THE ROLE OF INTERNAL AUDITS ON THE PERFORMANCE OF LOCAL GOVERNMENT ADMINISTRATION: EVIDENCE FROM INDONESIA

Abstract

This research aims to provide a comprehensive analysis of internal audit function (IAF) characteristics and the administrative performance of local governments (LGs) in Indonesia. We use official secondary data from the Indonesian regulatory bodies that generate unbalanced panel data, with 5,038 observations analyzed with panel data regression. Our analysis reveals that most LGs in Indonesia have achieved high-level administrative performance since 2015. Despite this, several LGs remain at the medium and low levels. LGs located in Java and Bali have the highest overall performance, followed by Borneo, Sumatra, Sulawesi, and East Indonesia. We also reveal that IAF capability, maturity, and expertise positively affect the administrative performance of LGs in Indonesia.
Proper internal audit characteristics are essential in optimizing the supervision of local governance for better administration performance. We also suggest that the Financial and Development Supervisory Agency (BPKP), which is in charge of IAF development, implement continuous development programs properly. It is important that proper human resource allocation and the use of technology are supervised to realize good administrative performance and enhance public accountability.