Darsono Darsono

Corruption in government organizations is an important and relevant topic to study because of its impact on the state in terms of financial losses and a decrease in the quality of human development. This study is also relevant because previous analyses are still limited in their modeling and measuring comprehensive fiscal decentralization variables. This study aims to examine the effect of fiscal decentralization and quality of government on the level of corruption and the impact of corruption on the human development index. The sample of this paper comprises 113 local governments on the island of Java, Indonesia, for the period 2015–2018. Statistical testing was carried out using Partial Least Squares-Structural Equation Modeling (PLS-SEM). The test results show that fiscal decentralization has a positive effect on corruption with a path coefficient of 0.100 and is significant at 5% alpha. Likewise, poor governance (proxied by internal control weaknesses) has a positive effect on the level of corruption with a coefficient of 0.062 and is significant at an alpha of 10%. The results of the PLS-SEM test also show that corruption has a negative impact on the human development index with a coefficient of –0.206 and is significant at 1% alpha. The practical significance of this study is the importance of the internal control system reliability as a complementary variable for fiscal decentralization to prevent corruption.

This study is relevant because it examines the determinants of corruption in local governments that have a negative impact on the success of sustainable development. This study aims to examine the effect of New Public Management (NPM), as measured by fiscal decentralization, financial reporting quality and independent audits, on the level of corruption. The sample consisted of 433 local governments in Indonesia based on data from 2011–2017. PLS-SEM was used as a data analysis technique. The results test shows that fiscal decentralization positively affects corruption with a path coefficient of 0.19 and a p-value of 0.004. The quality of financial reporting has a negative effect on the level of corruption with a coefficient of –0.26 and a p-value < 0.001. Hypotheses testing results also show that audit finding positively affects corruption with a coefficient of 0.10 and a p-value < 0.10. On the other hand, follow-up audit results have no significant effect on corruption with a p-value > 0.10. This study concludes that the NPM mechanism in the form of fiscal decentralization positively affects corruption. These results imply that fiscal decentralization needs to be balanced with good governance, among others, by increasing the quality of financial reports and independent audits.