The need for investing in the development of accounting systems, operational techniques, and procedures, as well as the need for upgrading technology, has been considered in detail in the preceding chapters. While some of these needs may seem self-evident, it is appropriate to recapitulate some of the arguments so that the directions of development, the content of needed improvements, and the ways in which improvement may be pursued can be put in proper perspective.
Do governments need to be convinced of the need to invest in developing their accounting systems? Although the sporadic efforts of some countries suggest that governments are already convinced of the value of such an investment and have even articulated sound plans for the purpose, there are others in which little or no effort has been made. Indeed, in some countries there are hardly any efforts. While the expanding scope of technical assistance provided by donors and international agencies may suggest that substantial reform is on the way, in reality, the situation is more reminiscent of the opening lines of Dickens’s A Tale of Two Cities. It is the best of times for those governments pursuing measures aimed at strengthening their systems. What they have achieved so far represents the cutting edge of the accounting discipline. For other countries, it is the worst of times because efforts to strengthen accounting, having yielded few results, are faltering. For them, the question is: How can the effort be sustained if it proves to be costly and has not delivered the expected results?
The view taken thus far has been that governments must be convinced of the need for development in this area and then must dedicate themselves to renewed effort. The urgency arises for the following five reasons.
Fiscal welfare-oriented state. First, governments have in general moved from the fiscal-military state1 to the fiscal welfare-oriented state. The former, which dominated the scene in the seventeenth and eighteenth centuries in England, transformed government: it became the single largest player in the economy. This astonishing transformation also contributed to a steady expansion in the number of transcribers, copyists, and record keepers. Extended wars induced governments to raise funds through taxation and, more significantly, through borrowing from the public. If wars created a new class of investors and contractors, the financing of wars led to the emergence of a new class of financial interest holders, with growing investments in government bonds and securities. These interest holders, in turn, created a demand for more detailed and precise information about the operations of governments.
An inevitable by-product of these events was the inexorable growth in financial records and documents, and, in due course, the growth of accountancy in governments. Although the clerks responsible for accounting were looked down upon by the landed class, their stature steadily rose. The change in the composition of expenditures over the centuries and, more recently, the growth of funds for entitlements and welfare benefits have forged a new relationship between the state and its clients, transforming the state into one based on fiscal welfare. These new relationships have serious implications for financial accountability and, thus, for accounting.
Fiscal credibility. Owing to the movement in budget financing toward more reliance on domestic and external borrowing, governments have been obliged to establish credibility in their macroeconomic policies, particularly fiscal policies. In most countries, fiscal policy is at the heart of economic adjustment and can be successful only when it is perceived to be credible. When credibility is lacking, government operations become more costly. Credibility in turn should be rooted in the budgets and the periodic accounts published. The response of the investing public depends on the reliability of the fiscal information furnished by governments, and, in that context, accounts must be based on well-recognized standards. It is the scrupulous adherence to these standards that lends credibility to government fiscal operations. In turn, these standards have many implications for government accounts.
Fiscal rectitude. No amount of fiscal credibility would by itself lead to sustained economic adjustment. Governments must address existing problems. For example, they can address growing expenditures through policy measures and supporting efforts aimed at containing costs. The latter response is firmly rooted in the discipline of government accounting. An important consideration is the extent to which government accounting has addressed cost measurement and containment. In this area, what has been accomplished pales into insignificance relative to what remains to be done. Recent conceptual and practical advances in measuring costs in the private sector offer hope for their relevance for public organizations. Similarly, governments must maintain records that will alert them to the future magnitude of short- and long-term liabilities and their implications for fiscal policies. This internal fiscal rectitude can be generated only from improved accounting. Efforts to establish currency boards (which are, by definition, exempted from extending credit to governments) or to grant central banks more autonomy so that they are not obliged to accept the soft credit constraints sought by governments may have a beneficial impact on governments’ approaches to accounting. More enduring results are likely to emerge when fiscal credibility is viewed as a problem to be addressed from within, through honest budgeting and sagacious accounting.
