The latest issue of the International
Journal of Governmental Financial Management is now available for free down
load from: www.icgfm.org/journal.htm
Below is the editorial from this issue on public sector financial
accountability and an introduction to the individual papers:
“Government accounts generally… [have an] orientation
towards accountability requirements” (UN 1970: 21[1]). This is recognised by the Cash Basis International Public Sector
Accounting Standard (IPSAS) which accepts that financial reporting “is
necessary for accountability purposes” (Page 7). However, this Standard is not based on existing good
practices and so breaks some of the fundamental traditional precepts of
financial accounting in the public sector.
The budget cycle includes three key stages, authorisation of
the budget by Parliament, implementation by the executive and reporting back to
Parliament on the budget out-turn.
Before the beginning of the financial year, parliaments traditionally
provide authority to the government to raise taxes and details how this shall
be spent (the budget). The annual
financial statements or appropriation accounts subsequently account to
Parliament how the funds raised have actually been spent by the various
ministries, departments and agencies.
Clearly it is
important that accurate accounts of the receipts and disbursements should be
kept, and it is evident that these accounts should be in such a form as will
enable the revenue actually collected and the amounts actually disbursed to be
compared readily with the Estimates of Revenue and Expenditure [the budget]
(Colonial Audit Department 1951: 17[2]).
The next stage of the accountability cycle is then the
audit. The auditors work on behalf
of parliament (or in some cases the president) to confirm that the, “moneys
made available by the legislature are expended properly and for the purposes
for which appropriations are sanctioned” (UN 1970: 34). Thus auditors confirm that the budget
was complied with and that all payments were made in line with the Financial
Regulations. Where this is not the
case, such irregularities, if significant are included within the auditor’s
annual report.
In addition, to a detailed comparison of the actual receipts
and payments with the budget agreed by parliament, the annual financial
statements traditionally included a statement of assets and liabilities. The balance of this statement shows,
“the territory’s accumulated balance available for appropriations, i.e.,
available for disbursements on government services” (Colonial Audit Department
1951: 29). The final main
statement was the Statement of Public Debt which showed the government’s
outstanding liability to repay loans it had raised. It also may show any associated Sinking Funds which have been
established to pay off each of the loans when they fall due.
Despite the recent renewed interest in the level of
government debt, the Cash Basis IPSAS does not require governments to maintain
the traditional practice of reporting on the level of this liability. In contrast the Standard does require a
full consolidation of all controlled entities including government business
enterprises (GBEs, also called parastatal organisations or government
corporations).
GBEs have traditionally used commercial accounting and so
“depreciation accounts will customarily be maintained” (UN 1952: 17[3]). Thus it is practically very difficult
to consolidate the financial statements of GBEs with those of central
government ministries, departments and agencies as this would first require the
conversion of their accrual based financial statements back to the cash (or
modified cash) basis.
This explains why South Africa, for example, produces separate “Consolidated
Financial Information” for its public entities (GBEs). These statements are not consolidated
with financial statements from its national departments (ministries). In addition, the two sets of “Consolidated
Financial Information” for the ministries and separately for public entities merely
present an aggregation of financial information without the elimination of all inter-entity
transactions (see http://tinyurl.com/SAaccounts2011).
Similarly the Ugandan Government produces consolidated financial
statements for its central ministries, departments and agencies, but its GBEs
are excluded as the benefits are not considered to be worth the effort. The Government Accounting Standards
Board of India goes further (2008[4])
saying:
Though
this is fundamental requirement of Cash IPSAS, it is likely to cause more
distortion than bringing in clarity in the financial statements of government… Further,
consolidating Government Companies accounts with that of Government will result
in artificial inflation of cash inflows and outflows and is not likely result
in any improved presentation of financial statements (page 9).
The objective of producing consolidated public sector
financial statements is not clear as the main objective of these financial
statements has been for individual Accounting Officers to by held to account by
parliament on the way in which funds allocate to them in the budget have been
utilised. It is this personal responsibility to parliament (and specifically
the Public Accounts Committee) that is at the core of the Westminster approach
to public financial accountability and the control of public funds. The French approach is similar as the
accounts of individual Public Accountants are audited by the Court of Accounts
and, if the funds have been used appropriately, they are cleared or given
quitus.
Unfortunately, the Cash Basis IPSAS does not follow this
traditional approach and is not based on the existing good practices which have
been developed in many countries over the last few decades.
