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    <journal-meta />
    <article-meta>
      <title-group>
        <article-title>Understanding Government's AI Readiness in Public Financial Management: A Case Study of AI for Financial Advisors</article-title>
      </title-group>
      <contrib-group>
        <contrib contrib-type="author">
          <string-name>Emyana Sirait</string-name>
          <email>E.R.E.Sirait@tudelft.nl</email>
        </contrib>
        <contrib contrib-type="author">
          <string-name>Anneke Zuiderwijk</string-name>
          <email>A.M.G.Zuiderwijk-vanEijk@tudelft.nl</email>
        </contrib>
        <contrib contrib-type="author">
          <string-name>Marijn Janssen</string-name>
          <email>M.F.W.H.A.Janssen@tudelft.nl</email>
        </contrib>
      </contrib-group>
      <pub-date>
        <year>2025</year>
      </pub-date>
      <abstract>
        <p>Claimed to offer promising benefits in terms of efficiency and transformation, the implementation of AI in government organizations faces many challenges and requires certain readiness. It is thus important to explore what factors influence the government's readiness for AI, particularly for specific AI technologies in specific domains. This research examines factors influencing government readiness to implement predictive AI for public financial management (PFM). We conducted a case study in the Indonesian central government that develops AI for financial advisors (AIFA) to monitor and evaluate regional governments' budgeting and spending. We explore technical, societal, ethical, and governance readiness and reveal AI-specific and PFMspecific factors in the context. Some of those factors are the use of AI to obtain AI-ready data, alignment of accuracy and functionality, commitment to data-driven decision-making, and user acceptance. We find that this AI tool receives great user acceptance as it answers users' needs and provides financial transparency to the public. Nevertheless, the examined government organization precedes technical and societal readiness efforts before ethical and governance readiness, leaving auditing and regulatory frameworks of AI in place.</p>
      </abstract>
      <kwd-group>
        <kwd>Artificial Intelligence (AI)</kwd>
        <kwd>AI readiness</kwd>
        <kwd>Government organization</kwd>
        <kwd>Public financial management</kwd>
        <kwd>AIFA</kwd>
      </kwd-group>
    </article-meta>
  </front>
  <body>
    <sec id="sec-1">
      <title>1. Introduction</title>
      <p>
        Implementing AI in public organizations offers promising benefits, such as improving the
effectiveness and efficiency of public service delivery, resulting in more accurate work, reducing
human error, and transforming internal processes
        <xref ref-type="bibr" rid="ref9">(Valle-Cruz et al., 2019; Mellouli et al., 2024)</xref>
        .
Lately, AI capabilities in automating repetitive tasks, processing large datasets for informed
decisionmaking, personalizing services, and providing virtual assistants have been progressively used in public
administration (Mikalef et al., 2023). AI has transformational potential across various fields, including
finance (Smith &amp; Ayele, 2025). AI can be used in public financial management (PFM), which refers to
the applications of AI techniques in macroeconomic and macro-fiscal forecasting, spending decisions,
budget planning and monitoring, and financial management and reporting functions in government
        <xref ref-type="bibr" rid="ref1">(Allen et al., 2013; OECD, 2024)</xref>
        .
      </p>
      <p>
        Implementing AI in government organizations, at the same time, is challenging. Some challenges
associated with integrating AI into public financial management systems include data privacy
concerns, the need for skilled personnel, and the importance of developing regulatory frameworks
that ensure ethical use and transparency
        <xref ref-type="bibr" rid="ref3">(Bouchetara et al., 2024)</xref>
        . Moreover, AI exists within
sociotechnical systems, where technology and human actors interact to achieve specific goals. The
lessons learned from integrating AI systems also emphasize the critical need for developing strong
governance structures, ethical frameworks, and regulatory supervision
        <xref ref-type="bibr" rid="ref3">(Bouchetara et al., 2024)</xref>
        .
