Findings

The accounting system is an infrastructure in the organizations, both profit-oriented and non-profit organizations. Two different types of organizations have different characteristics, such as goals and business process. Therefore, exploring an accounting system in a non-profit organization in Indonesia needs a broader understanding. Because it is not only about accounting, but also the organizational context.

Regarding achieving the perspectives, the research divides the discussion into five main studies. The findings of each study are explained as follows.

Study 1 Introducing Non-Profit Organizations in Indonesia

In Indonesia, NPOs are known as Lembaga Swadaya Masyarakat (LSM) which means “self-reliant community development institutions.” NPOs are a part of Civil Society Organizations (CSOs). Restrictions and crisis in the past have built the history of NPOs existence. After a long history, they have been growing in numbers and a variety of services and functions. Departing from the history, most NPOs in Indonesia have main activity in social services. Dealing with crisis and poverty is the main motivation. Building a better young generation through education is the best service option for most NPOs.

Even though it still needs improvement to deal with some weaknesses, such as database integration and legal form registration, Indonesian government recognizes NPOs’ important role in society. Indonesia’s NPO sector has a relatively weak intermediary support infrastructure; that is, there is inadequate support available to small and local NPOs from organizations that provide strategic capacity development and assistance. The government has set rules and regulations to manage their existence and operation. Even though the government itself needs to improve and equip their assistance to NPOs, but it has shown that there is a good willingness from the government to enhance NPOs’ capacity and position.

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One of the government’s efforts is to strengthen the accountability and transparency of NPOs.

In the era of reformation and openness, disclosure information to the public is still limited. The government encourages NPOs to inform the profile of its institution, also its activities and financial report to the public as one of the effort to support public accountability. In the capacity of financial management, the cause of mistreatment can happen since the system of financial management and implementing staff is still weak. The weakness can be seen from the implementation of an accounting system that does not meet with the goodfinancial standard, the lack of knowledge in computer skill and accounting software.

Study 2 Criticizing Accounting Standards for Non-Profit Organizations in Indonesia

There is an undoubted requirement that the accounting standards used must have a high-quality level. Because it is a foundation to support the accounting systems as the infrastructure for financial reporting. Regarding NPOs’ financial reporting, the Indonesian’s accounting standards for NPOs refer to the American’s standards.

Financial accounting standards in Indonesia had a very long history since 1973 when the Indonesian Accounting Principles were approved. The financial accounting standards for NPOs, PSAK 45, was established for the first time in 1997 after the transition to Indonesia democracy at the end of the 1990s. The fact is that most parts of PSAK 45 are translated from SFAS 117. Most statements are fully translation. Some statements are summaries or several sentences of the referred standards. In additional, most examples and references are taken or cut, especially examples and references which are related to US best practices.

Financial Accounting Standards Board (FASB) established SFAS 117 as part of a project to find inconsistent practices and how to deal with them. The different country must have different best practices. NPOs in Indonesia have not only different issues from NPOs in the USA, but they also have different nature and background. For this reason, a translation standard will have several risks, and it cannot overcome the real accounting problem of Indonesian’s NPOs. Some risks are derived from the inconsistent standard itself.

In conclusion, the establishment of financial accounting standards for NPOs in Indonesia did not have strong background history and process. Most content of PSAK 45 is a translation from

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SFAS 117 of the US GAAP. Even though referring to other country’s standards and translating under notification are common practices. However, Indonesian’s financial accounting standard board decided to translate SFAS 117 for unknown reasons, instead of referring and then developing based on Indonesian’s NPOs characteristics. SAK-ETAP and SAK accompanying PSAK 45 has been creating flexibility in financial reporting. The group of standards results in possibilities to prepare general financial statements for NPOs. NPOs in Indonesia have no reasons not to present the financial statements, even in simple ways and formats. The facts, however, show that PSAK 45 itself seems quite difficult to be appliedon NPOs’ financial reporting process. In practice, NPOs in Indonesia should adjust them with their own nature of the operation.

Study 3 Analyzing Applied Accounting Basis for Non-profit Organizations in Indonesia

PSAK 45, the financial accounting standards for NPOs in Indonesia, does not suggest any basis. However, the provided example in the statement seems using accrual basis. The fact is that not all NPOs apply it in their financial reporting process.

Based on the ethnography study in CDCs, the result has shown that in a broader organization, where CDCs are part of Compassion International, different accounting basis is appliedfor a different level of organization. The accrual accounting is applied in Compassion International, the modified cash basis is used in Compassion Indonesia, and the cash basis accounting is employed in CDCs. The different applied accounting basis makes sense for the different level of organizations have to meet different requirement and regulation.

