The Effectiveness of Internal Control System in the Fiscal Decentralization Application

4.1.2 The Control Issues in Planning and Budgeting System

The issues are more related to poor planning structure, poor receipt and disbursement mechanism, misused of local revenue and grants, disbursement outside the budget, improper budget policy causing loss of potential local revenue (SAA Audit Report 2010-2012).

Those issues arose because of weak commitment of top officials to strictly follow the existing planning and budgeting system. Lack of commitment to f and budgeting system gives more opportunities for manipulation and contravening the system. In fact, in both districts, they perform the bottom-up procedure for planning and budgeting process and every year unit proposes the planned budget. However, in budget implementation, most executed items are not items that were proposed by the units. Therefore, there is no doubt that most cases found by SAA, were the disbursement items outside the proposed budget. This occurs almost every year and even can be seen as a classical problem. Actually, this persistent picture shows that the lack of commitment of top official to strictly enforce existing planning and budgeting system. That is why during the three year, this typical case is still the main findings, one of reason for both districts getting disclaimer.

This finding is in good agreement with Devas finding (2005) that in fact, in developing countries typically face with control issues in planning and budgeting in which budget items are more reflecting the interests of certain local elites who perceived political opportunities for themselves than fulfilling public needs at the local level. Pioneering expenditure tracking studies in the early 1990s (cited by Devas) found that, on average, less than 20% of primary education cap...

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... still occurs during the three years, showing in disclaimer opinion on two districts’ LGFRs because of lack of commitment of the top officials who is the main controllers to improve the ICS.

Based on the evaluation above, it can be derived that the main problems contributing to poor ICS implementation in Kupang District and TTU District, relates to the failure of top ranking officials to implement effective control environment because of poor commitment. This can be seen in the absence of some procedural control in financial activities, planning and budgeting, some critical governmental activities, risk management system, management based performance, and information system. This finding also depicts how the top officials failed to show their commitment to manage the activities effectively and efficiently as one of the critical variable in commitment determinant.