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analysis of Performance based budgeting implementation in local government

analysis of Performance based budgeting implementation in local government

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  • 1. Thesis Seminar Analysis of Performance Based Budgeting Implementation in LocalGovernment Institution (Case Study in Bukittinggi Local Government) Thesis Advisor : Mr. Efa Yonnedi, SE, MPPM, Phd, Ak. By: Sari Haryanti 07 153 128
  • 2. Research BackgroundThe enactment of legislation package in the field of PublicFinance  foundation for the implementation publicfinancial management sector reform : PBB, MTEF andUnified 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
  • 3. 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? Chapter I. Introduction
  • 4. Research Objective• Conducting studies in general towards performance based budgeting in Bukittinggi Local Government compared with Benefit of research the theory and regulation • Get an overview of achievement preparation and• Identify the factors that implementation of PBB in influence the implementation Bukittinggi Local Government of Performance Based • Knowing the factors that Budgeting in Bukittinggi Local influence implementation of Government 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 Chapter I. Introduction
  • 5. Theoretical Framework2.1. • Definition Of Performance-Based Budget2.2. • Principles For Performance-Based Budget2.3. • Elements Of A Performance-Based Budgeting2.4. • Supporting Elements Of Performance Based Budget2.5. • Performance-Based Budget Precondition2.6. • Benefit And Challenges Of Performance Based Budgeting Application2.7. • Performance-Based Budget Formulation2.8. • Relationship Between Strategic Planning, PBB And The MSS2.9. • Case Study from Others Countries2.10. • Previous Research Analysis Chapter II Theoretical Background
  • 6. 2.10.Previous Research Analysis Haoran • Performance Budgeting Resuscitated:”why is it still inviable?” Lu (1998) • Journal of Public Budgeting, Accounting & Financial Management ; Summer 1998;10,2 • Condition to implement outcome-oriented performance budgeting: some empirical Xiao Hu Wang evidence. (1999) • Journal of Public Budgeting, Accounting & Financial Management, winter 1999;11,4 Marc • Best practice in Performance Budgeting Robinson (2002) • Discussion Paper no.124 November 2002, Queensland University of Technology M. Aris • Factors that influence PBB planning in DKI Jakarta Province Firmansyah • University of Indonesia (2007) • Phenomenology study to Local Budget Preparation Process, Empiric evidence from Sri Rahayu & 1 work unit in in Jambi Province friends (2007) • Simposium Nasional Akuntansi X, UNHAS Makasar 26-28 Juli 2007 • The performance budgeting process phenomenon studies at Local Government of Nuraeni Temanggung. Utari (2009) • Thesis for magister Accounting UNDIP Ari Eko • Implementation of Performance based budgeting : phenomenon studies (case Widyantoro study at Diponegoro University) (2010) • Thesis for magister Accounting UNDIP Chapter II Theoretical Background
  • 7. Research Design• Aims to investigate implementation •Respondent:32 •Respondent : 2 of PBB in head department members of Bukittinggi LG and staff of budgeting team of Bukittinggi Local• Qualitative planning & finance Government and 1 approach which subunit in work member of is descriptive units (SKPD) in budgeting team analysis research. Bukittinggi Local from DPRD• Conducted from Government March 2011 until June 2011at local government In-depth Questionnaire Institution in Interview Bukittinggi city.ResearchObjectives Chapter III Research Design
  • 8. Data Analysis Method1) validity test : triangulation; include methods, sources and data Method Triangulation Question interview Source Triangulation naire 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 √ - Chapter III Research Design
  • 9. Questionaire• level respondent knowledge on PBB: (1)gives score 1 for each correct answer and score 0 for each incorrect answer,(2)analyzed through mean In-depth Interview method aimed to finds the average score (mean) and categorized based on: the score exceeds average shows high knowledge, and below average The process and analysis of the data are means low knowledge(3) the find percentage of conducted with the following ways: each variable question for detail information.• Item implementation of some steps in making • Describe the informant budget and element of PBB , used scoring system: 1 • Collect all the data obtained from for never, 2 for seldom, 3 for sometimes, 4 for sources usually, and 5 for always. To analyze the answers • Organize and create a sequence of data from the respondent, reasearcher also used mean in accordance with the purposes of method. research• Item of the challenges in the implementation of • Categorize data which has similar performance-based budgeting in Bukittinggi Local characteristics or patterns Government:defines the frequency then finds the percentage • Summarize in the form of matrix• Item of solutions that officer have done and • Analyze each items and then analyzes recommendations : analyzed by making a list and refer to the theory and the results of group of respondent answer. other studies Chapter III Research Design
  • 10. • 4.3. Results and Discussion• 4.1.General Description of Bukittinggi Budget Institution • 4.3.1. Respondent Knowledge => TAPD and BANGGAR Table 4.4 Frequency Distribution of Budget• 4.2. Respondent Description Preparation Processa. Questionnaire Respondent Table 4.2. Frequency Distribution of Questionnaires Respondent Frequen Percentage Respondent Knowledge on PBB Knowledge cyRespondent Frequ Percentage High 15 46.9%Education ency Low 17 53.1%Senior High School 1 3.1% total 32 100%Diploma III 1 3.1%Bachelor Degree 20 62.5%Master Degree 10 31.3%total 32 100%b. In-depth interview RespondentAll respondent educational background : Master degree Chapter IV. Result & Discussion