Changing tasks and patterns of control. The tasks of government, as noted, have changed, as have the patterns of expenditure management within public agencies. The issue then is to what extent accounting is able to reinforce patterns in expenditure management. Are, for example, the traditional financial statements furnished by the accounting agencies adequate to meet the needs of government expenditure managers? Are accounting methods sufficient to facilitate the evaluation of completed government programs and projects? Are accounting data useful in enabling the government and public policymakers to make decisions as to which services should be provided by in-house facilities and which should be contracted out? Is the accounting system generating adequate data about hidden liabilities that are likely to contribute to a serious and unexpected fiscal crisis for the state? Is the system generating data on the physical assets of the government and the need for maintaining these assets? Is the system addressing the issues of intergenerational equity? These issues have become an integral part of the methods of control of expenditure managers. These and other issues that have not yet emerged imply that the accounting profession and governments must look beyond the traditional appropriation accounts and statements on variations between budgeted and actual expenditure. If they do not seize this opportunity to respond to the challenges, accounting is likely to be viewed as having only historical value and as being obsolete in its approach and operations.
Organizational sclerosis. Another relevant question is whether the government accounting systems will be able to deliver services in the areas designated for them. Although the picture is changing somewhat, the perception of those inside and outside the government is that the accounts are published too late and with gaps and caveats that substantially reduce their usefulness. Slippages can occur for many reasons but when they become routine occurrences, then it is time to address them in the same way that a physician addresses a sick patient. Is the accounting system attempting to handle the tasks of the late twentieth century with tools that are at least a century old? Will investing in technology compensate for human failings and the systems’ limitations? What complementary efforts and plans are needed to prepare the accounting systems for the application of available technology? Assuming that technology is available, is it being put to optimum use in government? If not, how can that increased utilization be achieved? Experience in many industrial and developing countries, as well as in economies in transition, shows that efforts to take advantage of technology are feeble and frequently lack overarching themes and relevant strategies.
These issues, which are gathering strength from one day to the next, need to be addressed before they gain hurricane force. Investment in development consists in preventing potential problems by addressing them through concerted improvements. Such investment recognizes explicitly three features. First, accounting has been evolving over the years, but those areas that have been neglected or were not given the necessary support must now be developed in a short time. It is an exercise in catching up rather than in running ahead of events in anticipation of the future. Second, accounting in government can no longer be pursued as an independent discipline with only peripheral contact with other disciplines that together contribute to public sector management. Rather, it should be recognized as an important component of the overall design of public expenditure management that interacts with other elements of the design. Third, this development is not a short-term phenomenon, but a long journey. Like other long journeys, it requires a good deal of preparation, experimentation, reappraisal, flexibility, and sustained effort throughout. It is a long-term process to build a bridge that will permit current and future generations to take full advantage of accounting in their daily life.
Design of Development
The design of development and the specific measures that governments should consider, which have been examined at length in the first five chapters of this book, may be recapitulated. Notwithstanding the inherent risks in the grouping of countries, it is advantageous to consider the design of development in terms of industrial countries, former centrally planned economies, and developing countries. The immediate tasks in industrial countries are to refine the recent applications (for example, balance sheets) and to seek their extended application to other levels of government. Along with this effort, the internal financial management capability in the spending agencies needs to be strengthened so that the implications of commercial formats are internalized by them in the management of their day-to-day activities.
Simultaneous efforts are indicated for the introduction of cost management systems. In the economies in transition from central planning, continued attention to the improvement of the payments system and to the assignment of management responsibilities to the spending agencies is indicated. For too long, the agencies functioned as mere operational arms of the planning ministry, with little need to analyze or evaluate their actions except to seek higher budget allocations for their activities and for the enterprises under their control. There cannot, however, be any progress in financial management unless and until the deservedly important role of the spending agencies is recognized and enhanced. Here, too, emphasis is needed on developing cost management systems for, without them, there is little prospect for major improvement in their public finances.
Accounting standards, which have tended in the past to distort tariff and tax policies, need a major overhaul. The developing countries, in particular, need to strengthen the technical infrastructure (use of computers) of financial management. Although some developing countries have made spectacular progress in the installation and effective use of computer technology in a short period, others are way behind in updating technology. The overall picture is therefore mixed. These countries have several tasks to address and governments must work together to develop accounting policies.
