Good governance is currently the main demand for the public to assess the management and accountability of public administration, Luthfi [1]. The same thing is stated by Arifin [2] there are greater demands from the public for transparency and public accountability in carrying out their operational activities, especially in terms of public financial management. The government in carrying out financial management activities must pay attention to several things such as: planning, management, implementation, reporting, accountability and regional financial supervision Bawole [3] sandford [4] Ferry ect [5], Modlin [6], Ningsih [7] & Sari et al [8]. The efforts made by the government realize and improve transparency and accountability in carrying out government financial management [9]. Regional autonomy is implemented in Indonesia's regional government reform with the principles of decentralization, deconcentration, and assistance tasks as stipulated in Law Number 23 of 2014 and then revised Law Number 9 of 2015 concerning Regional Government. Ghina [10] The implementation of regional autonomy provides authority and flexibility to the regions to be able to regulate and manage government affairs and community interests according to their own initiatives in order to be able to improve regional welfare and development. Nahmiati said that as a subsystem of state government, regional government is implemented to increase the effectiveness and efficiency of government and community services or optimize the quality of service coverage and people's welfare [11], 20. This is to avoid conflict between the Center and the Regions. The implementation of regional autonomy and the implementation of the principle of fiscal decentralization are closely related to the implementation of financial balance between the central government and local governments as stipulated in Law Number 1 of 2022 concerning Financial Relations between the Central Government and Local Governments (HKPD). HKPD is a financial administration system that regulates financial rights and obligations between the central and regional governments which are carried out fairly, transparently, accountably and in harmony based on the law. Which is realized through Transfers to Regions and Village Funds (TKDD) which in the APBN structure is included in the component of state spending that is issued annually. Regional Transfer Funds (TKD) are funds sourced from APBN revenues allocated to regions to fund regional needs in the context of implementing decentralization. Previously, TKD was called the Balancing Fund and was revised by Law no. 1 of 2022 to TKD. The HKPD Law is designed to strengthen physical decentralization in order to realize equal distribution of services and welfare. Where it is expected that increasing the physical capacity of the regions (increased PAD, quality transfers, expansion of access to financing) will improve the quality of regional spending (focused and optimal) and the harmony of central and regional physical policies can be created. Fiscal decentralization provides flexibility to regions to manage their finances optimally and improve regional financial performance [10]. Regional financial management is regulated through Government Regulation Number 12 of 2019 concerning Regional Financial Management which is further regulated through Minister of Home Affairs Regulation Number 77 of 2020 concerning Technical Guidelines for Regional Financial Management. The success of the regions in implementing autonomy can be observed from regional independence and the performance of local governments in managing finances. The condition of local government financial health can be assessed by analyzing financial ratios based on financial statement information [12]. The financial performance of local governments can be measured by analyzing financial reports, namely in the form of financial ratios by calculating the independence ratio, effectiveness ratio, efficiency ratio, debt service coverage ratio, compatibility ratio, and growth ratio of regional revenue and expenditure budgets. Gunungsitoli City is one of the autonomous regions in the Nias Islands Region, North Sumatra Province, which was formed based on Law Number 47/2008. The population of this city in 2022 amounted to 137,583 people. Administratively, Gunungsitoli City consists of six sub-districts, namely Gunungsitoli Idanoi, South Gunungsitoli, West Gunungsitoli, Gunungsitoli, Gunungsitoli Alo'oa, and North Gunungsitoli. The existence of several strategic infrastructures such as airports, seaports, road networks, economic infrastructure, educational infrastructure, etc. is one of the added values of the competitiveness of Gunungsitoli City as a regional economic growth hub. The Gunungsitoli city area is essentially a center of economic activity that functions to realize the effectiveness and efficiency of space utilization as a place for economic and socio-cultural activities to take place. The development of urban areas with the main characteristics of industry, trade and services, makes Gunungsitoli City in the future as a growth cap (core) for other autonomous regions in the Nias Islands (hinterland). This geostrategic position makes Gunungsitoli City have a strategic role in the development of value-added products based on industry, trade and services, especially in the Nias Islands region and the west coast of North Sumatra. Based on the potential of Gunung Sitoli City, researchers tried to conduct research to evaluate the financial performance of the Gunung Sitoli City local government using financial ratios.

