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CONTRIBUTION OF COUNCILLORS TO LOCAL AUTHORITIES IN SELANGOR AND JOHOR
ASMAH ABDUL AZIZ
NORHAYATI MD. NOR
INTRODUCTION Local councillors play important roles on behalf of the local authority in ensuring that the community receives the best services. Councillors are expected to act in the best interest of the community and ensure that to services and facilities are provided equitably. Rao (1993) state that councillors have to be seen to be effective in pursuing community concerns within the council process. The term ‘timeliness’ refers to the preparation of financial statements within the specified period required. The contribution of local councillors to the local authority by way of ensuring the timeliness of local government’s financial report is very important to promote the transparency, effectiveness and efficiency of local government in managing the public fund. However in Malaysia, the timeliness of local government’s financial report has become a critical issue (Hazman Shah, 1992) where many government agencies are not taking steps in improving their timeliness of financial reports even though the accounting information technology has rapidly changed. Marsland (1985) in his book wrote that, public sector accounts and accounting systems should show how the management of public bodies has carried out their stewardship of the public funds under their control. The report is made to the public and should also supply reliable financial information to the managers (i.e. the members and the officials) for decision –taking and policy making as well as for negotiating with central government and other public sector organizations on national resource allocations, level of charges, etc. Indirectly, the government’s poor financial management and reporting practices such as unrealible, unaudited (and/or unauditable) and untimely financial information can contributed to poorly performing economies (Bradbury, 1998) Significance of the study The study disclosed the contribution of local councillors in ensuring the preparation of timely financial reports of the Local Authority in Johor and Selangor. Therefore, this research is conducted to disclose the role played by local councilors in contributing their efforts and ideas to the local authorities in performing the council works especially on ensuring the preparation of timely financial reports. This could help the Local Authority in improving their timeliness of current financial reporting by highlighting the weaknesses arises from the survey conducted and providing the necessary recommendations/suggestions to overcome these weaknesses which may benefits the Local Authority itself and the community in the future. Research objectives The objectives of this paper are: 1. To ascertain the qualifications of local councillors. 2. To determine their time contributed in performing the task of local councilors. 3. To determine the influence of councillors in timely financial reports. 4. To recommend necessary criteria to be considered by the local authorities and the State Government in appointing local councillors. Organisation of the paper This paper is organized into five sections. The first section is on general introduction of the study, significant of the study and the objective of the study. The second section is on literature review, then following by research methodology in the third section. It covers the description of data collection and data analysis. Section four discussed the statistical data results, data analysis and discussion of the result. Conclusion, recommendations and limitation of the study are discussed in the final section. LITERATURE REVIEW Currently many researcher had wrote on the timeliness of financial reporting such as Dull and Tegarden (2004), Al-Sehali and Spear (2004), Soltani (2002), Ashton et al(1987), Zeghal (1984), Davies (1984) and many more but not much concern is being reported on the timeliness of financial reporting of Local authority in Malaysia. Jones et al (1985) reported that, 90% of all users of government financial reports believed timeliness to be an important characteristic of governmental financial reporting. In the earlier research done by Dyer and Mc Hugh (1975), Courtis (1976), Davis and Whittred (1980) and Givoli and Palmon (1982) have addressed the question of timeliness in financial statements. Zeghal (1984) pointed out that accounting reports with shorter delay have a higher informational content than those with longer delay. At the time of release to the public, the effect of delay on the information content seems to be more significant. In addition, GASB (1997) stated that “state and local governmental financial reports should possess these basic characteristic: understandability, reliability, relevance, timeliness (emphasis added), consistency and comparability”. Therefore, the contribution of local councilors in ensuring timely of financial reporting is very important because it require the information to be made available to the user as fast as possible (Carslaw and Kaplan, 1991). In achieving the timeliness of financial statements councilors should play their role effectively and efficiently. Among the traditional role of councillors is described as policy maker, Representative, Watchdog and Specialist (Martlew, 1988; Sunderland Study, 1973; MacGregor, 2004). (IDeA: 2004) has produced skilled frameworks for the modern society councilors required them to be more realistic and idealistic rather than being a representative of local authority. However, the timeliness of financial information reported can be affected by audit delay/lag. Zeghal (1984) and Feltham (1972), reported that, the information available at a particular time is affected by the time required to prepare and transmit the report. Abdulla (1996) mentioned that, the delay in releasing the financial statements can boost the uncertainty on the decision made based on the information contained in the financial statements that can affect the quality of decision. Meanwhile, Payne and Jensen (2002) suggested that audit lag can be reduced through the use of many technological advances that have occurred since 1982 which can significantly reduced the time required to produce financial statements. They also added that, the management incentives for timely financial report is the presence of a high quality financial reporting system. RESEARCH METHODOLOGY
Description of Local Authority in Johor and Selangor Questionnaires were posted to all local councillors in Johor (288 respondents) and Selangor (264 respondents) except Majlis Daerah Simpang Renggam, Pontian and Pihak Berkuasa Tempatan Pasir Gudang. These local authorities were unable to be contacted within that specified period. In Selangor, only Majlis Daerah Kuala Selangor was excluded from the survey as it has already been chosen for pilot study. Responses from 81 councillors were received from Johor and 106 from Selangor after several reminders. However, all the fifteen Johor local authorities’ financial statements and twelve of Selangor were anaylsed for timeliness. Currently, there are nine district councils, five municipalities and one City Council in Johor while in Selangor there are five district councils, six municipalities and only one city council. These local authorities were assigned codes for confidentiality. The questionnaire is specifically designed to get information on the role played by the councilors in timely financial reporting. The questions were divided into three section mainly asked on councilors demographic, their contribution to local authority and their perception on the importance of preparing timely financial reporting. Additional question on basic accounting knowledge also being asked to see their level of understanding on the accounting matters.
DATA ANALYSIS AND DISCUSSION OF FINDINGS Councillors Profile 288 sets of questionnaire were distributed to Johor respondents and 81 were received. The response rate was 28.13% while in Selangor, 106 respondence were received from 264 sets of questionnaires distributed. The response rate was 40 %. The level of education of councilors in Johor consists of SPM (66.3%), Diploma (17.5%), Bachelor Degree (12.5%) and only 3.8% has Master. The level of education of councilors in Selangor consist of 46.7% having SPM, 26.7% holding Diploma, 16.2% Bachelor Degree, 5.7% Master Degree and 4.8% PhD. Majority of councilors in Selangor (67.6%) and Johor (62%) do not have accounting background. Majority of the councilors in Johor serve the council between 1-120 months (93.4%) while the rest of 6.3% serves 121 months and more. In Selangor 83% of the respondents serves the council between 1-120 months and 17% serves more than 10 years and above. Measurement procedure The questionnaires were analysed using the Statistical Package for Social Science (SPSS) version 12. The following statistical measures were specifically used to interpret data for this study: Descriptive statistics, One-way ANOVA and T-Test were used. Hypotheses There are four hypotheses that were tested for each state, Johor and Selangor. Ho: EEducation level of councilor does not affect the contribution to the Council of Local Authorities H1: Education level of councilor affects the contribution to the Council of Local Authorities One-way ANOVA was conducted at 95 percent confidence level for Johor and Selangor respondence. The result of Johor shows two factors that are influenced by different level of education of councilors that is ‘Committee’ and ‘Committee Meeting Frequency’ with p=0.044 and p=0.022 respectively. In Selangor, the only significant factor is ‘Read Financial Statement’ (p-value 0.037). The value of less than 0.05 indicates that, there are significant differences in contribution to the Council of Local Authorities based on level of education hold by the councilors. Therefore, Ho is rejected. From the post hoc test (Duncan), Councillors in Johor who hold Masters Qualification contribute lesser time as committee member compared to those who had SPM, Bachelor Degree and Diploma. For the second factor, ‘Frequency of Committee Meeting’ it shows significant difference, which means that councillors with Bachelor Degree and Diploma are having more committee meetings as compared to councillors with Masters.Therefore, based on the analysis, it shows that councillors in Johor with Masters degree are contributing lesser in terms of being committee member as well as frequency in attending committee meeting at the council as compared to Bachelor degree and Diploma. This may be due to more commitment outside the council.
