by Ian Ball, Chairman, CIPFA International
Around the world, there is increased awareness of the crucial need for better performance and greater accountability in public financial management (PFM) systems. Indeed, many countries are working hard to crack down on corruption by reducing the incentives to commit corrupt acts and increasing the likelihood of detection. But there is still much more that could be done.
Here are a five key ways in which performance and accountability within PFM could be improved.
- Ensure accrual accounting is central to the whole PFM system to provide an accurate financial picture.
Many countries have introduced accrual-reporting systems but are not employing the information it provides in decision making. By going beyond reporting on cash coming in and going out, accrual accounting also looks at assets and liabilities and provides a more complete and accurate picture of the financial position of an organisation. Yet these accrual numbers are often not being used when governments make fiscal and budgetary decisions, which leads to misallocation of resources, reduced financial resilience, enhanced financial risk, and reduced transparency.
- Apply a whole systems approach to improve scrutiny.
A whole systems approach is a PFM model that ensures that the elements of a PFM system operate in a consistent and mutually-reinforcing way. Too often, budgeting and accounting, for example, operate off different measures of resource flows and fiscal position. A whole systems approach brings together all the key elements of a robust PFM system into a single framework, one that ensures the system functions in an effective and coherent manner. In July, CIPFA, the Chartered Institute of Public Finance and Accountancy, launched a new web portal to help organisations implement a whole systems approach.
- Reduce tolerance of corruption through big data and analytics.
Big data and data analytics can greatly strengthen the fight against corruption. Such tools equip governments to identify these behaviours and fraudulent activities. For example, the EU Commission launched data analytics software that cross-checks data across public and private sector organisations to identify conflicts of interest. To ensure that these kind of programs are adopted and implemented there must a greater appetite within political systems to reduce corruption.
- Publish public government financial statements regularly.
In order to ensure there is ongoing public scrutiny of the financial position of governments, full financial statements (based on accruals) should be regularly published. New Zealand publishes its accounts every month, within six weeks of month-end. This means that the public are aware of any adverse financial impact of government decisions and, as a result of public attention, ministers tend to be far more financially aware and responsible.
- Properly plan for reform.
Reforming PFM systems needs to be properly planned to ensure that governments have the resources they need available. Most countries face similar sets of challenges, which include having to update existing laws and regulations, identifying and valuing all their assets and liabilities, and developing IT systems. Governments must be aware of how to most effectively achieve change over the medium term. If, in the planning stage, there seems to be a great deal to be done to support reform, that simply highlights the poor state of their existing PFM system and, therefore, the greater need to improve their financial management processes.
These are by no means the only ways to improve PFM. But if implemented, they should go a long way to improving performance within the sector and consequently to improve trust and confidence in political institutions.
This article first appeared on IFAC Global Knowledge Gateway.