Corresponding Author: Destri Maulana Lubis
E-mail: [email protected]
INTRODUCTION
Financial reports are prepared to
provide information regarding performance, financial position and change in an
organisation's financial position that is useful for users in making decisions (Nuvitasari
& Martiana, 2019). The scope of the public sector
states that public sector financial reports represent the financial position of
transactions carried out by a public sector entity (Aswandi,
2018). For government organisations,
the presentation of financial reports aims to provide information used in
making economic, social and political decisions as a form of accountability and
to provide information for evaluating managerial and organisational performance
(Mardiasmo,
2021). Government Accounting Standards
prepare financial reports to achieve quality financial reports.
Reliable and relevant government
financial reports can be used as a form of government accountability to the
public in achieving its goals (Mardiasmo,
2021). Public accountability relates
to the obligation to explain and answer questions about what has been, is being
and planned in public sector organisations (Bakke et al.,
2016), as well as fulfilling the
dimensions of financial accountability, in which public sector institutions
must make reports to describe the organisation's financial performance to other
parties, outside (Mardiasmo,
2021).
Previous research on
government financial reports stated that only the Budget Realization Report and
Balance Sheet in financial reports are periodically used by local governments
in viewing performance (Nurkholis
& Affandi, 2019). In his research, he stated
that one thing that triggers the lack of government financial reports as a
basis for decision-making is the existence of records that need to be more
honest, transparent and accountable (Safkaur
& Sagrim, 2019).
The central government's
financial reports for 2021 have succeeded in obtaining an Unqualified Opinion
(WTP) from BPK RI. However, more is needed to free the central government's
financial statements from various problems. The BPK-RI examination of the
central government's 2021 financial reports found 1,369 problems, with a total
funding value of IDR 28.26 trillion (Finance,
2015). Of the problems found, 365 problems were
related to weaknesses in the internal control system, and 470 problems had a
financial impact with an affected value of IDR 27.71 trillion. The financial
impact may arise due to non-compliance with applicable laws and deviations from
administration.
Problems related to the
discrepancy in the use of the budget and the misuse of the budget will
certainly result in inaccuracies in the burdens presented in the financial
statements, which will affect the reliability and relevance of the government's
financial reports. This, of course, can make the process of determining the
budget in the following years and evaluating the performance of the use of the
budget inaccurate. For this reason, quality financial reports are needed not
only as an instrument of accountability and evaluation but can also be used as
a tool in planning budgeting. In his press release, the Inspector General of
the Ministry of Finance stated that implementing good governance improvements
and sustainable bureaucratic reforms can focus on two important aspects, human
and system improvements.
According to agency theory,
the community acts as the principal and the government as an agent who manages
public funds. For managed public
funds, the government presents financial reports as a form of accountability.
Therefore, the public needs the confidence to ensure that financial reports are
presented transparent, honest and by applicable regulations.
Based on the description of
the background above, this research aims to find out and analyse to test empirically
the influence of the government's internal control system and human resource
competence on the quality of financial reports with leadership commitment as a
moderating variable.
METHODS
This research was
carried out using a quantitative approach; the data is in the form of numbers
or numbers that can be processed and analysed using mathematical or statistical
calculations (Sekaran & Bougie,
2017). The population of this study are all financial managers
at the Ministry of Public Works and Public Housing. The sampling selection was
carried out using the convenience sampling method, which obtained 680 people as
respondents. This research used a statistical approach to explain the effect of
the Government's Internal Control System and Human Resources Competence on the
Quality of Financial Statements, with Leadership Commitment as a moderating
variable. The research data were analysed using the SEM-PLS method by making
the SmartPLS version 3.2 application a data processing tool.
RESULTS AND DISCUSSION
Outer and Inner Model Testing
Measurement model testing is
carried out to see the validation of the research model. Tests were carried out on convergent
validity tests, discriminant validity tests and reliability tests.
Convergent validity test
Convergent
validity aims to determine the validity of each relationship between the
question items used and their latent variables (constructs). Convergent validity is all factor loadings should have a value
exceeding 0.70. The following presents the results of outer loading for each
indicator owned by each variable that is processed using SmartPLS data.
