23 Apr 2012 05:05pm

Financial management key to restoring government trust

ICAEW has welcomed moves by the Treasury to introduce changes to the financial management of individual government departments

As well as the requirement to monitor and share spending information with the Treasury, individual departments will have to identify 5% of their resource budget that could be re-prioritised if new pressures emerge or new policies have to be funded. 

Announcing the changes, Treasury chief secretary Danny Alexander said: “Delegated responsibility for spending cannot be an excuse to hide information, close the books or weaken financial management.

“For too long, financial management in government has been stifled by poor information sharing and poor incentives. That has to change.”

The Institute has expressed surprise that the measures – including monthly departmental reports on spending – have not been long-established practice.

“Good financial management and reporting have always been central to the effective delivery of public services,” said ICAEW CEO Michael Izza. “But it’s only when policy makers master the tools for tackling large-scale government deficits that we will start to get sustainable government finances.”

Government hopes the moves will not only provide greater transparency and accountability, but will provide more consistent data for decisions on spending taxpayers’ money.

Just how important transparent information and evidence-based decision-making are in restoring trust in public finances is highlighted in a new – and timely – collection of essays published by ICAEW today.

Written by some of the world’s leading experts on fiscal policies from both the private and public sectors, they provide insights into the range of tools available to governments to support the management of sustainable public finances.

Contributors include Carlo Cottarelli, director of the International Monetary Fund’s fiscal affairs department, MEP Wolf Klinz who recently stepped down as chair of the European Parliamentary special committee on the financial, economic and social crisis, Philipp Rother, head of the fiscal policies division at the European Central Bank, and Tadashi Sekikawa, executive board member of accounting and auditing practice for public sector at the Japanese Institute of Certified Public Accountants. 

Sustainable Public Finances: Global Views raises four important issues: the role of high quality data in effective policy and fiscal planning; the need for countries to move from cash-based to accruals-based accounting; the importance of financial risk and reporting standards in the public sector; and the fiscal impacts of an ageing population on long-term public finances.

International Federation of Accountants chief executive Ian Ball sums up the problem in his essay, What Possible Reason Could Governments Have for Not Instituting Financial Reform?, pointing out that “the sovereign debt crisis has shed a very bright light on the poor quality of financial reporting and financial management by governments”.

He accuses governments of a lack of political will and drive for sound, transparent reporting and says that it is critical they take steps now to establish greater trust between themselves and their constituents.

He writes, “Higher quality, and more consistently applied standards in accounting, auditing and financial management will address the key cause of the crisis: the lack of transparent, consistent and measurable financial reporting.”


Julia Irvine