Governance of financial management and regulation-based fiscal accountability

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Abstract

This study aims to analyze financial accountability based on the regulation as a moderating effect of fiscal decentralization on fraud rates in local government financial management. Regulatory accountability consists of financial reporting accountability, accountability of the government internal control system, accountability compliance with legislation and accountability follow-up to audit results. This research is an empirical research with a purposive sampling technique in collecting data. The data used in this study is secondary data with a sample of 412 regency and city governments in Indonesia, during 2011–2014. Data processing used WarpPLS statistic software. The results show empirical evidence that fiscal decentralization has a positive effect on fraud rates in regional financial management. Accountability, financial reporting and accountability compliance with legislation are empirically proven as moderating the effects of fiscal decentralization on fraud rates in regional financial management. In addition, the results of this study also show that the low level of accountability of the internal control system and accountability does not continue the results of the examination so it cannot moderate the effect of fiscal decentralization on fraud rates in regional financial management. The results of this study have implications for strengthening agency theory, institutional theory, economic regulation theory and fraud triangle theory. The results of this study also have practical implications for the role of accountability through the formulation of regulations related to sanctions and rewards for local governments to carry out good governance through increasing their financial accountability. In addition, the regional government is expected to pay attention to audit recommendations so that it can reduce fraud rates in regional financial management.

Keywords: Fiscal Decentralization, Local Governance, Financial Accountability, Regulation, Fraud Triangle, Financial Management

Authors’ individual contribution: Conceptualization — M.D. and M.M.; Methodology — M.D., I.G., and T.A.; Software — M.D., M.M., and F.K.; Validation — M.M. and F.K.; Formal Analysis — M.D., M.M., I.G., T.A., and F.K.; Investigation — M.D., M.M., and F.K.; Resources — M.M., M.D., and F.K.; Data Curation — M.M. and F.K.; Writing — Original Draft — M.D. and M.M.; Writing — Review & Editing — I.G., T.A., and F.K.; Visualization — M.D., M.M., and F.K.; Supervision — I.G. and T.A.; Project Administration — M.D., M.M., and FK.; Funding Acquisition — M.D., M.M., and FK.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M41, M42, M48

Received: 28.10.2021
Accepted: 08.04.2022
Published online: 12.04.2022

How to cite this paper: Din, M., Munawarah, M., Ghozali, I., Achmad, T., & Karim, F. (2022). Governance of financial management and regulation-based fiscal accountability. Journal of Governance & Regulation, 11(2), 116–123. https://doi.org/10.22495/jgrv11i2art10