Table 1. Loading Factor
|
Variable
|
Indicator
|
Loading
Factor
|
|
Quality of
Financial Statements
|
KLK1
|
0.900
|
|
KLK2
|
0.884
|
|
KLK3
|
0.906
|
|
KLK4
|
0.917
|
|
KLK5
|
0.859
|
|
KLK6
|
0.883
|
|
KLK7
|
0.901
|
|
KLK8
|
0.839
|
|
KLK9
|
0.882
|
|
Government
Internal Control System
|
SPI1
|
0.892
|
|
SPI2
|
0.899
|
|
SPI3
|
0.896
|
|
SPI4
|
0.903
|
|
SPI5
|
0.901
|
|
SPI6
|
0.887
|
|
SPI7
|
0.901
|
|
SPI8
|
0.912
|
|
SPI9
|
0.899
|
|
SPI10
|
0.901
|
|
Human
Resource Competency
|
SDM1
|
0.919
|
|
HR2
|
0.922
|
|
SDM3
|
0.821
|
|
SDM4
|
0.904
|
|
SDM5
|
0.893
|
|
SDM6
|
0.937
|
|
SDM7
|
0.911
|
|
Leadership
Commitment
|
PIM1
|
0.932
|
|
PIM2
|
0.911
|
|
PIM3
|
0.946
|
|
PIM4
|
0.938
|
|
PIM5
|
0.928
|
|
PIM6
|
0.864
|
From Table 1, it is known that all
loading factor values from the indicators of Financial Report Quality,
Government Internal Control System, Human Resource Competence, and Leadership
Commitment are greater than 0.7. This shows that the indicators are valid.
Discriminant validity test
The discriminant validity test was
carried out to prove that the gauges in the different constructs are not highly
correlated. The parameter to test this validity is assessed using the
cross-loading value of each indicator which must be more than 0.7. The model
has good discriminant validity if each loading value of each indicator of a
construct has the greatest loading value compared to other loading values for
other constructs. The results of discriminant validity testing were obtained as
follows:
Table 2. Cross Loading Table
|
Indicator
|
KLK
|
SPI
|
HR
|
PIM
|
|
KLK1
|
0.900
|
0.833
|
0.803
|
0.784
|
|
KLK2
|
0.884
|
0.813
|
0.790
|
0.772
|
|
KLK3
|
0.906
|
0.855
|
0.807
|
0.807
|
|
KLK4
|
0.917
|
0.866
|
0.819
|
0.827
|
|
KLK5
|
0.859
|
0.791
|
0.750
|
0.736
|
|
KLK6
|
0.883
|
0.844
|
0.786
|
0.803
|
|
KLK7
|
0.901
|
0.847
|
0.792
|
0.811
|
|
KLK8
|
0.839
|
0.777
|
0.751
|
0.739
|
|
KLK9
|
0.882
|
0.836
|
0.790
|
0.788
|
|
SPI1
|
0.832
|
0.892
|
0.778
|
0.807
|
|
SPI2
|
0.835
|
0.899
|
0.784
|
0.846
|
|
SPI3
|
0.816
|
0.896
|
0.775
|
0.807
|
|
SPI4
|
0.842
|
0.903
|
0.786
|
0.837
|
|
SPI5
|
0.843
|
0.901
|
0.782
|
0.796
|
|
SPI6
|
0.851
|
0.887
|
0.789
|
0.817
|
|
SPI7
|
0.842
|
0.901
|
0.789
|
0.830
|
|
SPI8
|
0.855
|
0.912
|
0.797
|
0.807
|
|
SPI9
|
0.854
|
0.899
|
0.814
|
0.804
|
|
SPI10
|
0.847
|
0.901
|
0.792
|
0.840
|
|
SDM1
|
0.829
|
0.827
|
0.919
|
0.818
|
|
HR2
|
0.816
|
0.816
|
0.922
|
0.789
|
|
SDM3
|
0.711
|
0.690
|
0.821
|
0.683
|
|
SDM4
|
0.777
|
0.770
|
0.904
|
0.769
|
|
SDM5
|
0.786
|
0.764
|
0.893
|
0.769
|
|
SDM6
|
0.845
|
0.840
|
0.937
|
0.834
|
|
SDM7
|
0.839
|
0.819
|
0.911
|
0.831
|
|
PIM1
|
0.853
|
0.875
|
0.835
|
0.932
|
|
PIM2
|
0.810
|
0.844
|
0.785
|
0.911
|
|
PIM3
|
0.818
|
0.850
|
0.802
|
0.946
|
|
PIM4
|
0.827
|
0.844
|
0.823
|
0.938
|
|
PIM5
|
0.829
|
0.852
|
0.819
|
0.928
|
|
PIM6
|
0.757
|
0.758
|
0.746
|
0.864
|
Based on the cross-loading value,
it can be seen that all the indicators that make up each latent variable
(construct) in this study have met discriminant validity because they have the
largest cross-loading value for the variables they form and not for other
variables. Thus all indicators in each variable in this study have fulfilled
discriminant validity.
