Background
It is
fundamentally wrong to separate budgetary policy from budget execution and
accountability.
Governments
at all levels in democratic societies are essentially responsible to the
citizens who elect them and those governments are essentially financed from
taxation.
In a market
economy the primary responsibility of government is to provide services to the
community that cannot be provided by the private sector and purpose of the
budget is to raise sufficient (and only sufficient) taxation to provide those
services.
Experience
from all around the world shows that without proper checks and balances
governments often
-
provide
services which are not required or necessary
-
provide
services which are inefficient and do not provide value for money
-
fail
to provide services which are required
-
engage
in corrupt practices
Budgetary
policy should, therefore, address these important issues.
In order to
address these issues it is necessary to have some mechanism in place which
enables those formulating the budget policy to identify the services that
should be provided and the quantity and quality of those services that are
required, that the services being provided are economic and efficient and
effective and that corrupt practices are identified and eliminated as far as
possible.
Such a
mechanism is a modern accounting and financial reporting system which identifies
financial performance of the government both in its revenue generation
activities and in its expenditure activities.
Modern
accounting and financial reporting systems are at the heart of the management
of all well managed private sector enterprises and also at the heart of modern
government institutions. It is from the information that is contained in these
systems that information is made available on the actual performance of
governments is measured and this information base provides an excellent starting
point for projections of future revenues and expenditures.
Traditionally
within the government sector it is measurement of actual performance against
the budget that provides the basic measure of financial performance.
The budget
is essentially the financial representation of the government policy objectives
and if properly constructed it will identify both the quality and quantity of
service provision intended and the associated costs and revenues.
The Budget
will also clearly identify levels of responsibility at which service delivery
takes place. That is to say which level of government is responsible and within
that level of government which department and which budget organisation is
responsible.
Thus the
clear allocation of responsibility is an important first step in the process.
Once
responsibility has been assigned and budgets established it is a matter of
budget execution and it is at this point that accounting and financial
reporting becomes important.
Modern
accounting and financial systems allow the measurement of progress throughout
the budget period to be measured and progress toward the budget objectives can
be established. This allows service managers to make both fundamental and
subtle changes to service delivery methods during the course of the budget period
so that the final outcome is in line with the budget, or it allows a proper
review of the budget so that changes to the budget can be made if appropriate.
However in
the more developed budgetary systems the crude measurement of financial
performance against the budget is only the starting point and much more
sophisticated performance measures have been developed which allows much better
decision making about quantity quality and value for money of services being provided.
Accountability
Accountability
is the relationship between governments and the individuals within them
(whether elected or officials) and those stakeholders to whom the government
must account. These stakeholders include the citizens that elect the government,
higher or lower levels of government, employees and others who receive or are
affected by the services provided. It is the process whereby governments and individuals
within governments are held responsible for their decisions and actions.
In the more
developed governmental systems governments and individuals within governments
are required to provide an account of:
-
Their
operational objectives and priorities
-
The
proper and efficient use of public money
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Their
management processes
-
The
quality and quantity of services provided
-
The
most important consideration in this process of accountability is the way in
which information is provided directly and indirectly to the different stakeholders
with a legitimate interest in the activities of the government or budgetary organisation
within that government.
There are
five elements each with a number of factors as shown below:
Openness
-
Access
to information
-
Communication
of information
-
Appointments
Financial and Performance reporting
-
Annual
reports and annual financial statements
-
Budgets
-
Corporate plans
External review
-
External
audit
-
Service standards inspections
Corporate Governance
-
Compliance
with laws
-
Compliance
with codes of governance and professional standards
-
Avoidance of conflicts of interest
Redress
-
Complaints
mechanisms
-
Independent reviews