A Guidebook on       Local Goverment Budget        Analysis and Advocacy             in Indonesia                         ...
FOREWORDThis guidebook on Local Government Budget Analysis and Advocacy was preparedas one of the activities of Asian Deve...
TABLE OF CONTENTSFOREWORD ...................................................................................................
LIST OF ABBREVIATIONSAKU           =   Arah Kebijakan Umum, General Direction of PolicyAPBD          =   Anggaran Pendapat...
FOREWORDChapter 1 :INTRODUCING BUDGETSIntroductionGovernment budgets, even at the city or sub-district level, can seem ver...
INTRODUCING BUDGETSWhy Do Budgets Matter?Two key responsibilities of governments are to provide public goods and services,...
INTRODUCING BUDGETS       existing resources. Engaging in dialogue on budget issues, and increased       budget literacy a...
INTRODUCING BUDGETSWhat Budget Formulation Should Accomplish: The Broad FunctionsThe budget formulation process should ser...
INTRODUCING BUDGETS·   Incorporate Stakeholder Input As Early as Feasible. Stakeholder participation    should be invited ...
INTRODUCING BUDGETSBudget Execution and MonitoringBest practices in the second half of the budget cycle receive less atten...
INTRODUCING BUDGETS·    Make Finance Statistics Part of the National Statistics System. Government     finance statistics ...
INTRODUCING BUDGETS     Organizations across Asia, including India, Indonesia, and the Philippines have     active NGOs en...
INTRODUCING BUDGETSQuestions for discussion:1.   How well do you feel the budget processes in your country meet internatio...
Chapter 2 :UNDERSTANDING THE LOCAL GOVERNMENTBUDGET SYSTEMScope and Learning OutcomesAnyone who intends to analyze a local...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMdifferentiates between routine expenditures and development expenditures; ...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMKey Actors: Who Does What?The budgeting process is the result of a politic...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEM     Regional Planning Agency (Badan Perencanaan Daerah, Bapeda)     The p...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEM  Regional Audit Agency (Badan Pengawas Daerah, Bawasda)  The internal aud...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe Budget CycleStages of the BudgetAlthough the budget cycle and process ...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe budgeting process in Indonesia is a 30-month cycle (two and a half yea...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe Budget TimetableThe following time table outlines the time of the budg...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMOpportunities for Citizen Involvementin the Budgeting ProcessParticipation...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe role that citizens can play in this planning process is to monitor the...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMOnce the RAPBD Framework has been prepared, preliminary discussion is held...
UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMbudget, the relevant standards, and the designated aims. Oversight is esse...
Chapter 3:ANALYZING REVENUESScope and Learning OutcomesThe materials presented in this chapter will provide knowledge and ...
ANALYZING REVENUESThe Structure of Provincial/ Regency/ City Annual Budgetsas per Minister of the Interior Decree No. 29 o...
ANALYZING REVENUES     2. Public Service Expenditures10)        a. Public Administration Expenditures11)           1) Pers...
ANALYZING REVENUESThe Sources of Local Government IncomeThe meaning of “Revenue” is all income of the local government tre...
ANALYZING REVENUES   § Fiscal Need Variables (Population Index, Area Expanse Index, Human     Development Index, GRDP per ...
From the results of the analysis, the following can be identified:   (1)  Matters that lead to a decline in potential loca...
ANALYZING REVENUES                                  ANALYZING REVENUESExercise 2: Examining Locally-Generated Revenue (PAD...
ANALYZING REVENUESDiscuss the following:v What percentage of total fees comes from the health sector? What is the   signif...
ANALYZING REVENUES36
Chapter 4:ANALYZING EXPENDITURESScope and Learning OutcomesThe materials presented in this chapter will provide knowledge ...
ANALYZING EXPENDITURESVarious Methods to Analyze Expenditures14)GENERAL ANALYSISA. Make comparisons of the following:   - ...
ANALYZING EXPENDITURESSummary of Expenditures in Kebumen Regency RAPBDfor 2006                                            ...
ANALYZING EXPENDITURESExercise 2The following data show the expenditure allocations in Kebumen Regency for 2006.Discuss: W...
ANALYZING EXPENDITURESExercise 3: Examining APBD by DepartmentThe following data show the Kebumen Regency Draft Annual Bud...
ANALYZING EXPENDITURESThese amount are shown below in graphic format for quick comparison:                                ...
ANALYZING EXPENDITURES   Example for Kebumen Regency   The Vision in the Kebumen Regency Medium-Term Regional Development ...
ANALYZING EXPENDITURESSocial Aspect (Justice and Propriety)Analyze whether allocations reflect proper use of public funds....
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
27.  panduan analisis dan advokasi anggaran asia foundation
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27. panduan analisis dan advokasi anggaran asia foundation

  1. 1. A Guidebook on Local Goverment Budget Analysis and Advocacy in Indonesia ADBThe Asia Foundation Asian Development Bank
  2. 2. FOREWORDThis guidebook on Local Government Budget Analysis and Advocacy was preparedas one of the activities of Asian Development Bank Technical Assistance 6170, PilotProject on “Institutionalizing Civil Society Participation to Create Pro-Poor Budgets.”It is hoped that this handbook will be a useful resource to expand the study materialsavailable to non-government organizations, the media, mass organizations, peopleorganizations, and civil society organizations in Indonesia. This guidebook was firstused as training material for civil society groups in Kebumen Regency and the Cityof Makassar in February and March 2006.The material herein has been assembled and supplemented from a variety of sources,international best practices, interviews, as well as materials from budget trainingmanuals, both previously existing and currently being developed, from the BandungInstitute for Governance Studies (BIGS), the Indonesian Forum for Budget Transparency(Forum Indonesia untuk Transparansi Anggaran, FITRA), the Center of RegionalStudies and Information (Pusat Telaah dan Informasi Regional, PATTIRO), CivicEducation and Budget Transparency Advocacy (CiBa), Women’s Research Institute(WRI), and the Center for Local Community Study and Development (Pusat Pengkajiandan Pengembangan Masyarakat Lokal, P3ML) in Sumedang.I would like to express my sincerest thanks to all who have provided inspiration,contributed ideas, been discussion partners, and provided case study material toenable the preparation of this book. Special appreciation goes to Nandang Suherman(P3ML), Dedi Haryadi and Siti (BIGS), Hana Satriyo and Alam (TAF), Arief, YunaFarhan, and colleagues (FITRA), Dini and Ilham (PATTIRO), Rinusu and Jamruddin(CiBa), Diah Raharjo (TIFA), Erna, Cecep and Mustafa (B-Trust), Mustika Aji (FormasiKebumen), and Ilham Iskandar (YAS Makassar).I am fully aware that this work is not yet perfect, and there is still much material andmany ideas that could be added. I therefore welcome any input and criticism frommy colleagues, readers, users, and workshop participants, to help make this guidebookeasier to understand and use, more complete, and more appropriate to its context.Finally, my special thanks go to The Asia Foundation San Francisco, which entrustedme to serve as a team member for this activity, and particularly to Erin ThebaultWeiser, who kindly edited this material.Hetifah Sjaifudian 1
  3. 3. TABLE OF CONTENTSFOREWORD ............................................................................................................1TABLE OF CONTENTS .............................................................................................2LIST OF ABBREVIATIONS .......................................................................................3Chapter 1: INTRODUCING BUDGETS ......................................................................5 Introduction ......................................................................................................5 Why Do Budgets Matter? ..................................................................................6 Budgeting -- International Best Practices ..........................................................7 Budget Execution and Monitoring ...................................................................10 Applied Budgeting Approaches .......................................................................11Chapter 2:UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEM .......................15 Scope and Learning Outcomes .......................................................................15 Recent Changes to the Local Government Budget System..............................15 Key Actors: Who Does What? .........................................................................17 The Budget Cycle ............................................................................................20 The Budget Timetable .....................................................................................22 Opportunities for Citizen Involvement in the Budgeting Process.....................23 Local Government Service Responsibilities ....................................................26Chapter 3: ANALYZING REVENUES.......................................................................27 Scope and Learning Outcomes .......................................................................27 The Format and Structure of the Local Government Annual Budget................27 The Structure of Provincial/ Regency/ City Annual Budgets as per Minister the Interior Decree No. 29 of 2002.................................................................29 The Sources of Local Government Income .....................................................31 Revenue Analysis: Exercises ...........................................................................32Chapter 4: ANALYZING EXPENDITURES ...............................................................37 Scope and Learning Outcomes .......................................................................37 The Structure of Local Government Annual Budget Expenditures ...................37 Various Methods to Analyze Expenditures ......................................................38Chapter 5: BUDGET ADVOCACY............................................................................47 Scope and Learning Outcomes .......................................................................47 Using the Results of Budget Analysis in Advocacy..........................................47 Different Approaches in Budget Advocacy : Learning from the Experience of BIGS and P3ML ...........................................49 Factors that Support or Impede Citizen Involvement.......................................50GLOSSARY OF TERMS .........................................................................................51BIBLIOGRAPHY ....................................................................................................532
