of PBB Precondition in Bukittinggi Local Government : Bukittinggi already has performance measurement system and good integrated accounting system; financial audit system is regularly done by BPK and Bawasda

• 4.3.3.4. Vision, Mission and Activities Alignment : all document already has correlation each others

• 4.3.3.5. Reward and Punishment : for reward and punishment is already existed, in term of professional allowance. There is a performance measurement for every unit work even for every employee, but in realization the follow-up of this report score is still not good.

• 4.3.3.6. Standard Cost : it’s stated by major regulation• 4.3.3.7. Work Contract : The work contract exists between Major of bukittinggi with the headman

of each work unit ,but in realization, this work contract is not maximal• 4.3.3.8. Performance Evaluation : Performance evaluation already implemented in Bukittinggi Local

Government, even for staff, SKPD and the major , there is a problem in following-up the evaluation result, related SKPD only can send reminding letter and cannot give a punishment


4.3.4.Challanges in the Implementation of PBBQuestionnaire

Table 4.6Frequency Distribution of Challenge in

the Implementation of PBB

In-depth interview- human resources: weakneses of

internal condition such as less discipline, less commitment, problems in placement of staff,

- regulation : always changes, personnel regulation which asks the staff to move to other work units in order to get advance career

- Besides concerning to the implementation budget this year, at the same time staff should concern in making next year budget as they have double jobs in the same time


N

o

Constraints Frequ

encies

Percent

age

1 Lack of socialization and training of PBB 8 8.25%

2 Lack of knowledge/ understanding civil

servant about PBB

26 26.8%

3 Lack of motivation on employees to apply

the maximum PBB

19 19.59%

4 There is no clear setting standard

performance

18 18.56%

5 The limited availability of local budgets 10 10.31%

6 Lack of expertise 7 7.22%

7 The budget team has not been fully

involved at every stage of budget planning

process

9 9.28%

Total 97 100%

4.3.5. How Bukittinggi Local Government Address the Challenges?

Questionnaire• Socialization and workshop about PBB• Consultation with unit work that

related to budgeting process, such as Regional Development Planning and Investment (BAPPEDA & PM) and Department of Finance and Asset Management Regions (DPKAD)

• Consultation with budget team of Bukittinggi local government

• Find literature and regulation related to PBB

• Try to understand list of jobs as a basis of implementation PBB

• Give assistance to unit work• Create circular letter for all work unit

to collect RKA on time based on schedule

In-depth Interview

• making an agreement with major

• done training for staff• evaluation


4.3.6.How to Improve Performance Based Budgeting Implementation in Bukittinggi Local government

• For human resources : creating professional team in planning and preparing budget based on existing regulation, importing professional team to Bukittinggi for socializing and facilitating the preparation of PBB, recombining perception each element that involved in prepare budget about meaning of PBB, giving motivation for all staff to understand PBB, giving technical instruction and routine assistances for preparation budget process, developing a mindset about PBB, and the commitment between chairman and staff about expenditure used based on PBB Increase quality of human resources.

• For system and condition should be exist : creating clear standard and manual direction for PBB implementation, unit work should follow all regulation until the detail part of implementation PBB, making a relation between implementation of PBB with reward and punishment system, implementing review and evaluation for every program, all expense appropriate with achieved output ,managing all resources effectively and efficiently.

• For regulation and manual from central government : need clear indicator standard, technical direction/manual from central government, central government also give an example of consistent implementation of PBB


Conclusion

Chapter V. Conclusion

• Performance based budgeting has already implemented in Bukittinggi Local Government since 2000. The first implementation already good because of direct supervision from ICMA (International City/Country Management Association) in cooperation between Ministry of Finance, Ministry of Home Affairs and USAID. It’s implemented due to strong commitment between the Bukittinggi Major and staffs who’s did it still has strong commitment.

1• The respondent has low knowledge on budget and PBB which indicated by 53.1 % of

them get score under average. Most of them has wrong answers in important part of PBB such as: the estimation of revenue availability in sufficient quantities; local expenditure which is used for government activity authorized by province or regency/city consists of obligatory affair which is stated by regulation; the supporting elements of PBB; performance-based budget precondition; all local government income, local expenditure, and local funding are budgeted on a net basis in the budget; the appropriate elements of PBB; the newest rules is still used as a regional financial guidance; and which does not include local funding in Article 28 of Government Regulation No. 58 year 2005.

2• Bukittinggi Local Government has followed the stages that regulate by regulation and

theory in implementation of performance based budgeting. All of those stages are done but the quality is questionable. The most challenge in the implementation is commitment to do all stages based on agreed schedule with maximum quality. There are many things to be evaluated such as: human resources aspects (lack of knowledge, lack of discipline, lack of commitment in implementation PBB based on regulation, inappropriate of employee placement, and lack of expertise on accounting/planning), system and precondition should be exists (performance measurement system, wok contract system, internal control system not implement effectively), and regulation that always changes in short time.

3• Key factors that influence the implementation of PBB in

Bukittinggi :Human resources: knowledge on PBB, staff discipline, understanding of their own job responsibility, quality of human resources, right placement of employee, and strong commitment in implementation PBB based on regulation;System and precondition : clear standard and manual direction of PBB and the availability of budget funds; Regulation : changes in regulation from central government (Ministry of Home Affairs regulation and other regulation on it)

4

Recommendation


Human Resources

• the local government should first concern to the employee that related to implementation PBB. Such as good placement of staff based on competencies (right man in the right place), give enough understanding and motivation to increase the quality of PBB implementation

Regulation

• The regulation should not always change. We need to implement it then evaluate the result, after that change can be done if some improvement is needed..

System & pre-condition

• reward and punishment, work contract, high commitment, the firmness of headman consistency to obey the rule. After that, there should be an evaluation for the implementation of performance based budgeting and decision about what will be done to make everything in PBB is getting better.

Limitation of research


1•This questionnaire sample is just consisting of 7 unit works from 24 unit works in Bukittinggi local government.

2•This research object could not examined in detail through 9 year implementation of PBB because some data were lost caused by the earthquake and the changes of personnel who handle this.

THANK YOU FOR YOUR ATTENTION

Thesis seminar

Economy & Finance

Transcript of Thesis seminar