Brighter prospects

Professor Ato Ghartey profiles public sector accountability in the developing world and the emerging trends for improved governance and development

Consistent with past generations, developing countries have been structurally adjusting and readjusting their economies. They have embraced the virtues of economic and financial discipline, wooed foreign investors and donors, and employed recommended 'best practice' economic and financial accountability gimmicks and principles to improve their economies and reduce poverty. But they continue to remain poor, dismayed, confused and frustrated. What can be done to reverse this track record of lost self-esteem and confidence and achieve the desired financial accountability for good governance, poverty reduction and development?

This article provides an illustration of efforts being made by developing countries, by themselves and in collaboration with the international community, to achieve improved standards and convergence in financial accountability for good governance and development. It also provides guidance on the determination of a baseline for mapping out the current focus, and strategies for future direction and a guide to success factors and best practices.

Focus and convergence

The problems of financial accountability in developing countries have not changed much in the past 40 years. Inadequate structures, institutions and systems, fragmentation of change process responsibilities, weak co-ordination mechanisms, and inadequate capacity are all typical. There are 42 highly indebted poor countries (HIPC) in the world. All of them are located in the developing world, located as follows: 34 in Africa, four in Latin America, three in Asia and one in the Middle East. What has changed and continues to change is the approach to resolving the problems of financial accountability. Current focus and emerging direction hinge on internal and external convergence. The convergence is illustrated below.

Internal convergence

At the national level, many developing countries have, since the year 2000, come up with new legislation, required policy documents, and corresponding governance institutions and structures to improve accountability and governance. The legislation includes financial administration, internal audit, external audit, procurement, and decentralisation/local governance. The required policy documents include poverty reduction strategy (PRS) and country financial accountability assessment (CFAA). The PRS is particularly relevant for heavily indebted poor countries. The CFAA is a World Bank diagnostic tool designed to facilitate the achievement of the Bank's fiduciary and development objectives. The emerging corresponding governance structures include increased emphasis on enacting legislation and establishing institutions for combating corruption, and improving efficiency and transparency in financial accountability and governance.

External convergence

At the international level, there is convergence at the global, continental and regional levels. At the global level, many countries are subject to stringent governance monitoring and supervision from the Bretton Woods institutions and other donors. The monitoring and supervision cover HIPC expenditure tracking for HIPC countries, and a wide range of fiduciary and development assessments such as the World Bank's CFAA, public expenditure reviews, country procurement assessments reports, the IMF's standards and codes of fiscal transparency, existence of required governance structures and institutions, and updated national legislation in financial administration, auditing and procurement. These have almost become standard requirements for developing countries.

Concurrently, the International Federation of Accountants strives to achieve its mission of furthering development and convergence of international standards and speaking out on public interest issues where the profession's expertise is most relevant. In October 2003, for example, IFAC came up with new International Education Standards for Professional Accountants effective 1 January 2005. Similarly, the International Organisation of Supreme Audit Institutions (INTOSAI) has introduced Accounting Standards Framework Implementation Guide for Supreme Audit Institutions (SAIs): Management/Discussion and Analysis of Financial, Performance and Other Information (October 2001). INTOSAI recommends that financial statements and reports should cover the following five areas: mission, financial, performance, governance and forward-looking. The World Bank and IMF are in the process of developing a public financial management (PFM) performance measurement framework. The framework seeks to identify a standard set of indicators to facilitate an assessment of the relative quality of the financial management function within a particular country.

At the continental level, the African Capacity Building Foundation (ACBF) based in Harare, Zimbabwe, has expanded its scope and focus of attention from economic policy and analysis to include financial management and accountability.

At the regional level, guidelines on internal audit have been developed for the ESAAG (Eastern and Southern African Accountants-General). Also, a governance perspective for the public sector and guidelines for parastatals has been developed for Eastern Central and Southern Africa (ECSAFA).

Lessons from new approaches

There are several advantages and disadvantages with the new approaches to financial accountability. Only a few will be discussed in this paper. The new developments have added value in terms of governance and legislation. It also has disadvantages in terms of duplication and overlap, and misapplication of capacity and workshop fatigue.