  4. 4. LIST OF ABBREVIATIONSAKU = Arah Kebijakan Umum, General Direction of PolicyAPBD = Anggaran Pendapatan dan Belanja Daerah, Local Government Annual BudgetAPBN = Anggaran Pendapatan dan Belanja Nasional, State BudgetBapeda = Badan Perencanaan Daerah, Regional Planning AgencyBawasda = Badan Pengawasan Daerah, Regional Oversight AgencyBPK = Badan Pemeriksa Keuangan, State Audit AgencyBPKD = Badan Pengelola Keuangan Daerah, Regional Financial Administration AgencyBPKP = Badan Pengawasan Keuangan dan Pembangunan, Finance and Development Audit AgencyBUMD = Badan Usaha Milik Daerah, Local-Government-Owned Business EntityDPRD = Dewan Perwakilan Rakyat Daerah, Regional People’s Representative Assembly, local legislatureDAU = Dana Alokasi Umum, General Allocation Fund, block grantDAK = Dana Alokasi Khusus, Special Allocation Fund, special grantDASK = Dokumen Anggaran Satuan Kerja, Administrative Department Budget DocumentDispenda = Dinas Pendapatan Daerah, Regional Revenue ServiceDPA = Dokumen Pelaksanaan Anggaran, Budget Implementation DocumentDSP = Daftar Skala Prioritas, Priority Scale ListKUA = Kebijakan Umum Anggaran, General Budget PolicyKepmendagri = Keputusan Menteri Dalam Negeri, Minister of the Interior DecreeMusrenbang = Musyawarah Perencanaan Pembangunan, Development Planning ConferenceLKPJ = Laporan Keterangan Pertanggungjawaban, Accountability ReportPAD = Pendapatan Asli Daerah, Locally-Generated RevenuePDRB = Produk Domestik Regional Bruto, Gross Regional Domestic ProductPemda = Pemerintah Daerah, Local GovernmentPemkab = Pemerintah Kabupaten, Regency GovernmentPP = Peraturan Pemerintah, Government RegulationPPKD = Pejabat Pengelola Keuangan Daerah, Regional Financial Administration OfficerRAPBD = Rancangan Anggaran Pendapatan dan Belanja Daerah, Local Government Annual Budget DraftRASK = Rancangan Anggaran Satuan Kerja, Draft BudgetRKA = Rencana Kerja Anggaran, Budget Work PlanRKPD = Rencana Kerja Pemerintah Daerah, Local Government Work PlanRPJM = Rencana Pembangunan Jangka Menengah, Medium-Term Development PlanRenstra = Rencana Strategis, Strategic PlanRenstrada = Rencana Strategis Daerah, Local Government Strategic PlanSE = Surat Edaran, Circular LetterSekda = Sekretaris Daerah, Regional SecretarySetda = Sekretariat Daerah, Regional SecretariatSKPD = Satuan Kerja Perangkat Daerah, Local Government Administrative Department 3
  5. 5. FOREWORDChapter 1 :INTRODUCING BUDGETSIntroductionGovernment budgets, even at the city or sub-district level, can seem very complicatedto analyze, even too daunting to tackle. However, a basic analysis of the budget canbe made without much difficulty, and making the effort is important. An understandingof the budget greatly improves the dialogue between government officials, electedrepresentatives, and concerned citizens with an interest in how efficiently thegovernment is using available resources. Open public discussion of budget prioritieshelps citizens understand what services their government is providing, and helpsgovernment better serve the needs of the community. Unfortunately, in many countriessuch dialogue rarely, if ever, occurs.This guide has been developed to help civil society groups understand and analyzegovernment budgets as a first step towards engaging in such dialogue. The guidecan be used to facilitate budget literacy trainings and to help civil society organizationsengage in budget analysis on their own following training. It may also be useful tonew parliamentarians, who often are not given formal budget training, despite theirresponsibility to enact the budget in most countries. While basic information onbudgets is covered, this guide has been specifically modified for consideration ofcity/district budgets in Indonesia.This guide should not be seen as purely an advocacy guide, as this language suggestsa civil society separate from their governments, making only new demands on theirrepresentatives in the public sector. Instead, this manual should be seen as helpinginform participants from all sides of the discussion, with the expectation that a betterunderstanding of the resources available, the institutional constraints that bind publicsector actors, and the competing priorities from many segments of society will leadto a better governance process that will benefit local communities, including for thepoor.The guide is structured in five chapters. General information on budgets, includinginternational best practices, is presented in this chapter. Chapter Two explains thebudget cycle and gives an overview of the role of relevant government officials inthe budget process. Chapter Three and Four provide a guide to analyzing revenuesand expenditures, including handouts and/or examples of data that can be used intrainings. Various considerations for budget advocacy are discussed in Chapter Five. 5
  6. 6. INTRODUCING BUDGETSWhy Do Budgets Matter?Two key responsibilities of governments are to provide public goods and services,which benefit the entire community and cannot cost-efficiently or effectively beprovided by the private sector, and to foster a conducive economic environment.The government achieves these goals through economic and social policies that aremost concretely expressed in the annual budget. Not every policy requires resources,but when governments declare a policy without providing budget allocations forimplementation, it is reasonable to ask how the outcome can be achieved.Budgets must prioritize and balance between many competing demands. Thegovernment’s ability to raise revenue is limited, but there are infinite needs to be metby the public expenditure. The budget sets out the resources/funds expected to beavailable for the upcoming year and how the government will spend those funds, forexample, what services and goods will be delivered. The budget allows governmentsto plan for the upcoming year, and hold government departments responsible forperformance.In many developing countries, budget formulation is monopolized by governmentofficials and the budget drafting process does not involve public participation orconsultation. In fact, in some places, officials treat budget documents and otherfinancial information as confidential documents. Often, very little budget informationis made available during the budget drafting phase, even to members of parliament.In many cases, the information is not so much withheld, as simply not released –nobody is asking for the information, and when they do, there are no clear proceduresor precedents for what information should be provided to whom. Moreover, budgetformats are also often not easily accessible to ordinary people. This makes it difficultfor people to understand or comment on the proposed budget, even where governmentshold public hearings on the budget. The result is that many people feel apathetic ordissuaded from trying to provide input into the budget process.This is unfortunate as public involvement in the budget process has a number ofimportant benefits. These include:· Improved planning and resource allocation. Public involvement in the budget planning process can help identify proposed projects/allocations that are highest priority for the community. This contributes to more efficient use of limited resources.· Improved financial management. While every government has oversight and audit procedures, public monitoring provides additional oversight in cases of potential financial irregularities. Public oversight of the budget has been found in some cases to strengthen the link between taxpayers and local government, as those contributing revenues to government coffers gain a clearer understanding of how their tax funds are spent.· Strengthened democracy. Citizens often have a limited understanding of how government functions, which can breed distrust. At the same time, government officials often feel buffeted with competing demands they cannot meet with6
  7. 7. INTRODUCING BUDGETS existing resources. Engaging in dialogue on budget issues, and increased budget literacy among civil society groups, can bridge this gap and facilitate healthy debate about policies and priorities.Budgeting -- International Figure 1: Budget CycleBest PracticesBudget Formulation1)Annual budget cycles can generally bedivided into four overlapping stages(see Figure 1):1. Preparation (planning, drafting)2. Authorization (deliberation, enactment)3. Execution (implementation, monitoring, control)4. Accountability (audit, review, report, assess)Budget formulation is the first major activity in the larger budget process2) Thebudget process or cycle is a set of sequential, inter-related budget activities recurringwithin a fiscal year. or budget cycle. It is critical in that it sets the pace and tone foroverall fiscal policy and establishes the nature and extent of government’s interventioninto the economy. Budget formulation spans the first two of the four stages, typicallybeginning with planning and preparation and ending with the formal legislativeenactment of the budget (usually through parliament). The budget formulationprocess usually starts in the executive branch of government, where planning anddrafting are usually headed up by a committee represented by the ministries ordepartments of finance, economics, or planning (and related executive entities).Once the executive branch budget is drafted and signed off on, it is then passed offto the legislative branch where the legislative budget committee (or its equivalent)takes responsibility for the deliberation and ultimate passage of the budget throughthe parliament.1) There is emerging consensus on what nations should do to ensure that their budget formulation processes are fair, open, accountable and pro-poor. These recommended practices are drawn and synthesized from a number of international organizations including the International Monetary Fund (IMF), the World Bank, the Organization for Economic Cooperation and Development (OECD) and the Government Finance Officers Association (GFOA). 2) The budget process or cycle is a set of sequential, inter-related budget activities recurring within a fiscal year. 7
