FINANCIAL MANAGEMENT AND ACCOUNTABILITY IN THE …
FINANCIAL MANAGEMENT AND ACCOUNTABILITY IN THE PUBLIC SECTOR
By
Dr M. M. Maishanu
Department of Business Admin. Udus
mmmaishanu@
1.0 PREAMBLE
The essence of management is the mobilisation of human and material resources efficiently in order to achieve the target objectives. Part of material resources is finance, which is regarded as lifeblood of an organisation. For an organisation therefore to provide the expected services to its stakeholders, financial resources must be managed well and accounted for since one of the most powerful anti-corruption devices is the establishment of sound financial management practices. As Mackenroth (2004:81) observes in Australia ‘a commitment to strong financial management and accountability is driving continual improvement in governance in …public sector agencies and government-owned corporations’.
In examining the issue of financial management and accountability in the public sector, this paper seeks to answer to the following questions:
a) What is financial management and its scope?
b) Who are financial managers and their roles in the Public sector?
c) How do we ensure accountability and transparency in the Public Sector?
d) What are the ways forward?
2. MEANING AND SCOPE OF FINANCIAL MANAGEMENT
Financial Management is defined as the application of planning and controlling functions in the management of an organisation’s financial resources. According to Bathy (1956), the management of finance is the application of professional knowledge and skill in the preparation and presentation of finance in such a way to assist management in the formation of policies and planning and control of operations.
Financial management is not a species of finance technique but rather the application of all available techniques for the general purpose of management. Finance experts are expected to convey the meaning and messages of figures to management, which in turn they can readily understand.
Financial Management covers all financial activities in an organisation. Its scope includes:
□ Budgeting anticipated Revenue and cost;
□ Accounting for the receipts and disbursement of funds on the budget as approved;
□ Budgetary control;
□ Purchasing goods and services;
□ Investigating surplus funds;
□ Capital budgeting decisions
□ Management of working capital;
□ Raising short and long term debts; and
□ After the financial year ends, audit the financial main section for legal compliance; and adherence to accepted accounting principles.
However, according to Mini-Cg Secretariat (2002), financial management in the public sector should in addition to the above:
• Enable the government to make informed decisions on the allocation of its scarce financial resources.
• Ensure that financial plans are implemented according to government decisions and expectations.
• Ensure that all relevant guidelines and regulations are used correctly in order to secure acceptable accountability of and transparency in the use of public funds.
Specific goals in public sector financial management include:
(a) Revenue Mobilization
In the area of revenue mobilization and management, the government wants to improve managerial and operational efficiency in tax departments.
• Lower collection costs
• Generate improved tax statistics.
• Generate a tax policy process.
(b) Budgeting and Expenditure Management
In the area of budgeting and expenditure management, the government wants to:
• Improve Planning and Budget formulation.
• Set realistic and achievable spending ceilings.
• Improve spending prioritization.
• Monitor commitments and disbursements, and
• Ensure accurate and timely information flows among the appropriate government institutions.
Managerial and operational efficiencies in all these areas are therefore necessary in order to:
• Minimize incidences of misreporting, and
• Give good account of the use of financial resources.
In addition to the above, the following tasks characterise financial management in the public sector:
• Analysing and assessing the financial impact of management decision both prior and subsequent to implementation;
• Ensuring the necessary cash flow to finance planned activities and operations;
• Safeguarding resources through appropriate financial controls;
• Providing a financial framework for planning future activities and operations;
• Managing transaction processing systems which produce information for the control of planned activities and operations;
• Ensuring legality and regularity in the use of public funds;
• Paying attention to concepts of efficiency and effectiveness; and
• Reporting and interpreting the results of activities and operations measured in financial terms and thereafter ex post audit and evaluation.
