Front Matter

Front Matter

Author(s):
A. Premchand
Published Date:
June 1995
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    Also by A. Premchand

    • Control of Public Expenditure in India (1966)

    • Performance Budgeting (1969)

    • *Government Budgeting and Expenditure Controls (1983)

    • Comparative International Budgeting and Finance (1984)

      • (editor, with Jesse Burkhead)

    • *Aspectos del Presupuesto Público (1988)

      • (editor, with A.L. Antonaya)

    • *Government Financial Management (1990)

      • (editor)

    • *Public Expenditure Management (1993)

      • (also in Russian)

    *Published by the International Monetary Fund

    A. Premchand

    Effective Government Accounting

    International Monetary Fund

    Washington, D.C.

    1995

    © 1995 International Monetary Fund

    This book was designed and produced by the IMF Graphics Section

    Library of Congress Cataloging-in-Publication Data

    Premchand, A., 1933–

    • Effective government accounting / A. Premchand.

      • p. cm.

    • Includes bibliographical references.

    • ISBN 9781557754851

    • 1. Finance, Public—Accounting. I. Title.

    HJ9733.P73 1995

    350.72’31—dc20

    95-17823

    CIP

    Price: US$21.00

    Please send orders to:

    International Monetary Fund, Publication Services

    700 19th Street, N.W., Washington, D.C. 20431 U.S.A.

    Tel.: (202) 623-7430 Telefax: (202) 623-7201

    Internet: publications@imf.org

    For Nikhil, Neeraj, and Indu

    Preface

    Although government accounting has existed for more than two millennia, it has not received its due. In fact, accounting has been looked down upon and viewed by nonusers as a set of archaic rules that have long since ceased to be relevant or effective. Yet, in addition to governments, ordinary citizens and democratic institutions charged with legislative oversight must contend with government financial accounts and related systems of accounting. There is recognition that these systems stand to be improved, and, from time to time, commissions are appointed to look into improving them. They conduct a debate on the subject, recommend changes, and go through the motions of implementing the changes, with no visible impact on the perceptions of the public or on the operations of those involved in the enormous and growing amounts of paperwork that constitute government accounting.

    More recently, owing to the fiscal stress that many governments have experienced, the content, form, and organization of government accounting have received renewed attention. This time, there is hope that the focused attention and the public debate may have a more enduring impact on the future course of government accounting.

    This book attempts to shed light on the processes and problems of government accounting and on how the discipline may be revitalized. It recognizes that this reform is too important to be left to government accountants alone but requires the concerted efforts of administrators, commercial accountants, economists, and, most important, the public.

    In a way, the book represents the author’s views, knowledge, and memories acquired as participant-observer in more than three decades of national and international civil service. The experience gained in the process was refined through regular exchanges with academics, accountants, and administrators in a number of countries.

    In an earlier form, the book was discussed in detail at a seminar sponsored by the IMF, the European Union, and the United Nations Development Program and held in Accra, Ghana in November-December 1994 for senior officials of 17 African countries. The views of these officials have been taken into account in the preparation of the book for publication. An earlier draft of the book was read by Adolf Enthoven, Richard Bird, Richard Goode, Andrew Likierman, and Y.V. Reddy, and their comments and criticisms have proved invaluable. It was also read by several of the author’s colleagues in the Fiscal Affairs Department of the IMF and was reviewed, in detail, by a team of senior officials from the U.S. General Accounting Office. Their comments have helped in refining the content. As always, the author alone is responsible for any errors that may remain.

    The preparation and publication of a book are occasions for incurring more debts of gratitude. The author is grateful to all the individuals named above, who unstintingly gave him the benefit of their views, and to David Driscoll and Jagdish Narang, who were supportive through the book’s preparation and publication. He is also grateful to Hildi Wicker, who typed the different versions of the book, and Elisa Diehl of the External Relations Department, who edited the book with care and craft.

    Contents

    Introduction

    This study is an attempt to delineate the role of accounting in the fiscal management of nations. Its fundamental premise is that accounting has a crucial role in the formulation and implementation of fiscal policies and indeed lies at the heart of modern governments. To grasp its significance, its nature, tasks, and evolution have to be explained.

