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Indonesia has implemented an intergovernmental transfer system since 1999, in order to achieve financial balance in governmental entities. When accrual-based accounting was introduced to governmental entities, the intergovernmental transfer system experienced some problematic situations. This research aims to reconstruct Indonesia’s intergovernmental transfer system in order to implement accrual-based accounting. The study structured the problematic situations in that system using the contingency model1. The study found that the implementation of accrual-based accounting in the intergovernmental transfer system can be stimulated by the setting of governmental accounting standards, which affects the expectation of the users of information, and the behavior of producers of information. Those expectations and behaviors are also affected by the basic attitudes of the users and producers of information, which will raise the need for accrual information. That expectation will encourage the implementation of accrual-based accounting by the producers of information. Furthermore, the implementation of accrual-based accounting faces some implementation barriers, such as organizational characteristics, qualifications of accountants, and size of jurisdiction. This research recommends reconstructing the intergovernmental transfer system using the soft systems methodology (SSM)2, for which the steps are formulating the conceptual model, discussing the model, and redefining it or taking action to improve it. In addition, this research recommends the reformulation of the allocation system. This research also initiated some outputs to support the implementation of these recommendations. The results of this research are very important for two main reasons. First, this research showed that there are significant benefits from the application of the contingency model and SSM with respect to reconstructing public policy in the context of financial-management reforms. Second, this research created a framework that guides the government to reconstruct its intergovernmental transfer system.

The Application of the Contingency Model and Soft Systems Methodology to Reconstruct the Intergovernmental Transfer System: Lessons Learned from the Implementation of Accrual-Based Accounting in Indonesia