Improving the management of general and special allocation funds

Oct 13, 2025 by wbrum.org 75 views

Effect of General Allocation Funds, Special Allocation Funds, and Capital Expenditures on Regency/City Government Financial Performance in North Sumatra Province in 2013 - 2018

Introduction

The financial performance of local governments in Indonesia, particularly in North Sumatra Province, is a crucial aspect of regional development. The allocation of funds, including General Allocation Funds (DAU), Special Allocation Funds (DAK), and Capital Expenditures (APBN), plays a significant role in determining the financial performance of regency/city governments. This study aims to analyze the effect of these funds on the financial performance of regency/city governments in North Sumatra Province during the period 2013 to 2018.

Background

The financial performance of local governments in Indonesia is influenced by various factors, including the allocation of funds. The General Allocation Funds (DAU) and Special Allocation Funds (DAK) are two types of funds allocated by the central government to support the financial performance of local governments. The DAU is a regular allocation of funds to support the operational costs of local governments, while the DAK is a special allocation of funds to support specific development programs. Capital Expenditures (APBN) are also an essential component of local government finances, as they are used to finance infrastructure development and public services.

Methodology

This study uses a causal research design, where the data used is derived from the Regional Budget (APBD) and the APBD realization report obtained from the Central Statistics Agency and the official portal of the Directorate General of Financial Balance. The selection of samples uses the saturation method, which makes the research sample of 33 districts/cities, with total observations reaching 198 data for six years of research. The analytical method applied is the data panel data regression analysis with the help of EViews software 9.

Research Result

The results of the study show that both the General Allocation Fund and Special Allocation Funds have a positive and significant influence on the financial performance of the Regency/City Government in North Sumatra Province. This means that an increase in the two types of funds has a direct impact on improving financial performance, which has the potential to improve public services and regional development.

However, different results arise for capital expenditure, which shows negative and significant influence on financial performance. This raises questions about management and the use of effective capital expenditure in supporting the financial goals of the local government. It is possible that inefficient or less targeted capital expenditure can hamper optimal achievement of financial performance.

Further Analysis

It is essential to understand that the general and special allocation funds are an integral part of local government revenue, and therefore, the good management of the two sources of funding is very crucial. Both allow local governments to run development programs and improve the quality of public services provided to the community. In this context, strict support and supervision from the central government can also contribute to the effectiveness of the use of these allocation funds.

Conversely, capital expenditure, although basically aims to improve infrastructure and public services, must be planned and carefully executed. Cases where capital expenditure does not provide expected results often rooted in the lack of careful planning, community involvement, or transparency in the procurement process. Therefore, periodic evaluations of capital expenditure projects must be carried out to ensure that the investment made really provides benefits to the community.

Conclusion

This research confirms the importance of general allocation funds and special allocation funds in supporting the financial performance of local governments in North Sumatra. However, the challenges faced in the use of capital expenditure show the need for a more structured and effective approach in its management. Therefore, increasing the capacity of human resources, transparency, and public participation in decision making can be important steps to ensure that all allocation of funds, including capital expenditure, can have a positive impact expected for the community.

Recommendation

Based on the findings of this study, the following recommendations are made:

Improving the management of general and special allocation funds: Local governments should improve the management of general and special allocation funds by increasing transparency, accountability, and public participation in decision making.
Enhancing the capacity of human resources: Local governments should enhance the capacity of human resources to manage capital expenditure effectively, including planning, implementation, and evaluation.
Increasing transparency and accountability: Local governments should increase transparency and accountability in the use of capital expenditure, including the procurement process and project evaluation.
Improving public participation: Local governments should improve public participation in decision making, including the involvement of community in the planning and implementation of capital expenditure projects.

Limitation

This study has several limitations, including:

Data limitation: The study uses data from 2013 to 2018, which may not reflect the current situation.
Sample limitation: The study uses a sample of 33 districts/cities, which may not be representative of all regency/city governments in North Sumatra Province.
Methodological limitation: The study uses a causal research design, which may not capture the complexity of the relationship between general and special allocation funds and capital expenditure.

