Public Sector Reform - With Today's Tools We Can Make It Work

By Helge Habenicht

Public sector reform, or 'reinventing government', has been on the agendas of many governments since the early 1990s, but it is receiving a renewed emphasis today.

The New Public Management (NPM) was always clear about:

• approaches to accountability at the top of public organisations;
• flexibility and initiative and responsibility for civil servants;
• structures and institutions that are incentive rather than rule driven, many of which may be profit-making or non-governmental;
• or client focus; and
• concentrating on quantitatively measured outputs or outcomes.

While the justification for the reforms was founded by the need to

• make the delivery of public services manageable and accountable,
• avoid waste and reduce costs,
• encourage competition and customer responsiveness,
• apply proven private sector practices and to focus on results,

The main components of the reform process were at the time and are still today:

• Budgeting for outputs rather than inputs,
• of service delivery from advisory and regulatory functions,
• for managers to spend their operating budgets as they deem fit,
• like relationships between politics as purchasers of goods and services, and departments and other entities as suppliers,
• separation of audited financials and performance reporting under NPM.

All this was supposed to lead towards an environment of fewer procedural constraints, more discretionary powers to managing budgets in a better manner and to performance-related pay.

In many countries world-wide these basic concept are enshrined in law, but where do we really stand today and why are these discussions still on-going?

Many politicians and public administrators say that, by 2011, it will be difficult to justify a structure of government and provision of public services in the same manner which has been using since decades. This is largely caused by the availability of advanced technologies and Enterprise Resource Planning-Systems (ERP) to enable a transformation of the public sector structure and to rebuild government's relationships with citizen and business customers. Successfully transforming public policy using IT will help minimize the political and financial repercussions of failed implementations, meet the increasing expectations of citizens in modern democracies, and shape the public sector of the future.

Public sector reform initiatives therefore need to reinforce competitive ERP-solutions, upon which businesses increasingly depend to be competitive, because advanced technology improves efficiency and lowers costs.

However, if the ERP-System has not been set-up with the objective to deliver management information relevant to a public service environment, even the most sophisticated ERP-System cannot deliver the required answers.

Usually management accounting tools, in particular cost and performance accounting, would be able to extract the required information from the respective ERP system. However new public management techniques and practices are mainly drawn from the private sector. Unfortunately the management accounting concepts in a public service environment need to consider other prerequisites than one would usually apply in the private sector. This applies in particular to:

• cost structure: in a public administration controllable variable cost components do hardly exist, virtually all costs are fixed;
• responsibility for administrative overheads or internal cost allocations (e.g. from HR or Finance Department, etc.): they are hardly influenceable by the other organisational units. This fact requires a very coordinated pricing scheme combined with a reporting system adapted to the needs of the different hierarchies.
• personal representation: there are special requirements for treatment and evaluation of employee performance.

In summary, management accounting for organizational units or institutions of the public administration shall be designed and guided by the following principles:

• Management accounting shall be based on meaningful, logical figures which need to be transferred into coherent - plain language - reports everybody can understand and utilize;


• There is no one-size-fits-all costing method, the public sector offers multiple often complex nested services, which may need different costing methods; however they must integrate into one system;


• Avoid fixed hierarchical relationships, but apply a process orientation allowing free cost allocations to reflect service delivery and performance linkages;


• Do not calculate yourself to death, keep it easy and focus on the economically necessary and relevant information for management purposes;


• Develop a reporting system to reflect the decision-making and responsibility-oriented structure of a public service environment - as they are different to the private sector;


• Ensure the transferability to other areas, in other words: do not create "management accounting islands".

All the building blocks are known and the systems are available; now the information requirements of the public sector have to be pieced together with what an ERP-System is actually able to deliver.

Personally I have done countless "Public Sector Reform"-projects at a time when ERP-Systems were not as developed as they are today. I spent quite some time in the interim to design and implement ERP-Systems for both the private and the public sector.

As public sector reform receives a renewed emphasis today I combine two fields, i.e. what kind of information does the public sector require within the framework of New Public Management and what can ERP-systems deliver in support of it. If you like to drop me a line to exchange some ideas: new public management.

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Accounting As Accountability in the Public Sector

By Arfan Ul Haq

The three characteristics that distinguish public sector organizations from private entities and emphasize the need for accountability are objectives, ownership and funding. A private firm can measure its success by the profit it makes, as this is its major objective. This may be qualified by the reporting of achievement of secondary objectives, such as retaining a certain percentage of a quality market, employing people, reducing pollution or earning export dollars.