    Evolution

    Over the years, accounting inevitably developed in various ways in different milieus. While no effort is made here to provide a history of the developments in accounting, recognition of five stylized stages in its growth and application may be in order. These five stages also indicate that each one of them left an indelible impression on the content of accounting in governments. First, the earliest references to accounting in Western societies are to be found in the practices of the governments in Athens and in the Eastern societies, in the practices of kingdoms in China and India and in the pre-Christian era. These developments, which were more or less contemporaneous, emphasized the recording of transactions and developed reporting and inspection systems, as associated features, with a view to ascertaining the status of the finances of the monarchy. For example, in China, the emperor himself heard reports delivered by officials on changes in population in different regions, changes in cultivated land, and records of transactions of receipts and disbursements of money and grain. This system was utilized to determine whether the records correctly reflected the real situation of the population and property and to safeguard royal property from internal fraud. Kautilya, a prime minister of a kingdom in India, wrote more than two thousand years ago that the “king shall have the work of heads of departments inspected daily (emphasis added), for men are by nature fickle and, like horses, change after being put to work. Therefore, the king shall acquaint himself with all the details—the officer responsible, the nature of the work, the place of work, the time taken to do it, the exact work to be done, the outlay and the profit.” The primary task of accounting as the record of the king’s finances continued for centuries, less as a science and more as a practice that evolved from changing need.

    The second stage reflects an organized attempt to codify the system. Although double-entry bookkeeping evolved about five hundred years ago, it had little impact on accounting in government, which remained a bookkeeping operation, devoid of theory or methodology. This attempt was made by the cameralists of Germany, who dominated the thinking in regard to royal finances from the middle of the sixteenth to the end of the eighteenth century. Their approaches sought to strengthen the position of the ruler and contributed to attempts at systematizing the administrative routine of fiscal departments. An inevitable consequence of their efforts was the extensive centralization of financial management and verification as the primary means of control. These very features later became the major issue between the royalty and the paying public.

    By the nineteenth century, as the public came to acquire more control over the purse and exercised this control through well-established parliamentary routines, the tasks of accounting also grew. In this third stage, while the old theme of providing information about government finances continued, this time it was to a different master, reflecting a shift from the crown to the representatives of the public. The accounting system began to be specified in laws and statutes, and the records maintained in the government acquired legal sanction. The laws also specified the respective duties of the crown, the legislature, central agencies, which were primarily responsible for the day-to-day tasks of control, and the spending agencies. This type of legislation continues to be in force in several industrial and developing countries, and some of the recent legislation enacted in a number of countries has its origins in the laws enacted during the nineteenth century. As colonialism spread, the practices of the metropolitan governments also extended to the colonies. Thus, the practices in Great Britain spread to its colonies in Asia and elsewhere, and the French practice and practices of other European countries found their way to their respective colonies. In the process, even contiguous countries came to have different systems that reflected their different colonial origins and regimes.

    In the fourth stage, accounting began to reflect the changes in the nature of the economic regime and the expanded scope and much diversified and complex nature of the tasks undertaken by governments. The advent of centralized planning in the Soviet Union brought with it both a change in the tasks of government and, consequently, its accounting systems. Although governments traditionally undertook massive investments in public works and in the establishment of railway and transport systems and waterworks, their role as investors received a substantial boost in the context of centralized economic planning. While government accounting became somewhat secondary in the overall scheme, and statistical systems gained ascendancy, the scope of accounting systems also expanded to deal with assets and liabilities in the world of quasi-commercial transactions of governments. The accounting system had to contend with costs of production, appraisal of investments, and a host of related activities.

