This paper investigates the current Internal Control System (ICS) implemented by the Regency Governments (RG) in Kupang District and North Central Timor (TTU) District using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. This research was developed in two phases. The first phase started with the interview of 100 officials out of 300 top officials in the two RGs to assess which control components were the worst implemented in their current ICS. Applying SERVQUAL model as the research technique, it revealed that the control environment demonstrated the worst implementation in two districts and this was mainly driven by a lack of commitment of top officials to strengthen ICS. In the second part, this research determined what factors may influence top officials to be less committed to strengthening ICS. Based on a number of organizational theories, this study found that the most significant factor induces top officials’ having poor commitment is conflict of interest. The study also found that social conflict of interest was the most commonly triggered reason driving top official to be less committed in RG in Kupang District, while in TTU District, political conflict of interest was the major reason affecting the top officials having less commitment.
Keywords: Internal control system; control environment; conflict of interest; fiscal decentralization
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