International Journal of Research and Review Vol.7; Issue: 11; November 2020 Website: www.ijrrjournal.com Research Paper E-ISSN: 2349-9788; P-ISSN: 2454-2237

Analysis of the Effect of the Government Internal Control System (GICS), Implementation of Government Accounting Standards (GAS), Compliance with Legislation and Regional Asset Management on the Quality of West Regency Government Financial Reports

Iman Jaya Hia1, Erlina1, Sirojuzilam1

1Department of Accounting, Faculty of Economics and Business at Universitas Sumatera Utara,

Corresponding Author: Iman Jaya Hia

ABSTRACT improved, it will improve the quality of financial reports. This study aims to examine and analyze the influence of the application of Government Keywords: Quality of Financial Statements, Accounting Standards, Implementation of Government Internal Control System (GICS), Government Accounting Standards, Compliance Implementation of Government Accounting with laws and regulations, and Asset Standards (GAS), Compliance with Legislation, Management on the quality of financial reports and Regional Asset Management. in the West Nias district government. This type of research is causal research. This study's INTRODUCTION population were Financial Administration Good Government Governance Officers (FAO-RAO), treasurers, and property (GCG) is the hope of all Indonesian people managers in all Regional Apparatus for the government in running its Organization (RAO) of West government. One of the essential principles Government, totaling 35 RAOs. The sampling method used was the census method so that the in good governance is the accountability of entire population was used as the research financial management in the agency. sample. The data in this study are primary data According to Law No. 17 of 2003, financial and data collection techniques using a management must carry out a professional, questionnaire. This research's data analysis open, and responsible manner. For this method is structural equation modeling-partial reason, the government is obliged to be least squares (SEM-PLS) using SmartPLS accountable and open to the public (public) software. This study's results indicate that the in submitting local government financial Government Internal Control System (GICS), reports. To support GCG, the central Implementation of Government Accounting government provides autonomy to local Standards, Compliance with Laws and governments based on law No. 32 of 2004 Regulations, and asset management each have a significant positive effect on the Quality of concerning local government. Government Financial Statements of West Nias In the online news media, DDTC Regency. It means that if the internal control News (2019) reveals that many ministries/ system, implementation of government institutions and local governments received accounting standards, compliance with laws and the unqualified opinion (UO), which regulations, and asset management are indicates that the institution's financial reports are of high quality. Meanwhile,