    From this, the movement to the fifth, or current, stage was only natural. As the scope of government operations grew, budgets acquired new and deserving prominence as instruments of public policy. Economic planning was expected to strengthen the role of the state as producer, while budgets became the main tools of distribution and stabilization. These functions and the growing massive interaction between government and the community also implied that if budgets were to be successful as instruments of policy and economic management, they had to be ably served by accounting. As fiscal policies became more calibrated in the pursuit of economic stabilization, accounting became more important as a reporting system with measurement of the receipts and expenditure and their implications. As a system (which the Shorter Oxford English Dictionary (p. 2115) defines as “a set or assemblage of things connected, associated, or interdependent, so as to form a complex unity; a whole composed of parts in orderly arrangement according to some scheme or plan”), accounting is charged with identification, selection and analysis, measurement, estimation, processing, and communication of information on receipts, expenditures, assets, liabilities, costs, and benefits, and all other aspects that legitimately form part of fiscal management. Accounting now is the recognized handmaiden of fiscal policy.

    Despite its long pedigree, government accounting has suffered a benign neglect at the hands of the accounting profession and the government. For too long, the issue for the accounting profession was whether government accounting was different from the accounting system of other kinds of entities and, if so, in what way. The general notion that accounts of an entity should provide records to meet three different groups of needs was also deemed to have applicability to government organizations. Thus, all accounts should conform to the statutory and associated legal requirements that specify the content of records and the type of information to be generated. Those records should also meet the requirements of stewardship, and, thus, the needs of the groups external to the management of the entity regarding the evaluation of the entity’s performance are to be recognized. Within the entity, management also needs regular information to enable it to perform its functions efficiently and effectively.

    It was held that these general principles have varying applicability to the government. The laws specifying the accounts may have more extensive legal requirements in governments, reflecting in turn the separation of financial management functions between the legislative and executive branches of government. There may also be substantial differences in the structure of funds between entities and government. In one sense, the term funds means resources, and in another, it represents an accounting entity. It is this aspect that is of crucial importance from the point of view of financial control. In government, there may be several funds—general funds, special funds, debt-service funds, foreign aid funds, trust funds, enterprise funds, capital project funds, earmarked funds, and so on. Similarly, governments have been obliged to maintain budgetary accounts reflecting the record of appropriations, releases, commitments, payments, and uncommitted balances. These accounts reflect the budgetary structure and are intended to provide a continuous tracking of events as they occur. In general, governments have not been obliged in the past to maintain proprietary accounts regarding assets, liabilities, income, expenditure, and net worth.

    In all these areas, developments over the years have had a major impact on the course and tenor of financial management and therefore on accounting in government. The range of functions undertaken by governments, particularly in the development, social, and enterprise sectors, has grown rapidly in size. As these developments have not been anticipated by the laws, the laws have become obsolete. Furthermore, government accounting has been immensely influenced by changes in technology. More important, the changing tasks of macroeconomic management have imposed new demands, in addition to the traditional management needs, on the accounting system. The accounting systems in government should now reflect changing patterns in public expenditure management.

    Recent Changes

    The worldwide fiscal stress experienced during the past decade and a half has induced a greater awareness of the need for doing more with fewer resources. This in turn has unleashed substantial efforts to (1) expand the range of techniques of control; (2) improve the overall administrative context within which controls are operated; and (3) bring about appropriate institutional changes and improvements. Research conducted during the period has shown that the success of controls is less dependent on the ownership factor than on the methods of control utilized and the administrative or corporate culture within which they operate. Recognition of this factor and the acute fiscal problems brought about simultaneous developments in the above three areas.

    A brief description of these developments, including their features and limitations, and related issues is in order here. Three preliminary considerations, however, need to be kept in view.

    First, the expenditure control framework, whether exercised by the executive branch, the legislature, or independent audit agencies, has four basic elements—policy controls, process controls (covering release of funds, monitoring, contract monitoring, and payment controls); regulatory controls (including specification and oversight of accounting standards); and efficiency controls (including ex post evaluation by the audit agencies, where applicable). Of these elements, developments in process controls are discussed in some detail here. (Regulatory aspects are discussed in Chapter 3.)

    Second, a major objective of controls is to reconcile the often divergent needs of the policymaker at the macroeconomic level with those of the program manager in the spending agencies. Far too often, both by tradition and as a result of the prominence of macroeconomic goals, the needs of macro managers are emphasized at the expense of the needs of micro or program managers. Now, however, there is greater and explicit recognition of the needs of the microeconomic level as well as an acceptance of the need to deliver services within the framework of specified resources. In this context, accountability is larger in scope and includes, in addition to the rendition of accounts of moneys collected and spent, the results achieved. As such, macroeconomic goals, while having an undeniably pre-eminent role in the policy framework, would have less viability if they were to be achieved at the expense of delivery of services.

