Subject : Public Sector Accounting

Class : I (IPACC)

Muhammad Rizky Darmawan (20160420086)

Gifa Jihan Nabilah (20160420322)

Group Assignment Chapter X

MEASUREMENT OF PUBLIC SECTOR ORGANIZATION PERFORMANCE

General Instructional Objectives

1. Students know the concept of measuring organizational performance

2. Students know organizational performance measurement objectives
3. Students know constraints in organizational measurement
4. Students know assessment of training in performance measurement

Specific Instructional Objectives

1. Students can explain the concept of measuring organizational performance

2. Students can explain organizational performance measurement objectives
3. Students can explain constraints in organizational measurement
4. Students can explain assessment of training in performance measurement

Regarding the assessment of public sector organizational performance, services provided free
of charge and funded by taxes or donations; non financial performance indicators ; the
relationship between work and finance is a characteristic that accounting faces in public sector
organizations. If service is sold in a competitive market, earnings income which is a measure
of financial performance, where profit measurement is the main measure of accounting, will
be a relational performance. However, public sector organizations, especially pure public
services, are funded by revenues from taxes or donations and the services provided to the public
are free. The next thing that arises regarding performance measurement in the public sector is
about measuring non-financial performance. This is a particular challenge for accounting in
public sector organizations.
Definition of Performance Measurement

Before arriving at the definition of performance measurement, we must first know the meaning
of the performance itself. according to Mahsun (2009), from various partners, broadcast
performance is generally a description of the level of achievement of an activity / program /
policy in realizing the goals, objectives, mission and vision of the organization contained in the
strategic achievement of an organization. While according to Mahmudi (2010) performance is
interpreted as a construction that is multidimensional in nature and its measurement depends
on the complexity of the factors that shape and influence it. Among others:

1. Person / individual factors, including: knowledge, skills, confidence, motivation

and commitment possessed by each individual
2. Leadership factors, including: quality in providing encouragement, enthusiasm,
direction and support provided by the manager or team leader
3. Team factors, including: quality and enthusiasm given by colleagues in a team,
trust in fellow team members , cohesiveness and closeness of team members
4. System factors, including: work systems, work facilities, infrastructure
provided by organizations, organizational processes and organizational culture
5. Contextual / intellectual factors, including: pressure and changes in the external
and internal environment of the organization

According to Campbell (1990) the factors that influence performance can be stated in a form
of functional relationship between performance performance and performance attributes as
follows:

Performance = f (knowledge, skills, motivations, role perception, ......)

Where knowledge is knowledge possessed by employees, skill refers to the ability of

employees to do work, motivation is encouragement and enthusiasm for doing work and role
perception shows the role of individuals in doing work.

To find out the performance of the organization, each organization must have a
success criterion in the form of a specific target to be achieved, where the level of achievement
of the target is based on a certain concept that has been tested for its validity in measuring the
performance of an organization. According to Robertson in Mahmudi (2010), performance
measurement is defined as a process of evaluating work progress towards predetermined goals
and objectives, including information on efficiency, use of resources in producing goods and
services, quality of goods and services, comparison of results of activities with targets and the
effectiveness of actions in achieving goals. While according to Lohman (2003) performance
measurement is an assessment activity to achieve certain targets that are derives from the
organization's strategic goals. Beberpada opinion also states that work measurement is a
management tool that is to improve the quality of decision making and accountability in
organizations (Whitakker and Simons in BPKP, 2000). so performance measurement can be
concluded as a method or tool used to assess the achievement of implementation of activities
based on a strategic plan so that the progress of the organization can be known and to improve
the quality of decision making and accountability.

Objectives and Benefits of Performance Measurement

Performance measurement is an important part of the management control process for the
public sector. According to Mahmudi (2010) there are six objectives in measuring public sector
performance, namely:

1. To determine the level of expiration of organizational goals

2. Providing employee learning facilities
3. Improve performance in the next period
4. Provide systematic considerations in making reward and punishment decisions
5. Motivate employees]
6. Achieve public accountability

While the benefits and measurement of public sector performance for internal and external
parties of the organization (BPKP, 2000) are:

1. Ensuring the understanding of the implementers of the size used for

performance appraisal.
2. Ensure the achievement of an agreed performance plan.
3. Monitor and evaluate the implementation of performance and compare it with
work plans and take actions to improve performance.
4. Provide objective awards and penalties for the achievements of the
implementers who have been measured in accordance with the agreed performance
measurement system.
5. Being a communication tool between subordinates and leaders in an effort to
improve organizational performance.
6. Identify whether customer satisfaction has been fulfilled.
7. Helps understand the process of activities of government agencies.
8. Ensure that decision making is carried out objectively.
9. Demonstrate the improvements that need to be made.
10. Disclose the problems that occur.
Non-Finansail Performance Measurement

Public sector organizations exist to provide services to the public, as the government exists to
govern, hospitals are intended to provide health services, schools are established to provide
educational services, as well as care beaches, places of worship, and other public sector
organizations. The organization was established for non-fiancial purposes. performance
measurement in the form of public services, in this context it refers to a more specific
understanding that is different from what is done by private sector organizations. This requires
public sector organizations to see the important aspects of providing certain services, which
are given critically to cohesiveness or certain individuals. Measuring work requires planning,
implementing and monitoring government service provision to formulate appropriate
indicators. The more this specific service can make sense of being reduced to a product, the
easier the work measurement is done.