The Cash Basis IPSAS was first issued in January 2003, but
although it has been widely promoted by the donor community, PEFA and IFAC, not
a single government in the world has actually been able to adopt this
standard. This is not from want of
trying, many governments have looked at the standard, but recognised that it is
not practical to implement its key requirements. It is estimated, for example, that at least 31 governments
in Africa have tried to adopt this standard. One international consultant recently estimated that he had
worked in around 30 countries trying to adopt the standard, but that its key
requirements had not proved practical.
As a result of these problems, the International Public Sector
Accounting Standards Board is planning to fundamentally revise the Cash Basis IPSAS. However, this process appears to have
stalled. The IPSAS Board has not
considered this issue since its June 2010 meeting and no further progress has
been made to revise the Standard.
What is needed is for existing good practices to be identified
and used as a basis for ensuring that the Cash Basis IPSAS becomes a practical
standard that most governments can implement within the medium term. A start has been made with a study,
funded by the African Capacity Building Foundation. This reviewed the annual financial statements of 12
governments from across sub-Saharan Africa and identified attributes of good
practice (see www.scribd.com/doc/94003101).
We begin this issue of our Journal with An Overview of Accounting in the Nigerian Public Sector which is
the first chapter of a recent book by two eminent Nigerian authors, Eddy O. Omolehinwa
and J. K. Naiyeju. This paper
reviews the differences between public sector accounting and that undertaken in
the private sector. It then
discusses the different types of public sector organisation and the approaches
to public sector accounting which have been developed for each of these
institutions. Finally the authors consider the research challenges in the area
of public sector accounting. They
note that the most important has been access to data, but that this has
improved in recent years with the annual and even quarterly financial
statements now being made available for the Nigerian public sector on the
Internet.
Administrative
Cameralistics is a particular
accounting model developed for use by governmental organizations in
German-speaking European countries.
In this paper, Norvald Monsen builds on previous papers in this Journal with a
practical example. This illustrates
the two developed variants of Administrative Cameralistics. These both include two core financial
statements: the Statement of Revenues and Expenditures and Statement of
Financial Status. These examples
again show that the public sector has traditionally been based on the modified
cash basis of accounting.
In our third paper, Udaya Pant, considers Public Financial Management Reforms in Nepal. He presents an analysis and scrutiny of
the evolution of the Nepali public financial management system and recent reform
efforts. A description of the
historical background should help readers to understand the subject and the key
issues. He concludes that basic
reforms need to be institutionalized. The intent should not be to ‘push
reforms’ to please the donors. Rather, the basic systems may be tried first, to
internalize the skills and the spirit of reform and ensure that the reforms are
monitored regularly.
Our next paper provides a reflection on public financial
management reforms in Liberia (West Africa) by a senior financial official from
the public service of India. Amitabh
Tripathi notes that despite the consensus on its importance, post-conflict
public financial management capacity building is a tale of two contrasting ideal
types – one that is prescribed, in theory and another that is practised. The
paper argues that despite the ‘intrusive’ international engagement, capacity
building in Liberia evolved through a slow and incremental process.
In our final paper of this issue, Andy Wynne briefly outlines why business style accrual
accounting is not generally appropriate for the public sector. This conclusion
is based on the actual evidence for the costs and benefits of business style
accrual accounting from Britain, Australia and New Zealand. He also reviews the significant problems
around the implementation of accrual accounting in the Cayman Islands. The paper concludes that incentives are
needed to develop existing approaches to public sector financial reporting in ways
which recognize the distinctive objectives and nature of government in the
provision of public goods and services.
We again end this
issue with a section reviewing recent public financial management publications
and other resources which we hope will be of interest to readers of the
Journal. We would be pleased to
receive reviews and suggestions of other resources which we should refer to in
future issues.
Please email Andy Wynne (andywynne@lineone.net) to discuss contributions to future issues of this Journal.
[1] United Nations,
Department of Economic and Social Affairs (1970) A Manual for Government Accounting, United Nations: New York
[2] Colonial Audit Department
(1951) An Outline of Colonial Accounting
and Financial Procedure, Colonial Audit Department: London
[3] United Nations,
Department of Economic Affairs (1952) Government
Accounting and Budget Execution, United Nations: New York
[4] Government
Accounting Standards Advisory Board (2008) A
Study on Gap Analysis of Indian Government Accounting with International
Standards, New Delhi: GASAB Secretariat
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