A sound public sector financial management and accounting inhibits, discloses and helps confirm and identify corrupt practices and their perpetrators in the following ways:
• It provides sound information for the various anti-corruption “watchdogs” – the Auditor-General, Accountant General, the Public Accounts Committee of the Parliament or Legislature, and the investigative and prosecutorial agencies;
• It forces a disciplined on-time approach to public activity and financial reporting. Sound financial management includes requirements that all transactions adhere to the same rules, eliminating the loopholes and alternative mechanisms which foster and cover up corrupt activities;
• It promotes the development of strong internal managerial controls. These include appropriate “audit trails” (requisites of sound financial management), which strengthen the probability that corrupt practices are discovered and identified as such, so permitting more prompt investigation;
• Managerial control is further strengthened with regards to oversight of discretionary power over resources and expenditures which are subject to a high degree of vulnerability. Typical areas of abuse are travel expenses, consulting contracts often subdivided to come below thresholds of review, particularly valuable or attractive and portable assets such as vehicles and portable computers, etc., not to mention the inevitable temptation for kickbacks posed by very large capital expenditure projects or acquisitions in large amounts;
• It facilitates audit. Professional and timely internal and independent audit which focuses on highest risk areas is made possible where financial management, especially accounting systems are adequate; and
• It provides psychological control. It has been well established that fear of discovery and punishment is a prime factor in discouraging corrupt practices. The knowledge that internal managerial controls are in place, constantly being emphasised and improved, and subject to selective audit review, is a powerful disincentive to the potentially corrupt.
3. ROLE OF FINANCIAL MANAGERS IN ORGANISATIONS
Some of the duties and responsibilities of finance department in a typical organisation include:
a) Seeing all revenues due for the organisation have been collected
b) Ensuring all payments of organisation funds are properly authorised and related to duties entrusted with organisation
c) Custody and safe keeping of organisation funds at hand or at bank
d) Participating in preparation of organisation annual estimate.
The Director of Finance and Supplies is the Chief Financial Adviser to the organisation and heads the organisation treasury. He interacts with other heads of department in order to show them financial implication of their decisions. His functions are as follows:
i) he is the Chief Financial Adviser to the organisation;
ii) takes the administrative control of the finance department of the organisation;
iii) he accounts for the receipts and payments of the organisation
iv) he is a signatory to the organisation cheques and vouchers;
v) he ensures that all financial transactions of the organisation are carried out according to laid down procedures as spelt out in the Financial Documents; and
vi) takes responsibility for budgetary control and supervises the accounts of all the departments of the organisation.
Moreover, as the Treasurer, he should make sure that his department is organised in such a manner to attain aims and objectives of the organisation. In addition to the above, he should be concerned with:
a) maintenance of records and statistical information
b) the effective control of organisation financial transactions
c) prevention of fraud and misappropriation of organisation funds
d) the prompt and accurate recording of all financial transactions made by the organisation
5.0 ACCOUNTABILITY AND TRANSPARENCY IN THE PUBLIC SECTOR
In an environment in which public sector accountability is perceived to be weak, financial corruption becomes the characteristic of government business and has the tendency to erode the confidence of investors and donor agencies.
Accountability, transparency and good governance are mutually reinforcing concepts that assume wide currency today. Development of any kind cannot occur in the absence of a system that is accountable and transparent.
Accountability in governance is basically about holding public officials responsible for their actions. It is concerned with the need to ensure that public funds are spent for the purposes specified and without personal gain to any private individual beyond fair compensation for his or her services (Mikailu:2003). Kamaluddeen (1995) sees accountability as the obligation owed by anyone occupying position of trust to account for his actions in the discharge of his duties. He adds further that the best account was that which was in writing, supported by documentary evidence and attested to by an external auditor. Accountability is further strengthened by the details of the form and content and the timeliness of the reports.
Behn (2001) sees accountability in terms of: accountability for finances, accountability for fairness, and accountability for performance. He expands on this idea as follows:
Financial accountability - This is relatively straightforward. The managers and employees of any public organisation have been entrusted with something valuable: taxpayers’ money. They have the responsibility – the obligation – to use these funds wisely. They ought to be held accountable for doing so.
Accountability for Fairness - Here government organisations and their employees should be held accountable for more than simply handling the finances properly. We also want to hold them accountable for a variety of well-established norms of democratic government – specifically for fairness.
Accountability for the Use (or Abuse) of Power - Public servants award contracts, decide benefits, impose fines and exercise a lot of discretion and we seek to hold them accountable by imposing rules and regulations. However the accountability for power can be seen as accountability for finances and fairness.
Accountability for Performance - Accountability for finances and fairness reflect concerns for how government does what it does. But we also care what government does – what it actually accomplishes. Accountability for performance ought to cover the expectations of citizens; it ought to mean accountability to the entire citizenry.
Heeks (1998) also notes that there is a broad set of accountabilities in the public sector. These include:
• Managerial accountability: to senior managers within the organisation. For example, public servants may be held accountable by their immediate boss for their attendance record.