      </p>
      <p>
        As AI is a collection of applications and technologies, different types of AI applications relate to
unique resources or variations in the underlying machine learning algorithm, design, data sources, or
deployment scenario. Hence, the capability requirements for implementing predictive AI are different
from, for instance, generative AI or image recognition systems
        <xref ref-type="bibr" rid="ref8">(van Noordt &amp; Tangi, 2023)</xref>
        . In fact,
predictive AI is one of the most used AI technologies in government organizations (Misuraca and van
Noordt, 2020) due to its potential to significantly reduce operational costs and improve business
decisions. Although research presents AI readiness assessment models and frameworks, most studies
do not specify the AI application types they examined. Subsequently, existing research often remains
at a high level of abstraction. The specific elements, such as prediction accuracy and impact on
datadriven decision-making, that characterize predictive AI remain unexplored.
      </p>
      <p>
        In addition, looking deeply into the use of predictive AI in specific domains, in this case, public
financial management, allows us to perceive unique insights into the applications of AI techniques
using financial data, such as making predictions of budget expenditure to help with strategic
decisions. Proper management and oversight with AI can significantly improve efficiency, risk
management, and the overall performance of public financial management, thereby yielding benefits
        <xref ref-type="bibr" rid="ref3">(Bouchetara et al., 2024)</xref>
        . However, limited research has examined the readiness of the government
to use AI in managing public finance.
      </p>
      <p>To address the gaps in the literature that predominantly originate from unspecified types of AI
applications and the unspecified domain, this paper provides insights into influencing factors of the
government’s readiness, specifically for implementing predictive AI in public financial management.
The scientific relevance of this research is to explore and explain factors and strategies influencing AI
readiness in government organizations, particularly for public financial management. The practical
relevance concerns providing insight for public sector practitioners who have started using AI and
need to improve their organization’s readiness to make the implementation of predictive AI more
successful.</p>
    </sec>
    <sec id="sec-2">
      <title>2. Research Background</title>
      <p>2.1.</p>
      <sec id="sec-2-1">
        <title>Potential and Challenges of Predictive AI</title>
        <p>
          AI offers significant opportunities in public financial management. AI can enhance risk management
in the public sector with more precise predictive models for forecasting business failures and
assessing fiscal risks
          <xref ref-type="bibr" rid="ref3">(Bouchetara et al., 2024)</xref>
          . AI facilitates various analytical and decision-making
processes through scenario analysis, resource allocation, and policy impact analysis (OECD, 2024). It
increases operational efficiency by automating business processes and handling repetitive tasks
efficiently and with minimal error, such as data entry and form processing (Smith &amp; Ayele, 2025).
        </p>
        <p>
          Despite its potential, AI adoption in public financial management also presents various challenges.
Key challenges include the potential for bias and discrimination, which can arise from algorithms that
are either poorly designed or trained on biased data. Implementing AI in public financial management
necessitates higher transparency, accountability, and explainability compared to the private sector
          <xref ref-type="bibr" rid="ref8">(van Noordt &amp; Tangi, 2023)</xref>
          or other domains. This is due to the need for public scrutiny,
accountability for the use of public resources, and the potential impact on citizens (OECD, 2024).
Automating fiscal decisions can shift accountability from human judgment to system-based
processes, raising challenges in defining accountability. The use of AI in public financial management
raises important ethical concerns related to data protection and fairness, especially potential impacts
on vulnerable or marginalized groups
          <xref ref-type="bibr" rid="ref3">(Bouchetara et al., 2024)</xref>
          . Another challenge of AI in public
financial management is integrating into existing financial management systems, which are often
fragmented and outdated, lacking the necessary infrastructure and compatibility for advanced AI
functionalities (OECD, 2024).
2.2.
        </p>
      </sec>
      <sec id="sec-2-2">
        <title>Theoretical Framework of Government’s AI Readiness</title>
        <p>
          For public organizations to commence AI use, they are expected to attain certain states of
psychological, behavioral, and structural preparedness
          <xref ref-type="bibr" rid="ref7">(Lokuge et al., 2019)</xref>
          and possess relevant
resources, capabilities, and commitment to AI adoption
          <xref ref-type="bibr" rid="ref6">(Jöhnk et al., 2021)</xref>
          . Previous research on AI
capabilities takes the resource-based view as the theoretical baseline
          <xref ref-type="bibr" rid="ref10 ref8">(Mikalef &amp; Gupta, 2021;
Neumann et al., 2022; Mikalef et al., 2023; van Noordt &amp; Tangi, 2023)</xref>
          . That earlier research informed
what resources determine successful AI adoption. However, government organizations should
prepare beyond sufficient resources to be ready for AI. Many studies also use the
TechnologyOrganizations-Environment (TOE) framework to list the factors influencing AI readiness
          <xref ref-type="bibr" rid="ref6 ref8">(Pumplun et
al., 2019; Jöhnk et al., 2021; Mikalef et al., 2022; Maragno et al., 2023)</xref>
          . Yet, this framework often
captures high-level factors and is limited in exploring the unique requirements of AI.