  • 11. Table 4.3 Percentage of Respondent Knowledge on PBB No Statement % True % False1 Budgets are prepared in accordance with the requirements and ability of local revenue 100 02 Preparation of Budgets guided by RKPD in order to realize a service to the community to achieve the purpose of the state 100 03 Budget function : function of planning, supervision, allocation, and distribution 93.8 6.24 Budget, budget changes, and accountability for implementation of the budget each year is determined by local government 90.6 9.4 regulations5 Local expenditure which used for government activity authorize by province or regency/city consist of obligatory affair which 12.5 87.5 stated by regulation6 Total revenues are budgeted in the budget are estimates measured in a rational way that can be achieved for each source of 96.9 3.1 income7 All local government income, local expenditure, and local funding are budgeted on a net basis in the budget 21.9 78.18 In preparing the budget, budgetary expenditures should be supported by the estimating of revenue availability in sufficient 9.4 90.6 quantities9 RPJMD for a period of 5 (five) years are the elaboration of the vision, mission and programs of regional head of the preparation 96.9 3.1 is guided by the Regional RPJP with due regard to National Development Plan and minimum service standards set by the government10 RKA-SKPD prepared using the approach of regional medium-term expenditure framework and integrated budgeting 56.3 43.811 What is a performance based budget? 78.1 21.912 Which is not including the principles of performance based budget Value for money? 25 7513 The appropriate elements of PBB is 34.4 65.614 The supporting elements of PBB, except 18.8 81.315 Performance-Based Budget Preconditions By Allen Schick, except ... 18.8 81.316 The newest rules are still used as a regional financial guidance is ... 37.5 62.517 Which is includes Income Balance Fund based on article 23 of Government Regulation Number 58 of 2005 75 25 is, except ..18 Local government expenditure referred to in Article 20 paragraph (3) Government Regulation Number 58 of 50 50 2005 are classified according to ..., unless..19 Which does not include local funding in Article 28 of Government Regulation No. 58 year 2005 are 37.5 62.520 The rules are guidelines for the preparation of budget year 2010 is... 50 50
  • 12. 4.3.2. Analysis of Budget Preparation Process in Bukittinggi Local Government 4.3.2.1. Budget Process 4.3.2.3. Time Realization in Table 4.4 Budget Preparation Frequency Distribution of Budget -Almost all respondent said Preparation Process there is a delay in the Budget Frequen Percentage implementation the time Preparatio cy allocation of buget preparation n process - Reason : late audit BPK Good 17 53.1% results, inability of SKPD staff Not Good 15 46.9% and less of discipline in running total 32 100% the agreed schedule4.3.2.2. Time Allocation in The Budget ProcessIn line with regulation & theory time allocation inmaking budget is started by collecting societyaspiration which called Musrenbang since Januariuntill March, after that the latest discussion held onApril, then on June all document entered to DPRDand on November it has been legally authorized for Chapter IV. Result & Discussionnext year budget
  • 13. 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 Chapter IV. Result & Discussion
  • 14. 4.3.4.Challanges in the Implementation of PBB Questionnaire Table 4.6 In-depth interviewFrequency Distribution of Challenge in - human resources: weakneses the Implementation of PBB of internal condition such as less discipline, less N Constraints Frequ Percent commitment, problems in o encies age placement of staff, 1 Lack of socialization and training of PBB 8 8.25% - regulation : always changes, 2 Lack of knowledge/ understanding civil 26 26.8% personnel regulation which servant about PBB asks the staff to move to other 3 Lack of motivation on employees to apply 19 19.59% work units in order to get the maximum PBB advance career 4 There is no clear setting standard 18 18.56% - Besides concerning to the performance implementation budget this 5 The limited availability of local budgets 10 10.31% year, at the same time staff 6 Lack of expertise 7 7.22% should concern in making next year budget as they have 7 The budget team has not been fully 9 9.28% double jobs in the same time involved at every stage of budget planning process Chapter IV. Result & Discussion Total 97 100%
  • 15. 4.3.5. How Bukittinggi Local Government Address the Challenges? Questionnaire In-depth Interview• Socialization and workshop about • making an agreement with PBB• Consultation with unit work that major related to budgeting process, such as Regional Development Planning • done training for staff and Investment (BAPPEDA & PM) and Department of Finance and • evaluation 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 Chapter IV. Result & Discussion
  • 16. 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 Chapter IV. Result & Discussion
  • 17. • Performance based budgeting has already implemented in Bukittinggi Local Government Conclusion1 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. • The respondent has low knowledge on budget and PBB which indicated by 53.1 % of them get score under average. Most2 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 2005.3 • 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. • Key factors that influence the implementation of PBB in Bukittinggi :Human resources: knowledge on4 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) Chapter V. Conclusion
  • 18. Recommendation • the local government should first concern to the employee Human that related to implementation PBB. Such as good placement of staff based on competencies (right man in the right Resources place), give enough understanding and motivation to increase the quality of PBB implementation • The regulation should not always change. We need to implement it then evaluate the result, after that changeRegulation can be done if some improvement is needed.. • reward and punishment, work contract, high commitment, the System & firmness of headman consistency to obey the rule. After that, there pre- should be an evaluation for the implementation of performance based budgeting and decision about what will be done to make condition everything in PBB is getting better. Chapter V. Conclusion
  • 19. Limitation of research Chapter V. Conclusion
  • 20. THANK YOU FORYOUR ATTENTION