• Political accountability: to those institutions that provide the political legitimacy of the organisation. For example, Public Sector Organisation senior managers may be held accountable by politicians for the overall achievements of their organisation, or for particular projects that have been implemented.
• Financial accountability: to those institutions that provide the financing for the organisation. For example, project managers may be held accountable by a funding organisation for the expenditure on their project.
• Public accountability: to citizens outside the organisation. For example, a Minister or Permanent Secretary may be held accountable by the public for corrupt activities within their Ministry. This is a combination of (a) ultimate political accountability, since public institutions are supposed to derive ultimate legitimacy from the citizenry, and (b) client accountability, since citizens are normally the intended recipients of the services a PSO provides.
Problems of accountability however arise according to Economic Commission for Africa (2003), when:
• Governments ignore or transgress social ethics and constitutional and legal provisions in conducting public affairs;
• Tasks to be performed are so complex or unspecified that implementation is very difficult if not impossible;
• Activities are hidden;
• Corrupt practices are widespread;
• Political and personal loyalty are rewarded more than merit; and
• Public participation in running public affairs is low.
• Attitude of the general public to the absence of accountability. Whereas, previously, people frowned at ill-gotten wealth by officials in public service, the current attitude was that no questions were asked which have had the effect of perpetuating malpractices.
Transparency is closely related with accountability and it is the requirement for openness in all gamuts of public affairs. Transparency allows stakeholders to gather information that may be critical to uncovering abuses and defending their interests.
In essence, transparency is basically concerned with open and institutionalized system of government, the eradication of corruption and the institutionalization of a system that is fair, just and based on the rule of law.
The absence of transparency in governance also leads to
• Personalized rule under which the conduct of rulers and government functionaries are not open to scrutiny. This is most prominent under a dictatorial regime under which hardly is institutionalized opposition allowed. Not only is there absence of scrupulous obedience to the rule of law but also that leaders retain power by cunning, intrigue, or sheer physical force.
• Repression becomes the response to criticisms of policies and/or performance record of the regime.
• Thirdly, absence of transparency makes it virtually impossible to have accountability in government. It then means that public officials could not be held responsible for their actions.
THE WAY FORWARD
❖ Training is at the root of effective financial management. The Treasurer and potential treasurer in particular require training to a high level and of a more intensive and more specialist nature and such training should place great emphasis on effective report writing and the use of statistical and graphical information as an aid to financial management. Training in financial management is also needed by other categories of officers especially those that constitute the Finance Committee.
❖ It is important that the internal control systems in the organisations be strengthened in order to ensure that money is properly, economically and wisely spent on identified services and functions. Particularly, the following need to be emphasized.
a) Employment of competent and trustworthy personnel with clear lines of authority and responsibility. Reappraisal of competence ad integrity of employees may need to be made periodically as they are susceptible to change.
b) Adequate segregation of duties such as separation of custody of assets from accounting, and separation of duties within the accounting system. The practice of giving the Chairman unilateral powers should be discontinued.
c) Independent checks on performance. This is best performed by external auditors (professional) rather than the internal audit department of the organisation.
❖ All levels of governments should make sure that only qualified staff are recruited for the organisations in the field of financial management so that mismanagement of finance would be halted. In addition, any unpatriotic officer involved in corruption and fraud in the organisation’s revenue should be disciplined as required by the law of the land.
❖ Refresher courses should be organized periodically for the finance personnel to boost them professionally on not only the techniques and methods of financial management but also on the mechanisms of keeping accounting records. In addition, emphasis should be on guidelines contained in the financial memoranda.
❖ One measure to ensure accountability and transparency in government relates to strengthening the capacity of all those bodies that play important roles in anti-corruption programmes. The institutions here include the Code of Conduct Bureau (CCB), the Independent Corrupt Practices Commission (ICPC) and the offices of the Accountant-General and Auditor-General. These bodies need to be adequately funded and allowed to carryout their assignments unfettered. There is also the need for rigorous re-orientation programmes for all the personnel of the affected bodies.
❖ There must be enforcement of stipulated punishments for all corruption related offences. This is a sine qua non for transparency to be entrenched in the country. There is no way we can have transparent rule if corrupt functionaries in whatever level of government are not prosecuted and punished. It is important that this punishment should extend to companies and firms that have defrauded government either by conniving to inflate the cost of contracts or abandonment of work after payment has been received.