        </p>
        <p>
          In the socio-technical systems approach, distinct but interrelated social and technical subsystems
are integrated, and all stakeholders can contribute to developing technical functionality and the
evolution of the social side
          <xref ref-type="bibr" rid="ref4">(Fischer &amp; Herrmann, 2011)</xref>
          . This theory is considered relevant to studying
AI systems in the organizational context because AI systems are not just technical tools but also have
a social impact on the people who use them and are affected by them. It requires technology and
human conformity in an intervention strategy for organizational development (Oswald, 2018; Straub
et al., 2023) and the interplay between technology and the social context of public administrations
          <xref ref-type="bibr" rid="ref8">(van Noordt &amp; Tangi, 2023; Young et al., 2022)</xref>
          . Moreover, most AI applications in the public sector
consider ethical aspects and principles of responsible design. The concept of AI governance is closely
associated with responsible and ethical principles embedded throughout the design, deployment,
and evaluation process
          <xref ref-type="bibr" rid="ref3 ref5">(Oswald, 2018; Gupta &amp; Parmar, 2024; Bouchetara et al., 2024)</xref>
          . Considering
the nature of AI as a socio-technical system and being ethically sensitive, this paper incorporates
those existing concepts into an integrated framework to study the government’s AI readiness. The
framework comprises elements of technical, societal, ethical, and governance readiness.
        </p>
      </sec>
    </sec>
    <sec id="sec-3">
      <title>3. Research Methodology</title>
      <p>This research adopts an exploratory case study approach to examine readiness factors for
implementing predictive AI in public financial management. It aims to understand how and why these
factors influence AI implementation, based on insights from diverse stakeholders. Given the limited
discussion of predictive AI in the financial sector and the often abstract nature of existing AI research,
a case study is appropriate. As Yin (2003) and Benbasat et al. (1987) argue, case studies are
wellsuited for investigating contemporary, context-dependent phenomena and addressing “how” and
“why” questions involving personal experiences and behavior.</p>
      <p>To select a specific case for this research, we set the case selection criteria as follows:
1. The case concerns the implementation of predictive AI in Indonesian government organizations
responsible for public financial management. The Indonesian case is convenient because the first
author speaks the language and has the network to reach the organization.
2. The case involves at least two years of experience with AI implementation, and the AI system is
still in use. This criterion allows us to capture the organization's AI readiness dynamics. The use of
AI referred to in this research is the use of the organizational deployment of AI systems. It does
not include individual civil servants’ use of AI, such as a personal ChatGPT account.
3. The case enables access to relevant interviewees, observations, supporting documents, and
potentially other information sources for analysis.</p>
      <p>We selected one institution that fulfilled those criteria. Focusing on a single case study allows
deeper exploration of the real practice by interviewing multiple stakeholders. Without intending to
generalize the findings, this specific case study is valuable to learn from for some reasons. First, the
studied organization is the central public financial management of the country, which has always
been leading in digital transformation, and the AI use case was awarded as the best AI innovation in
2024 by the Indonesian Ministry of State Apparatus Utilization and Bureaucratic Reform.</p>
      <p>The primary data for this research was gathered from interviews and relevant document analysis.
Table 1 describes the roles of the selected interviewees and their experience in the organization. The
informants are selected purposively from each role and varied backgrounds to share relevant insights.
