September 6, 2012Doug Hadden
Doug Hadden, VP Products
Why is the Chart of Accounts critical in government financials?
- Many governments are increasingly adopting Commercial-Off-the-Shelf (COTS) software to replace legacy and custom developed software applications for financial, budget, expenditure, tax, treasury and civil service management.
- Government organizations can chose to acquire Enterprise Resource Planning (ERP) software from large software firms whose software is used in multiple “vertical” markets or Government Resource Planning (GRP) software designed exclusively for governments.
- Government budget classifications, often called Charts of Accounts (COAs), represent the underlying meta data for Public Financial Management (PFM) for statutory financial statements and decision-support.
- COAs tend to be more complex in government than in the private sector. Government COAs include multiple segments such as fund, organization, program, economic purpose, geography and object. COAs are often consolidated across agencies and departments or across all government levels.
- Government COAs capture budget and allocation information, support international standards, provide reporting information and are increasingly used to map government objectives to performance outcomes.
What is the COA challenge in government?
- Government organizations are challenged to adapt COAs to support modernization such as the introduction of program budgeting, accrual accounting or new national reporting. Changes within the organizational structure of government are also commonplace requiring changes to the classification structure.
- Many countries should improve Budget Classifications according to Public Expenditure and Financial Accountability (PEFA) reviews.
- Many governments are reforming financial reporting to support international standards such as the International Financial Reporting Standard (IFRS), International Public Sector Accounting Standards (IPSAS), Classification of the Functions of Government (COFOG), Government Finance Statistics (GFS), International Aid Transparency Initiative (IATI), and the eXtended Business Reporting Language (XBRL).
- Many governments find that underlying custom-developed or Commercial-off-the-Shelf (COTS) ERP software make changes to COAs difficult.
- Frequent changes to COAs across fiscal years makes reporting and comparison difficult. Budget preparation and analysis requires the ability to compare information across fiscal years even though that information is classified differently.
What is a multiple year Chart of Accounts?
A multiple year COA enables governments to map across classifications through many years including:
- Reporting on any fiscal year based on the COA of any year in the system
- Matching aggregate budgets and programs across multiple years
- Supporting accrual accounting reporting on previous non-accrual years
- Calculating the reality of cost savings initiatives like departmental consolidation or shared services
- Supporting multiple year commitments and obligations even though classifications have changed
- Providing full budget histories across multiple years to assist in developing more credible budgets
- Identifying cost efficiency opportunities through multiple year comparisons
Classifications frequently change in government to accommodate organization structure, international standards, reporting requirements, accrual accounting and performance information.
How is a multiple year COA supported in GRP software?
- COA designer in GRP software requires flexibility to change structure such as add segments, change organization alignment and re-classify some or all of the metadata
- COA designer must have ability to map classifications from year to year
- Data integrity must be supported to eliminate any “orphan” COA elements
- Side concepts or reporting objects must be used to enable rolling up detailed information within the COA must be supported to support reporting standards without complicating data input
- Adding a new line item within the existing COA structure during the fiscal year should require little effort
- COA designer should support valid code combinations and standard offset accounts to reduce data entry errors
- Desirable that the tool for COA design is graphical, supports XML import and provides for draft classifications for review
What is the good practice in COA design?
- Government Resource Planning (GRP) software should enable the modeling of complex Charts of Accounts include support for side tables
- GRP software should not require significant effort to deploy a new COA
- GRP software should support multiple year COA to enable government decision making