The study suggests that the standard terminology of revenue and expense utilized by POs are inappropriate for use with NPOs. It would be more appropriate to modify the terms and utilize contribution and disbursement instead. The other recommendation is to deal with the weaknesses of cash accounting, NPOs may modify the basis through accounting system’s components. It is more appropriate than migrating to accrual accounting. For both multisite and single site NPOs, the alternative intention applying modified cash accounting is to develop additional supplementary documents, such as a detail of program disbursement and report of organization’s assets.

In conclusion, the main limitation of the research is about multisite NPOs. Other drawback is that the complexity of transactions in each NPO is different. Besides, a business process in every

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NPO is dissimilar as well. Research on single-office NPOs with different nature of transactions and business process will be interesting to discuss further. The detail how to apply the modified cash accounting in NPOs is also a potential research in the future. Moreover, the usage of accounting basis depends on mainly what transactions NPOs have. Transactions will determine what information they will preset, also what related accounts’ names and stakeholders in the NPOs. Since the main purpose of financial reporting is to produce high-quality information, it does not matter which accounting basis should be used, as long as NPOs can present the accountable reports and follow the generally accepted accounting standards. Chosing an accounting basis is not about the best basis, but which basis is the most appropriate to the nature and business process of the NPO.

Study 4 Reviewing Accounting Systems Design for Non-profit Organizations in Indonesia

Technically, an accounting system processes transactions. In general, the transaction cycles in NPOs have the same subsystems as the cycles in POs. The only thing that differentiates both organizations is the motivation behind the transactions’ activities. In POs, the motivation of an agreement to exchange is to gain profit. However, in NPOs, the motivation is to achieve the mission through running programs.

Based on the result and discussion, the accounting system of CDCs is a part of the larger systems of Compassion International. A general model of accounting system has been developed.

It consists of the transaction cycles and accounting cycle. Because of budget-based transactions, setting the budget is the key success of running the accounting systems in NPOs. This developed model is supposed to be a novel accounting systems for NPOs, and it may become a new benchmark for CDCs and other NPOs. The model of transaction cycles has five cycles: the revenue cycle, the expenditure cycle, the payroll cycle, the operation cycle, and the financing cycle as well as the general ledger and reporting system.

In the revenue cycle, NPOs collect the fund which has been budgeted. Therefore, NPOs do not have a Sales account in the charts of accounts, but in general, there is a Contribution account in the group account of Revenue. Contribution, also, may be defined as budgeted revenue. Hence, a term of contribution cycle to clarify a revenue cycle of NPOs is recommended in this study. On the

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other hand, spending money in NPOs is in order to conduct programs, not to expect receiving contributions from donors. Revenue comes first before expenditure. Thus, the matching between expenses and contributions is about how far the budgeted expenditure is done in the program. In other words, expenditure activities in NPOs may be defined as a disbursement of the budgeted contributions. Therefore, a term of disbursement cycle to state an expenditure cycle of NPOs is suggested to use. In NPOs, the operation cycle is about delivering or executing planned programs.

Employees of an NPO do not calculate the cost of delivered programs. The NPO has to apply strategic methods to execute the programs. The approaches are conducted to ensure the master plan of the program runs well, the purpose of the program is achieved, the target beneficiaries get benefits of the program, and the budgeted expenditures are fully absorbed. In NPOs, generally there are two kinds of staff, employees, and volunteers. Some NPOs categorize volunteers as donors of services. Because of as a part of contributions, volunteers do not expect a salary. On the other hand, employees do their services as a job and expect a salary. Salary in NPOs is a component of the budgeted expenditure whichis determined at the beginning of fiscal year.

Besides, the amount of salary does not refer to the government minimum wage regulation and is usually less than the compensation by the law. In Indonesia, compensation for NPOs’ employees is usually considered as offerings. The financing cycle is closely related to financial management decisions. On the NPO point of view, the financing cycle is not a stand-alone cycle, because it covers two activities, the generating revenue and the spending funds, which are parts of the revenue cycle and expenditure cycle. The NPOs do not make any financial management decisions.

Accordingly, the financing cycle in an NPO may be removed from the accounting systems in general. As a final point, the discussion about the general ledger and reporting system is more about an accounting cycle. The basic input in the accounting cycle is transactions. In NPOs, transactions are budget-based.