❖ Government at the federal, state and local level and their respective agencies must make information available to the wider public in order to allow for the scrutiny of their actions. As pointed out earlier, this is the hall-mark of a transparent system. The broad outline of financial subvention to each tier of government should be widely published to enable people “monitor” things themselves as well as raise pertinent questions. This should include information on budgetary allocations and actual spending on the different sectors of the economy. Measures also need to be taken in respect to all governments and their respective agencies that did not turn up their annual audited accounts as required by law. As things are today, many agencies and/or governments never had their accounts audited for long. Adhering to approved procurement procedures is very important especially given the fact that a lot of corruption takes place through abuse of the contract system.
❖ Public employees deserve the same attention in training and development as well as rewards as do private sector employees - and of course, be subject to the same accountability and appraisal of performance.
❖ There is need for major administrative reforms that will make for efficient, independent and transparent public service to implement appropriate policies and development programmes. The pay package should be attractive not only to enable employees to really work but also stem the tide of corruption in the public service. Low salaries beget corruption as public servants are forced to supplement their wages by petty bribes and kick backs. For long, many paid public servants can hardly afford the necessities that make for a descent living. There are, to be sure, implications for the economy of continued salary increase but the relationship of poor pay to corruption remains. While this is the case, the situation in which virtually everyone is given permanent and pensionable appointment need to be revisited because of its implications upon performance. Employees hardly perform efficiently today in spite of security of employment. There is basically the need for appointments at least at the initial stage to be on contract basis with an enhanced pay package and work conditions. Continuation with such appointments should be tied to satisfactory performance of assigned tasks.
❖ Nigerians must take keen interest in the way we are governed by our representatives. In a democracy, the people are said to be the source of all powers. All the powers and authority of the representatives are exercised on their behalf. The current democratic space offers ample opportunities for people to insist on those in power to be accountable for their actions.
❖ Establishment of Public Sector Accountancy and Auditing body that will educate, train and set standards for its members. Such a body will be able to discipline erring members.
❖ In essence, our actions as public functionaries must be moderated by the fact that we shall all be called upon to account before God for all our good or bad deeds in the hereafter and will be rewarded or punished accordingly. Generally, we seem to loose sight of the very fact that leadership itself is a sacred trust and the powers bestowed upon a leader is to mainly be utilized for the common welfare of all. For example, Suleiman (1986) wrote that
On the day of judgement, every human being will give his account before God. The ruler will in addition account for his stewardship: how he tackled poverty and spread happiness, battled against injustice and initiated or facilitated the flow of justice, by how far he had curbed the excesses of the rich and powerful and protected the poor and the week; how he had taken care of the citizens, particularly the children, the old, the sick, and the most important of all, women. In addition, he will have to account for the three most important issues of government and of human society: The blood of the citizens, their property and their honour. In essence, the ultimate source of restraint for a ruler in the face of enormous power at his disposal in his inner self, his conscience and his consciousness of God.
In a nutshell, public officers should always have it in mind that, if the larger populace has kept mute without checking them on the issues of transparency and accountability, certainly God is all-knowing and they will account for in the hereafter.
REFERENCES
Barrett, P.A.O. (2004) Financial Management In The Public Sector – How Accrual
Accounting And Budgeting Enhances Governance And Accountability
Behn, Robert D, 2001, Rethinking Democratic Accountability, Op.cit, p. 26
Donor-funded Programmes and their Implications” National Policy-
Economic Commission for Africa (2003), Public Sector Management Reforms
Heeks, R. (1998) ‘Information Systems for Public Sector Management: Information
in Africa: Lessons Learned,
Kamaluddeen, K.K. (1995), “Accountability Requirement in Financial Monitoring of
Level Seminars on Accountability and Transparency, Max-Henrie and Associates Ltd., Lagos
Mackenroth, The Hon Terry, MP, (2004), ‘Corporate Governance in the Queensland
Management system,
Mansell Publishing Ltd., London
Mikailu, A.S (2003), ACCOUNTING AND DECISION MAKING (Professional,
Administrative and Religious Perspectives), a paper presented in ANAN National Conference in Jos
Mini-Cg Secretariat (2002) Economic Aspects of Good Governance: Public Financial
public sector’, Chartered Secretaries Australia, March, Vol. 56 N0. 2, p. 81
Suleiman, I (1986), A Revolution in History: The Jihad of Usman Danfodiyo,
Systems and Public Sector Accountability,’ IDPM Working Paper Series, Paper No. 1, University of Manchester, UK (Available at: ).
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