Interview questions were based on readiness factors identified in the literature, allowing us to refine
and extend existing models for predictive AI. One-hour online interviews were conducted between
October 2024 and February 2025, with follow-up questions addressed via email. All interviews were
recorded, transcribed, and thematically coded using Atlas.ti software. We applied deductive coding
to the transcripts, in which we developed labels for the interview data based on theory and concepts
from the “Research background section” before starting the coding process. We also applied
inductive coding to identify unlabeled sub-factors based on interviewees’ views.</p>
    </sec>
    <sec id="sec-4">
      <title>4. Case Description</title>
      <p>In this paper, we conducted a case study in the Ministry of Finance, Republic of Indonesia. This
organization serves in the capacity of the chief financial officer of the central government, with one
of its major functions including the formulation and implementation of fiscal policy and budget
management. With more than 78,000 employees, the organization has 800 offices in all regions of
Indonesia. The Ministry of Finance has shown efforts to apply AI innovations by forming the Central
Transformation Office with a dedicated data analytics unit. This unit drives innovations in data-driven
technologies, including supervising and controlling AI innovations from whole departments in the
Ministry. Approximately forty data analytics projects and at least ten predictive AI initiatives were
officially recorded, with some currently under development, and others already in use. However, with
no inventory built in the organization, detailed information about all algorithms used in their public
services is hardly accessible.</p>
      <p>Among the AI innovations, we specifically analyzed the use of AI for Financial Advisors (AIFA). The
Directorate General of Fiscal Balance runs this AI tool and has initial objectives to classify the
unstandardized nomenclature of regional government accounts from SIKD (regional financial
database) to provide regional financial data in a real-time manner, more accurately and reliably, to
support data-driven policy formulation. It also aims to strengthen the role of the Ministry of Finance
in improving the quality of regional financial management. Financial advice for regional governments
expected from this AI tool includes data anomaly detection as an early warning system, performance
evaluation of budget execution, forecasting regional income and expenditure, and analysis of
spending priorities to increase the impact of regional revenue and expenditure budgets.</p>
      <p>In AIFA, several AI techniques are used for different purposes. It uses a rules-based system for
anomaly detection and data validation; natural language processing for standardization of regional
governments’ budgets and financial data and budget tagging; machine learning for forecasting
budget realization and optimization; and computer vision for remote sensing. Every month, the
Ministry of Finance will transfer regional funds allocation to regional governments based on their
historical spending in previous months. As a prerequisite, regional governments should provide their
financial data to AIFA every month by authorizing data integration from different accounting
information systems to AIFA. If the data is detected as anomalies or invalid, the regional governments
will be punished, delaying the transfer of regional funds.</p>
    </sec>
    <sec id="sec-5">
      <title>5. Empirical Results from the Case Study</title>
      <p>5.1.</p>
      <sec id="sec-5-1">
        <title>The Influencing Factors of Governments’ AI Readiness</title>
        <p>Through seven interviews with public administrators involved in developing, using, monitoring, and
governing AI for financial advisors (AIFA), prominent factors influencing their readiness for AI are
derived (Figure 1). The findings revealed some factors specific to predictive AI, such as aligning
accuracy and functionality in choosing AI prediction models, and the need for standards and
guidelines for good AI prediction models. Also, some factors are specific to PFM, such as commitment
to data-driven financial decision-making and using AI to process unstructured financial data to
provide analytics.</p>
        <p>Technical
•Extensive data
management
•Continous system
learning
•Alignment of
accuracy and
functionality
•Qualified
infrastructure</p>
        <p>Societal
•Commitment to
data-driven
decision-making
•Set of AI skills and
AI awareness
•AI innovations
management
•User acceptance
and engagement</p>
        <p>Ethical
•Human oversight
for accountability
•Data privacy and
security
•Become
transparent</p>
        <p>Governance
•Documents of
standards and
guidelines
•Algorithm
inventory
•AI regulations and
policies
This sub-section presents a narrative description of the factors mentioned in Figure 1, supplemented
by quotations from interviews, identified by their respective identity numbers in brackets..</p>
        <p>1. Technical: Having AI-ready data by utilizing AI techniques
AIFA was initially designed to analyze regional financial data, gathered from several information
systems with different account standards (unstandardized) and vast data variations. Tracking and
consolidating that kind of financial data from 546 local governments in one application is difficult.