  8. 8. INTRODUCING BUDGETSWhat Budget Formulation Should Accomplish: The Broad FunctionsThe budget formulation process should serve a number of important and overarchingfunctions. At the very least, the budget formulation process should 3) :1. Identify all possible resources and demands in the upcoming year;2. Quantify these resources and demands, based on both retrospective (past year trends, etc.) and prospective (forecasts, etc.) information;3. Prioritize and then allocate resources among the competing demands;4. Consolidate all spending proposals into a comprehensive budget;5. Set time horizons to spending of resources;In serving these five broad functions, the budget formulation process should followa number of best practices:· Clarify the Process: Who Does What by When? First and foremost, the budget formulation process, and the larger budget cycle into which it fits, should be clarified and well understood by all stakeholders. It should be clear who does what by when. The persons and organizations involved in the budget formulation process (the who) the roles and responsibilities of these respective entities (the what) and the timeframes under which these entities operate (the when) should be clear and understood by the public.· Underpin with Sound Analysis. The initial planning process (prior to the actual drafting of the budget) should be guided by sound retrospective and prospective economic and policy analysis. Prior year trends as well as forward forecasts and estimates of economic, fiscal and other variables must be made, with sensitivity or scenario analysis conducted whenever possible. This analysis is typically woven into some type of economic or policy statement or report that accompanies the budget bill.· Align with Long-term Perspectives and Priorities. Although budgets typically have a near-term orientation, signaling the government’s fiscal policy and interventions within the forthcoming year, they must also clearly manifest and support the government’s longer-term strategic priorities and goals. Budgets, therefore, should clearly signal both near and far term intentions of government. This requires that annual budget priorities and goals must be aligned with longer-term strategies – and this alignment should be easily identified by budget audiences.3) Adapted from Grewal, Bhajan S. 2005. Budget Formulation (presentation for Public Finance and Expenditure Management Course, ADB Institute, Tokyo, Japan). Center for Strategic Economic Studies, Victoria University. Melbourne, Australia.8
  9. 9. INTRODUCING BUDGETS· Incorporate Stakeholder Input As Early as Feasible. Stakeholder participation should be invited and incorporated as early as possible in the budget formulation process. Most countries only allow public input and comment during later stages of the formulation process. Nevertheless, the budget process should be open to public scrutiny and dialogue earlier, ensuring that all stakeholders’ issues and concerns are duly considered.· Develop and Disseminate Adequate Documentation. A key part of opening up the process to stakeholders involves dissemination of budget and supporting documentation (and on a timely basis). All budgets should be accompanied by (at the very least) a pre-budget analysis and a budget speech or statement. Supporting documentation should clearly show the major assumptions underlying the budget estimates, the fiscal policy objectives, the macroeconomic framework, the policy basis for the budget, and the major risks associated with the budget. The documentation should also disclose any new fiscal rules, regulations or policies that have been adopted. All documentation should be easily accessible (in print or electronically) to the public, as early as possible in the process and free of charge.· Present Budget Information Effectively. Budget data and information should be presented in a manner that facilitates policy analysis and should be reported on a gross basis, clearly delineating revenues, expenditures and financing. Expenditure should be classified by economic, functional and administrative areas wherever possible. Budget data and information must be clear, detailed, easily accessible and contestable. Budgets should be detailed enough to allow for analysis of allocations by geography, functional area, and over time.· Ensure Comprehensiveness. Budgets should include extra-budgetary resource flows (public resources that traditionally are not part of the national or sub- national budget). Moreover, budgets should also disclose all contingent liabilities (direct or indirect) of the state. These data should, again, be presented in a manner that facilitates policy analysis.· Focus on Results and Outcomes. To the extent possible, budgets and supporting documents should make a clear and strong case for each major spending program and must clearly state the desired objectives and outcomes and how they are aligned with long-term strategies. New performance-oriented budget initiatives can help make this easier to do.· Focus First on Resource Constraints, Then Needs. Budgets should place sharp focus on resource constraints first, and only secondly on needs of the government. The merits of this conservative approach are self-evident, but many nations fail to focus on constraints and resource limitations first. 9
  10. 10. INTRODUCING BUDGETSBudget Execution and MonitoringBest practices in the second half of the budget cycle receive less attention but areno less important. Indeed, monitoring the way in which the budget is spent can beeven more important than discussing allocations if government departments do nothave a strong record of meeting the spending projects/allocations outlined in thebudget legislation. Best practices for the second half of the budget cycle include:· Follow the Law. Funding levels approved and enacted into law should be adhered to. Public funds should only be spent on the authorized and intended purposes. Deviations from the original authorized purposes should only be made within clear rules and guidelines. There should not be dramatic differences between allocated and actual budgets.· Use the Right Financial Management Systems. The organization chiefly responsible for executing the budget (usually the department or ministry of finance in the executive branch) must have adequate financial management, control and reporting systems in place in order to effectively carry out its responsibilities. A comprehensive, integrated accounting system is especially critical. Adequate systems will allow the organization to effectively monitor planned and actual revenues and expenditures, and thus keep the budget in line with the enacted law.· Report Regularly. There should be regular fiscal reporting to the legislature and the public. At a minimum, a mid-year report on budget trends and developments should be presented to the legislature and, if possible, quarterly reports should also be presented.· Conduct Internal Audits. Internal audits should be regularly conducted by the executing organization and internal audit procedures should be open to review.· Clarify the Rules on Major Spending. Regulations governing procurement, personnel and other major expenditure areas should be clear, standardized and open to the public.· Clarify Taxation Policy and Report on Tax Activities. National tax policies should be clear and open, tax administration should be legally protected from political interference, and reports on taxation activities and trends should be regularly made to the public.· Clarify Who Accounts by When. Executive and legislative entities responsible for auditing, reporting and overall accountability, along with the respective timeframes for their activities, should be clarified. Typically, the major parties involved in the accountability stage of the budget cycle are the auditor general (or court of accounts) and the public accounts committee (or its equivalent). The roles and responsibilities of these entities should be clarified by law and understood by the public.10