The specific components of improved accounting and their potential impact are illustrated in Table 26. The table also describes the possible impact of these measures on accountability (which inevitably depends in part on a country’s political system and legislative tradition), on internal controls, on the cost of controls, and on overall fiscal management. The measures illustrated in the table can be divided into two categories—those that lend themselves to quick implementation and those that would involve more time and sustained effort. The former category includes improvements in payments systems, a substantially revised framework of relationships with the banking system, and improved financial information systems. Each case entails reviewing the existing systems, identifying the problem areas in light of the considerations discussed in the preceding chapters, and undertaking improvements. Cost-effectiveness should continue to be a consideration. Each of these areas would then have an objective or objectives formulated in terms of users’ goals. It should be noted that some information needs, such as the preparation of balance sheets, are contingent on the progress made in adapting commercial accounting practices to the government. These measures do not always involve an additional substantial investment in hardware. Rather, they imply pursuing specific goals more purposefully and utilizing the existing machinery to serve those goals.
Likely Impact of Effective Accounting Systems
Likely Impact of Effective Accounting Systems
| Category | Greater Accountability | Internal Controls | Reduced Cost of Control |
Impact on Overall Fiscal Management |
|---|---|---|---|---|
| Payment mode transformation |
No direct impact | Contributes to effective cash management | Costs will be iess over time | Beneficial |
| Improved relations with banking system |
No direct impact | Induces more effective controls | Short-run costs may be high as all transactions will be transparent | Beneficial |
| Application of commercial type of accounting, including accrual |
Improves understanding of assets and liability position and improves budgetary presentation | Increases spending agencies’ financial consciousness | Conversion costs likely to be significant in the short term | Beneficial |
| Improved linkages with national income accounts |
No direct impact | No direct impact | No impact; slight possibility of cost reduction | Improved understanding should contribute to strengthened analysis of policy options and impact |
| Improved foreign aid accounting |
Improves accountability | Enhances control capacities | No direct impact | Contributes to substantial improvements |
| Cost measurement | Changes nature of accountability | Provides an empirical base for operation of controls | Could contribute to reduced costs of control over the medium term | Provides many anchors for resource allocation and utilization |
| Liability management | Improves accountability | Contributes to more meaningful controls | No direct impact | Contributes to a smoother policy environment |
| Accounting standards | Very helpful | Provides an improved framework | No direct impact | Helpful |
| Improved financial information systems |
very helpful | Very helpful | No direct impact | Very helpful |
Likely Impact of Effective Accounting Systems
| Category | Greater Accountability | Internal Controls | Reduced Cost of Control |
Impact on Overall Fiscal Management |
|---|---|---|---|---|
| Payment mode transformation |
No direct impact | Contributes to effective cash management | Costs will be iess over time | Beneficial |
| Improved relations with banking system |
No direct impact | Induces more effective controls | Short-run costs may be high as all transactions will be transparent | Beneficial |
| Application of commercial type of accounting, including accrual |
Improves understanding of assets and liability position and improves budgetary presentation | Increases spending agencies’ financial consciousness | Conversion costs likely to be significant in the short term | Beneficial |
| Improved linkages with national income accounts |
No direct impact | No direct impact | No impact; slight possibility of cost reduction | Improved understanding should contribute to strengthened analysis of policy options and impact |
| Improved foreign aid accounting |
Improves accountability | Enhances control capacities | No direct impact | Contributes to substantial improvements |
| Cost measurement | Changes nature of accountability | Provides an empirical base for operation of controls | Could contribute to reduced costs of control over the medium term | Provides many anchors for resource allocation and utilization |
| Liability management | Improves accountability | Contributes to more meaningful controls | No direct impact | Contributes to a smoother policy environment |
| Accounting standards | Very helpful | Provides an improved framework | No direct impact | Helpful |
| Improved financial information systems |
very helpful | Very helpful | No direct impact | Very helpful |
Other measures, such as those linked to the adaptation of commercial accounting (which in most cases should also contribute to enhanced links with national income accounts), specification of methods of cost measurement, liability management, and accounting standards, are likely to take time because of the necessary administrative preparation. They may also require additional financing for the acquisition of computers and, in some cases, the approval of the legislature. Formulation of implementation plans over the longer term should, as far as possible, keep in view some of the inevitable tensions (stemming from the conflicting positions inherent in any bureaucracy).