The main theory underlying this research is agency theory which adopts the opinion of Jensen & Meckling [13]. Based on agency theory, it can be described that the relationship between the people and the government can be said to be an agency relationship, namely a relationship that arises because of a contract stipulated by the people (as principal) who use the government (as agent) to provide services that are in the interests of the people. To monitor government behavior and align the goals of the people and the government, the people require the government to account for the management of resources entrusted to the government through periodic financial reporting mechanisms. Because they do not know what the agent is actually doing (information asymmetry), the principal needs a third party who is able to convince the principal that what is reported by the agent is true. Through financial reports which are the responsibility of the government, the people through the legislature can measure, assess and monitor the performance of the government, to what extent the government has acted to improve the welfare of the people. As a principal and agent, of course, the implementation must be transparent and clear, so that unwanted things such as acts of corruption do not occur in the implementation process. Because the public entrusts the management of state money to government institutions, the public expects government performance to lead to a level of prosperity.

Definition of Local Government Financial Performance

Financial performance is a measure of the organization's financial management associated with the center of responsibility. According to the Regulation of the Minister of Home Affairs Number 59 of 2007 concerning Amendments to the Regulation of the Minister of Home Affairs Number 13 of 2006 concerning Regional Financial Management Guidelines, it is stated that performance is the output or result of activities or programs that will or have been achieved in connection with the use of budgets with measurable quantity and quality [14]. Local government financial performance is "a description of the level of achievement of financial management of the implementation of a policy program activity in realizing the goals, objectives, vision and mission of the local government" [14,15]. According to Sari [3] local government financial performance is the level of achievement of a work result in the field of regional finance which includes regional revenue and expenditure using a financial system determined through a policy or statutory provisions during one budget period.

Measurement of Local Government Financial Performance

According to the Decree of the Minister of Home Affairs Number 13 of 2006 which is now changing to Permendagri number 21 of 2011 concerning guidelines for managing, accountability and supervision of regional finances as well as procedures for preparing regional revenue and expenditure budgets, implementing regional financial administration and preparing calculations of the Regional Budget (APBD), that performance benchmarks are another component that must be developed for the basis of measuring financial performance in the performance budget system. Mahsun [15] says that: "Performance measurement is a process of assessing the progress of work towards predetermined goals and objectives, including information on the efficient use of resources in producing goods and services, the quality of goods and services, the results of activities compared to the desired goals and the effectiveness of actions in achieving goals". The government is the apparatus responsible for running the wheels of government, community development and services to the community and the government is responsible for submitting its performance report as a benchmark or form of achievement that has been carried out during the current period [16]. One of the tools used in analyzing the financial performance of local governments is conducting financial ratio analysis. The financial ratios used in this study use dependency ratios. The results of this financial ratio analysis are then used as a benchmark for [17]:

1. See the growth or development of revenue generation and expenditures made during a certain period of time
2. Measure the effectiveness and efficiency in realizing regional income.
3. Measuring the extent of local government activity in spending regional income.
4. Measuring the contribution of each source of income in the formation of regional income.
5. See the growth or development of revenue generation and expenditures made over a certain period of time.

Financial Statement Analysis

Financial statement analysis is basically an analysis carried out on various kinds of information presented in the financial statements. The difference between the analysis of business financial statements and the public sector lies in the object. The use of financial ratio analysis in the public sector has not been done so much, so in theory there is no agreement on the name and measurement rules [16]. Nevertheless, in the context of transparent and accountable regional financial management, financial ratio analysis of local government financial statements needs to be carried out, even though the accounting rules in the local government financial statements are different from the financial statements of private organizations. Local governments have the task of carrying out development activities.

Interested parties in analyzing financial ratios in regional financial reports are (widodo, 2001: 261):

1. DPRD as a representative of the regional owner (community).
2. Executive government as a basis for preparing the next APBD.
3. The central/provincial government as input material in fostering the implementation of regional financial management.
4. The public and creditors, as parties who will participate in owning local government shares, are willing to provide loans or buy bonds.

Financial analysis can be interpreted as an effort to identify financial characteristics based on available financial reports. In conducting financial analysis, certain measures are needed. The measure that is often used is the ratio. According to Munawir (1995: 64) the ratio is a relationship or balance between one specific amount and another.