In addition, the specificity of performance measurement requires partial steps which in the
absence of a unifying matrix such as profit indicators which means there is not a complete set
of performance measures in the form of absolute performance of the organization or program
as a whole so that reasonable judgments are comparative steps, changes marginal over time
and marginal differences between other organizations. Recognition itself is about the
simplification of the world. This is about reducing the complexity that we observe as a simple
objective component so that we can then overcome their essence with higher
precession. Exceptional success in science and technology, apart from contestability in the
periphery, has not been repeated for arrangements where people are involved inclusive,
including organizations.

Default Challenges in Measuring Performance in Public Sector Organizations

There are six innate challenges faced in measuring the performance of public sector
organizations, as follows:

1. Measurement of cost (cost)

2. Output size reliability
3. Causality relationship between input and output
4. "Narrow" size of output
5. "Competence" vs. "conciseness" in reporting size
6. Performance control

The first challenge is that in measuring performance especially financial performance, the cost
of goods is measured on a full accrual basis. Base cash cannot measure the cost of goods
provided. A challenge for public sector organizations is separating between full cost cases is
needed and cases where the full cost is something that is irrelevant for short-term
decisions. The particular challenge of public sector organizations is the existence of a high
proportion of the basic price which cannot naturally be traced to output and outcome including
the amount of the basic price allocated arbitrarily.

The second challenge is the recording and communication of reliable measures of non-financial
output, including the extent to which they are capable and capable of being audited. In
comparison with the accounting system, the database of nonfinancial information is less
reliable. An internal control system to control incoming and outgoing money out of elaborated
systems. Inputting non-financial information, especially schools, hospitals, etc. is typically not
controlled like controlling money. It is also not equivalent to financial transaction records that
can be used to verify personal data in different situations. There is also no independent number
checking provided by bank reconciliation for information systems

The third challenge, dealing with casual. Outputs and results that are numbered by
professionals basically affect input which is the main concern of accounting. Non-financial
measures may be easily calculated and must be measured reliably. Even so, it is very difficult
for everyone involved to establish a relationship between input, output and results. This is even
difficult to do statistically, using large databases throughout the organization for a period. It
might be thought that this would be easier, because it is closer to laboratory conditions where
input and output can be controlled by reducing it toseparate experiments .

The fourth challenge, related to the nature of non-financial outcome measures: not comparable
between services. Measurement is easy because it focuses on very specific
characteristics. Introduce all other services that might be provided by the public sector and it
is clear that performance measurement that primarily uses non-financial measures must be
mixed. Comparisons cannot be made between the number of students in secondary schools and
elementary schools, but obviously it cannot be done with the number of clients of other
types. The more specific the focus, the more useful the measurement.Measures that focus on
complex multiservice governments or on complex single services within the government must
be very large. this will not be comparable and cannot be understood in the context of complex
services or overall government.
The fifth challenge, then, is to determine the balance between needs natural to produce a very
large size of performance and the same natural request from service recipients, politicians and
the public in general are given a performance understanding simple. In summary, a partial
performance measure can produce serious misunderstandings regarding the overall
performance of a government, but a main command of action this is so that they can be
considered inappropriate with non-specialists
The sixth challenge relates to controlling performance. In the control system rational,
performance measurement only relates to things that can be controlled. The steps used are used
during the planning, implementation and cycle monitoring. Accounting requires actions that
are systematically related to costs and are able to be audited in several ways, so it focuses on
the steps for included in the annual budget and in the audited financial statements. These steps
are the only one that is within the control of the organization.