First, the design of the investment program should be customized for the specific needs of the government and the level of its administrative development. Experience shows that governments tend to believe that they can do as well as other governments and therefore tend to emulate what others have done. Experience also shows that this approach can be a recipe for more problems at a later stage. From an institutional point of view, there is considerable commonality in the administrative systems of governments. Most have a legislature—although the role it plays can vary—a budget office, an agency responsible for payments, an agency entrusted with accounting tasks, and a central bank, functioning in most cases as the fiscal agent of the government. Most also have differing capacities of electronic data-processing technology. But within this broad framework, each government has a unique administrative culture and operating style. In fact, it can even be said that each government, like each individual, has a personality, which needs to be taken into account when implementation design is formulated.
Second, the primary focus of the legislature, the central agencies, and the spending agencies is likely to be on budgetary reporting—partly because it is a legal requirement in most cases and partly because it plays a central role in funding activities of the agencies. To the extent that the basis of the budget is different from that of the balance sheet approaches of commercial accounting, governments would need to have a doubletrack or multiple-track accounting system.
Third, the introduction of the core financial system, such as the general ledger system, is bound to be time consuming. Efforts aimed at standardization should be tempered by a recognition of the specific needs of the agencies. Although agencies have some common features in their operational systems, each has its own internal structure. To ensure that the proposed system reflects the needs of all agencies, they should participate in the design of the system from the outset. Agencies should be prepared for the introduction of the new system and any strategy developed should be a common one.
Fourth, the central agencies may try to take advantage of the opportunity to revamp the system to gain more power, consolidate their own hegemony, and secure more operational levers for their direct use. This tendency needs to be resisted. The new technology is intended to facilitate the tasks of the central agencies but not to oversee continuously the operations of the spending agencies. The accounting reforms are intended to buttress the role of the spending agencies and to secure more responsible financial behavior from them. It is important to restrain the inherent tendency to centralize and, instead, to promote decentralized operational management.
Finally, the formulation of accounting standards and the delineation of operational relationships between central and spending agencies may lead to overspecification, overprescription, and overregulation. The experience of many industrial countries shows that the autonomous accounting boards may be ambitious about the scope of the improvements to be made and this can be manifested in excessive prescription and regulation. Inevitably, such an exercise would be tantamount to sowing seeds for future discord and counterproductive efforts.
Implementation Lessons and Dilemmas
Efforts devoted to improvements in accounting are not new. Over the years, particularly since the 1960s, there have been, as noted earlier, sporadic attempts, which have provided some lessons. A short list of these lessons prepared in light of the assessments made by national authorities, professional groups, and international organizations is given below.
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Active and continuing support of a country’s political authorities, namely, finance ministers, is essential for the success of the efforts.
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An integrated framework combining planning, budgeting, accounting, and reporting is essential so as to have a feasible program of improvement. This integrated strategy needs to be developed prior to implementation. Such a strategy should address the needs of internal and external resources and the technological underpinning of the proposed reforms.
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There is a need for a basic legal framework that establishes the tasks and defines the roles of each government agency.
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An effective project management structure should be in place.
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Too much reliance on one system can lead to neglect and, in some cases, deterioration of other systems.
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If the benefits of the proposed reform can be demonstrated early, additional commitment and support in a material form would become available. If, on the other hand, early identifiable benefits are unlikely to accrue, then the supporting nature of the reform and the systems need to be recognized.
These lessons, some of which may appear unexceptional, also raise fundamental dilemmas that must be addressed. The first dilemma faced in introducing any public sector reform is how to delineate the respective roles of the professional civil service and the political level of administration.
Political Support
Although in many countries the lack of political support is often claimed as the main cause of lackluster reform experience, it is also recognized that accounting as a discipline is considered too remote to attract the attention of politicians. In fact, many finance ministers maintain that they do not feel comfortable in supporting or defending draft legislation in the legislature because some of the proposed reforms are so loaded with technical jargon. The primary interest of the ministers is to be apprised of the benefits that the suggested reform would bring to the operations of the government and to the public. In the absence of any effort to establish these benefits, reform efforts are viewed cynically, either as an exercise in bureaucratic politics or as an attempt to comply with the suggestions of donors.
The availability of political support is contingent on the merits of the reform, and it is therefore useful to examine the substance of different types of reform.
