Internal Control, Own-Source Revenue, and Local Government Performance: The Mediating Role of Financial Reporting Quality

Abstract

This study examines the effects of the Government Internal Control System (SPIP) and local own-source revenue (PAD) on local government performance and evaluates financial reporting quality as a potential mediator. The sample comprises 159 local-government-year observations from 53 district and municipal governments in Central Java, Bali, and West Nusa Tenggara during 2022–2024. Using multiple linear regression in SPSS 27, the results show that SPIP has a positive but statistically insignificant association with performance (B = 1.717; p = 0.183). PAD has a positive and significant effect (B = 0.993; p = 0.001), and financial reporting quality also has a positive and significant effect (B = 1.011; p = 0.037). The performance model reports an R² of 0.439 and an adjusted R² of 0.428. The indirect effects are formulated as the product of the predictor-to-mediator and mediator-to-outcome coefficients. The bootstrap results show that financial reporting quality significantly mediates the relationship between SPIP and local government performance (indirect effect = 0.491; 95% CI = 0.203–0.837) and the relationship between PAD and local government performance (indirect effect = 0.216; 95% CI = 0.067–0.426).