International Journal of Research and Review (ijrrjournal.com) 31 Vol.7; Issue: 11; November 2020 Iman Jaya Hia et.al. Analysis of the effect of the government internal control system (GICS), implementation of government accounting standards (GAS), compliance with legislation and regional asset management on the quality of government financial reports according to Haliah and Nirwana (2019), it Opinion (DO). In the following year 2015, it is said that the current fact is that the experienced an increase in Qualified government's performance and financial Opinions (QO). Still, in 2016, 2017, and management are not as expected, and this 2018 it decreased in succession obtained causes a lack of public trust in the Disclaimer of Opinion (DO), and this is due government. to the problem of asset administration, The quality of financial reports is which is still not optimal. It can conclude one indicator of good governance, where the that the West Nias Regency RGFR is still better the management of government not qualified, and the West Nias Regency finances, the better the quality of financial government needs to make improvements in reports. The quality of financial reports is its financial management so that the results normative measures that need to be of SAA's opinion on RGFR have increased embodied in accounting information to meet to become QO or even UO. its objectives (Nordiawan, 2010). In the Based on the results of the 2019 process, to ensure the quality of regional SAA examination of 542 RGFRs in Table government financial management, it is 1.2, it shows that there are still several assisted by an official institution called the RGFRs with DO, one of which is the West Supreme Audit Agency (SAA), which is Nias Regency. free and independent. It states in Law No. 15 of 2004 concerning audits of the Table 1.2 SAA Audit Results on RGFR in 2019 SAA Opinion management and accountability of state NO UO QO AO DO finances that the SAA conducts audits of the RGFR % RGFR % RGFR % RGFR % 1 443 82 86 16 - - 13 2 management and responsibility of state Source: IHPS I BPK RI Year 2019 finances for officials entrusted with the task of managing state finances, to conclude the The SAA examination results of the level of fairness of information presented in 2019 RGFR revealed 12,117 problems the financial statements, which after this consisting of 5,858 issues with the Internal referred to like opinion. The opinions given Control System (ICS) and 6,259 issues of by the SAA on the audited financial non-compliance with laws and regulations statements are UO (Unqualified Opinion), amounting to Rp 2.19 trillion. Based on this, QO (Qualified Opinion), AO (Adverse to improve the quality of Regional Opinion), and DO (Disclaimer of Opinion). Government Financial Reports (RGFR, the Based on the data obtained by the government needs to implement or enhance author from the official SAA Republic of the Government Internal Control System Indonesia (RI) website, it concludes that the (GICS). PP No. 60 of 2008 concerning ICS regional financial management system of states that ICS is a necessary process of West Nias Regency has not been managed actions and activities carried out optimally. It can be seen from the following continuously by the leadership and all Table 1.1. employees to provide adequate confidence in the achievement of organizational goals Table 1.1 SAA Audit Results on RGFR West Nias Regency for Fiscal Years 2014 s.d. 2018 through effective and efficient activities, No Year Opinion reliability of financial reporting, 1 2014 Disclaimer of Opinion (DO) 2 2015 Qualified Opinions (QO) safeguarding state assets, and obedience to 3 2016 Disclaimer of Opinion (DO) laws and regulations. The quality of GICS 4 2017 Disclaimer of Opinion (DO) in the Regional Apparatus Organization 5 2018 Disclaimer of Opinion (DO) Source: https://medan.bpk.go.id/ (RAO) is one of the instruments in achieving the common goals (goal From the table, it can be seen that in congruence) of the local government (Piter 2014 the SAA provided an opinion on West et al., 2018). GICS is responsible for Nias Regency, with the Disclaimer of producing quality financial reports. It

International Journal of Research and Review (ijrrjournal.com) 32 Vol.7; Issue: 11; November 2020 Iman Jaya Hia et.al. Analysis of the effect of the government internal control system (GICS), implementation of government accounting standards (GAS), compliance with legislation and regional asset management on the quality of West Nias Regency government financial reports ensures that the reports presented to the and potential regional losses; 2) lack of public are correct according to the actual regional revenue, and 3) administrative events with reasonable control. The irregularities. Findings in the SAA audit that government creates the better of GICS and resulted in regional losses include spending quality financial statements (Mahaputra, on goods and services that are not following 2014). It is in line with research by regulatory provisions, cases of double Kurniasih (2014) and Febriawan (2017) and official travel expenses, and so on (SAA, Kurniasih (2017), which prove that GICS 2014). has a positive effect on the quality of Table 1.1 states that the majority of government financial reports. problems in the RGFR audit are problems of Besides, the weaknesses of RGFR in non-compliance with laws and regulations, the West Nias Regency are also caused by one of which is in the West Nias Regency. It irregularities in Government Accounting suggests that compliance with laws and Standards (GAS) on accounts' presentation regulations has a relationship with the in the financial statements. According to quality of financial reports. Permendagri Government Regulation, No. 71 of the 2010 No. 13/2006 also states that regional GAS are accounting principles applied to finances must be managed in an orderly prepare and present government financial manner, obeying laws and regulations, reports. GAS, which sets to use in Indonesia effective, efficient, economical, transparent, at this time, is PP No. 24 of 2005, which and responsible by taking into account the later became PP. 71/2010. The implication principles of justice, appropriateness, and of this is that if financial management benefits for the community. It aims to activities use the principles set out in GAS support the quality of financial reports. correctly and completely, the quality of According to research by Sianturi (2016) financial reports will automatically increase. and Manullang (2016), compliance with The better preparation and presentation of laws and regulations has a significant financial statements, the more likely it is to positive effect on the quality of financial have a reasonable audit opinion. It supports statements. However, according to research Suwanda (2015) research and Manullang by Pangkong (2013), understanding of rules (2016), where GAS has a positive and does not affect the ability to prepare significant effect on financial statements' financial statements. quality. In contrast to the research of Fikri et Another factor that also affects the al. (2015), where the implementation of quality of financial reports is the GAS does not affect the quality of financial management of regional assets. As information. explained by Gutomo (2015), in the Based on Law No. 10 of 2004 majority, the problem that is an obstacle to concerning the Formation of Legislation, a obtaining UO is asset management that is written regulation is established by a state not accountable. Issues that commonly institution or official that is authorized and occur in asset management are assets that generally binding. Based on this definition, have not been recorded; there are still assets compliance with statutory regulations is a that record. Simultaneously, the goods are character of obedience and obedience to no longer available, and assets are recorded, written rules established by state institutions but no valid proof of ownership is available. or authorized and generally critical officials. It is in line with Kurniasih (2017) research, One of the criteria for providing SAA which states that the implementation of opinion in compliance with laws and asset management has a positive and regulations, where the results of the SAA significant effect on the quality of audit reveal non-compliance with statutory government financial reports. It is also provisions consisting of three conditions, supported by research by Ansari (2016) and namely 1) the incidence of regional losses Hadiani (2015). However, unlike Wiraputri