Thus, AI techniques are applied to process the input data and result in AI-ready data for the database
warehouse. In this process, data anomalies are detected using the box-plots model, and the text data
is classified and standardized with a transformer algorithm. These AI techniques validate the data and
warn data owners if the discrepancy exceeds 10%. When AI-ready data is present in the database
warehouse, machine learning-based models are applied to process the data and do budget tracking
and optimization in the form of a dashboard.</p>
        <p>
          2. Technical: Applying continuous system learning
As indicated in
          <xref ref-type="bibr" rid="ref8">(Maragno et al., 2023)</xref>
          , ensuring a continuous learning process is one of the AI system
requirements. AI models are rapidly developing, so they require continuous learning to choose and
update the best model for certain tasks. Same with AIFA, the first version was created in 2019. At that
time, data anomaly detection was performed using Benford’s law model, and text classification using
a rule-based SQL query. Later, the classification technique became inefficient for more detailed
thematic analysis. Then, the second version of AIFA was built in 2020 with improvements: data
anomaly detection using a box-plots model, text classification using natural language processing, and
implementing budget tagging, tracking, and analysis. The budget auto-tagging applies a natural
language processing technique for thematic analysis, such as education, health, or stunting. The
analysis gives predictions and financial advice for policymakers. Technically, the developers evaluate
the existing models two times a year. A change in the model should consider two core factors:
significant impact and efficient process. Although the model continues to learn, this procedure runs
incidentally due to the lack of a defined governance framework.
        </p>
        <p>3. Technical: Ensuring accuracy aligns with the functionality
The system’s accuracy in predictive AI is essential because it shows how precise the predictions are.
However, no single source has precisely mentioned the standard accuracy of a good AI model. Tuning
the system’s accuracy requires group deliberation about performance beyond statistical forecast
accuracy (Montes, 2023). A high accuracy rate should align with the functionality of the AI system,
which means it should meet user expectations. In our case, the AI models used in AIFA give an
accuracy rate of 95-96%; however, different stakeholders highlight the system’s accuracy distinctly.
For AIFA developers, setting accuracy has a trade-off with implementation simplicity and data quality.
For AIFA users, the main concern is on how the system can support their work. The user found out
that the accuracy constraint in AIFA is caused by the lack of data integration between diverse data
sources and standards. Thus, although the system has a high accuracy rate, manual work is still
needed for data validation. From the auditor’s perspective, the system's functionality should go
beyond the accuracy rate. The function of AIFA for decision-making should be optimized further. The
budget spending impact analysis using AIFA is not yet available. From the governance perspective,
the interviewee claimed, “It is difficult to rigidly determine an AI system's minimum accuracy because
the consideration is case by case and is influenced by the different complexities of the predictions
and imbalanced data conditions. Although higher accuracy is better, no best practices mention
accuracy standards” [I5].</p>
        <p>4. Technical: Provide qualified infrastructure
AI infrastructure involves hardware and software to create and deploy AI applications. Typically, AI
infrastructure comprises four components: data storage, computing resources, machine learning
(ML) frameworks, and MLOps platforms. AI applications frequently require extensive storage and
graphics processing units (GPUs) for the computing power, rather than the more traditional central
processing units (CPUs). The implementation of AIFA in this organization is enabled by adequate
infrastructure, as perceived by the informants. However, this organization still faces limited
computing power as one of the challenges to developing more AI solutions, particularly for ones that
handle images and videos. The problem in procuring advanced computing power is not necessarily
limited to budget, but is also related to the availability of machines in the market. As indicated by
interviewees, cloud-based infrastructure can be an option in their organization for AI innovations that
process huge amounts of public data.</p>
        <p>5. Societal: Commitment to data-driven decision-making
In our case, the studied government is particularly devoted to creating a data-driven culture. Initiated
by the top leaders, they build commitment and demand for evidence-based policies. As indicated
during the interviews, “Since early 2021, the Minister instructed all employees to explore data
utilization massively. The Ministry of Finance is like a hub for numerous types of financial data, from
macroeconomics up to small transaction details. Processing the data will make more impactful and
data-driven decisions” [I4]. AIFA is one of the tools that offers potential benefits to support
datadriven financial policies. AIFA makes it easier for the central government to monitor and evaluate
budget planning and the realization of the regional governments. AIFA also facilitates more
transparent government financial data to the public, as processing the data is now simpler and yields
a clearer understanding. However, we need to interview more regional governments to conclude
whether AIFA has been useful in data-driven decision-making. Moreover, data literacy of the public
administrators and change management of the organizations are essential to build and maintain a
data-driven culture.</p>
        <p>6. Societal: Developing AI skills and AI awareness
The studied organization prioritizes efforts in building AI skills and AI awareness within the
organization through several initiatives. In 2020, a data analytics Community of Practice (CoP) was
initiated to gather data science and AI experts in the organization to mutually share their knowledge.