However, although councillors who have Bachelors and Diploma spent more time in attending meeting, this does not help to improve the timeliness of financial report as proven in our analysis which reflect many untimely financial statements. It could be that priority is not given to prepare timely financial statements as these councilors did not request the most updated financial information. Meanwhile in Selangor, councillors with PhD and Bachelor Degree are willing to spend more time to read Financial Statements as compared to councillors with Master. Therefore, councillors with PhD and Bachelor Degree are seen to be more serious in assuring the timeliness of financial statement to be improved. 65.7% of the councillors in Selangor agree that the information in financial statements should be accurate. Ho: Thhere is no difference in contribution to the Council of Local Authorities among the member of District Council, Municipality Council and City Council. H1: Thhere is a difference in contribution to the Council of Local Authorities among the member of District Council, Municipality Council and City Council. There is significant difference in contribution to the local authority among the councillors in District, Municipality and City council as shown by p-value of each factor less than 0.05 and T-test at 95 percent confidence level for both states, thus, Ho is rejected. The only factor influenced by responses from Johor are ‘Time spent at council per week’ (p value=0.002). In Selangor, factors of ‘Time spent at council per week’ (p=0.000) and ‘Number of committee’ (p=0.001) shows the significant different in contribution among each type of council. From the post hoc test (Duncan), councillors in Johor and Selangor showed a significant difference between District Council and City Council in ‘Time spent at Council per week’. Members of City Council in both states spent more time at council rather than Members of District Council. Eventhough they spent more time at the council, the timeliness of financial statements of city council is still not improved. This again indicates that, the time spent on discussing the accounting and financial matters are infrequent as compared to other matters. In Selangor, the factor, ‘Number of committee’ does significantly show the different in number of committee set up and the members that ‘join-in’ between City Council and District Council. City Council has set up more committees and consisting of many members than District Council. Based on descriptive analysis 47.3% of councilors in Selangor involve in three committees at one time while 25.7% of them involve in four committees. This indicates that councilors in City council are contributing more time as committee members to the council they work with, as compared to those councillors in district council. However, although the survey provides a good baseline for the frequency of committee meeting and board meeting, but it may not provide a valid measure of the continuity of attention or total time given to council affairs especially in accounting matters. Ho: DDifferent duration of services does not affect the timeliness of financial statements of Local Authorities. H1: DDifferent duration of services affect the timeliness of financial statements of Local Authorities There is significant difference between those who have longer duration of services than those with shorter duration of services. One-Way ANOVA test was conducted at 95 percent confidence level for both states. The only factor in Johor that shows significant is ‘Frequency of Accounting Discussion’ with p-value 0.002 (p<0.05) thus, Ho is rejected. The ‘length of services’ affect the timeliness of financial statements of local authorities in Johor. However, the categories in duration of services for Johor respondents cannot be checked using post hoc test (Duncan) because there is one group that has less than two cases of respondents. From the descriptive analysis, it shows that more senior councillors are willing to discuss more frequent on accounting matters compared to young councillors. However, from the audit lag calculated and basic accounting knowledge tested, eventhough senior councillors discussed more on accounting matters, the timeliness of financial report still has not improved, probably not much emphasized has been given to timeliness as their levels of understanding on accounting matters are weak and they are not exposed to urgency of meeting financial statements deadlines. However in Selangor all the variable factors have a p-value of more than 0.05. Therefore, Ho is accepted. This means that the different duration of services does not affect the timeliness of financial statements of local authorities in Selangor. Ho: CCouncillors accounting experience does not affect the contribution of preparing timely financial reporting of local authorities. H1: Councillors accounting experience affect the contribution of preparing timely financial reporting of local authorities. One-way ANOVA test was conducted at 95 percent confidence level for both states. In Johor ‘Financial Statement helps forecasting and planning’ with p=0.003 is significant. Since the value is less than 0.05 therefore, Ho is rejected. Based on the post hoc test (Duncan), those councillors with accounting experience within 6-10 years, mostly agreed that Financial Statements helps in forecasting and planning as compared to those councillors with accounting experience of less than 5 years. In Selangor factors that give p- value less than 0.05 are ‘Read Financial Statement’(0.014), ‘Understand Financial Statement’(0.022), ‘Records should be accurate’(0.004), ‘Financial Statement helps forecasting and planning’(0.008) and ‘Understand Financial Statement fully’(0.014) and finally rejected Ho. These factors show that accounting experience of each councillor can affect their contribution in maintaining timely financial statements. From the post hoc test (Duncan), councillors whose accounting experience above eleven years admit that they read the Financial Statement more frequent and they are able to understand the financial information better than councillors who have accounting experience less than eleven years. Moreover, they also agreed that the records of financial statements should be accurate and can help in forecasting and planning purposes. Based on analysis, it is obvious that senior councillors in Selangor are willing to improve on the timeliness of financial statements compared to councillors in Johor.
