Abstract Since entering the Reformation era, Indonesia has entered a new era in the government system, where most of the affairs for basic services that were previously in the hands of the central government are devolved through decentralization policies, which are also referred to as regional autonomy policies. Regional development in the autonomy era provides an opportunity for local governments to innovate by building local growth centers to encourage regional economic growth. In practice, Indonesia adoptsasymmetric decentralization, which in principle can be based on conditions: (1) administrative (management), (2) political, and (3) fiscal. Regarding fiscal decentralization, starting from the regime of Law 25/1999, Law 33/2004, to Law 1/2022, the central role of fiscal decentralization from the beginning aimed to support the financing of devolved affairs, known as the Money Follows Functions principle. The fiscal decentralization policy provides certainty that the devolved affairs can be properly implemented by the Local Government. However, in its empirical dynamics, during the 23 years that regional autonomy has been implemented, at least there are various problems originating from regulations and local governments themselves, which result in inefficiencies in regional spending. Starting from the effect of incumbent spending allocations in regional head elections (pilkada), known as the political budget cycle (PBC) effect; weak local government governance that causes inefficiencies in regional financial management; central and regional budgeting support that has not been optimal in implementation; to the biggest problem, namely the problem of corruption of the Regional Budget by the definitive Regional Head and the ranks of the regional government. This research uses a normative juridical approach method with a statutory approach accompanied by an analytical descriptive case approach. The type of data is secondary data collected and studied using literature studies and analyzed using qualitative analysis methods. The results and discussion of this study conclude, First, it cannot be denied that corruption drastically distorts fiscal decentralization in the regions. It is estimated that about 30 percent of Anggaran Pendapatan dan Belanja (APBD) funds evaporate due to corruption, and about 70 percent of them occur in the procurement of government goods and services. the emergence of APBD corruption is weak planning and budgeting. There are several sectors that are vulnerable to potential corruption, especially in expenditures sourced from the Transfer to Regional Funds, Village Funds and Deconcentration Funds, which have implications for the high cost economy. Second, the ideal formulation used to inhibit the potential for corruption in the regions, especially the APBD, includes optimizing the implementation of fraud audits such as investigative audits or corruption audits, creating an internal whistleblowing system for local governments, improving the regional budgeting system, and strengthening the Government Internal Supervisory Apparatus. In terms of encouraging sustainable regional development governance, policy recommendations are needed, including: increasing sustainable public transparency; considering results-based accountability; making extensive use of ICT (Information and Communication Technology); increasing the role of reward and penalty mechanisms; and changing the paradigm from money follows function to money follows program. Keywords: Fiscal Decentralization; Corruption; APBD
Mumtaaz et al. (Mon,) studied this question.