Started from a competition inside the organization to trigger data science innovations, it continued
to grow. The community now has 50-60 members and has been institutionalized for bigger impacts.
A pulling factor to join the community is that the members can serve as training instructors for other
employees and get additional monetary benefits. The community members can also be involved in
other AI projects outside the organization to improve their skills. The community regularly holds
competitions, hackathons, and sandbox experiments that invite innovation from AI enthusiasts inside
and outside organizations. Besides skills, AI awareness of all employees is also developed to avoid
misperceptions about AI. Several levels of training are available in the organization to shape extensive
AI awareness and skills. It ranges from the basic level covering data literacy, to the high level of AI
skills specialists.</p>
        <p>7. Societal: Manage AI innovations
The progressive use of AI and data analytics inside the studied organization has affected its
organizational structure. The Central Transformation Office (CTO) was initiated in 2020 to accelerate
digital transformation in the Ministry of Finance. As part of it, the Data Management Office (DMO)
was designed specifically to manage data analytics and AI implementation in the organization.
However, the organization applies decentralized AI innovations, which means innovations can come
from any team integrated into the business domain, not necessarily from the CTO/DMO. It is found
that almost all the Directorate Generals in the Ministry have implemented predictive AI for their
specific purposes. The innovations also come from the community of practice, AI competitions
involving internal and public participants, and sandbox policies. Then, the DMO is responsible for
supervising the AI applications, deciding which ones are good to be implemented, and monitoring the
implementation.</p>
        <p>8. Societal: Ensure user acceptance and engagement
In our case, the acceptance of using AIFA is high. The first reason is that AIFA is mandatory for regional
governments to use due to the central government's authority to require it. Second, this application
clearly helps users work more efficiently. With data validation and budget tagging, for example, it
helps regional governments easily monitor their budget. The system also increases user engagement
in feeding the data. Previously, the regional governments only sent their data without guaranteeing
quality. With the gatekeeper in the form of anomaly detection in the system and publishing the data
on the organization's website open to the public, it raises, by design, user involvement to provide
good-quality data. Over time, the system has barely found anomaly data compared to the initial state.
As mentioned by interviewees, “The most important thing in developing AI-based solutions is that
the tool answers the user's needs and makes the work easier, not merely follow the trend of
technology. By that, user acceptance and engagement with the AI tool will be high” [I1, I2].</p>
        <p>9. Ethical: Human oversight to support accountability
In our case, one potential bias in the AIFA system is errors from the algorithm in classifying text data.
With an accuracy rate of 95-96%, it leaves a 4-5% discrepancy, which matters in financial data and
can make significant differences. To overcome this bias, human oversight is applied to evaluate the
prediction result of NLP. Another potential bias is data discrepancy that might affect policy-making.