reliability test
Reliability testing in this study
used two methods, namely composite reliability and Cronbach. The construct is
declared reliable if the composite reliability or Cronbach alpha value is above
0.70. In addition, to assess the reliability of a construct, it is also
necessary to see that the AVE value must be greater than 0.5. The following are
the results of AVE, composite reliability and Cronbach alpha:
Table 3. Model Evaluation
|
Variables
|
Cronbach's Alpha
|
rho_A
|
Composite Reliability
|
Average Variance Extracted (AVE)
|
|
KLK
|
0.966
|
0.966
|
0.970
|
0.785
|
|
SPI
|
0.974
|
0.974
|
0.977
|
0.808
|
|
HR
|
0.961
|
0.963
|
0.968
|
0.813
|
|
PIM
|
0.964
|
0.965
|
0.971
|
0.847
|
The AVE value for the four
variables is greater than 0.5; the composite reliability and Cronbach alpha
values are above 0.70. So the construct has a good reliability value.
R-Square
Testing the inner or structural
model is carried out to see the relationship between the research constructs.
The structural model is tested by paying attention to the value of R2, which is
how much the independent variable influences the dependent variable.
Table 4. Table R2
|
Variable
|
R2
|
R2 Adjusted
|
|
Quality of
Financial Statements
|
0.901
|
0.901
|
Table 4 shows the R-square value
of Financial Report Quality of 0.901, indicating that the variable Quality of
Financial Statements (KLK) is influenced by the Government Internal Control
System (SPI) variable, Human Resource Competence (HR) and Leadership Commitment
variable (PIM), as moderation of 90, 1%. In comparison, the remaining 9.9% is
influenced by other variables outside the one being studied.
Evaluation of Hypothesis Testing
Based on the data obtained, a significance test has been carried
out between the existing parameters and the following results are obtained:
Table 5. Evaluation of the
Hypothesis Model
|
Influence
|
Original Sample
|
T Stat
|
P Values
|
Information
|
|
Government Internal Control System ->
Quality of Financial Reports
|
0.605
|
14,433
|
0.000
|
Hypothesis 1: Supported
|
|
HR Competence -> Quality of Financial
Reports
|
0.212
|
5,833
|
0.000
|
Hypothesis 2: Supported
|
|
Government Internal Control System with
Leadership Commitment Moderation -> Quality of Financial Reports
|
0.022
|
0.664
|
0.253
|
Hypothesis 3: Not Supported
|
|
HR Competence with Leadership Commitment
Moderation -> Quality of Financial Reports
|
-0.058
|
1,683
|
0.046
|
Hypothesis 4: Not Supported
|
The Influence of the Government's Internal Control System on the
Quality of Financial Statements
The Public Accountant Professional
Standard (SPAP) defines internal control as an integrated form that includes
the organisation, methods and regulations companies use to protect their
assets, maintain accounting information's accuracy and reliability, and ensure
that the established management regulations are implemented consistently.
Conceptually, the better the government's internal control system
implementation, the higher the quality of the financial reports produced.
The results of research data
testing obtained empirical evidence that the government's internal control
system positively affects the quality of financial reports. Providing
consistent results with previous research, this research reinforces the view
that the government's internal control system plays a role in producing quality
financial reports (Agbenyo et al., 2018) ; (Bonsu et al., 2022) ; (Young et al., 2018) ; (Ratmono, 2019).
Within the scope of agency theory,
the government, as an agent, must provide quality information in the form of
financial reports to the public as the principal. The government's internal
control system responds to this obligation by ensuring that the financial
reports presented comply with government financial accounting standards without
any fraud or manipulation of data that causes information asymmetry that causes
moral hazard risks and reduces efficiency in implementing organisational
performance as well as decreasing the level of trust between agents and principals.
The Effect of Human Resource
Competence on the Quality of Financial Statements
The competence of Human Resources
plays a very important role in producing quality financial reports. Human
resources with good competence will be able to carry out every stage carried
out in the financial implementation process to produce financial reports that
are relevant, reliable, comparable and understandable. Human resource
competence can be assessed from knowledge of the field of work, skills and
attitudes and behaviour.