Self-Reliance Ratio

The Independence Ratio shows the ability of a region to self-finance government activities, development, and services to its local community. The Regional Financial Independence Ratio illustrates the region's dependence on Transfer Revenues. The higher the Regional Financial Independence Ratio means that the level of regional dependence on external assistance is lower and vice versa. The formula used to calculate this ratio is

Independence Ratio = Local Revenue (PAD). X 100%

     Central Government Assistance

Table 1: The Ratio Value.

Sources: Halim [16].

Fiscal Decentralization Degree Ratio

The ratio of the degree of fiscal decentralization is a financial ratio that shows the ability of local governments to increase local revenue to finance development. The ratio of the degree of fiscal decentralization also illustrates the amount of central government intervention in regional development which shows the level of readiness of local governments in implementing regional autonomy. The formula used in calculating this ratio is [16].

Table 2: Degree of Physical Decentralization.

Pad Effectiveness Ratio

The effectiveness ratio is a ratio that describes the local government's ability to realize planned PAD compared to the set PAD target. The PAD Effectiveness Ratio is calculated by comparing the realization of PAD revenue with the PAD revenue target or previously budgeted. The formula for this ratio is as follows: [16].

The Regional Financial Efficiency Ratio (REKD) describes the comparison between the amount of costs incurred to obtain revenue and the realization of revenue received. Local Government Financial Performance in collecting revenue with the realization of revenue received. Local Government Financial Performance in collecting revenue is categorized as efficient if the ratio achieved is less than 1 (one) or below 100%. The smaller the Regional Financial Efficiency Ratio means the better the Regional Government's Financial Performance. For this reason, local governments need to carefully calculate how much money is spent to realize all the revenue they receive so that it is known whether their revenue collection activities are efficient or not. The formula used to calculate this ratio is as follows: [16].

Analysis of the proportion of direct and indirect expenditure is useful for the internal management of local government, namely for cost control and budget control. Direct expenditure is expenditure that is directly related to activities, while indirect expenditure is expenditure that is not directly related to the implementation of activities. In simple terms, this ratio can be formulated as follows: [16].

The growth ratio is useful for knowing whether the local government in the relevant fiscal year or over several budget periods, budget performance has experienced positive or negative growth in revenue or expenditure. This ratio measures how much the local government's ability to maintain and improve its success has been achieved from one period to the next. The formula for calculating the Growth Ratio is as follows: [16].

r = growth ratio

Pn = Table of local revenue calculated / PAD in year n

Po = Total local revenue / PAD / Capital expenditure / operating expenditure calculated in year n

Financial Relations between Central and Local Governments (HKPD)

Law No. 1 Year 2022 regulates the scope of the financial relationship between the central government and local governments which includes: 1) the provision of regional revenue sources in the form of taxes and levies; 2) the management of Transfers to Regions/TKD; 3) the management of regional expenditures; 4) the provision of authority to conduct regional financing; and 5) the implementation of national fiscal policy synergies. In order to allocate national resources more efficiently, the Government gives authority to the Regions to collect taxes and levies by strengthening through restructuring the types of taxes, providing new sources of regional taxation, simplifying the types of levies, and harmonizing with Law Number 11 of 2020 concerning Job Creation. In addition, the simplification of retribution is carried out through rationalization of the number of retributions. Retribution is classified into 3 (three) types, namely General Service Retribution, Business Service Retribution, and Specific Licensing Retribution. In order to achieve the goal of reducing fiscal inequality and service disparity among regions, the management of TKD prioritizes performance so that it can meet the needs of governance and service delivery in the regions, while encouraging regional responsibility in providing better services in an efficient and disciplined manner. This law came into effect on January 5, 2022 and stipulates changes in the sharing of natural resources between the central and local governments as well as other revenues such as taxes and levies. Where local governments get more revenue sharing than in the previous law.

Method

Research Design

 This research is a quantitative study used to test and measure data to obtain the results. The data analysis used is descriptive quantitative analysis to determine the level of financial performance indicators in public sector organizations. The object of this research is the Financial Report of the Gunuung Sitoli City Government of North Sumatra which is secondary data obtained from the Gunung Sitoli City local government website. The analysis period used in this study is financial data for 2015-2022. Performance measurement analysis using financial ratios. [16].