    Third, controls are, to a very large extent, influenced by developments in public sector management as a whole. The experience of several countries shows that recent efforts have aimed at introducing a new managerial outlook into government. This outlook emphasizes results over processes, flexibility over conformity, judgment over compliance with routine, innovation over risk aversion, and overall organizational development of institutions so that they could become productive and well performing. The efforts of Australia and New Zealand in “strengthening” their public sector, of Canada in its “initiative for Public Service 2000” (popularly known as PS2000), of the United Kingdom in the “Next Steps and Citizens’ Charter,” “Fundamental Review of Running Costs,” and “Better Accounting for the Taxpayer’s Money,” of the United States in “reinventing” government, and of Italy in its “reorganization proposals” initiated in 1993 all represent facets of this new outlook. The new managerial outlook includes specification of standards and measures of performance, emphasis on output controls, greater competition in the public sector, and more focus on discipline and economy in resource use. All these features aim at helping managers to manage. These in turn imply that controls can no longer follow traditional centralized command-style methods but must give more financial power—and accountability—to managers.

    Objectives of Control

    Control techniques are not intended to be applied in a mechanistic fashion but to meet specific objectives, including the following:

    • Economy, efficiency, and program effectiveness in the use of budgeted resources.

    • Resource use that will promote economic stabilization. To the extent that some issues have not been adequately addressed during the budget formulation stage, or to the extent that there have been major economic developments that indicate changes in the course of policies adopted, they will need to be suitably addressed by ex post controls.

    • Adequate accountability in the delivery of services—not merely for the resources used, but for overall performance, including courtesy in the delivery of services.

    • In all the above objectives, the framework of controls should permit transparency in the implementation of government policies.

    In the past, accounting and transparency have received relatively little attention. However, in the quest for greater citizen participation and for a more accountable government, they have acquired a justifiable importance of their own. Recent emphasis on governance or reinventing government is no longer a matter of academic or political debate, but has become an integral part of the everyday consciousness of the citizen.

    Range of Process Controls

    As noted earlier, controls range from the release of funds to the closing of annual transactions and related accounts. These controls have undergone, or are undergoing, changes in the ways described below.

    From Fund Controls to Global Budgets

    The traditional goal of controls is to regulate the flow of funds to the spending agencies, primarily through a system of “time-sliced” releases of funds (for example, quarterly apportionments). In the current context of increased decentralization of responsibilities and greater autonomy to program managers, the regulation of the flow of funds needed to be supplemented with additional control mechanisms. The evolving system has four elements that form the basis for controls and that do not impinge on the operational autonomy of program managers: global budgets; specification of required outputs; delineation of standards of service; and determination of costs for certain major categories of services, whether delivered directly by government or by contractors.

    Global budgets imply a departure from conventional line-item budgets and represent an implicit contract for the provision of services from given resources. In this framework, the central agencies are responsible for ensuring a smooth flow of budgeted resources while the spending agencies are responsible for providing services. Control is transformed in the process from a narrow mechanism for regulating cash flows (which, under the new system, would be the primary responsibility of the agency) to a broad one based on the nexus of physical and financial flows that would, inter alia, permit a much needed emphasis on outputs.

    Global budgets, unlike traditional budgets, are not limited to technical compliance with the budget estimates. They have a more important task—the delivery of services. Specification of the quantitative and qualitative aspects of these services is, therefore, an essential part of the new government financial management approach. While the qualitative aspects of services still need to be developed and refined, the new approach has already contributed to an improved functioning of controls. In several cases, particularly in the provision of medical care, cost data have been developed for various types of illnesses, and hospital budgets and related reimbursements (when services are provided by nongovernmental organizations) are linked to these standards. This technique recognizes that what cannot be measured also cannot be captured by the control system—hence, the emphasis on measurement.