AIFA utilizes financial data from several databases with unstandardized accounts and huge data
variations. It results in a data discrepancy every time. This bias is handled by setting a maximum of
10% data discrepancy monthly in the system. For higher discrepancies, the system will warn the data
owners to correct their data. At the end of the year, the data owners should provide consolidated
data. Although inefficient, human oversight and manual work are indispensable in this matter.</p>
        <p>10. Ethical: Ensuring data privacy and security, even with cloud-based infrastructure
It has often been a dilemma for public administrators whether or not to utilize cloud-based
infrastructure. The decisions are made between data confidentiality, security, and regulation. Cloud
services offer a bigger capacity to run AI models, cheaper cost, and sometimes more reliable data
security. The studied organization utilized cloud-based infrastructure to run several AI solutions with
strict non-disclosure agreements (NDA) with the service provider. However, the cloud is used only for
public data, while an on-premise server is used for confidential and very confidential data.</p>
        <p>11. Ethical: Attain transparency
Transparency in the AIFA system covers processes and results. Process transparency is intended for
the users and is achieved by communicating how the system works and its weaknesses. Transparency
in results is intended for the public and is achieved by publishing real-time and valid data from AIFA
about regional revenue and expenditure on an open-access website.</p>
        <p>12. Governance: The need for documented AI standards and guidance
Our studied organization faces challenges in AI governance documentation. There is no reference yet
to the requirements of good AI models, for instance. The existing procedure is to negotiate it between
the data management office (DMO) and the business owners. The absence of this requirement gives
flexibility in different conditions of use cases. “In some cases, an accuracy of 70% is already good,
considering the quality of the data and the complexity of the cases, but for other cases, it requires
more than 85% accuracy. That is why the minimum standard of good AI models can not be set in
documents; they should be evaluated case by case” [I5]. However, a minimum accuracy should be
determined for clearer governance. Many aspects are important to be administered in a governance
framework, such as how to audit the data and the used algorithms, and how regular models should
be validated.</p>
        <p>13. Governance: The need for an algorithm inventory
Although many AI innovations have already been developed, and some of them have been
implemented in the organization, not all innovations are officially recorded. Some AI innovations are
out of the data management office's (DMO) supervision because they are only intended for internal
purposes, and no legal standing is required. Thus, an inventory platform to register all existing AI
innovations in the government organizations is important. This platform can help with supervision
work, provide public information, and build transparency in the use of algorithms in the public sector.</p>
        <p>14. Governance: Designing AI regulations and policies
Besides guidelines, laws and regulations are required for AI governance. Since Indonesia has no
national AI law yet, the studied organization designs its own regulation with international references.
They started with data governance and policy about data quality. Some sectoral-level regulations,
such as those in customs, were designed to permit AI to be used for decision-making exclusively in
the sector. In the use of AIFA, some technical rules are designed as legal standing and reference for
regional governments, auditors, and other relevant parties about the options made in the system,
such as the choice of models and the upper and lower limits of data anomaly.</p>
      </sec>
    </sec>
    <sec id="sec-6">
      <title>6. Discussion</title>
      <p>Our study uses an integrated approach to investigating government readiness to implement AI by
looking at socio-technical systems theory and considering AI characteristics that are ethically sensitive
and institutionally reliant. AI systems in the organizational context are not just technical tools but also
have social impacts on the people who use them and are affected by them. Therefore, our study
explores government readiness from multiple stakeholders' perspectives. Through a case study on
predictive AI in public financial management, our study explains overlooked factors to complement
the current AI readiness models, which are often at a high level of abstraction.</p>
      <p>
        From previous research on AI capabilities with the resource-based view
        <xref ref-type="bibr" rid="ref10 ref8">(Mikalef &amp; Gupta, 2021;
Neumann et al., 2022; Mikalef et al., 2023; van Noordt &amp; Tangi, 2023)</xref>
        , we know that having sufficient
resources is not enough to determine successful AI implementation. In studies using the
TechnologyOrganizations-Environment (TOE) framework to list the factors influencing AI readiness
        <xref ref-type="bibr" rid="ref6 ref8">(Pumplun et
al., 2019; Jöhnk et al., 2021; Mikalef et al., 2022; Maragno et al., 2023)</xref>
        , we find that the unique
requirements in specified AI technologies are still unexplored. By applying an integrated framework
to study the government’s AI readiness, which comprises technical, societal, ethical, and governance
readiness, this paper revealed several factors specific to predictive AI, such as aligning accuracy and
functionality in choosing AI prediction models, and the need for standards and guidelines for good AI
prediction models. Also, some factors are specific to public financial management, such as a
commitment to data-driven financial decision-making and using AI to process unstructured financial
data to provide analytics.