International Journal of Research and Review (ijrrjournal.com) 33 Vol.7; Issue: 11; November 2020 Iman Jaya Hia et.al. Analysis of the effect of the government internal control system (GICS), implementation of government accounting standards (GAS), compliance with legislation and regional asset management on the quality of West Nias Regency government financial reports (2012), the management of the regional questions or written statements to answer property has a positive but insignificant them (Sugiyono, 2014). effect on the quality of financial reports. It The population used in this study supports the research of Yulpi et al. (2017). was the Secretary / Head of Administration, FAO (Financial Administration Officer) Framework RAO, Goods Management and Expenditure Following the description of the Treasurer at RAO in West Nias Regency background of the problem, literature Government, totaling 124 people from 31 review, and previous research, a conceptual RAOs. This study uses a sampling research framework prepares as follows: technique with a census/survey method,

GICS (X1) where all members of the population use as research samples. In this research, the data analysis method used is structural equation

GAS (X2) modeling-partial least squares (SEM-PLS) using SmartPLS software. QFR (Y) CLR (X3) RESULT AND DISCUSSION Description of Research Data

RAM (X4) Table 5.1 Descriptions of Respondents' Answers Descriptive Statistics N Min Max Mean Std. Deviation QFR (Y) 124 1.78 5.00 4.1622 .77492 H1: The Government Internal Control GICS (X1) 124 1.50 5.00 3.8274 .87312 System (GICS) has a positive and GAS (X2) 124 1.50 5.00 3.7648 .89640 CLR (X3) 124 1.20 5.00 3.8548 .92106 significant effect on the Quality of Financial RAM (X4) 124 1.33 5.00 3.9449 .91798 Reports (QFR). Valid N 124 H2: Implementation of Government (listwise) Source: Calculation Results of SmartPLS 3.0 Accounting Standards (GAS) has a positive and significant effect on the Quality of Based on the table above, it can conclude Financial Reports (QFR). that the average respondent understands H3: Compliance with laws and regulations enough about the quality of financial (CLR) has a positive and significant effect reports, GICS, GAS, compliance with laws on the Quality of Financial Reports (QFR). and regulations, and regional asset H4: Regional Asset Management (RAM) management in their respective RAOs. has a positive and significant effect on the Quality of Financial Reports (QFR). Outer Model Evaluation (Measurement Model): Validity and Reliability Testing RESEARCH METHODS This type of research includes the Based on testing the validity of kind of quantitative research. The approach loading factors in Figure 5.1, all loading used is causality and inferential. This study values are > 0.7, which means that the uses statistical analysis, which aims to test validity requirements are met based on the the hypothesis (Sugiyono, 2017). Research loading value. Furthermore, reliability is conducted with a causal research testing is carried out based on the composite approach to investigate cause-and-effect reliability (CR) value; it can be seen in the relationships by observing the effects that following table and figure. occur and the possible factors (causes) that cause these effects (Sinulingga, 2018). The study used a questionnaire for data collection by giving respondents a set of

