The need for professional financial management services in public sector

By Ananda Amarawansa

The constitution of a country, which is the basic legal governing document of a country, sets up the government system and determines the power and institutions of the central government and the relationship and governance framework with other levels of institutions. Even though our country gained independence in 1948, the legislature and executive functioned in the British Westminster model until 1978. Although the constitution of 1972 and the constitution of the Sri Lanka Nationalist Socialist Republic of 1978 caused a change in the model politically, apart from the presidential powers, there were no significant changes in the rules and regulations of the administrative pattern of the country. In particular, financial control and reporting were also kept as a part of the administration and the basic legal regulations and revenue and expenditure framework and reporting forms established for revenue and expenditure control during the colonial era were maintained in the same way. There was no consideration of the measurable elements of financial management and reporting in a broad sense.

Although the 1978 Constitution introduced the Provincial Councils, creating a change in the political pattern, there was no substantial change in the financial management and procedures. The central government's financial control and reporting was held by the general treasury and a provincial treasury was established in the provincial councils under the same model. Apart from that, the local government institutions remained independent without changing the basis of financial reporting. A Finance Commission with limited powers coordinated the provision of funds to the provinces but had no considerable involvement in financial management. Each of these were political reorganizations, not basic management reorganizations that should have been done in the administration. Even after that, there is no evidence that any reorganization work paid proper and sustained attention to it.

Financial Management

At the core of the Westminster model, we see the administration of government through laws and regulations. Financial management is also taken as a part of this, but there is no adequate attention paid to its professional and technical importance to modern context. This has been one of the reasons for the financial and economic decline that our country has witnessed in the recent era, and for the increase in corruption and waste.

To create efficiency and effectiveness in public resource handling and utilization through autonomous decision-making and professional management tools eliminating conventional and outmoded regulatory administrative patterns, the systems should be updated in public administration. Accordingly, in order to protect the prudence, correctness and relevance of the decisions of the public sector by obtaining accurate and timely management information, and to protect the discipline and accountability of the employees and transparency , it is essential for Sri Lanka to establish a sound financial management and fact reporting system created in accordance with internationally accepted standards.

For that, establishing a recognized professional financial management service in the public sector is a necessity in today's era. Maintaining the audit service is not limited to this. It does not provide authority to make day-to-day decisions and report updates accurately and relevantly, and there is a post-examination of inconsistencies, misuse of resources , errors and omissions that have occurred, which is merely a statutory requirement. This service has been maintained since the past, but It has not been possible to prevent errors and deficiencies before they occur, Therefore, it is necessary to establish a service with proper systems in the public sector that reflects financial efficiency, discipline and accountability reporting with real assets, liabilities and performances in time.

Although the public financial reporting standards have been introduced by internationally recognized professional bodies, no steps have been taken to gazette or implement them by the responsible parties so far. As the handler of the state's funds, the Treasury should pay special attention to this. Politicians who raise their voices and believe in good governance should also first focus on these fundamental changes and reforms that need to be made in the whole.

Limited resources

Professional opinion is on evident that in the existing cash-based budgeting, accounting and reporting in the public sector is a work order for colonial institutional needs and not a system that can be supplemented with information that can be handled with proper management of public resources and performances in check and balance. For a nation seeking self-development, making the best use of today's limited resources to create an economic development with diverse information, outdated colonial rule is not suitable. Due to the improper infiltration of politics into this system, the situation has become more serious today and the main result has been the loss of control of the state. We must not forget that colonial regulations were necessary to bring the unfit into rule for distant countries. It should be asked whether those regulations have taken precedence in the government sector even today for such a reason. Even so, no results have been received from it today.

The public sector does not have a budget or realistic performance reporting that properly identifies the assets and liabilities and plans the financial activities by looking at the past and the future. Asset and liability management is an extension of financial management and is a broad concept. Its basis is not rules and regulations.

