March 14, 2016Doug Hadden
Public Financial Management (PFM) reform has been the core subject of every FreeBalance International Steering Committe (FISC) conference since the first in the UK in 2007. No surprise the 10th annual FISC in Managua, Nicaragua focused on PFM reform. Countries that were not at the original FISC outnumbered those that were. Many of the latest to join the FreeBalance government family are more advanced than the original cadre. Yet, it’s all about reform.
— FreeBalance (@freebalance) March 8, 2016
Underlying financial management information systems can enable or restrict reform. Complex systems designed for the private sector or fully customized systems resists change. These software applications make change expensive. Systems designed for “progressive activation” enables reform. These systems are agile.
Cash and Accrual Accounting
The transition from a cash-basis to accrual-basis of government accounting generated a spirited discussion back on 2007. The discussion was no less spirited this year. The problem of accounting capacity in governments remains a significant roadblock to accrual adoption. As does the political issue – politicians tend to sell government policy on inputs – the amount budgeted to be spent on a program. Accrual accounting exposes the real costs and returns.
FreeBalance executives described new capabilities for simultaneous cash and accrual reports in the FreeBalance Accountability Suite. This is particularly important when consolidating accounts from State-Owned Enterprises that typically report using accrual accounting while most governments attempt to support IPSAS (International Public Sector Accounting Standards) cash reporting.
What About Financial Systems?
A recent analysis from Grant Thornton and the International Consortium on Governmental Financial Management (ICGFM) found GRP sytems were a medium priority for governments in emerging economies. The interesting observation is emerging economy governments require “technical assistance” from international donors as the most important resource needed for PFM reform.
What is the most valued technical assistance from the survey? Help with implementing financial management systems effectively!
- Many technology solutions restrict reform resulting in high technical debt
- There is much more to reform than legal changes and business process re-engineering
- Technology can be leveraged to socialize change, such as the transition to accrual accounting
- Intensity of change depends on context such as government capacity and type of reform