Future Research

Future research should focus on:

Examining the impact of capital expenditure on regional development: Future research should examine the impact of capital expenditure on regional development, including the creation of jobs, improvement of infrastructure, and enhancement of public services.
Analyzing the effect of human resources on capital expenditure management: Future research should analyze the effect of human resources on capital expenditure management, including the impact of capacity building and training on the effectiveness of capital expenditure management.
Investigating the role of transparency and accountability in capital expenditure management: Future research should investigate the role of transparency and accountability in capital expenditure management, including the impact of transparency and accountability on the effectiveness of capital expenditure management.
Q&A: Effect of General Allocation Funds, Special Allocation Funds, and Capital Expenditures on Regency/City Government Financial Performance in North Sumatra Province in 2013 - 2018

Q: What is the purpose of this study?

A: The purpose of this study is to analyze the effect of general allocation funds, special allocation funds, and capital expenditures on the financial performance of regency/city governments in North Sumatra Province during the period 2013 to 2018.

Q: What are the main findings of this study?

A: The main findings of this study are that both the general allocation fund and special allocation fund have a positive and significant influence on the financial performance of regency/city governments in North Sumatra Province. However, capital expenditure shows a negative and significant influence on financial performance.

Q: What are the implications of this study?

A: The implications of this study are that local governments should improve the management of general and special allocation funds by increasing transparency, accountability, and public participation in decision making. Additionally, local governments should enhance the capacity of human resources to manage capital expenditure effectively, including planning, implementation, and evaluation.

Q: What are the limitations of this study?

A: The limitations of this study are that it uses data from 2013 to 2018, which may not reflect the current situation. Additionally, the study uses a sample of 33 districts/cities, which may not be representative of all regency/city governments in North Sumatra Province.

Q: What are the recommendations of this study?

A: The recommendations of this study are that local governments should:

Improve the management of general and special allocation funds: Local governments should improve the management of general and special allocation funds by increasing transparency, accountability, and public participation in decision making.
Enhance the capacity of human resources: Local governments should enhance the capacity of human resources to manage capital expenditure effectively, including planning, implementation, and evaluation.
Increase transparency and accountability: Local governments should increase transparency and accountability in the use of capital expenditure, including the procurement process and project evaluation.
Improve public participation: Local governments should improve public participation in decision making, including the involvement of community in the planning and implementation of capital expenditure projects.

Q: What are the future research directions?

A: The future research directions are to:

Examine the impact of capital expenditure on regional development: Future research should examine the impact of capital expenditure on regional development, including the creation of jobs, improvement of infrastructure, and enhancement of public services.
Analyze the effect of human resources on capital expenditure management: Future research should analyze the effect of human resources on capital expenditure management, including the impact of capacity building and training on the effectiveness of capital expenditure management.
Investigate the role of transparency and accountability in capital expenditure management: Future research should investigate the role of transparency and accountability in capital expenditure management, including the impact of transparency and accountability on the effectiveness of capital expenditure management.

Q: What are the policy implications of this study?

A: The policy implications of this study are that the central government should:

Provide support and supervision: The central government should provide support and supervision to local governments to improve the management of general and special allocation funds.
Enhance the capacity of human resources: The central government should enhance the capacity of human resources in local governments to manage capital expenditure effectively.
Increase transparency and accountability: The central government should increase transparency and accountability in the use of capital expenditure, including the procurement process and project evaluation.

Q: What are the practical implications of this study?

A: The practical implications of this study are that local governments should:

Improve the management of general and special allocation funds: Local governments should improve the management of general and special allocation funds by increasing transparency, accountability, and public participation in decision making.
Enhance the capacity of human resources: Local governments should enhance the capacity of human resources to manage capital expenditure effectively, including planning, implementation, and evaluation.
Increase transparency and accountability: Local governments should increase transparency and accountability in the use of capital expenditure, including the procurement process and project evaluation.

Q: What are the future challenges of this study?

A: The future challenges of this study are to:

Address the limitations of the study: Future research should address the limitations of the study, including the use of data from 2013 to 2018 and the sample of 33 districts/cities.
Examine the impact of capital expenditure on regional development: Future research should examine the impact of capital expenditure on regional development, including the creation of jobs, improvement of infrastructure, and enhancement of public services.
Analyze the effect of human resources on capital expenditure management: Future research should analyze the effect of human resources on capital expenditure management, including the impact of capacity building and training on the effectiveness of capital expenditure management.