    From Cash Limits to Cash Management

    In the mid-1970s, cash limits came into greater use as one way of restricting outlays in an inflationary context. It was recognized then that indexation had an inherent problem in that it was difficult to finance the constantly increasing outlays because of linkages to the cost of living or other indices. Cash limits provided a more effective instrument because they represented limits beyond which governments were unwilling to neutralize the impact of inflation, and spending agencies had somehow to adjust their activities within these limits. However, where expenditures were dominated by transfers and entitlements, the range of activities within the purview of cash limits was limited. Furthermore, the system became one of backdoor budgeting, whose allure was lost with the introduction of global budgets. This view, however, should not be interpreted as a denial of the merits of cash limits, which can be useful as a short-term instrument for bringing some order in an inflationary context.

    In the new context of decentralized tasks and responsibilities and global budgets, greater importance is being given to cash management. Although it is by no means a new technique, it acquired additional importance for the macro manager charged with implementing a budget. It is now recognized that budget allocation of resources, always a difficult task requiring the best of diplomatic skill, is only a beginning. It needs to be supplemented by techniques that seek greater convergence between revenue inflows and expenditure outflows so that borrowing and the burden of interest payments can be reduced. To achieve this purpose, governments are now required to avoid immobilizing resources that agencies are permitted to retain, to prepare schedules for bulk or heavy payments so that the call for borrowed resources can be anticipated, and, generally, to minimize uneconomic borrowing either from the market or from captive resources. Where interest payments range from about 20 percent to 30 percent of total outlays, the importance of cash management cannot be overemphasized.

    Responsibility for cash management, once shared with central banks, is now largely the function of the ministries of finance. It is a responsibility that is no longer perceived as a “reactive” approach to the spending patterns of administrative ministries and agencies but as a “proactive” policy stance that needs to be formulated on the basis of the balance between resource needs and resource availability during budget implementation.

    Policy Reviews

    While important, control techniques have proved to be less than adequate in dealing with mandatory budget outlays, which exacerbate the deficit (however measured) if the shortfall in revenue is greater than expected. This outcome is fairly common in several industrial countries, which, in the course of implementing budgets, recognized that the revenue forecast was based on optimistic assumptions, while expenditures were estimated to be growing conservatively. A way had to be found to link revenue and expenditures, particularly where the latter are dominated by mandatory payments.

    The U.S. Budget Enforcement Act of 1991 sought to specify such a link between revenue and expenditures. For this purpose, outlays were divided into three categories, and increases in some were to be adjusted against reductions in others or alternatively through additional mobilization of resources (the “pay-as-you-go” process). The law envisaged a detailed sequestering process that would automatically be triggered if deficit limits were about to be exceeded. However, under the best of circumstances, it affects no more than 3 percent of outlays, because certain categories of expenditure (for example, interest payments and wages and salaries) are exempt from sequestration. Nevertheless, the law is useful because it forces a reconsideration of the laws relating to certain large outlays.

    Another systemic development that forces such a policy review, at both the budget formulation and implementation stages, is the problem of financing government contingent and unfunded liabilities, including pension payments. These liabilities are often not recognized during the budget preparation phase nor in the rough and tumble of the budget process. Now, however, a number of governments have accepted the need for introducing a commercial type of accounting that recognizes payables, contingent liabilities, and unfunded liabilities and requires their measurement.

    Evaluation

    Generally speaking, problems experienced during budget implementation stem from formulation. Addressing such problems at a later stage may not produce the hoped-for results. This raises the question of whether preventive action can be taken, for it would have a more enduring impact than the curative action. It is with this in view that evaluation of completed programs and projects was initiated as an ex post control but with an impact that transcends the budget implementation phase. The evaluation consists of an assessment of progress and its impact, so that areas of success and failure in implementation can be identified. It is a distinct process aimed at examining the program rationale, achievement of objectives, cost of achievement, and exploration of alternatives. It seeks to analyze the program objectives so as to assess the viability of the targets, examines the organizational adequacy for implementing the assigned tasks, evaluates the impact through an analysis of the flow and distribution of benefits, and identifies how staff, materials, and money are used.

