FACTORS INFLUENCING THE WEAKNESSES OF INTERNAL CONTROL OF LOCAL GOVERNMENTS IN INDONESIA

Abstract

Purpose of the study: This paper aims to examine the factors influencing local government internal control weakness, includes leverage, locally generated revenue, capital expenditure, complexity, previous year's internal control weaknesses findings Methodology: The population of this research is the audit report of the Audit Board of the Republic of Indonesia (BPK) in the Regency/City of West Indonesia with a total of 263 financial statements. The purposive sampling method is used, resulting in 186 financial statements as samples. Hypotheses are tested using multiple linear regression using SPSS V.21. Main Findings: The results of the study show that locally generated income, capital expenditure, and previous year’s internal control weaknesses findings positively affect the weaknesses of local government control. Meanwhile, leverage and regional complexity do not affect the weaknesses of local government internal controls. Lack of supervision among revenues and expenditures causes a decrease in local government internal control system quality. Applications of this study: This study can be useful for local governments to minimize the internal control weakness in the organization. Novelty/Originality of this study: Leverage and previous year’s finding on internal control weaknesses variables are included in this study because there have been only a few studies that use those variables. This research uses a different proxy than the previous ones with the aim of getting more accurate results.