Timeliness of Audited Financial Statements of Local Authorities in Johor and Selangor The analysis of timeliness has been classified into three categories. Less than six months is considered the best, six to nine months is considered acceptable and more than nine months is classified as ‘severely untimely’. The best performer of Johor local authorities in terms of timeliness is J15. The average for six years is 9.13 months. The longest average time taken to get certification from the Auditor General’s Office is J13 with an average of 44.82 months. Except for J15, all the other local authorities exceeded nine months. In Selangor, the best performer is S11. The average for six years is 7.46 months. S6 has the longest average time taken to get certification from the Auditor General Office. Three of the local authorities manage to get less than nine months (27.27%) whereas others exceeded benchmark for this research (63.64%). In comparison local authorities in Selangor performed relatively better than Johor in terms of timeliness.
RECOMMENDATIONS AND CONCLUSIONRecommendations Based on the study done it is recommended that: 1. Based on the survey done, more than 60% of councilors in both states do not have accounting background and majority of them only possess education until SPM level. 61% of them aged 46 and above. It is suggested that, Local councilors should be elected among the young and educated person who have more fresh ideas and more energetic to perform the council tasks. In addition, the number of councilors with accounting background also should be increased and highly considered in the future. This is to ensure that, the preparation of timely financial report is met. 2. The period of holding post by the councilors should also be revised regularly, whereby; councilors who contribute less to local authority’s managements and community should be terminated earlier. The period cycle of holding post also should be cut short into 2 years in order to improve the effectiveness and efficiency of the task performed. 3. A standardized guideline to councillors in Malaysia (guidebook) should be prepared and published role descriptions which reflect what councilors should do in order to guide and help them understand their role better. Maybe, local government should have a competition and give award to the best management of local authority in every aspect especially in maintaining timely financial reports. In addition, standardized format of local government financial report should also be established. 4. In order to achieve timely financial reporting, the councilors should emphasized more on the importance of having timely financial reporting to the staffs and should frequently discuss accounting matters in every meeting. In addition, timely financial reporting should be shown to public by putting a copy of it at the public library or published it through website. By doing this, the public will know how the funds were utilized. 5. Each local authority should review the time that member are required to spend in meetings and in preparation for meetings and should take action to maximize the time-effectiveness of meetings. (Extracted from Kerley Report Recommendation-Widening Access, 2000). Limitation of the study One of the limitations of the study is, this research only done on Johor and Selangor local authorities and does not cover all local authorities in Malaysia. Some of the councillors are refused to give coorporation in answering the questionnaires. Some of them feel that the information relating to Local Authorities is treated as confidential and do not want to disclosed to the public. Conclusion Based on the findings, it can be concluded that, in Johor; educational level, types of council member, duration of service and accounting experience is important to the councillors in ensuring timeliness of financial reporting. However, the duration of services among the councillors in Selangor does not affect their contribution to the local authority. It is hoped that local authority will consider the appointment of councillors with accounting background in the future so that issue of untimely financial statements could be resolved.
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