Budgeting, Accountability and Performance Measures

Kenneth Wagstaffe

CPFA FCCA FCIM

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

-        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