  11. 11. INTRODUCING BUDGETS· Make Finance Statistics Part of the National Statistics System. Government finance statistics should be regularly provided to the public by finance ministries (or departments) as well as national statistics offices. Finance statistics should constitute an integral part of the national statistics system and national statistics offices should be able to independently verify the quality of fiscal data.· Ensure Comprehensiveness of Accounts. Budget reporting, documentation and accounts should be comprehensive and should cover all budgetary and extra- budgetary activities of the central government. Budget reports, documents and accounts should present the consolidated fiscal position of the government (including all direct and contingent liabilities) and should clarify the accounting basis used (cash, accrual, etc.).· Ensure Timeliness and Accessibility of Reports. Governments should commit to the timely publication of fiscal reports and information. Timelines for the release of fiscal information should be legalized and advanced release dates of reports should be publicized. Final accounts and audits should be presented to the legislature within 12 months of the end of the fiscal calendar. Performance and results-based reports on major budget programs should be developed and presented to the legislature annually. Reports should be in a format that is clear and allows analysis.Applied Budgeting ApproachesOver the last decade, there has been increased interest in public participation as acomponent of the budgetary process. Many countries, especially those experiencingdemocratization or rapid decentralization, have issued new legal frameworks thatprovide more opportunities for citizens to influence the budgeting process. Civilsociety actors have responded with a multitude of approaches to examining budgets,particularly sub-national government budgets, as a tool for improving outcomes,particularly for the poor, women, and other marginalized groups. The InternationalBudget Project provides comprehensive information on these efforts, which can beaccessed through their website, www.internationalbudget.org.A brief overview of innovative budget approaches of interest include:· Analysis of annual budget proposals. The draft budget presented by the executive to the legislative can be analyzed in terms of its impact on particular sectors (such as health or education) or more broadly in terms of carrying out stated government policy. Analysis by interested NGOs or thinktanks can provide a demystified version of the budget to the public and parliamentarians to aid in consideration of the budget bill prior to passage. These efforts tend to focus on the expenditure side of the budget rather than the revenue side, although there are increasingly efforts to analyze tax policy and other revenue issues. 11
  12. 12. INTRODUCING BUDGETS Organizations across Asia, including India, Indonesia, and the Philippines have active NGOs engaging in budget analysis. For example, the Indian NGO DISHA prepares approximately 30 budget briefs analyzing the departmental budgets of the state of Gujurat. DISHA is a member of a nation-wide network of NGOs which engage in applied budget analysis in 12 states in India 4) .· Participatory budgeting. Participatory budgeting earmarks funds in the budget whose use is decided through a public consultation process. This approach was initially developed in Porto Allegre, Brazil and now expanding to a number of other Latin American countries and is intended to improve services, particularly for the poor. While replicating this approach requires very high levels of government commitment and transparency and may therefore not be suitable for many countries, the response in Brazil has been enthusiastic. Evaluations have found that earmarked funds have been used to expand public works, for example, electricity and water coverage, particularly in poor communities5).· Performance-based budgeting. This approach translates line items into expected outputs to improve monitoring and impact evaluation. Commonly practiced in OECD countries, performance-based budgeting is increasingly being introduced to developing countries, usually through donor programs. By translating the use of funds into expected outcomes (e.g., road improvements measured at $XX/kilometer of upgrade), performance-based budgeting makes it easier for citizens to track expenditures.· Gender budgeting. Gender budget practitioners analyze the use of public funds in light of gender equity concerns. While approaches vary and in some cases emphasis is made on the direct benefit to women from budget allocations, the more common approach is to analyze the extent to which public goods, such as education and health, which directly impact women’s roles as caregivers, are supported in the budget. For example, in South Africa, IDASA, a local NGO, developed the Women’s Budget Initiative in 1995, which engages in research and advocacy and produces an annual report analyzing the national budget from a gender perspective. IDASA more recently began producing a Children’s Budget which examines the national budget in light of child poverty statistics.4) See Social Development Notes, World Bank, Case Study: Participatory Approaches in Budgeting and Public Expenditure Management”.5) See “Assessment of Participatory Budgeting in Brazil”, Center for Urban Development Studies, Harvard University and Inter-American Development Bank (2004).12
  13. 13. INTRODUCING BUDGETSQuestions for discussion:1. How well do you feel the budget processes in your country meet international best practice?2. What opportunities are you aware of for public participation in the budgeting process?3. What part of the budget process could most easily be improved, given existing capacity and political realities?4. What form of applied budgeting would be most useful in your country? 13
  14. 14. Chapter 2 :UNDERSTANDING THE LOCAL GOVERNMENTBUDGET SYSTEMScope and Learning OutcomesAnyone who intends to analyze a local government budget needs a preliminaryunderstanding of the characteristics of local government budgets, including the keyactors, the budget cycle and calendar, and the functions performed by the localgovernment whose costs are financed from the local government budget. For countriesin transition, such as Indonesia at the present time, the characteristics of localgovernment budgets are also still in a state of flux. Up-to-date information is thereforeneeded on the recent and current changes, and on the regulations that govern thesebudgets.The materials presented in this chapter will provide knowledge and understandingabout:§ Recent and current changes to the local government budget system, including the policies on which these are based§ What key players are involved in the budget and their roles§ The budget cycle, including activities and the resulting products/ documents§ Opportunities for citizen involvement in the budgeting process§ The service responsibilities of local governments (kota/Kabupaten)Recent Changes to the Local Government Budget SystemWhen contemplating applied budget work, it is helpful to know the legal frameworkthat local governments must adhere to when preparing the budget. Changes to theregulations that govern local government systems, including the procedure forelecting heads of regions, have altered the arrangement, patterns of relations, andauthorities of the various players in planning and budgeting. Since the regionalautonomy policy came into force, through the establishment of Law No. 22 of 1999on Local government and Law No. 25 of 1999 on Financial Balance between theCentral and Regional Governments, the budget system in Indonesia:• has become less centralized• has become more performance-oriented, and• provides greater opportunities for transparency and public participation.This provides new opportunities for civil society involvement in the budget process.There are at present at least four Laws containing articles that regulate the localgovernment budgeting system: (1) Law No. 25 of 2004 on the National DevelopmentPlanning System, which stipulates the process flow and products of local developmentplanning, (2) Law No. 17 of 2003 on State Finances and (3) Law No. 33 of 2004 onFiscal Decentralization, both of which stipulate among other matters the process fordrafting local government budgets, and (4) Law No. 32 of 2004 on Local Government,which aims to bring together the local government planning system stipulated underLaw No. 25 of 2004 and the local government budgeting system stipulated underLaw No. 17 of 2003 and Law No. 33 of 2004.The performance approach in the local government planning and budget system wasintroduced through Minister of the Interior Decree No. 29 of 2002. As well asintroducing performance-based budgets, this regulation also stipulates changes tothe format of local government annual budgets. The new budget format no longer 15
  15. 15. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMdifferentiates between routine expenditures and development expenditures; instead,it separates expenditures for the government apparatus from expenditures for thepublic. It is hoped that this will enable drafting of more program-oriented budgets.The new budget format also clearly separates funding components, such as loansand government reserves.Law No. 17 of 2003 grants great authority to local legislatures (DPRD) to approvethe activities and types of local expenditures. The revision of Law No. 22 of 1999(Law No. 32 of 2004) has further altered the duties and authorities of local governmentsby reaffirming the functions of the provincial governments. For example, under thisrevised law, governors are given the authority to evaluate regency/city governmentbudgets before they can be executed.Government Regulation No. 56 of 2005 on Local Government Financial InformationSystems has promoted greater transparency by requiring local governments topublicly disseminate information on local finances, including through official localgovernment websites.Government Regulation No. 58 of 2005 on Local Government Financial Administrationhas further promoted tranparency, accountability and participation in budgeting. Itregulates the budget administrative procedure and states who is responsible forwhat. The regulation implies the position of SKPD (local government administrativedepartments) as budget users and implementors clearly. REGULATIONS ON THE LOCAL GOVERNMENT PLANNING AND BUDGET SYSTEM IN INDONESIA • Law No. 32 of 2004 on Local Government • Law No. 33 of 2004 on Financial Balance between the Center and the Regions • Law No. 17 of 2003 on State Finances • Law No.18 of 1997 on Regional Tax and Fees • Law No. 25 of 2004 on the National Development Planning System • Government Regulation No. 108 of 2000 on Accountability Procedures for Heads of Regions • Minister of Home Affairs Decree No. 29 of 2002 on Guidelines for Management, Accountability, and Oversight of Regional Finances, Procedures for Drafting Local Government Annual Budgets, Administration of Local Government Finances, and Drafting the Calculation of Local Government Annual Budgets • Joint Circular Letter No. 0259/M.PPN/I of 2005 of the State Minister for National Development Planning/ Head of the National Development Planning Agency (Bappenas) and the Minister of the Interior on Technical Instructions for the Conduct of Development Planning Conferences in 2005 • Minister of the Interior Circular Letter No. 903/2429/SJ on Guidelines for Drafting Local Government Annual Budgets for Fiscal Year 2006 and Accountability for the Implementation of Local Government Annual Budgets for Fiscal Year 2005 • Government Regulation No. 56 of 2005 on Local Government Financial Information Systems • Government Regulation No. 58 of 2005 on Local Government Financial Administration16
