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The perfect storm: Preventing the misuse of village funds

The dana desa (village fund) program has been running for some time now

Hendi Yogi Prabowo (The Jakarta Post)
Yogyakarta
Thu, October 15, 2015

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The perfect storm: Preventing the misuse of village funds

T

he dana desa (village fund) program has been running for some time now. The program was part of the government'€™s large-scale decentralization initiative to, among other things, reduce inequality and poverty. The 2014 Village Law provided the legal framework for the implementation of the program.

Within this program, over 74,000 villages are expected to receive around Rp 20.7 trillion (US$1.4 billion) in grants in 2015. The grants are expected to be used to develop the necessary infrastructure, including agricultural needs.

Nevertheless, despite the promise of future prosperity for villages, some worry that due to villages'€™ lack of experience in managing the amount of allocated money; multiple problems may arise, such as corruption. As recently stated by the coordinator of the Indonesia Corruption Watch (ICW), for example, the distribution of the village funds may tempt some public officials in the cities and regencies to ask for kickbacks from villages for the distribution of the funds.

Also, in June 2015, a study by the Corruption Eradication Commission (KPK) on village financial management practices and the village fund program itself revealed four areas of weaknesses that demand immediate attention: regulation and institution, operations management, monitoring and human resources. These weaknesses are believed by the KPK to potentially trigger corruption, in particular related to the distribution and use of the village funds.

The upcoming regional elections are a major event for the country as provinces, cities and regencies will elect new leaders. For those competing for leadership positions, preparations are currently under way, especially in the form of campaigns to gain supporters and voters, which will require substantial funding.

As stated in the media, a large part of the village funds has not been transferred to the designated villages, and thus some of the funds remain in the hands of city and regency governments.

On the other hand, according to the KPK'€™s study, part of the potential problems in the operations management area is a lack of proper accountability reports, which results in a high risk of manipulation. In relation to the upcoming regional elections, many believe that the risk of money from the program being unlawfully used to support competing leader candidates is imminent.

The decentralization system was aimed at promoting regional development within the country so that regions can optimize their resources in ways that best fit their conditions.

The country'€™s transition to a decentralized nation was considered by many international observers as a landmark step in enhancing the government'€™s ability to improve its regulatory framework as well as to increase the effectiveness and efficiency of the use of funds from the central government.

Nevertheless, as time passes, many also begin to realize the problems of this transition, among which is the growing patrimonial networks and increasing rent-seeking activities. Local elections are believed to have worsened the problem by providing incentives for rent-seeking activities and thus corruption in the regional governments.

Based on data from the Anti-Corruption Clearing House (ACCH), for example, in the past decade, around 10 percent of corruption offenders investigated/prosecuted by the KPK were former mayors/regents and deputy mayors/deputy regents.

Also, based on the data, around 23 percent of corruption offenders investigated/prosecuted by the KPK worked in the city or regency governments. With the decline of party financing from the central government after the fall of Soeharto'€™s New Order regime, the need to invite more financial supporters in the regional elections is becoming more pressing for political parties to maintain their power. For this, they often resort to various means such as seeking financial support from business elites in exchange for future privileges.

Some political parties also put the financial burden on their politicians'€™ shoulders, which pushes some of them to resort to unlawful means to fulfill their obligations to their parties.

In relation to the potential misuse of village funds, Villages, Disadvantaged Regions and Transmigration Minister Marwan Jafar recently stated that there had been indication that some regional heads were planning to use the distribution of the village funds to attract voters on account of the fact that all program funds had been transferred from the central government to cities and regencies before being distributed to the designated villages.

With the falling value of the rupiah, regional elections at the end of this year are going to be very expensive. On the other hand, rising unemployment and financial pressure owing to the economic slowdown means that people will be more vulnerable to vote-buying practices during the elections using, among other things, village funds.

Many village administrators are not yet equipped with the necessary skills to manage the village funds, including accounting skills for reporting purposes.

This will likely result in them being more vulnerable to unrealistic demands from city and regency administrators with regard to the distribution of the funds.

For this, Marwan stated that there would be some sort of village outreach program to assist and monitor villages in using the funds, in particular to avoid legal problems.

Despite all the preparations, we must realize the fact that village fund programs anywhere in the world will always come with the risk of corruption.

In China, for example, over the past few years there have been a number of cases of village funds being misused by local public officials tasked with managing the fund. Similarly, as reported by the Bangkok Post, residents from two districts in Roi Et province, Thailand lodged last month complaints to an Interior Ministry agency accusing committees managing local village funds of corruption and discrimination.

The three convergent situations (the village fund program execution, poor economic conditions and regional elections) may create a '€œperfect storm'€ of corruption nationwide should proper preventative measures not be put in place.

A solid network of watchers from multiple law enforcement and independent bodies must be established to ensure that the village fund program does not become a breeding ground for corruption in the regional governments.
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The writer is director of the Centre for Forensic Accounting Studies at the Islamic University of Indonesia. He obtained his Masters and PhD in forensic accounting from the University of Wollongong, Australia.

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