Financial management in government is in transition. Reporting, accounting and auditing are changing in several fundamental ways. In reporting, the focus is shifting from budgets (how much can we spend?) to accomplishments (what have we achieved?).
Government accounting standards have become tighter as countries adopt accrual budgeting and accounting. Although International Public Sector Accounting Standards (IPSAS) go a long way to harmonise financial reporting, each country presently decides which rules to follow.
A growing demand for more transparency and accountability has led governments to transform their audit efforts, to prove that they are using public funds responsibly.
The drivers of accountability
The drive for increased transparency and accountability has been a hot topic for the past decade due to:
- growth in the size and complexity of government and its activities and the associated growing expenditures
- technology solutions becoming available to improve efficiency and the control of transactions
- competition with external suppliers of public services in areas like transport, communications and energy
- reluctance of citizens to pay higher taxes, and closer scrutiny of how their taxes are being spent.
Accountability and performance measurement
Taxpayers in developed countries now expect to see performance measurement for government departments. They feel they have a right to performance information. This increased scrutiny is a global trend. This is highlighted in a recent survey report by KPMG’s global Government practice and the Economist Intelligence Unit, Performance Agenda.
The government officials surveyed chose improved financial accountability and management as one of the top initiatives expected to provide the greatest performance/efficiency benefits.
Tapping external resources
To help meet the demand for performance measurement and accountability, some governments are outsourcing parts of their financial record-keeping to the private sector.
In New Zealand, many government departments and Crown entities have contracted accounting firms for assistance ‘as needed’. Some agencies have entered into co-sourcing or outsourcing relationships with audit firms to deliver their internal audit functions.
Governmental audit units occasionally outsource the audits themselves to private sector auditors.
KPMG can bring:
a broad perspective: There is a climate of zealousness with regard to governance issues. KPMG can apply a depth of experience to keep a pragmatic approach to auditing procedures, whilst also covering all the bases.
skills and experience: When working with government agencies, KPMG professionals combine their experience of private sector audits with government-specific standards unique government issues (the treatment of social welfare obligations and heritage assets etc).
global knowledge: Government agencies also benefit from KPMG’s global presence, monitoring the span of current government issues. Knowledge is disseminated through various KPMG services and publications, as well as through one-on-one exchanges with KPMG partners and other client service professionals.
The road ahead
Government performance measurement will become more prevalent in the next few years. The movement to harmonise standards for government accounting and the influence of the International Public Sector Accounting Standards Board will grow. The strategy of using third party auditors is gradually spreading. How do we use accounting practices to best report financial information unique to the public sector and to communicate if governments have realised their promised achievements?
The above commentary has been adapted from a KPMG International article.