    Evaluation is not new and indeed has been a part of the financial manager’s lexicon for more than four decades. It has acquired a new urgency, however, as the traditional avenues for controlling expenditures have been yielding fewer results than expected. Evaluation, as current experience indicates, can have at least three forms. First, it can be incorporated into the budget formulation stage, as has been done in Sweden. The Swedish triennial budget system is, in effect, a mandate for a systematic and intensive evaluation of about one-third of the Government’s activities every three years. Second, evaluation can be undertaken for completed programs and projects by the administrative ministries, as is done in Canada and Germany. Here the methodology of evaluation is specified by the central ministries and the evaluation results are utilized to improve resource use and allocation. Third, evaluation can be conducted by an external audit agency.

    The results of evaluation may not be dramatic in terms of their impact on the implementation of an ongoing budget. Their value lies, to the extent that public organizations are willing to learn the lessons of experience, in their ability to prevent a recurrence of past patterns of policy implementation. Although evaluation is also viewed as a tool for ensuring accountability, it serves primarily to link formulation and implementation and is used by the executive.

    From Financial to Efficiency Audit

    The role of the external audit agency has also changed in recent years. A quick review of existing audit practices in industrial countries suggests three types of governmental audit: (1) a comprehensive audit of the financial statements of the government, or the public sector in some cases, with a view to certifying compliance of laws and examining efforts to secure economy, efficiency, and effectiveness in the use of budgeted resources; (2) a quasi-judicial approach with the objective of determining the adequacy of the law, examining infractions of the law, and determining penalties. This approach also includes the preaudit of expenditures to ensure compliance; and (3) investigations into special issues, coupled with efforts to ensure that the accounting systems in the spending ministries and agencies and related internal systems are adequate for their purposes. Some audit institutions may follow a combination of these approaches, but the primary function in most cases is likely to be one of these types.

    Traditionally, ex post controls were conceived in terms of an annual, financial audit by an independent statutory agency that consisted in commenting on the compliance of legislative appropriations and the patterns of their use. Over the years, there has been extensive discussion about whether the audit agency should also undertake an efficiency audit. Although there were several issues concerning the measurement of efficiency, they were largely overcome in countries where the financial management system had been transformed into a decentralized one with specific work measurements and performance yardsticks. In this context, the extension of the audit agency’s functions from a financial audit to an efficiency audit or, as popularly known, a value-for-money audit (covering economy, efficiency, and effectiveness) was natural.

    The value-for-money audit is not confined to ensuring economy but is intended to examine and report on the results achieved. The audit agency is expected to identify ways of improving efficiency and assist the government in taking necessary action to improve systems and controls. It broadly supplements the internal evaluation system described earlier.

    The value-for-money audit does not question the merits of policy objectives. Rather, it is concerned with the means and techniques of policy implementation, recognizing that the primary responsibility for securing value for money lies with the spending agency. The role of the audit in this case is to provide an independent examination of how far and how well that responsibility has been discharged. To the extent, however, that lessons of experience are always valuable, it assists in the formulation of future policies.

    Involvement of the Users

    Recently, some local governments in the United Kingdom have begun to associate the users with their operations. As a part of this initiative, user groups are involved in formulating service agreements and in defining the scope and quality of services to be delivered by the local government. Service contracts provide a direct cycle of accountability between the elected members, management, staff, and users (and back again). It is seen as more effective than adding to the already costly supervisory layers of management. It provides a powerful stimulus for the management to be more vigilant in providing services and to evaluate those services from the users’ point of view. This experiment, if successful, is likely to be widely emulated.

    Institutional Development

    Controls, whether ex ante or ex post, imply a hierarchical relationship where one agency is endeavoring to influence or change the policies or operational approaches of another. Experience shows that when such controls are exercised in a centralized or inflexible fashion, they may have an adverse impact on the financial responsibility of the spending agencies. The major issue of control has thus become one of reconciling the needs of central agencies with those of spending agencies, and of exercising those controls so that they promote financial responsibility within the agencies. This issue has been approached in two ways during recent years.