Constraints in Performance Measurement

Performance measurement in the private sector relies on financial aspects because the purpose
is looking for profit so it's easy to measure because it's quantitative and real. But this condition
different from public sector organizations, where assessment of the success of sector
organizations the public in carrying out its functions is the satisfaction felt by the community
above provision of qualitative goods and services. Thus Mahsun (2009) make some obstacles
faced in measuring organizational performance public sector, including:
1. The purpose of the organization is not to maximize profits. The purpose of public sector
organizations is improving public services and providing public goods.
2. The nature of the output is qualitative, intangible and indirect. Output generated from public
organizations’ activities are generally qualitative, intangible and indirect felt at that time thus
organizational performance is more difficult to measure.
3. Between input and output does not have a direct relationship (discretionary cost) center). In
the concept of accountability accounting, public sector organizations are an entity that must be
treated as the center of responsibility center). While on the other hand the characteristics of
inputs (costs) that occur are mostly not can be traced directly to the output, as is the nature of
policy costs (discretionary cost). This has made it difficult to set performance benchmark
standards.
4. Does not operate based on market force so that it requires replacement instruments market
mechanism. Public sector organizations do not operate as a market competition so that not all
output produced is available on the market. Therefore, there is no independent comparison so
that performance measurement is needed substitute instrument for market mechanism.
5. Associated with customer satisfaction (community). Public sector organizations provide
services for the community that are very heterogeneous, thus measuring community
satisfaction that has diverse needs and expectations variety is a job that is not easy.
Performance Measurement Approach
The performance of multidimensional public sector organizations means that they are not there
is a single indicator that can be used to show success rates comprehensive for all types of public
sector organizations, thus performance indicators chosen will depend very much on the critical
success factors that have been identified. Because of the multidimensional nature of the
performance of the public sector organization then the measurement of the performance of
public sector organizations is made as comprehensive as possible with consider various aspects
that can affect performance. According to Niven (2003) there are six concepts of measuring
the performance of public sector organizations and non-profit organization, namely:
1. Financial accountability
Is a performance measurement of public sector organizations that only focuses on how big
budget that has been issued.
2. Program products or output
Is a measurement of the performance of public sector organizations that depends on the number
of products or services produced and the number of people served.
3. Adherence to standards of quality in service delivery
Performance measurement that is concentrated on the service that leads on the provisions of
government certification and accreditation bodies. The agency also aims to maintain the quality
and consistency of the products / services they provide.
4. Participant related measures
Performance measurement that emphasizes the importance of ensuring service delivery only
to those who are in dire need, therefore public sector organizations will assess clients or
customers who will be served based on status the demography, so that it can be determined
which customers deserve service first.
5. Key performance indicators
Performance measurement based on the formation of certain criteria that can representing all
areas to be assessed, then indicators are compiled able to measure these criteria.
6. Client satisfaction
measurement of public organization performance is based on customer satisfaction with supply
public goods or services. Some of the main factors that determine customer satisfaction
namely: the timeliness of service, ease of service and satisfaction whole. Besides that,
according to Mahsun (2009) there are four approaches performance measurement that can be
applied to public sector organizations, namely:
1. Budget analysis.
Is a performance measurement carried out by comparing the budget expenditure with
realization. The results obtained are in the form of more difference (favorable) variance) or
unfavorable variance. This technique focuses on input performance financial data and the data
used is budget data and budget realization. This budget analysis is traditional performance
analysis because it does not see the success of the program, the performance of government
agencies is said to be good if expenditure is realized the budget is smaller than the budget and
vice versa if the realization of budget expenditures greater than the budget, the performance of
government agencies is considered not good.

2. Ratio analysis of financial statements.

The following are some opinions regarding the definition of financial statement analysis
quoted from Mahsun (2009), among others:
a. According to Bernstein (1983), analysis of financial statements includes the application of
methods and analysis of financial statements and other data to see from the report size certain
sizes and relationships are very useful in the decision-making process.
b. According to Foster (1986), financial statement analysis is studying relationships in a set of
financial statements at a given moment and trends from this relationship all the time.
c. According to Helfert (1982), financial statement analysis is a tool used in understanding the
problems and opportunities contained in financial statements.

Of the three above meanings, it can be concluded that the analysis of financial statements is a
tool used to understand the problems and opportunities contained in the report finance for a
certain period. In analyzing financial statements there are various the method used to describe
the financial condition of an organization is one of them is a financial ratio analysis technique
that compares the numbers in one financial statements or multiple financial statements for a
certain period of time. For types of public organizations that aim at non-profit, the financial
ratios are related with the ability to finance the government in providing public goods and
services become a measure of the performance of non-profit organizations. The intended
financial ratio is the Liquidity Ratio which aims to measure the ability of an organization to
pay obligations short term or liabilities that are immediately due based on the number of current
assets owned and Solvability Ratio which aims to measure how large an organization's assets
are which is financed by business debt.
3. Balanced scoredcard
Measuring the performance of public sector organizations based on financial and non-financial
aspects which is translated into four performance perspectives, namely financial perspective,
customer satisfactory perspective, internal business perspective, and growth or learning
perspective.

4. Value for money

Is a performance measurement based on the concept of value for money which is the expansion
of the scope of financial audit. Indicator Analysis of performance measurement consists from
economy, efficiency and effectiveness. Economic performance measurement is related to
measurement of how economical spending is by comparing realization of expenditure with the
budget. Efficiency is related to measurement how much the budget is used by comparing the
realization of expenditure to earn income with revenue realization. While effectiveness is
related to how precise is the achievement of targets by comparing outcomes with output.
Quiz. Answer the questions below!

No Question
1 Students can explain about the concept of organization’s performance measurement
2 Student can explain about the organization’s performance measurement objectives
3 Students can explain about the obstacles in measuring performance
4 Students can explain about the approaches in performance measurement
5 Students can explain about the concept of organization’s performance measurement