Integrated or Specific Reform
A second, closely related dilemma is whether the reform should take an integrated approach or should be specific. Proponents of the integrated approach suggest that all the elements of government financial management are so closely interlinked that they cannot be addressed in isolation of each other. For example, improvements in accounting classification cannot be envisaged except in relation to the budget and the laws relating to its approval in the legislature. These linkages are recognized and some measures must be taken in tandem. Certain risks are also associated with an integrated approach, including that it could create unrealistic expectations. If benefits accrue late, the integrated approach could be labeled as overambitious and sinking under its own weight. The recent experience of many industrial countries (excluding Australia and New Zealand) suggests that each area of accounting needs to be examined separately and improvements made with due regard to the implications in other areas. To date, application of computer technology, efforts at introducing a variation of activity costing, improvements in the building blocks of financial information, and the introduction of balance sheets for government agencies have been undertaken somewhat independently. The choice should therefore not be posed as an ideological issue but as a pragmatic one that has to be answered with reference to the specific situation of a country.
Public Sector Reform or Financial Management Reform
A similar dilemma arises in answering the question: Should financial reform (integrated or specific) be undertaken as an integral part of the overall reform of the public sector or as a separate effort? Those who support the former approach suggest that the fiscal crisis in many countries induced their governments to undertake fiscal consolidation. This involves civil service reform (including retrenchment), improved accountability and financial management, reform of the state enterprise sector (including privatization), financial sector reform, reduction in military expenditures, and improved governance. The underlying goal is to improve the manner in which “power is exercised in the management of a country’s economic and social resources for development.”2 The experiences of Australia, New Zealand, and several African countries are cited in support of this approach. Equally, it could be argued that financial management reform is justified even when no massive fiscal crisis is threatening the stability of a country. As the discussion in previous chapters shows, accounting in government has developed more slowly than other areas, and there is much to be done before it can be considered adequate and responsive to the current and future tasks of a state. In practice, the reform choice depends on what is urgent and on what is feasible. But where there is a massive effort at reorienting the management of a country, there may be advantages in undertaking financial management improvement in tandem with public sector reform.
Imperatives of Technology or High-Tech Dependency
Some of the advances in accounting are substantially facilitated by the application of available computer technology, but governments’ approaches toward this process reveal some ambivalence. On the one hand, it is recognized that technology is an imperative of the times and that not seizing the opportunity to modernize could result in irretrievable losses that cannot be compensated for in any way. Not having the requisite technology could erode the decision-making capability of governments and, as a consequence, the competitiveness of a country. Furthermore, the information requirements of a government in the modern world are such that it is no longer an issue of whether technology should be applied but one of what functions to apply it to and what hardware and software to procure. On the other hand, experience shows that there have been many glitches in the application of technology and that there has been a dependency on technology. Some even contend that the new technology may demand abilities that may not be locally available. These apprehensions need to be tempered by a recognition of the rapid progress made by some countries in internalizing the benefits of technology.
“Big Bang” or Gradualism
The pace of development has become a leading question during recent years, with terminology harking back to the creation of the universe.3 One view holds that the technological transformation should be very quick, while the other view holds that institutional development is inherently slow. The former school contends that the need for quick results is imperative and inherent in the situation and that tardiness in implementation could be inimical to progress. Thus, results should be obtained before opposition to progress is consolidated. This argument ignores the administrative rationality of policymakers. The question may rise as to whether a policymaker would choose “to make haste slowly” when all indications suggest that quicker results can be procured. In any event, the terms are relative in nature, and the time element in both development scenarios remains to be defined. Moreover, the magnitude of the undertaking will dictate how quickly results are achieved.
For example, standardizing accounting systems could take up to a decade. Some agencies in the United States have pursued standardization for over a decade, and the process is far from complete,4 partly because the standards themselves have changed during this period in response to conceptual and technological advances. The experience of Australia and New Zealand, which embarked on a major transformation of their financial management systems in the early and mid-1980s, also shows that institutional development is not feasible in a very short period. Clearly, while making efforts to strengthen their systems, governments should also devote their attention to sustaining their efforts over the medium term.
Although accounting reform has not been tainted by politics thus far, the lack of results in the short term could lead to laxity or even abandonment by successor governments. Commitments made in previous years, which appeared binding and inevitable when they were made, suddenly become luxuries that can no longer be afforded. The issue for governments then is how to generate a consensual approach on institutional development that requires more time.