Currently, the government budget is an unreal record of receipts and payments. It is not acceptable as a proper master plan of sustainable development. It does not have the characteristics of an overall budget that reflects the management of public financial assets and liabilities. A country like ours does not need such a document. It should have a basic reflection of the processes and operations based on realistic physical plans. At the end of it should be revealed how the continuous changes in national assets and liabilities would happen during the relevant period. It is a concept that goes beyond receiving and paying money. It should be possible to see the services on the expenses or the real assets generated in the country and the liabilities attached thereto. Second, we need a system that can provide comparable information through the budget-based appropriation accounts and alternative checked and balanced financial statements. It is a management requirement that exceeds the established conventional statutory requirements. But in today, managing the financials is not considered as a management requirement but a statutory requirement only.

Government plans

There is a big gap between the physical progress and the financial progress of government schemes. There is also no reports in which they are comparatively analyzed. Politicians as well as officials and many critics highlight the effectiveness of the plans based on the percentage of allocated provisions and not on how much of those provisions are planned to be spent effectively. Despite the allocation of provisions leading to huge budget deficit, many ministries, especially in the provision of capital funds, do not show much progress. On the one hand, it is a lack of basic of making provisions or the budget control. It is questionable whether proper fundamental analysis is done in the public sector to allocate provisions based on performances. One of the reasons for this is that these are out of reach of professionals.

If the budget is the future financial plan of the country, then there must be a recording method and reporting system to properly identify the country's financial assets and liabilities before making it. It is remote in the current cash-based accounting and there is no provision for obtaining information about assets and liabilities through accounting and autonomous systems.

There should be a periodical reporting system that gives information to a national balance sheet on the accrual basis of the assets and liabilities generated on the basis of past events and the changes in the relevant period. It can be created by establishing proper management policies and accounting standards in government institutions from the local level governance institutions to the general treasury and allocating suitable human resources to implement it.

For this, it is necessary to make organized and moderate changes in the basic accounts and periodical reporting of all public sector institutions from the local government to the general treasury. Reorganization of the work procedures and systems leads to the creation of efficiency by getting the services of professionals for proper implementation bringing the qualified people and strengthening their character and capacity. We should establish a unique "Government Financial Management Service" in Sri Lanka that leads to the creation of efficiency by getting the services of professionals for proper implementation of the system in the reorganization and strengthening their character and capacity further in the service. The attention of the rulers and the policymakers has not been properly focused on this.

Accounting and reporting standards

The private sector mostly uses the accrual basis, which is an accounting and reporting system that can get proper information about assets and liabilities, but the cash basis is often followed in the public sector in countries like Sri Lanka. During the recent financial crises around the world, many countries have well understood the shortcomings here, and to avoid the risk of lack of information about liabilities, obligations, and assets in the public sector, they have been motivated to follow the accrual-based method in accounting and reporting today. The European Parliament has also introduced the European Public Sector Accounting Standards (EPSAS) as a necessary step to follow this accounting system in order to be more transparent in the reporting of the public finances of its Union countries. For that, they have consulted and followed the International Public Sector Accounting Standards (IPSAS) and like them, many countries in Asia have now taken steps to prepare these accounting standards to suit their countries, with the help of professional institutions. These parameters were introduced in Europe in 2011.

Among South Asian countries, Public Sector Accounting Standards (SLPSAS) have been introduced since 2009 with the voluntary participation of professional institutions and professionals, but due to the slowness and lack of interest in the political sector, it has failed to implement and reap proper results. Comparably, some of the South Asian countries that took steps after us have now come ahead in this matter.

It is a question for the people why our government officials, relevant institutions, and political authorities are not working to establish a proper management of public finance in this country. The government has the ability to make maximum use of the standards introduced by the professional bodies in the reorganization of the state financial systems and also has the ability to get their support for capacity building.

Without paying attention to this, it will not be possible to create good governance with accountability and transparency in the public sector only by changing political orders and imposing regulations.

(The writer is a Financial and Economic Analyst and Chartered Accountant)