  16. 16. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMKey Actors: Who Does What?The budgeting process is the result of a political process that involves many actors:the executive branch, the legislature, auditors, and components of the public. Theexecutive branch is responsible for the drafting and use of the budget; the legislativebranch is responsible for enacting the budget; auditors are responsible for auditingthe budget; and the public should be the main beneficiary of the budget and, at thesame time, exercise social control over the entire budgeting process. The officerswith roles in the budget are as follows:Executive Branch Mayor/Regent The chief decision maker on the activities and public services to be provided by the local government in a given time period. The Mayor/ Regent prepares the Draft Medium-Term Regional Development Plan (Rencana Pembangunan Jangka Menengah Daerah, RPJMD) no later than three months after being elected. This document will serve as the reference for drafting the annual Local Government Work Plan (Rencana Kerja Pemerintah Daerah, RKPD). The Mayor/Regent proposes the Draft Local Government Regulation (Perda) enacting the Local Government Annual Budget (APBD), together with the relevant supporting documentation, to the DPRD. Regional Secretary (Sekda) Coordinator of the Executive Budget Team. Duties include presenting the General Budget Policy (Kebijakan Umum Anggaran, KUA) before the DPRD. The KUA is the document that serves as the main basis for drafting the Draft Local Government Annual Budget (RAPBD). Executive Budget Team A special team headed by the Regional Secretary, responsible for drafting the KUA and compiling the RKA-SKPD (Local Government Activity Unit Budget Work Plans) as the RAPBD. The Executive Budget Team typically consists of the Regional Planning Agency (Bapeda), the Finance Section, the Development Administration Section, and the Local Revenue Service (Dispenda). Local Government Administrative Departments (Satuan Kegiatan Perangkat Daerah, SKPD) The work units of the city/ regency government are the administrative departments/ agencies that are the users of the budget and have the task of drafting and implementing the budgets for their units. The number of SKPD varies from region to region, depending on the organizational structure of the local government in each region. 17
  17. 17. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEM Regional Planning Agency (Badan Perencanaan Daerah, Bapeda) The planning unit of the regency/city government, with the duty of preparing the various documents that will be used as material for conducting the development planning conferences (musrenbang) in the region, executing the process of these meetings, and coordinating the output of the meetings and proposals from the various government services to produce the Local Government Work Plan (RKPD) document. Regional Financial Administration Agency (Badan Pengelola Keuangan Daerah, BPKD) The administrative unit of the regency/city government that drafts and implements policy on administration of the annual local budget and functions as the local government’s general treasurer. The BPKD is responsible for preparing the financial reports that track the implementation of the APBD.Legislative Branch (DPRD) Legislative Budget Committee A special team tasked with providing recommendations and input to the Mayor/Regent on determining, revising, and calculating the APBD proposed by the local government before it is enacted in a Plenary Session. Commissions Supplementary bodies of the DPRD established to facilitate the DPRD’s duties in governance, economy and development, regional finances and investment, and public welfare. In the budget enactment process, the Commissions are the working groups that, together with the relevant administrative departments, discuss the Departments Budgets.Auditors State Audit Agency (Badan Pemeriksa Keuangan, BPK) The external financial auditor that conducts audits of the financial management and fiduciary responsibilities of both the central and regional governments. These audits include audits of financial reports, performance audits, and audits for specific purposes not included under those two types of audits. Finance and Development Audit Agency (Badan Pengawasan Keuangan dan Pembangunan, BPKP) A Non-Departmental Government Institution directly under and responsible to the President of Indonesia. The BPKP is the internal auditor tasked with overseeing the implementation of finance and development in line with the applicable laws and regulations.18
  18. 18. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEM Regional Audit Agency (Badan Pengawas Daerah, Bawasda) The internal auditor of the city/regency government, tasked with auditing and reporting the financial conditions of all institutions funded through the APBD. The main duty of the Bawasda is to assist the Mayor/Regent in overseeing the conduct of government and the implementation of development and public services within the city/regency.The Public Development Planning Deliberative Forums (Musyawarah Perencanaan Pembangunan, Musrenbang) Forums to produce consensus among representative of the public on the draft Local Government Work Plan (RKPD). These forums emphasize discussion to synchronize activity plans among local government agency administrative units and among the central government, the local government, and the public to achieve national and local development aims. SKPD Forum A joint vehicle among development actors to discuss the priorities of the development activities produced by the District Musrenbang with the SKPD or a consortium of SKPDs in an effort to complete the SKPD Work Plans, the procedure for which is facilitated by the relevant SKPD. Interest Groups Groups with an interest in influencing budget allocations for their own purposes. Private Enterprise The private sector pays the bulk of taxes and is therefore an important contributor to the revenue of the local government, with a special interest in taxation and other revenue policies. Companies also rely on public services, especially public works such as roads and utilities, in order to conduct business. Finally, businesses may have in interest in bidding on planned contracts in the local budget. Budget Concern Groups Community groups that carry out budget education, disseminate information on the budget, engage in monitoring and evaluation of the use of the budget, and engage in advocacy when budget deviations are discovered. 19
  19. 19. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe Budget CycleStages of the BudgetAlthough the budget cycle and process differs from country to country, in generalthe budgeting process can be divided into four stages: (1) Drafting, (2) Enactment,(3) Implementation, and (4) Audit. The drafting stage is the stage that comprises the process from community meetings (musrenbang) to gather public aspirations, through the drafting of activity programs by local government administrative units (agencies and services), up to the submission of the proposed draft APBD by the executive branch to the legislature. The Executive Budget Team plays an important role in this process. This team has as its members the Regional Secretariat (Setda), the Regional Planning Agency (Bapeda), and the Regional Financial Administration Agency (BPKD). The budget drafting process takes several months. Public opinion is sought in the process of determining program priorities, but the final process of program development is done behind closed doors by the respective Administrative Department Heads. The enactment stage begins when the executive submits the proposed budget to the legislature. Usually this process is signaled by a speech by the head of the region (Regent/Mayor) before the members of the DPRD. The DPRD then, within a certain time frame (around a month), discusses the draft budget. During this discussion period, discussions are held between the Legislative Budget Committee and the Executive Budget Team. During this period, the legislature has the opportunity to question the executive’s policies. The implementation stage begins when the APBD is ratified through a local regulation at the end of the year. The implementation phase runs for one year, from the start of the fiscal year in January. Implementation is the responsibility of the executive, through the Regional Government Agency Administrative Departments (SKPD). The audit stage comprises study and reporting on the results of the budget. In Indonesia, the audit stage includes internal audits conducted by the Bawasda and BPKP, and external audits conducted by the BPK.20
  20. 20. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe budgeting process in Indonesia is a 30-month cycle (two and a half years): Oneyear for the drafting and enactment processes, the next year for implementation,and the last six months for auditing. 21
  21. 21. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe Budget TimetableThe following time table outlines the time of the budget process as laid out in theLaw No. 25 of 2004, Law No. 17 of 2003, Joint Circular Letter No. 0259/M.PPN/Iof 2005, and Government Regulation No. 58 of 2005. However, in practice localgovernments may or may not be strictly adhering to this timetable. These steps andopportunities for citizen involvement, are discussed below.22
  22. 22. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMOpportunities for Citizen Involvementin the Budgeting ProcessParticipation in MusrenbangThe budget planning process is the first stage, in which the local government gatherspublic aspirations and sets the General Direction of Policy (Arah Kebijakan Umum,AKU). Under Minister of the Interior Decree No. 29 of 2002, public aspirations aregathered through Development Planning Conference (Musyawarah PerencanaanPembangunan, Musrenbang) held at the lowest levels (neighborhood associations(RT), higher level neighborhood associations (RW), subdistricts, districts, the SKPDForum, and eventually the regency-or city-level Musrenbang. The General Directionof Policy is then set in around June, after the Musrenbang process is complete, withdue consideration to the Regional Development Plan, the Regional Strategic Plan,the results of assessment of the previous year’s work, the basic ideas of the DPRD,and the central government’s General Direction of Policy. The General Direction ofPolicy is drafted by the Executive Budget Team comprised of the Regional PlanningAgency (Bapeda), the Finance Section, the Administration and Development Section,and the Regional Revenue Service (Dispenda), in cooperation with the DPRD BudgetCommittee and other elements of the DPRD. 23