The public sector has different primary objectives to the private sector. These are a mix of the social, political and macroeconomic objectives. Matters such as jobs, interest rates, exchange rates, inflation, social property and public opinion can have an overriding claim on the attention of the government of the day. At an operational level, organizations are concerned with the quality, frequency, quantity and value for money of the service being provided.

Of these operational objectives, only value for money can be measured in dollar terms, but it cannot be measured at all it the other dimensions of the service are not known. For example, was the service what was required, was it good enough, did it satisfy all the objectives? Simply reporting the cost of a service conveys no information about the service itself.

Accountability in the public sector is therefore a more complicated business than merely reporting on the bottom line profit. Each objective needs a means of describing it and a method of showing if it has been met. Such performance measures will differ from service to service: for example, what will measure the effectiveness of sewage disposal is obviously not appropriate for reporting the performance of the diplomatic crops. These measures are reported to public sector stakeholders by means of annual plans and statements of service performance. The need for measures of non-financial performance does not apply so much to the profit seeking parts of the public sector.

In the private sector, most firms are owned by the individuals who have chosen to adapt this role and who will demand access to information about their investments. In the public sector ownership is involuntary - everyone owns the public sector, whether they want to or not, and cannot individually sell their ownership. This global, non-selected ownership creates a greater need for accountability.

In the private sector, expenditure is incurred for the purpose of generating income. For example, marketing expenditure and warehousing costs are incurred in order to produce revenue. By contrast, the source of income for the public sector are largely unrelated to expenditure. Most of the taxes and rates levied are unspecific - not intended to pay for particular services. Other income sources, such as rents, sales, fees and part charges, may relate to the service being provided.

Because of the nature of the services provided, receipt of public sector services can be invisible, reluctant or paid for by someone else - or even another generation. For example, tax can be used to prevent air pollution (which the taxpayer may be unaware of), used on defence or spent on hospitals (yet the tax payer may always be healthy).

Arfan Ul Haq is an Asian author. He writes articles about various topics of accounting and economics such as debt service ratio and elasticity of demand.

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Public Vs Private Accounting

By Mark Ryan

Accounting is a hot major choice for college students today. Many students choose accounting as a major but are not sure which avenue of accounting they would like to travel down. The two main sectors of accounting that one can choose from are public and private accounting. Public accountants are professionals who work for a particular accounting firm and serve various clients in ranging fields. Private accountants, on the other hand, work as internal accountants for one company. Choosing between public and private accounting is not easy for young accounting majors but knowing your skill sets and having the right information can help in the process.

Public accounting is the first main sector of the profession. It is a sector of accounting where communication and excellent people skills are a must. Public accountants serve a wide variety of clients; therefore, knowing how to communicate properly with different people is important. Good grades are obviously important but accounting firms are starting to look more towards personality and customer service skills during the interview process.

A recent graduate who decides on public accounting can choose between a national, regional or local firm. There are many regional and local firms across the country but only four national firms. Pricewaterhousecoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG are considered the big four and offer a range of services. These services include advisory, audit and assurance, and tax services. Working for a big four firm is great if you want top notch experience in the field of accounting. Also, plan on working with many other employees in large groups. National and international travel is very common while working for a big four firm if that interests you as well. The demand for accountants is extremely high in today's world so landing an entry level position at one of the big four firms is not easy.

A regional firm may suit you more if you want to stay local but do not want too small of a firm. A common regional firm may have two hundred employees working in auditing, tax services, business advisory and technology services. Professionals working for a regional firm will also serve a wide range of clients. One work day may involve taking a physical inventory for a manufacturing firm while the next day you could be working on an audit for a service firm. A local firm, on the other hand, will usually have a small number of employees that will concentrate on one area of expertise. Again, people skills are highly important for national, regional, and local public accountants. If you plan on working in public accounting it is highly recommended you become a Certified Public Accountant (CPA).

Public accounting is not for everyone with an accounting degree. Some people would be happier working for one particular company instead of serving various firms. These professionals are private accountants. You can work for a company in their internal accounting department or even climb the corporate ladder and become a controller for a company. Reporting and analyzing the companies financial records is the main component of private accounting. Budget planning is also a large part of the workload. A CPA license is also highly recommended if you choose the private accounting path.

When choosing to work towards your accounting degree there is no clear choice in becoming a public or private accountant. If you want to serve various clients and industries, public accounting is the road for you. If your looking to work for one particular company then private accounting may be the right option for you. You will first need to asses your skills and see if they are better suited for public or private accounting. Also, an internship is recommended before graduating. Having an internship will give you a better understanding of working in public or private accounting before accepting a permanent job offer. Whichever career path is right for you, public and private accounting can both be rewarding career choices.

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