External Assistance or Internal Resources
Developing countries that have begun to reform their accounting systems have an additional choice to make. Existing systems are mostly legacies from the colonial past, and the push for reform, while substantially augmented by domestic inadequacies, stems partly from modernization efforts that originated in the industrial countries. By carefully observing the experiences of the industrial countries, the developing countries can reap the benefits without repeating the whole evolutionary process. Their gains are the gains of the latecomer. To some extent, the efforts of developing countries to strengthen their accounting systems were spurred by the international organizations, whose efforts over the years have clarified issues, facilitated the transfer of technical knowledge, and improved the acquisition of technical skills. A number of reform programs were also underwritten by international organizations and by donors on a bilateral basis. The issue now confronting policymakers is to determine the relative roles of national authorities and of international agencies.
Over the years, the international agencies have developed their own agenda that is determined in part by their operational interests. This agenda may not be fully congruent with the agenda or the self-recognized needs of the countries. Furthermore, aid from these agencies may not be available on a continuous basis, so that countries that have become dependent on international agencies experience discontinuities. When aid is resumed, it becomes difficult to regain lost momentum. In some cases, the gains may be irretrievably lost and countries may have to begin anew. Also, aid may be in the form of a loan, with an associated impact on the debt-servicing burden of the recipient country.
It is important to recognize that measures aimed at strengthening accounting systems can be formulated and implemented by the reforming country itself. Most countries now have a pool of trained accountants (as distinct from those who acquire skills while working on a job in government) who can help evolve standards and specify the direction of improvements. Acquisition of hardware and associated investment is a separate issue and may involve negotiations for foreign aid. In either event, continuity of financing is essential and must be assured before a country embarks on reform.
Operational Issues
A cursory, cross-country examination of experiences in strengthening accounting systems reveals two types of issues—conceptual and technological. Both these issues offer ample guidance about the details that countries embarking on reform would need to address.
From a conceptual angle, it appears that far more attention has been paid to relationships between government organizations than to the type of internal controls needed in the spending agencies and to the standardization of accounting concepts (as outlined in Chapter 3). This failure to prepare the systems for the application of technology has contributed to a situation in some countries where the individuals who introduced the technology tended to dominate other organizations by carrying out their management and related functions. This administrative “encroachment,” or “turf poaching,” has created friction among the various parties. The systems became mere instruments for carrying out technical processes in the agencies and for achieving goals and objectives only partially. This problem could have been avoided if there had been a coherent reform plan (even incremental approaches require plans of action) and if a law had been enacted for the purpose. Without a clear and, where appropriate, legal specification of responsibilities, duplication, inconsistencies, and dysfunctional behavior are likely to overwhelm the small gains made otherwise.
Specifically, it is argued that in African countries “information systems fail or underperform more often than they succeed in the public sector in Africa because the saints are few, the demons are many, the wizards are inappropriate, the systems are complex, and the organizations are weak.”5 It is suggested that the authority in public sector operations is personal and procedural and that, in reality these operations are run by fiat rather than by procedure. Hyden (1983) notes, for example, that norms about hiring and firing are rarely observed in Africa, that materials procured for specific purposes are often diverted to other purposes, that attitudes toward planning and scheduling are flexible, that there is long organizational learning, that there is no professionalism in the public service, and that large organizations tend to be divided into smaller ones dominated by individual managers.
Although these characteristics are described as shortcomings common to Africa, a more detailed examination would reveal that they are not always liabilities (indeed, in some ways, they could be considered examples of pioneering leadership and approaches toward managerial flexibility) and are not necessarily limited to Africa. The highly personalized style of administration, which should not be considered a substitute for the rule of law, often proves to be productive in countries where institutions are in their infancy. Observers point out that, in such circumstances, when the leader moves to another position, the reform may suffer discontinuity. Be that as it may, these considerations suggest the continuing need for investment in human resource and organizational development. In the absence of such efforts, investment in technology cannot yield the desired results, and the hope that technology can provide a partial solution to accounting problems would be misplaced. It is clear that administrative systems must be primed for the application of technology.