Framework Research

Figure 1: The Conceptual Framework.

Results

Self-Reliance Ratio

Table 3: Self-Reliance Ratio.

Sources: APBD Gunungsitoli 2015-2022 (2023).

From this ratio, the relationship pattern of the level of regional independence of Gunungsitoli City is said to be very low (instructive). So it can be said that the local government of Gunungsitoli City is still very dependent on the central government. This shows that the Gunungsitoli City government has not been optimal in exploring the potential that exists in the region in the form of taxes, levies that can increase local revenue, so the level of dependence on the central government is still dominant. The PAD obtained is still very fluctuating from year to year for the last three years, it can be seen that there was a decrease in 2021 where the Covid -19 outbreak occurred and began to increase again in 2022 whether because of the completion of covid 19 or because of the enactment of Law No.1 of 2022.

Fiscal Decentralization Degree Rasio

Table 4: Fiscal Decentralization Degree Rasio.

Sources: APBD Gunungsitoli 2015-2022 (2023).

Given that the role of the central government is still very dominant, it is natural that the degree of fiscal decentralization of the Gunungsitoli City Local Government is still very lacking. This can be seen from the average Fiscal Decentralization Degree Ratio over an 8-year period of 4.77%. This means that the central government gives little authority and responsibility to the Gunungsitoli City Local Government. For this ratio, the last three years have also seen fluctuations, there was a decrease in 2021 during Covid 19 where in the previous year there was an increase, and in 2022 there was an increase where there was no longer a covid outbreak or the impact of the enactment of the HKPD Law.

Pad Effectiveness Rasio

Table 5: PAD Effectiveness Ratio.

Sources: APBD Gunungsitoli 2015-2022 (2023).

When viewed from the Table of the results of the overall calculation of the effectiveness ratio of Gunungsitoli City for 8 years, it can be concluded that the effectiveness ratio criteria in each period are different. The average effectiveness ratio of Gunungsitoli City for 8 years is 81.77%. With this amount, the effectiveness ratio criteria for Gunungsitoli City fall into the moderately effective category. This shows that the comparison between the target and realization of local revenue (PAD) has a fairly good ability to mobilize revenue in accordance with the target.

Regional Financial Efficiency Ratio

Table 6: Regional Financial Efficiency Ratio.

Sources: APBD Gunungsitoli 2015-2022 (2023).

Based on the Table 5 above, the average efficiency ratio of Gunungsitoli City from 2015 to 2022 is 99.98. According to the efficiency criteria, Gunungsitoli City falls into the less efficient criteria. The smaller the efficiency ratio value, the better the government's performance in spending its income so that the expenditure can contribute to increasing regional income. It can be said that the performance of the Gunungsitoli City Government is still considered poor because it has not been able to reduce the amount of regional expenditure. Gunungsitoli City still has to allocate expenditures that contribute greatly to its regional income. As well as supervising the possibility of irregularities and waste in the regional expenditure budget so that the efficiency ratio of Gunungsitoli City can be even better.

Ratio of Direct Expenditure and Indirect Expenditure

Table 7: Ratio of Direct Expenditure and Indirect Expenditure.

Sources: APBD Gunungsitoli 2015-2022 (2023).

Based on the Table 6 above, direct expenditure of Gunungsitoli City (in the form of employees, goods and services expenditure, capital expenditure) has the highest percentage in 2018 of 53.66% and the lowest percentage in 2021 of 42.78%.

Table 8: Ratio of Indirect Expenditure and Regional Expenditure.

 Sources: APBD Gunungsitoli 2015-2022 (2023).

Based on the table above, Gunungsitoli City's indirect expenditure (in the form of employees, grant expenditure, social assistance expenditure, financial assistance expenditure, and unexpected expenditure) has the highest percentage in 2021 of 57.22% and the lowest percentage in 2018 of 46.34%.

Growth Ratio

                     Table 9: Growth Ratio.

Sources: APBD Gunungsitoli 2015-2022 (2023).

