The effect of regional financial management index (IPKD) indicators on the financial performance of regencies/cities in North Sumatera

Abstract

This study aims to analyze the effect of the Regional Financial Management Index (IPKD) indicator on the Performance of Regional Government Financial Management (KPKPD) and the role of Regional Fiscal Capacity as a moderating variable in districts/cities in North Sumatra Province. The independent variables in this study include the suitability of planning and budgeting documents, allocation of spending budgets in the APBD, transparency of regional financial management, budget absorption, regional financial conditions, and BPK's opinion on the Regional Government Financial Report. This study uses a quantitative approach with multiple regression analysis methods and moderated regression analysis (MRA) based on secondary data for the 2021–2023 budget years. The results of the study show that all independent variables have a significant effect on the performance of regional government financial management. Regional fiscal capacity is proven to only moderate the relationship between budget absorption and regional financial management performance, but does not moderate the relationship between other variables and regional financial management performance. The most influential variables are the allocation of spending budgets in the APBD and budget absorption. Recommendations from this study include strengthening coordination between related regional apparatuses, such as the Regional Finance and Asset Management Agency (BPKAD), the Regional Development Planning Agency (Bappeda/Bappelitbang), and the Regional Inspectorate in ensuring the suitability of planning and budgeting. In addition, there needs to be optimization of budget allocation through stricter evaluation of priority spending, as well as increased transparency by presenting more accurate and timely financial reports. Improvement of the asset recording system and regional debt management is also needed to improve BPK's opinion. With more effective improvements in financial governance, it is hoped that regional financial performance can increase significantly and contribute to more sustainable regional development.

Keywords: Regional Financial Management Index, Regional Financial Performance, Local Fiscal Capacity