International Journal of Research and Review (ijrrjournal.com) 34 Vol.7; Issue: 11; November 2020 Iman Jaya Hia et.al. Analysis of the effect of the government internal control system (GICS), implementation of government accounting standards (GAS), compliance with legislation and regional asset management on the quality of West Nias Regency government financial reports

Figure 5.1 Path Diagram based on Loading Factor Value

It is known that the square root value of AVE for each latent variable is greater than the correlation value between these latent variables and other latent variables. It concludes that it has met the requirements of discriminant validity.

Significance Test (Direct Effect) Table 5.3 Path Coefficient and P-Value O M STDE T P-Val V Stat GICS (X1) -> 0.325 0.329 0.058 5.607 0.000 QFR (Y) GAS (X2) -> 0.404 0.400 0.062 6.556 0.000 QFR (Y) CLR (X3) -> 0.252 0.247 0.062 4.097 0.000 Figure 5.2 Reliability Testing based on Composite Reliability QFR (Y) (CR) RAM (X4) -> 0.188 0.187 0.059 3.165 0.002 QFR (Y) Source: Calculation Results of SmartPLS 3.0 The recommended CR value is above 0.7 (Sholihin and Ratmono, 2013: Based on the results in Table 5.3, it 67). It is known that all CR values are> 0.7, can conclude that GICS, GAS, CLR, and which means that they have met the RAM have a positive and significant effect reliability requirements based on CR. on QFR. Furthermore, the discriminant validity test Table 5.4 Value of the Coefficient of Determination was conducted using the Fornell-Larcker R Square R Square Adjusted approach. KLK (Y) 0.662 0.651 Source: Calculation Results of SmartPLS 3.0 Table 5.2 Discriminant Validity Testing X3 Y X4 X2 X1 Based on Table 5.4 above, it can CLR(X3) 0.838 QFR (Y) 0.534 0.786 conclude that GICS (X1), GAS (X2), CLR RAM (X4) 0.358 0.490 0.803 (X3), and RAM (X4) together can influence GAS (X2) 0.289 0.617 0.265 0.835 GICS (X1) 0.301 0.574 0.324 0.278 0.789 QFR (Y) by 65.1%, while the rest is 34.9% Source: Calculation Results of SmartPLS 3.0 influenced by other factors.