The test results show that the
competence of human resources affects the quality of financial reports. This
supports previous research regarding the effect of human resources on the
quality of financial reports conducted by (Bonsu et al., 2022); (Hartono & Ramdany, 2020); (Magdalena et al., 2022); (Rahman & Permatasari, 2021); (Ratmono, 2019).
In the context of agency theory,
competent human resources certainly have good integrity and ethics to ensure
that the financial reports presented are free from errors and fraud so that the possibility of information
asymmetry between the principal and the agent can be avoided.
Leadership Commitment in Moderating the Influence of the Government's
Internal Control System on the Quality of Financial Reports
Leadership commitment is very important in
directing how the government's internal control system is implemented. Within
the scope of government financial implementation, leaders generally play a key
role in strengthening the influence of the government's internal control system
on the quality of reports. With strong leadership commitment, careful oversight
and the right culture, leaders can ensure that their financial reports are
relevant and reliable.
The
third hypothesis states that leadership commitment is not significant in
strengthening the influence of the government's internal control system on the
quality of financial reports. The results of the research conducted by this are
supported by previous research conducted by research where it was stated that
the more number of leaders in an organisation has a significant effect on the
occurrence of conflict within the organisation itself which will result in the
production of inappropriate decisions (Wen et al., 2015). So that it can have a direct impact on the
quality of existing internal controls. At present, it is known that public
sector organisations are organisations that have many levels of positions and
divisions. The results of this study are also
supported by research, where it is stated that deficiencies in internal control
associated with leadership policies are not properly evaluated, so this can
result in the presentation of inaccurate information (Gramling
& Schneider, 2018).
Leadership Commitment to Moderating Human
Resource Competence on the Quality of Financial Reports
Leaders
and human resources are the main factors influencing organisational outcomes (Zhao et al., 2020). High
leadership commitment can create an environment that encourages the development
of human resource competencies. Development of human resource competencies The
leadership's commitment to human resource competencies can be demonstrated by
allocating resources and providing the necessary training and guidance to
improve employee competence in preparing quality financial reports.
The research results on the fourth
hypothesis show a significant influence on the interaction of leadership
commitment on human resource competence on the quality of financial reports.
The results also show that human resource competence, moderated by leadership
commitment, negatively affects the quality of financial reports. This is in
line with the results of research conducted by research, which stated that
leadership can weaken the influence of human resources in achieving
organisational goals (Zhao et al., 2020). Another thing was also revealed by research that paternalistic
leadership tends to provide relatively few opportunities for subordinates to
make decisions (Zhao et al., 2020).
Another thing that can lead to a
negative direction in the influence of human resource competence on the quality
of financial reports moderated by leadership commitment is the need for more
support and resources to support and develop human resource competencies. As a
technical ministry, the Ministry of Public Works and Public Housing will
certainly focus more on developing human resource competencies that support
technical tasks and functions than developing human resources that are
management support.
CONCLUSION
Based on the results of
hypothesis testing and the discussion of research that has been presented in
the previous section, it can be concluded that with the support of competent
human resources supported by the implementation of the government's internal control
system, it can improve the quality of the financial reports presented. By
implementing the elements of the internal control system effectively in every
process of financial management, the resulting financial reports will provide
better quality so that they can be used as a form of government accountability
to the public. Competence in human resources can improve the quality of
financial reports where competent human resources will be able to carry out
each stage carried out in the financial implementation process to produce
financial reports that are relevant, reliable, comparable and understandable.
Another finding from
this study is that leadership commitment cannot strengthen the influence of the
government's internal control system on the quality of financial reports. Leadership
commitment is very important in directing how the government's internal control
system is implemented. The role of leaders in moderating the internal control
system can be influenced by the number of leaders in an organisation, where a
greater number of leaders will open up the risk of conflicts of interest which
can cause the internal control system to become ineffective, thereby affecting
the quality of financial reports presented. Leadership commitment is also not
proven to be able to strengthen the influence of human resource competence on
the quality of financial reports. It is hoped that high leadership commitment
will present an environment that can encourage the development of human
resource competencies. However, leadership that is carried out by adhering to a
hierarchy or sequence of positions can reduce the role of competent human
resources in presenting quality financial reports.
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