      </p>
      <p>From our case study, we observe the technical nature of AI innovations, including the need for
contextual alignment with existing business processes, the complexity and quality standards
contextual on a case-by-case basis, and the requirement for regular maintenance to update data and
models. Given those characteristics, the self-development of AI innovations in government
organizations can offer several advantages over external procurement. Self-development allows for
the creation of AI solutions tailored to the unique needs and contexts of the organization (Smith &amp;
Ayele, 2025). Unlike externally developed systems, in-house teams have a deeper understanding of
the organization's specific tasks, data, and operational processes. This can lead to AI innovations that
are more aligned with operational needs and, thus, more effective (Selten &amp; Klievink, 2024). In
addition, the confidentiality of data owned by the organization for the AI system will be better
preserved. However, the organizations' limited AI skills and infrastructure are common obstacles to
self-development. Our studied organization overcomes this limitation by organizing multiple levels of
training and competitions and institutionalizing a community of practice that gathers all data science
and AI experts in the organization to share knowledge mutually.</p>
      <p>The algorithm audit recommendation in our studied organization questioned the effect of the
prediction given by AIFA in making an impactful budget structure for regional governments. This
finding aligns with a report from the OECD (2024) that resumed a cautious and incremental approach
to AI implementation, often taken by finance ministries, typically focusing on “task automation” and
“predictive” applications before moving towards more complex “prescriptive” AI that suggests
courses of action. Furthermore, the report also stated that the implementation of AI in public financial
management calls for government-wide AI standards and guidance covering key areas for safe
implementation, including data exchange, privacy protection, bias avoidance, and cybersecurity risks
(OECD, 2024), which is also indicated in our case.</p>
    </sec>
    <sec id="sec-7">
      <title>7. Conclusion</title>
      <p>This study provides in-depth insights into factors influencing the government’s readiness to
implement predictive AI in public financial management. We conducted a case study on an
Indonesian government organization that has been implementing an AI-based tool called AI for
Financial Advisors (AIFA) for two years. We interviewed seven stakeholders from different roles to
cover the integrated technical, societal, ethical, and governance readiness. The results of this
research give an empirical contribution to existing literature that predominantly originates from the
general domain and applications of AI, and is taken solely from the product management standpoint.</p>
      <p>The scientific contribution of this study is reflected in overlooked factors found in the
government’s AI readiness dynamics. This exploration went beyond the resource-based view and
TOE-based research. Our findings revealed some factors specific to predictive AI, for instance, the
importance of aligning accuracy and functionality to have users’ acceptance, and institutionalizing
commitment to data-driven decision-making. High accuracy is crucial in predicting AI, but it does not
always imply high usefulness. Hence, tuning the system’s accuracy requires group deliberation about
performance beyond statistical forecast accuracy. Additionally, the organization should have a
datadriven culture in place to ensure that the AI tool's predictions work. Our findings also pointed out
factors unique to public financial management (PFM), such as using AI algorithms to process
multisource unstructured financial data. With features for anomaly detection and auto-tagging, this
AI tool can process and provide analytics to typical financial data that is rigid and changes in
realtime. Besides, we also recognized some factors to be ethically and governance-ready in AI.
Documented standard requirements and guidance for proper AI models, regulations to legalize the
use of AI in the decision-making process, and making a data analytics and AI inventory are found in
the studied organization as ongoing efforts.</p>
      <p>As a societal contribution, this case study has shown how implementing predictive AI to manage
public finance offers great potential to support data-driven decision-making. With AI for Financial
Advisors (AIFA), the central government can provide financial advice to regional governments, such
as data anomaly detection as an early warning system, and performance evaluation of regional
budget execution. It also facilitates financial transparency to the public with a simple dashboard.</p>
      <p>The limitation of this study concerns its single-case approach. Although it offers a deeper
investigation, the findings may not necessarily reflect the situation of other government
organizations. Besides, as an ongoing research, the number of informants involved is limited. More
interviews with AI users and leadership roles will be conducted to create a better understanding of
the practical implementation and governance of such AI systems in public financial management. For
future research, survey-based research can complement the generalizability of the findings in this
case study with broader organizational contexts. Future research can also focus on user experience
and engagement in using an AI system for decision-making. Furthermore, the application of other AI
technologies for public finance, such as generative AI, is another area of potential research.</p>
      <sec id="sec-7-1">
        <title>Declaration on Generative AI</title>
        <p>The author(s) have not employed any Generative AI tools.</p>
      </sec>
      <sec id="sec-7-2">
        <title>Acknowledgements</title>
        <p>This research is funded by the Indonesian Endowment Fund for Education (LPDP). We thank all
informants in the Ministry of Finance, Republic of Indonesia, for their support and time to share
information for this research.
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