• Governance The old approaches were generally reactive and brush fire, unstructured, unco-ordinated and autocratic in approach. The new approach is more governance flavoured and more participatory. The new approach is better planned, structured, sector and inter sector programmed, holistic and convergent. It also involves wider participation, consultation and involvement from the private sector and civil society.
• Legislation The new Audit Law in Ghana, for example, distinguishes between external and internal audit and introduces a section on audit implementation to ensure implementation of audit recommendations. It also provides for the audit of the auditor-general and adherence to emerging international trends and practices. The Financial Administration Law introduces a Financial Administration Tribunal with powers of a High Court to deal with breaches and lapses in financial accountability.
• Duplication and overlap Again, in Ghana, 30 additional districts and constituencies were created this year. Creation of these adds a further burden and strain to the already overstretched national budget.
  In July 2003, an Office of Accountability was created by the President of Ghana to reduce corruption by government appointees and public servants. The Office of Accountability's activities are intended to be limited to appointees of the President, such as ministers and senior aides. The activities are not expected to supersede any of the other governmental bodies charged with fighting public corruption. The creation of the Office of Accountability and the Financial Administration Tribunal further blurs the functions of the Serious Fraud Office and the Commission for Human Rights and Administrative Justice.
• Misapplication of capacity and workshop fatigue Public officers spend more time receiving consultants and donors at their offices and attending workshops than doing the work for which they are being paid and for which capacity is being developed. Almost every project or new thematic area in governance or financial management comes with its specific project design, management, implementation and reporting requirements. Public officers need to be interviewed for inputs into the design and subsequent aspects of the project. They need to attend workshops for skill development, project implementation and beneficiary assessment. They need to be interviewed for project monitoring, supervision and evaluation purposes. They may also be required to attend workshops for debriefing and exit purposes.

Emerging international trends and direction

Two articles from Issue 3, August 2004, of the ACCA International Public Sector Bulletin (pp11-15) are particularly pertinent to this section. The articles are on Medium Term Expenditure Frameworks (MTEF) and General Budget Support (GBS). The MTEF article cites a couple of instances where application of MTEF was found to be inappropriate or politically unacceptable in those countries. Notwithstanding this observation about MTEF, several countries continue to adopt and use it. Nigeria, for example, formally launched its MTEF programme in July 2004. The GBS article recommends that due diligence and caution need to be exercised in relying on General Budget Support.

The emerging trend and direction in donor-support has witnessed a shift from project/ programme management to Sector Wide Approach (SWAp) to General Budget Support and Multi-donor Support. On the financial management side, the past decade in particular saw an increasing shift from accounting and budgetary reforms to integrated financial management and medium term expenditure framework (MTEF). In the current decade, the emphasis is on developing and implementing policies and legislation on governance and poverty reduction. A wide range of fiduciary and development assessments, such as the World Bank's CFAA, public expenditure reviews, country procurement assessments reports, the IMF's Standards and Codes of Fiscal Transparency, existence of required governance structures and institutions, and updated national legislation in financial administration, auditing and procurement have almost become a standard financial accountability requirement for developing countries.

Conclusion

This article concurs with the conclusion in Issue 3, August 2004, of the ACCA International Public Sector Bulletin (p13) that the role of the professional public sector financial manager is not to be made to implement each and every aspect of what is currently considered or recommended to be good practice. The inclination should be towards guidance on selecting and implementing, with local adaptation as necessary - those elements of emerging practices which are feasible and appropriate for a particular country's circumstances. Perceived forced or induced adoption may contribute to reform fatigue and loss of faith in the reform process if the declared reform benefits do not materialise.

Professor Ato Ghartey Phd FCCA is a former controller and Accountant-General of Ghana. He is currently a member of the IFAC Consultative Committee and chairman of the Financial Management and Accountability Technical Advisory Panel of the African Capacity Building Foundation (ACBF).