Based on the calculation of the PAD Growth Ratio, the average from 2015-2022 was 1.42%. The biggest growth occurred in 2016 to 2017, which was 24.78%, it is hoped that the Gunungsitoli City government can further increase its PAD through optimizing its various potentials and trying not to depend on central government assistance to be more independent in managing its region. The average revenue growth ratio is 4.74%. When viewed from year-to-year developments, it can be said that the regional revenue growth ratio of Gunungsitoli City has not experienced positive growth because there is still negative revenue growth, namely in 2017, 2018 and 2021, namely -8.45%, -0.33% and -6.48%. The development of the Expenditure Growth Ratio tends to fluctuate, the average Expenditure Growth Ratio from 2015 to 2022 is 4.27%.

The results of this study indicate that the results of the analysis of financial ratios using the independence ratio, the ratio of the degree of fiscal decentralization, the effectiveness ratio of PAD, the efficiency ratio, the ratio of direct and indirect expenditure and the growth ratio obtained that the overall ratio in the category is not optimal from the aspect of financial performance. It can be said that the condition of the financial capacity of Gunungsitoli City is still not ideal. Judging from the average results on the growth ratio, the position of Gunungsitoli City is not ideal. This means that the Gunungsitoli City government must explore more deeply the potential of the region, so that it can increase PAD which plays a major role in the APBD. In addition, the results of this study indicate that local government financial reports are public rights that must be provided by local governments. Public demands for local government transparency in public financial management are a top priority for local governments. In order to realize the transparency of regional financial reports, the local government of Gunungsitoli City must be able to increase the disclosure of financial statements regarding information about the items of regional financial reports so as to increase transparency in fulfilling public rights. Thus, this is in line with the accountability aspect of the financial performance of the local government of Gunungsitoli City, as an implementer of good govenance in providing transparent and accurate accountability. This result is in line with the agency theory proposed by Jensen and Meckling (1976), accountability can be interpreted as the obligation of the trustee (agent) to provide accountability, present, report, and disclose all activities and activities that are their responsibility to the trustee (principal) who has the right and authority to hold them accountable.

From the results of the analysis of the financial ratios of Gunungsitoli City in assessing government performance based on the 2015-2022 APBD period that has been described, the conclusions that can be drawn are:

1. In the ratio of the independence of the Gunungsitoli City government based on the APBD for the 2015-2022 period, it shows that the local government's ability to self-finance government activities, development and services to the community is still not independent. This is due to the government's dependence on central government assistance which is still high.
2. In the ratio of fiscal decentralization, the local government of Gunungsitoli City for the period 2015-2022 shows that the role of the central government is still very dominant.

3.The efficiency ratio of the Gunungsitoli City government based on the APBD for the 2015-2022 period shows that the government's performance is still inefficient because it has not been able to reduce its total regional expenditure with an average ratio of 99.98% (close to 100%).

4. In the effectiveness ratio of the Gunungsitoli City government based on the APBD for the 2015-2022 period, it is quite effective because the realization of PAD has a fairly good ability to mobilize revenue receipts in accordance with what was budgeted.
5. In the growth ratio of the Gunungsitoli City government based on the APBD for the 2015-2022 period, it shows that the growth of government performance is experiencing very low growth where revenue generation is not stable every year and experiences increases and decreases that tend to fluctuate.
6. There was an increase for three ratios from 2021 to 2022, namely the ratio of independence, decentralization and efficiency, this is the effect of the end of the covid-19 outbreak and also the enactment of the HKPD Law.

The local government of Gunungsitoli City must be able to optimize revenue from existing revenue potential. The initiative and willingness of the local government are needed in an effort to increase PAD. Increasing PAD can be done by the local government of Gunungsitoli City by optimally implementing the collection of local taxes and levies and conducting systematic and sustainable supervision and control to anticipate irregularities in PAD collection by local officials. In addition, the local government must look for possible alternatives to be able to overcome the shortage of financing, and this requires creativity from the regional financial implementation apparatus to find new sources of financing both through financing cooperation programs with the private sector and also PAD increase programs. In addition, local governments are expected to reduce their dependence on assistance from the central government.For further research, it can be more detailed in analyzing regional financial reports and developed with geographical and other explanations and use a longer research period to be able to see the effect of the enactment of the HKPD law.

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