International Journal of Research and Review (ijrrjournal.com) 35 Vol.7; Issue: 11; November 2020 Iman Jaya Hia et.al. Analysis of the effect of the government internal control system (GICS), implementation of government accounting standards (GAS), compliance with legislation and regional asset management on the quality of West Nias Regency government financial reports CONCLUSION dengan Sistem Pengendalian Intern Sebagai Based on the results of data analysis Variabel Moderating (Studi Empiris pada and research discussion, the following SKPD-SKPD di Pemprov. NTB). Jurnal conclusions can be drawn: Simposium Nasional Akuntansi XVIII. 1. The Government Internal Control . 7. Ghozali, Imam., (2013). Aplikasi Analisis System (GICS) has a significant positive Multivariate Dengan Program SPSS, Edisi effect on local government financial 7, Semarang, Badan Penerbit Universitas reports' quality. Diponegoro. 2. Implementation of Government 8. Gutomo, Kotot. “Berburu Opini WTP.” 25 Accounting Standards (GAS) has a Februari 2015. significant positive effect on local http:/www.bpkp.go.id/jateng/1910/Berburu- government financial reports' quality. Opini-WTP. BPKP. 3. Compliance with laws and regulations 9. Hadiani, Chintya Dwi. (2015). Pengaruh (CLR) has a significant positive effect pengelolaan barang milik daerah dan sistem on local government financial reports' pengendalian internal pemerintah (SPIP) quality. terhadap kualitas laporan keuangan pemerintah daerah (Survey pada 17 Dinas 4. Regional Asset Management (RAM) has dan 1 Insektorat di kabupaten Garut). a significant positive effect on local Skripsi. Universitas Widyatama. government financial reports' quality. 10. Haliah & Nirwana. (, 2019). The development of a good governance model REFERENCES for performance improvement. International 1. Anshari & Efrizal S. (2016). Pengaruh Journal of Excellence in Government, Pengelolaan Barang Milik Daerah Terhadap ISSN: 2516-4384. Universitas Hasanuddin Kualitas Laporan Keuangan Pemerintah Makasar, Indonesia. Emerald Publishing Kota Padang. Jurnal Riset Manajemen Limited. Bisnis dan Publik, Vol. 4 No. 1. Universitas 11. Ikatan Akuntan Indonesia (IAI). (2011). Negeri Padang. Standar Profesional Akuntan Publik 31 2. Badan Pemeriksa Keuangan Republik Maret 2011. Jakarta:Salemba Empat. Indonesia, 2014. Ikhtisar Hasil Pemeriksaan 12. Indriantoro, N. & Supomo, B., (1999), Semester I, Pemeriksaan Laporan Metodologi Penelitian Bisnis Untuk Keuangan, Jakarta. Akuntansi dan Manajemen. Edisi Pertama, 3. Badan Pemeriksa Keuangan Republik BPFE, Yogyakarta. Indonesia, 2019. Ikhtisar Hasil Pemeriksaan 13. Kurniasih, Nurul Apriyantini. (2014). Semester I tahun 2018, Jakarta. Pengaruh sistem pengendalian internal 4. Devi, P., Abubakar, E., Erwin, K. (2018). pemerintah (SPIP) dan akuntabilitas An Analysis On The Factors Which terhadap kualitas laporan keuangan Influence Financial Statement Quality Of pemerintah daerah (Studi kasus pada dinas Skpd (Regional Work Unit) At The pengelolaan keuangan dan asset daerah kota Municipal Administration With bandung). Skripsi. Universitas Widyatama. Organizational Commitment As Moderating 14. Kurniasih, Yani. (2017). Pengaruh Variable. Vol 1 No 1. Journal Of Budgeting, Implementasi Manajemen Aset Tetap Dan Accounting, and Finance (IJPBAF). Implementasi Pengendalian Internal 5. Febriawan, Panji. (2017). Pengaruh Sistem Terhadap Kualitas Pelaporan Keuangan Pengendalian Intern Pemerintah (SPIP) (Pada Pemkab/Pemkot Di Wilayah terhadap kualitas laporan keuangan Pemerintahan Provinsi Jabar). Jurnal pemerintah daerah (Survey pada Dinas Ekonomi dan Bisnis, Vol. 6 No. 1, Hal 72 – Pemerintah Kota Bandung). Skripsi. 82. STIE Dr. KHez Muttaqien. Universita Widyatama. 15. Mahaputra, I Putu U.R. dan Putra, I Wayan, 6. Fikri, M.A, Inapty, B.A dan Martiningsih, 2014. Analisis Faktor-Faktor yang RR.S.P. 2015. Pengaruh Penerapan Standar Mempengaruhi Kualitas Informasi Akuntansi Pemerintahan, Kompetensi Pelaporan Keuangan Pemerintah Daerah Aparatur dan Peran Audit Internal Terhadap (Studi pada SKPD Gianyar), Jurnal Kualitas Informasi Laporan Keuangan Akuntansi Fakultas Ekonomi dan Bisnis,

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International Journal of Research and Review (ijrrjournal.com) 37 Vol.7; Issue: 11; November 2020