The model of accounting cycle consists of six steps. The first step is the execution of the operation in the form of transactions based on the approved program/budget masters. The second step is recording the transaction documents in journals, followed by the third step that is posting the entries into appropriate ledgers. The fourth step involves adjustment to the program/budgetmasters when required. The fifth step is to prepare the financial reports, followed

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by the sixth and final step of formulating the forthcoming year’s program/budgetmasters by referring to the reports.

The design of an accounting system for an NPO should be different from the design for another NPO. Because, there are a different culture, IT and business process on each NPO. These factors might affect the level of IT usage, the types of revenue sources and spending, the flow of transactions, and the stakeholders who involved in the organization. Therefore, in conclusion, identifying the types of transactions and the stakeholders who play roles in the give-and-get exchanges is the key step to developing the accounting systems.

This study has also concluded that an accounting cycle model of NPOs should be different from that of POs. In NPOs, it is called as the budget-based accounting cycle. The reason for this differentiated approach is that NPOs differ in nature, behavior, and business process. Moreover, adjustments in NPO accounting have a different meaning, forms, and times of completion when compared with adjustments in general accounting.

Study 5 Developing Accountability Systems for Non-profit Organizations in Indonesia

The expectation of accountability for non-profits has been increasing, along with internal and external reviews and evaluation. Stakeholders require NPOs to conduct various types of evaluations as an effort to meet performance expectations.

A nonprofit accountability is not only an NPO to take responsibility for its actions such as legal obligation and obligation to provide information. But it is the components of the organization to take internal responsibility for developing organization’s mission and values, being open to public scrutiny, and evaluating performance related to the objective of the organization.

Discussion about a non-profit accountability system of CDCs consists of three topics:

accountability to whom, accountability for what, and accountability how. The accountability actors in CDCs are the upward accountability to Child Sponsors and the local government, the downward accountability to Church Partners, Children, staff, volunteers, and local communities, and the accountability to NPOs themselves include Compassion International and CIF. The accountability actions in CDCs are classifiedas accountability for financial, governance, performance, and mission. The financial accountability in CDCs is considerable attention on providing a disclosure

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of financial transactions and transparency in the use of the sponsor for financing the programs and the disbursement of the gift to the sponsored children. The governance accountability is responsible for oversight of internal control on the accounting system particularly and legal compliance of running the operation of an NPO. Performance accountability is responsible for what programs CDCs deliver. It is about presenting the results. Regarding this accountability, CDCs develop the achievement indicators of each program and conduct an evaluation and impact assessment on each program. Mission accountability is related to CDCs existence for fighting poverty through holistic education programs and how to demonstrate progress towards achieving this mission. Accountability tools are the disclosure statements and reports in the form of the consolidated financial statements which are audited by the independent auditor and the annual report which gives the information about the ministry achievements for a year. The other tool at this point is open information in the website of Compassion International. Accountability Process in the form of participation is the relationship between Child Sponsors and Children, and the partner church through assigning committee members to supervise the staff/employees and be an internal auditor. Another process is about self-regulation in the form of providing a partnership handbook as a guideline for the CDC’s operation in general, and assigning committee members to assist employees, in particular, to set some needed standards and procedures as the operation guidelines. The other process is the adaptive learning. In CDCs, there are two facilities for adaptive learning, cluster and partnership in the form of regular and national meetings held by CIF.

In conclusion, the non-profit accountability system is collaborative efforts and controls of an NPO. It is not only about efforts what NPOs do, but also controls what NPOs not do. The system consists of the accountability to whom, the accountability for what and the accountability how.

Every component of the system is not independent, but it affects other components. What happened in one element has a consequence on other parts.

Accountability requires a relational principle among the actors. The relationship may vary according to who has a relationship with whom. The relationship also refers to on what context the actors rely. This principle leads the accountability to the trusting attitude among the actors.

Regarding maintaining the trust, there should be mechanisms to follow. In other words, accountability is about trust. NPOs tend to reach a certain level of trust to convince themselves about their mission and operation.

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This principle leads the accountability to the trusting attitude among the actors. Regarding maintaining the trust, there should be mechanisms to follow. In other words, accountability is about trust. NPOs tend to reach a certain level of trust to convince themselves about their mission and operation.

Achieving a higher point of accountability is like a trust investment. This kind of investments requires a long time process and consistency. NPOs do not need stating boastful things or exaggerating in ministry campaigns to attract future donors or potential volunteers. Because being accountable organization is already legitimacy.