  23. 23. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMThe role that citizens can play in this planning process is to monitor the use of theresults of the village/sub-district level Musrenbang. Experience has shown that theproposals considered high priorities by residents often do not appear in the PriorityScale List (DSP) drafted by the government. The output from these lower-levelMusrenbang often conflicts with plans already made by the governments’ technicaldepartments. There is a risk that Departments will ignore community demands infavor of their own plans.Currently, citizens also have the opportunity to be involved in the departmental activityplanning through their participation in SKPD forum that is normally held at the endof February or after city/regency Musrenbang.When the AKU/KUA is being drafted, the public, both as individuals and as institutions,can provide input and criticism, and even submit papers presenting the public’sconcepts. This process can be done during public hearings of the DPRD, who mayinvite the community. Public opinion can also be rallied through the print media orradio.Participation in Enacting the BudgetEnactment of the local government annual budget starts with preparation of the draftRKA-SKPD/ framework for expenditures, internally by the local government. Thisdraft is prepared during July through September by the Executive Budget Team(Regional Planning Agency (Bapeda), Finance Section, and Administration andDevelopment Section) and all SKPD (services/ agencies). During this drafting period,the Bapeda conducts coordination meetings, inviting all the government agenciesand services (SKPD) in turn, grouped by government sector.The results of these discussions of the Draft RKA-SKPD then serve as material fordrafting the RAPBD Plan Framework. This is the first critical point in the budgetingprocess, since proposals may suddenly be added or proposals that are consideredrelatively low priorities may be deleted. There is officially no formal citizen involvementduring this discussion of the RKA-SKPD, as this discussion relates to technicalmatters. Nevertheless, citizens can take the initiative to communicate with agenciesto confirm the plans for proposed activities and, at the same time, to provide additionalinput with reference to the results of the Musrenbang if anything has been left out.Once the draft RKA-SKPD has been prepared, the next step is preparation of theRAPBD (Draft Local Government Annual Budget) by the Executive Budget Team, theoutput of which takes the form of the RAPBD Framework. While the RAPBD is beingdrafted, the Budget Team may engage in public consultations. This is stipulated inarticle 22 clause 4 of Minister of the Interior Decree No. 29 of 2002, which indicatesthatinformation should be disseminated on the draft RAPBD.24
  24. 24. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMOnce the RAPBD Framework has been prepared, preliminary discussion is held onthe Draft Local Government Annual Budget (RAPBD) by the Executive Budget Team,all administrative departments, the commissions in the DPRD, the DPRD BudgetCommittee, and the DPRD Leadership. This takes place during September andOctober. The references for this discussion are the KUA Document, the ProgramPriorities, and the Provisional Budget Ceiling. The RAPBD Framework constitutesthe elaboration of the KUA Document, the Program Priorities, and the ProvisionalBudget Ceiling. This stage of preliminary discussion of the RAPBD is a criticaldetermining point, as at this stage there will be a tug-of-war between various interests,such as the Regent, the DPRD members, the government services and agencies,and elements of the public. What the public can do during the RAPBD discussionprocess is to engage in a series of actions, such as monitoring, hearings with theDPRD commissions, or forming public opinion through the mass media. Certaincommunity groups may be concerned with monitoring those parts of the draft relatedto their specific interests. For example, farmers’ groups may monitor the budget foragricultural development projects.The next stage is discussion of the RAPBD and ratification of the RAPBD as theAPBD, which is done by the Executive Budget Committee Team (Bapeda, FinanceSection, and Administration and Development Section), administrative departments,and the Legislative Budget Committee Team. This discussion is conducted from thefirst week of October to the end of November. The public may attend these discussionsand thereby monitor the entire series of activities. Certain civil society groups maychoose to monitor certain stages of the discussions. During this enactment stage,the public can make optimum use of the hearings held by the DPRD by providinginput, either in person or in writing.Participation in Implementation of the BudgetBudget implementation is the stage in which the ratified APBD is put into operation.This usually runs for one year, from January to December. Citizens and civil societygroups have opportunities to monitor the implementation of the budget:· Observe whether programs or projects have achieved the targets set in the work plan.· Note whether budget expenditures are in line with the budget allocated in the APBD.· Monitor whether tenders conducted in a transparent and accountable way.Participation in Budget Evaluation and OversightOversight of the local government budget comprises all actions taken to ensure thatthe management of the local government budget proceeds in line with the approved 25
  25. 25. UNDERSTANDING THE LOCAL GOVERNMENT BUDGET SYSTEMbudget, the relevant standards, and the designated aims. Oversight is essential todetect any budget deviations. During this evaluation stage, citizens and civil societygroups should critically assess the accountability reports made by Mayor/Regent.Attention must be paid to note whether the indicators that are actually used conformto the indicators set during the planning process, and to compare the written reportwith actual performance in the field.Local Government Service ResponsibilitiesBefore analyzing a budget, one must first understand exactly what forms of publicservices the local government provides whose funding will be financed through thelocal government budget. Most of the authority for public services has now beentransferred to the local governments. Under Law No. 32 of 2004 (article 10) on localgovernment, the local governments (province and city/regency) execute nearly allpowers, except for six components that remain under the authority of the centralgovernment: (1) foreign policy, (2) defense, (3) security, (4) administration of justice,(5) national monetary and fiscal policy, and (6) religion.Fifteen essential matters fall under the authority of regency/city governments, includingplanning and control of development, and land use and oversight of zoning (seebox). However, in practice there is still considerable uncertainty and overlap ofauthority. For example, in the education sector, the central government not onlyprepares the curricula but is also involved in school repair and maintenance projects. Essential matters under the authority of regency/city governments: a. planning and control of development; b. planning, utilization, and oversight of land use/zoning; c. the conduct of public order and security; d. provision of public facilities and infrastructure; e. public health; f. education; g. handling social problems; h. services in the labor sector; i. facilitating the development of cooperatives and small- and medium-scale enterprises; j. environmental management; k. agrarian services; l. population and civil registry services; m. general government administrative services; n. investment administration services; o. conduct of other basic services; and other essential matters as mandated by laws and regulationsSource: Law No. 32 of 2004, article 1426
  26. 26. Chapter 3:ANALYZING REVENUESScope and Learning OutcomesThe materials presented in this chapter will provide knowledge and understandingabout: § The Format and Structure of the Local Government Annual Budget (APBD) § Sources of Local Government Revenue.Participants will be trained to conduct analyses of local government revenues, whichwill provide them with the capability and skills to: § Outline a profile of city/regency government revenues § Interpret this revenue profile.The Format and Structure of the Local GovernmentAnnual BudgetThe Local Government Annual Budget (APBD) is the public policy framework thatsets out the revenue, expenditures, and financing of the local government for theupcoming fiscal year. The present format of the APBD refers to Minister of HomeAffairs Decree No. 29 of 2002, the content of which stipulates the structure of theAPBD, comprised of: (1) Local Government Revenues (2) Local Government Expenditures, and (3) Financing.The complete format and structure of the APBD can be seen in the next page.When local government revenues exceed local government expenditures, there is abudget “surplus”. Conversely, when local government expenditures exceed localgovernment revenues, the local government experiences a “deficit”. Whenever thebudget experiences either a surplus or a deficit, there is then a “financing” component,intended to cover the deficit or to make use of the budget surplus. 27