Other operational issues arise primarily with reference to the application of technology. Although experiences are varied, some common problems emerge. First, far too often the design of systems does not take into account the specific requirements of the agency. For example, in public expenditure management, there are three mutually supporting elements: information architecture (which establishes an overview of the functional processes and related data output structures), systems architecture (comprising a model of the data bases and their flows), and technology architecture (an identification of the needs of each module and determinintion, in that light, of the type of hardware and software appropriate for the purpose). In practice, however, some of these elements may not be fully addressed, and far too frequently, inept designers tend to exploit the situation and view their task as one of promoting whatever hardware and software are available on the market. In the process, the supporting role that technology is expected to play is jeopardized. Second, software may be imposed on the client without proper demonstration of the operational capabilities of the proposed system.6 This has serious financial and organizational implications, and buyers can only be cautioned about the need for careful appraisal of the software suppliers.7 Third, countries’ procurement policies and procedures may have the effect of acquiring outdated technology primarily because it is less expensive. Such policies have the potential of being very costly in the medium term. Because technology is subject to radical change, it may be more appropriate to choose the more expensive product if it is compatible with the existing system and can meet the agencies’ future needs. Finally, the systems may turn out to be far more labor intensive than is supposed at the onset of the reform. The experience of both industrial and developing countries supports this conclusion. The introduction of technology should not necessarily be resisted. Rather, these issues underline the need for considerable vigilance and continuous attention to details.
Steps Toward Improvement
In light of the preceding discussion of the issues, a more pragmatic enumeration of steps toward improvement can be formulated.8
(1) Any framework for improvement should start with a review of the existing systems and the problems associated with them. What are the systems expected to achieve? How are they performing? To what extent are problems attributable to outdated processes, inadequate attention to human resources, and an ill-equipped technological base? What are the current needs of the users of the system? Because the success of accounting in government depends on the extent to which it is able to anticipate and meet the needs of policymakers, the review should pay attention to the changing needs of the users.
(2) In envisaging the answers to these and related issues, policymakers must recognize two points. First, there may be more than one answer to each of the questions, and choosing the right one is the crucial part of the exercise. Second, given the unique nature of government operations, commercial accounting approaches may need to be extensively adapted to meet government needs.
(3) The framework developed for overhauling the system should be applied, initially, on a pilot basis to a few agencies. Such limited application has the potential of containing the risk and revealing problems before they are too entrenched to resolve. Government agencies have widely differing purposes, missions, and activities, and the experience of one may not lend itself to replication. Experience remains the best teacher. More significantly, the pilot applications reveal whether the cost and benefits are roughly in line with the initial estimates and, if not, what revisions need to be made.
(4) The experience gained can then be used to formulate laws that will apply to the whole government. These laws will promote uniform application of the proposed system while fully reflecting government’s commitment to the reform. Enactment into law would also provide an opportunity to harness public opinion in support of the system.
The term is drawn from Brewer (1989), p. 18.
For a discussion of some of these questions, see World Bank (1994c).
There are two opposing versions about the origins of the universe. One view, which was derisively dubbed “big bang” by its opponents, holds that the universe began in a fiery cataclysm about 10 billion years ago and might end in an equally spectacular crash billions of years in the future—a religious belief of Hindus and Buddhists. The other view was that the universe had neither a beginning nor an end and that it was infinite and was forever the same. This school of thought known as the “steady state” holds that as the galaxies spread out, new matter would come into existence in the empty space left behind and coagulate to form new galaxies. It should also be noted that according to the big bang school, the early universe, apart from being squeezed together and dense, was also very hot—reaching temperatures of billions of degrees.
For a case study of die U.S. Department of the Interior, see Kendig (1994). See also New Zealand (1994b).
See Peterson (1994, p. 1). The information technology referred to here is largely limited to the application of electronic data-processing technology in the accounting area.
Some firms market a product that is now known as “vaporware” and that may be sold to gullible buyers.
The United Nations (1991, pp. 31–38) suggests that governments review the following questions when choosing off-the-shelf software. (1) Can commercial packages truly meet the accounting and volume processing requirements of large government agencies? (2) To what extent would it be appropriate for agencies to customize vendor-supplied core software to cover unmet requirements? (3) Can vendors respond quickly to future needs? (4) Can vendors’ software packages meet agencies’ management information needs and future direction? (5) Are the time and costs required for implementing off-the-shelf software often understated? (6) Are there long-term risks in relying on vendors to support the software needs of the government? (7) Do the advantages of using commercial packages outweigh the advantages of upgrading the existing agency accounting systems? (8) Can the strategy of using off-the-shelf software be enhanced by developing generic, functional requirements for use throughout the government? (9) How do the use of off-the-shelf software and the government’s efforts to standardize data elements relate to each other?
The framework largely follows the approach of Lucy Lomax of the U.S. Federal Accounting Standards Board. See Lomax (1994).