    The first approach involves providing incentives to spending agencies for procuring economies in expenditures. It recognizes that even if the control framework is effective, more could be obtained by providing incentives to spending agencies. It implies that the knowledge of operations and their financial implications is to be found in the first place in the spending agencies, which are therefore best placed to explore the possibilities for economies. In Australia, for example, spending agencies were allowed to retain a share of the economies they secured to use on approved programs. This approach provides a refreshing departure from the traditional controls. While such incentives are likely to yield declining results in the medium term, the approach offers yet another avenue that, when judiciously implemented, could have a far-reaching and enduring impact on the financial responsibility of spending ministries.

    The second approach relates to organizational development. This approach looks beyond the scope of the control framework and aims to make the organization more effective and thereby more responsive. The Office of the Auditor General of Canada has made a number of efforts to address this issue. (Its studies Constraints to Productive Management (1983), Attributes of Well-Performing Organizations (1988), and Values, Service and Performance (1990) examine the ways in which organizations in government could be made more effective.) These efforts point to the need for greater decentralization, specification of standards, flexibility in resource management, accountability for results, and adaptability for changing needs. In turn these features are expected to contribute to a more effective organization.

    The range of developments discussed here offer considerable potential for pursuing economy, efficiency, effectiveness, and stabilization goals in the management of public expenditures. Experience shows that not all the developments are to be found in all the industrial countries. Rather, each country is endeavoring in its own way to absorb and apply these new approaches. But even as the approaches are being implemented, criticisms are being leveled against them. Some point out that they use methods inspired by private sector practices that are not entirely suitable to the operations of the public sector, where decisions tend to be made with an eye to the political rather than to the financial implications. Others argue that the new approaches may lead to the emergence of a new system that will not necessarily be as productive as claimed. Some suggest that the claims of benefits are exaggerated.

    Some of these criticisms are premature. In assessing the ability of the new techniques to reduce expenditures, some critics may not have fully separated the impact of economic cycles on expenditures. Clearly, the new techniques must be implemented for an extended period of time before a detached appraisal can be made. Recent experience further underscores the traditional point that the task of improving governmental organization is never complete. It is a continuous effort that affords no respite to the fiscal policymaker. The promise of any reform can be realized only when the reform is sustained by relentless zeal and unflagging effort.

    Some government financial managers tend to take the view that existing control systems are adequate. They attribute the failure to achieve the control objectives to policies, politicization of governmental decision making, and a lack of well-trained personnel. The issues discussed here show that, in evaluating the adequacy of the control framework, a government must begin by distinguishing those aspects that can be controlled and those that may be outside its immediate purview. Such an inward look is likely to reveal the antiquated organizational and management structures, unsuitable operational computer technology, and poorly designed regulations and other weak mechanisms that abound in government.

    In sum, governments at all levels are expected to be more responsive, accountable, and cost effective. The new tasks have come at a time when there is much dissatisfaction with the existing systems, particularly with their inability to make payments or furnish reports on time. These tasks and related expectations suggest that it would be unrealistic to expect major successes from fiscal policy unless the supporting institutions are adequately strengthened. In this regard, accounting, which has a high impact in all the above areas, plays a major role and therefore needs to be addressed in a substantive way. Cosmetic reforms, which may have quick appeal for short-term political purposes, would hardly serve the purpose and may even be damaging in the longer term. An essential step is therefore to analyze, in each case, the issues and the options available for addressing them. The experience of countries that have made pioneering efforts will provide particularly valuable information.

    In the following chapters, an attempt is made to examine the major aspects of government accounting, starting with payments and concluding with the rendition of accounts. Each chapter considers historical developments, features of existing systems, and recent advances and their adequacy relative to the current and future tasks of governments. Consideration is given to institutional linkages with other types of accounting used for analytical purposes, and particular attention is paid to the role of technology. An interdisciplinary approach is adopted so that the role of government accounting in the overall framework of macroeconomic management can be considered in proper perspective. The intent is to evaluate the state of the art and, in doing so, to facilitate the formulation of an agenda for strengthening accounting in government. In each area, answers will be sought to the following questions: What are the tasks? How are they being performed? Are there any issues? Are they conceptual, organizational, or technological? How can improvements be made? Do those improvements imply substantial changes? How can the transition be managed?

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