International Journal of Multidisciplinary Research and Publications ISSN (Online): 2581-6187 Financial Sustainability and Financial Performance of Local Government at East Kalimantan Muhammad Kadafi1, Amirudin2, Ratna Wulaningrum3 1, 2, 3Accounting Department, Samarinda State Polytechnic, Samarinda, Indonesia E-mail address: [email protected] Abstract— This study aims to determine and analysis Financial consumption of goods to consumption of services, and Sustainability, Trend Financial Sustainability, Map of Financial increasing new sources of income such as e-commerce. Performance and Financial Performance of city/regency (local Demands for good performance are often directed at local governments) in East Kalimantan in 2015-2019. The benefit of this governments to increase their regional financial independence. research is that it becomes input for local governments and To measure the level of success of a region in implementing provincial governments in making policies related to APBD. The analysis tool uses the calculation of financial sustainability, financial regional autonomy, it is necessary to evaluate the financial sustainability trends, quadrant methods, financial performance which performance management of local governments in Indonesia consists of the calculation of growth, share, elasticity, index X, IKK. [2]. Measurement is a concept that describes the process for This study also maps the performance of the LGR based on the evaluating performance finances in accordance with a set of Quadrant Method. The results of this study indicate that there are 5 rules [3]. Financial performance measurement aims to increase cities/regencies that have financial sustainability above the average local government accountability. Furthermore, the and 5 cities/regencies whose values are below the average. For 5 measurement of the government’s financial performance will years, Trend Financial Sustainability has grown, from a value of be useful in the process of making policies regarding regional 40.77%, 36.45%, 29.07%. In 2018 it increased by a value of 47.34%, financial management. then in 2019 it decreased again by 36.72%. LGR performance map using the Quadrant Method, there are no cities/regencies in East Analysis on financial ratios is one of the financial Kalimantan Province that are included in Quadrant 1 which is performance analysis tools, generally for assessing profit- classified as ideal. In Quadrant 2 are East Kutai Regency, North oriented organizations or organizational performance. Penajam Paser and Mahakam Ulu. The areas in this quadrant are However, this is rarely done in non-profit organizations or considered not ideal. In Quadrant 3, there are four cities/regencies, institutions, especially local governments. This is because the Balikpapan City, Berau Regency, Samarinda and Bontang. In this presentation of local government financial reports has Quadrant the group is not ideal. In bad condition, they are placed in different limitations and characteristics and scope. According Quadrant 4. Its members are Kutai Kertanegara and West Kutai, and to [4], the preparation of the Regional Income and Paser Regencies. Expenditure Budget is based on the principle of balance in the Keywords— Financial performance, financial sustainability. supplementary budget where each income and expenditure group is calculated by increasing a certain percentage (based I. INTRODUCTION on the inflation rate) which ignores financial ratios. With East Kalimantan is one of the four richest local governments financial ratios, the quality of financial reports audited is in Indonesia, the others are Nanggroe Aceh Darussalam, Riau, expected to improve, so that the public society can also find and Papua. The provinces of Nanggroe Aceh Darussalam, East out about conditions that reflect regional financial conditions. Kalimantan, and Riau with their natural oil and gas resources, Financial performance analysis is an attempt to identify while Papua Province is famous for its copper and gold. As financial characteristics based on the presentation of financial natural resource producing regions, the four provinces receive statements. Regional financial performance can be seen from transfer funds sourced from the central government in the various financial ratios, which analysis is the Regional Income form of a very large natural resources revenue sharing fund. and Expenditure Budget. It is used as a benchmark for The profit sharing fund has contributed significantly to the evaluating regional financial performance. Financial ratio Regional Income and Expenditure Budget of the four analysis to Regional Income and Expenditure Budgetary provinces. comparing the results achieved by an area in one period with Financial sustainability is the government’s long-term the previous period, to determine trends that occur. Regional ability to consistently fulfill its financial responsibilities and financial performance analysis is expected to be a identifies three types of pressures facing the government: measurement tool for evaluating regional financial cyclical, structural, and intergovernmental [1]. Cyclical independence in appreciating the implementation of fiscal pressures reflect the effect of business cycle on government decentralization policies, and for reviewing growth and finance and often occurs at all three levels of government. development of revenues and expenditures within a certain Structural pressures affecting financial sustainability include period. demographic changes, suburbanization trends, overall Research conducted by [5] found 8 cities/regencies in East population and business mobility, structural changes from Kalimantan have low Z-score Financial Independence. Cities/regencies governments still have a very high 22 Muhammad Kadafi, Amirudin, and Ratna Wulaningrum, “Financial Sustainability and Financial Performance of Local Government at East Kalimantan,” International Journal of Multidisciplinary Research and Publications (IJMRAP), Volume 3, Issue 6, pp. 22-26, 2020. International Journal of Multidisciplinary Research and Publications ISSN (Online): 2581-6187 dependence on transfer funds from the central government. governments are required to have good financial performance Development financing originating from the transfer of in managing their budgets. In order for regional financial revenue-sharing from natural resources has an environmental, performance to be good, an evaluation of regional financial social and economic impact that is unsustainable. performance in managing its finances needs to be done. This research is the development of research conducted by Measurement of financial performance has many objectives, [5]. This research will analysis more specifically the trend of among others, to increase the accountability of local financial sustainability, financial performance, and the governments. Furthermore, the measurement of regional financial ability index for the case of cities/regencies in East financial performance will also be useful in the process of Kalimantan. making policies regarding regional financial management. II. LITERATUR REVIEW III. RESEARCH METHODS Financial sustainability can be defined as the ability of the The variables to be measured in this study are financial government to finance the provision of current public services sustainability, financial sustainability’s trend, and financial without reducing the ability to do so in the future [6], [7], [8]. performance. The variables in this study are proxied by the Financial sustainability is defined as a type of financial ratio of capital expenditure to compulsory expenditure, growth condition that enables the government to continue providing of LGR (locally generated revenue), share, elasticity, index x, current services and in the future without disrupting income or and financial capability index. expenditure patterns. Assessment of local financial After calculating and seeing the trend of increasing and sustainability is based on three types of indicators: funding the decreasing for 5 years, then the financial performance pension obligations, debt burden, and budget balance. Three mapping was carried out using the quadrant method using the main factors influence the long-term financial condition of the naming of city/regency groups according to [13]. LGR government: government structure, financial structure and performance mapping is used to determine the position of performance, and the local economic base [9]. cities/regencies in East Kalimantan Province as measured by The study of [10] analysis financial performance in terms LGR growth, and their contribution to total expenditure. of own income collection and the sustainability of local cities Financial capacity index (FAI) is used to measure financial in South Africa. Criteria such as gross value added, income capability. collected from own sources, number of debtors owed, age of IV. FINDINGS RESEARCH / RESULTS debt and dependence on grants are considered. The conclusion is that a large number of cities do not meet the requirement Financial Sustainability that current reasonable amounts of expenditure must be Fiscal sustainability is quality government spending. financed by their own resources. Government spending is directed towards spending that can The other research is conducted by [11] analysis the increase productivity, such as infrastructure development. The sources of income for the City of Shabestar in terms of calculation of financial sustainability trend is obtained from financial