  27. 27. ANALYZING REVENUESThe Structure of Provincial/ Regency/ City Annual Budgetsas per Minister of the Interior Decree No. 29 of 2002I. Revenues 1. Locally-Generated Revenue (PAD) 1) Local Taxes 2) Local Service Fees 3) Share of Profits of Local Government Enterprises 4) Other Locally-Generated Revenue 2. Balancing Funds 1) Tax and Non-Tax Revenue Sharing (from natural resources) 2) General Allocation Funds 3) Special Allocation Funds 4) Balancing Funds from provincial governments Total Revenues (I)II. Expenditures 1. Local Government Apparatus Expenditures6) a. General Administration Expenditures7) 1) Personnel Expenses 2) Goods and Services Expenses 3) Official Travel Expenses 4) Maintenance Expenses b. Maintenance and Operation Expenditures8) 1) Personnel Expenses 2) Goods and Services Expenses 3) Official Travel Expenses 4) Maintenance Expenses9) c. Capital Expenditures Total Local Government Apparatus Expenditures (II.1)6) Government Apparatus Expenditures are expenditures for the needs of personnel and institutions that are not directly related to public services.7) General Administration Expenditures in the category of government apparatus expenditures are expenditures for the needs of personnel and institutions that are not directly related to public services and that are incidental or unplanned by nature.8) Maintenance and Operation Expenditures in the category of government apparatus expenditures are planned expenditures for the needs of personnel and institutions that are not directly related to public services.9) Capital Expenditures in the category of government apparatus expenditures are expenditures for goods and facilities that do not provide a direct benefit to the public and that become local government assets, such as vehicle purchases, appropriation of land for offices, etc. 29
  28. 28. ANALYZING REVENUES 2. Public Service Expenditures10) a. Public Administration Expenditures11) 1) Personnel Expenses 2) Goods and Services Expenses 3) Official Travel Expenses 4) Maintenance Expenses b. Maintenance and Operation Expenditures12) 1) Personnel Expenses 2) Goods and Services Expenses 3) Official Travel Expenses 4) Maintenance Expenses c. Capital Expenditures13) 3. Profit Sharing Expenditures and Financial Aid 4. Unexpected Expenditures Total Public Service Expenditures (II.2) Total Expenditures (II.1 + II.2) Surplus (Deficit) = I - IIIII. Financing 1. Local Government Revenues 1) Balance remaining from previous year’s budget 2) Transfers from Reserve Funds 3) Income from Bonds 4) Proceeds from sales of separate local government assets Total Local Government Revenues (III.1) 2. Local Government Expenditures 1) Transfers to Reserve Funds 2) Equity Participation 3) Payments of debts that fall due 4) Balance remaining from current year’s budget Total Local Government Expenditures (III.2) Total Financing (III.1 - III.2)10) Public Service Expenditures are expenditures for activities that directly provide services to the public11) General Administration Expenditures in the category of public service expenditures are expenditures for the needs of personnel and institutions that are directly related to public services but are incidental or unplanned by nature.12) Maintenance and Operation Expenditures in the category of public service expenditures are planned expenditures for the needs of personnel and institutions that are directly related to public services.13) Capital Expenditures in the category of public service expenditures are expenditures for goods and facilities that provide a direct benefit to the public and that become local government assets, such as construction of infrastructure (roads, irrigation, waterworks, bridges, etc.), appropriation of land to build terminals, etc.30
  29. 29. ANALYZING REVENUESThe Sources of Local Government IncomeThe meaning of “Revenue” is all income of the local government treasury for a givenfiscal year to which the local government is entitled and which will be used for thepurposes of local development.The sources of local government revenues consist of: (1) Balancing Funds (2) Locally-Generated Revenue (3) Other legitimate revenue.The central government plays an important role in supporting the duties of governmentsin the regions. In terms of finance, the central government not only provides balancingfund allocations and transfers financial resources to which local jurisdictions areentitled, but also provides loans and grants to local governments.While responsibility for service provision has been devolved to local government,the ability to raise revenues has largely been retained by the central government.This means that unlike other countries, for the most part local government cannotraise revenues through property taxes, income tax, sales tax or issuing municipalbonds. The restricted ability to raise locally-generated revenue means that localgovernments are very dependent on transfers from the central government. In mostcases, they must make difficult choices between the programs they fund sincetransfers aren’t sufficient to cover the needed development budget.Balancing FundsThese are revenues derived from the State Annual Budget (APBN) that are allocatedto a local government to pay for basic functions under decentralization. At present,most of the income of local governments in Indonesia comes from Balancing Funds,which are divided into: (1) General Allocation Funds (block grants, DAU), (2) Special Allocation Funds (special grants, DAK), (3) Tax and Non-Tax Revenue Sharing Funds, and (4) Financial Aid from the Provinces.General Allocation Funds (DAU) are balancing funds determined using a formulastipulated through the mandate of Law No. 25 of 1999 as amended through Law No.33 of 2004 onFinancial Balance between the Central and Regional Governments.The DAU formula is determined on the basis of: § Fiscal Needs (size of population, area, human resource development) § Fiscal Capability (regional economic potential, natural resource and human resource potential) 31
  30. 30. ANALYZING REVENUES § Fiscal Need Variables (Population Index, Area Expanse Index, Human Development Index, GRDP per Capita Index, Construction Price Index) § Fiscal Capability Variables (Locally-Generated Revenue, Natural Resource Revenue Sharing, Land and Building Taxes, Land and Building Title Acquisition Fees (BPHTB), and Individual Income Taxes)Special Allocation Funds (DAK) are specific grants to finance the specific needs oflocal governments and/or the national interest.There are usually for nationally gene-rated programs implemented at the local level.Locally-Generated Revenue (PAD)A small proportion (usually under 20%) of local government revenues derive fromLocally-Generated Revenue (Pendapatan Asli Daerah, PAD), that is, revenuesobtained from collection of taxes (including hotel and restaurant taxes, advertisingtaxes, street lighting taxes), various types of fees for services (including parkingfees, market and shop fees, hospital fees, cemetery fees), and proceeds of localgovernment enterprises (profits of Local-Government-Owned Business Entities,proceeds from rental of local government assets).Other Legitimate RevenueIn addition to the two sources of revenue mentioned above, local governments mayalso receive income from sources categorized as “other legitimate revenue,” suchas third-party contributions, proceeds from sale of local government property, interestearned on time deposits, etc.Revenue Analysis: ExercisesThe analysis of APBD revenue will provide an understanding of the capability andthe policies undertaken by the local government in raising funds to finance developmentduring a given fiscal year. The local government revenue profile analysis will reflect: (1) To what extent the local government is still dependent on the provincial and/or central governments to finance development; (2) Whether the local government budget is in surplus or deficit, and how the local government deals with this situation; (3) Trends in local government revenues from one fiscal year to the next (increase or decrease, and the size of these); (4) Which revenue sectors contribute to local government revenues; (5) Who benefits most from, and who is most disadvantaged by, local government policies for raising development funds.32
  31. 31. From the results of the analysis, the following can be identified: (1) Matters that lead to a decline in potential local government revenues, and how to overcome them (e.g. short falls in tax and service fee revenues, the failure of public utilities to operate on a cash recovery basis); (2) Identification of new sources of revenue that could be used to finance development programs important for the region; (3) Proposals to reform policies related to budget revenues (e.g. policies on taxes and services fees, and simplification of permitting processes).Exercise 1: Examining the Sources of RevenueThe data below is a Summary of Revenue in Kebumen RegencyDiscuss the following:v What is the percentage of PAD relative to total revenue? What is the significance of this?v What is the percentage of DAU relative to total revenue? What is the significance of this? 33
  32. 32. ANALYZING REVENUES ANALYZING REVENUESExercise 2: Examining Locally-Generated Revenue (PAD)The diagram below shows the percentages of sources of Locally-Generated Revenuein the Kebumen Regency Draft Annual Budget for 2006.Discuss the following:v Identify the sources of PAD. What is the largest source of PAD? Which source of PAD makes the smallest contribution?Exercise 3: Examining Revenues from Service Fees (Retribusi)The following data show the sources of revenue from service fees in the City ofMakassar (Annual Budget for 2006).34
  33. 33. ANALYZING REVENUESDiscuss the following:v What percentage of total fees comes from the health sector? What is the significance of this? (This question can be replaced with one on the amount of fees from business permitting, depending on the participants’ interests)v Who actually pays these fees in the health services sector? Who would suffer if the fees were increased?v What steps could be taken by the local government to increase local government revenues?v What factors make actual revenue lower than it could be? 35
  34. 34. ANALYZING REVENUES36
  35. 35. Chapter 4:ANALYZING EXPENDITURESScope and Learning OutcomesThe materials presented in this chapter will provide knowledge and understandingabout:§ The structure of local government annual budget expenditures§ Various methods to analyze expenditures.Participants will be trained to conduct analyses of local government expenditures,which will provide them with the capability and skills to:§ Outline a profile of city/regency government expenditures including a departmental/sectoral expenditure profile§ Interpret this expenditure profile.The Structure of Local Government Annual Budget ExpendituresExpenditure allocations in a local government annual budget (APBD) consist of fourelements: (1) Local Government Apparatus Expenditures (2) Public Service Expenditures (3) Profit Sharing Expenditures and Financial Aid (4) Unexpected Expenditures.Local Government Apparatus Expenditures are expenditures for general administration(salaries), operations and maintenance, and capital expenditures used to financeactivities whose results, benefits, and impact are not enjoyed directly by the public(e.g. government office buildings).Public Service Expenditures consist of expenditures for general administration,operation and maintenance, and the share of capital expenditures used to financeactivities whose results, benefits, and impact are enjoyed directly by the public (e.g.roads, irrigation, bridges)Profit Sharing Expenditures and Financial Aid consist of local government sharesof tax revenues and non-tax revenues collected by the provincial or nationalgovernment. Percentage of these revenues are returned to the local government areoften given as block grants to villages or underserved communities.Unexpected Expenditures are expenditures for activities of an extraordinary naturethat are not expected to recur, such as unanticepated natural or social disasters. 37
  36. 36. ANALYZING EXPENDITURESVarious Methods to Analyze Expenditures14)GENERAL ANALYSISA. Make comparisons of the following: - Amount of expenditures from year to year (This comparison may be done for each expenditure item. Items with significant increases of reduction require special attention and further analysis.) - Among expenditure items (e.g.: personnel expenses as percentage of total expenditures, or expenditures relative to DAU) - Between revenue items and expenditure items - Between one sector and another - Between villages/ subdistricts or districtsB. Observe what the largest and smallest amounts of expenditure are allocated to.C. Discover any discrepancies. Discrepancies in a given item can be seen from several aspects:Legal aspects:Analyze consistency/ compliance with the applicable legal standards. The highfrequency of corruption cases committed by DPRD members in the period 1999-2004 was due to budget items and amounts for the DPRD that were not in line withGovernment Regulation No. 110 of 2000, which regulates the Financial Status of theDPRDs.Economic/ financial aspects:Discrepancies that may be discovered include:- Allocations greater than the established standard indices and prices (indication of mark-ups)- Multiple allocations (indication of expenditure duplication)- Allocations repeated each year for items that shoud be durable.Social aspects (justice and propriety):Note whether any allocations are excessive, conspicuous, or irrational. To contrast,compare these peculiar allocations with those for the poor and marginal groups todiscover indications of budget deviations. These findings will be very useful inopening the eyes and hearts of both government officials and the public. Example:budget for air freshener for mayor’s office: Rp 80.000.000; budget for street children:Rp 15.000.000.Exercise 1: Examining Expenditure AllocationsThe following data shows the summary of Expenditures in Kebumen Regency for2006. Discuss: What is the proportion of Government Apparatus Expenditurescompared to public service expenditures ?14) Note: This material is adapted from the draft “Training Module for Performance-Based and Gender- Responsive Budget Advocacy” prepared by PATTIRO for The Asia Foundation.38
  37. 37. ANALYZING EXPENDITURESSummary of Expenditures in Kebumen Regency RAPBDfor 2006 39
  38. 38. ANALYZING EXPENDITURESExercise 2The following data show the expenditure allocations in Kebumen Regency for 2006.Discuss: What is the significance of this?40
  39. 39. ANALYZING EXPENDITURESExercise 3: Examining APBD by DepartmentThe following data show the Kebumen Regency Draft Annual Budget for 2006 byDepartment/Sector/ SKPD.Discuss: What is the significance of this? 41
  40. 40. ANALYZING EXPENDITURESThese amount are shown below in graphic format for quick comparison: DPRD Secretariat Health Service Head of Region Regional Secretariat Agriculture Service Districts (26 Districts) Regional Revenue Office Communications Service Regional Oversight Agency Education and Culture Service Tourism, Culture and Art Service Regional Market Management Office Local Government Treasury Office Civil Service Police Unit Office Livestock, Fishery and Maritime Service Industry, Trade, and Cooperatives Service Manpower and Transmigration Service State High Schools (17 schools) Regional Settlements and Infrastructure Service State Junior High Schools (49 schools) Water, Mining, and Energy Resources Service Forestry and Environmental Impact Management Service Bappeda (Regional Development Planning Agency) Regional Public Hospital Management Board Civil Registry and Population Registry Office Family Planning and Community Empowerment Service Regional Personnel, Education and Training Agency Information, Communication and Electronic Data Processing Agency Office of National Unity and Social and Community ProtectionSPECIAL ANALYSISA special analysis is an analysis of the programs/ projects/ activities of one Department’sbudget (SKPD). The document analyzed is the SKPD’s RASK/RKA. From this document,the following four aspects can be analyzed: 1. Policy Aspect 2. Financial Aspect 3. Administrative Aspect 4. Social Aspect (Justice and Propriety)Policy AspectAnalyze whether budget allocations are in line with stated government priorities andpolicies.1. Study the policies related to the APBD, especially the RPJP, RPJM, and KUA. See what the city/regency’s priorities are.2. Study the laws and regulations related to the APBD to ensure the Department’s budget is compliant relevant policy documents includes: - Laws related to certain sector (education, health). - Mayoral Decree on standardization index for activities/ goods. - Government Regulation No. 107 on Local Government Loans. - Mayoral Decree regulating honoraria, incentives, and general costs.42
  41. 41. ANALYZING EXPENDITURES Example for Kebumen Regency The Vision in the Kebumen Regency Medium-Term Regional Development Plan (RPJMD) is to realize a people’s economy in Kebumen that is self-reliant and highly competitive, as elaborated in five missions. One of these missions is economic development based on community empowerment through agriculture, tourism, trade, and industry, with a focus on increasing incomes and creating jobs. This mission is further elaborated through economic programs, which include food self-sufficiency, development of agribusinesses, and maritime development. In the General Budget Policy (KUA), the activities planned as priority programs related to agricultural policy are increasing agricultural production and productivity, securing the prices of agricultural facilities and products, and strengthening farmers’ institutions. In 2006, there are 27 activities related directly to this policy, but the amount of funds allocated for them is relatively small: only 1.3% of the total APBD, and of this small amount, 52% is taken up by salaries and benefits for agriculture service personnel. This amount is far too small to achieve the mission that has been set, particularly in terms of increasing farmers’ incomes and creating jobs.Administrative AspectAnalyze whether the budget meets government guidelines and regulations.1. Study whether the service’s programs/ activities reflect the scale of priorities.2. Ensure that the service’s RASK contains complete performance indicators.3. Study in detail the performance indicators: a. Are they in line with the General Direction of Policy? b. Is there a connection between the activities and the desired aims? c. Are output indicators or achievement benchmarks clearly presented?4. Are programs carried over from previous years effective and still relevant to the community?5. Study the activity reports for the same projects in the previous year. Do they justify continued support at this level?Financial AspectNow analyze budget for price irregularities or wasteful expenditures: 1. Study the amount of allocation for each budget item. 2. Compare with the index standards: less, same, or greater? 3. Compare the amount of maintenance costs for goods with the purchase price of the same goods. A case has been found where the maintenance cost for computers in one year higher than if the local government had purchased new computers. 4. Study the possible occurrence of multiple allocations for the same item/activity. 43
  42. 42. ANALYZING EXPENDITURESSocial Aspect (Justice and Propriety)Analyze whether allocations reflect proper use of public funds.Compare the allocations for activities whose beneficiaries are government officialswith those for activities whose beneficiaries are the poor. If there are imbalances inthese allocations, this finding can be exposed for advocacy purposes.BENEFICIARY/GENDER ANALYSISIn a budget analysis, the expenditures can be analyzed by categories of beneficiaries,e.g. the disabled, children, or women. For example, for the gender aspect expenditurescan be categorized as follows:1. Expenditures with specific gender targets. Examples: a. Special health programs for women b. Special education programs for girls c. Policies to provide work opportunities for women d. Programs for men involved in acts of violence.2. Expenditures for equal employment opportunities. Examples: a. Training for female managers b. Provision of daycare centers c. Leave program for men whose wives have given birth.3. General Allocations, i.e. expenditures for gender mainstreaming that consider the differing impacts on men and on women, by providing different needs for men and for women. Examples: a. Clean water supply projects greatly benefit women, as these reduce their work burden. b. In a toilet construction program, the number of toilets for women is greater than for men, since women need more time than men.CHRONOLOGICAL ANALYSISBudget analysis can also be done to show trends over time. This can demonstrategovernment’s concern in relation to specific sector, area or community. Trend basedanalysis of APBD can be applied for both income and expenditure.To perform this kind of analysis, several data are needed, some of them are: · Local Medium-Term Development Planning (RPJMD) · Last three years’ General Budget Policy (KUA) · Last Three Years’ APBD including the financial statement document44

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