Public financial management and the PFM international architecture - a whole system approach

Comments from ACCA to the International Public Sector Accounting Standards Board, November 2009.

ACCA welcomes the opportunity to use the expertise of our senior members and in-house technical experts to respond to the above consultation. In our view it is extremely comprehensive and is a positive step forward in improving public financial management around the globe.

ACCA is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people around the world who seek a rewarding career in accountancy, finance and management. Globally, we support our 131,500 members and 362,000 students, providing services through a network of 82 offices and centres around the world. We use our expertise and experience in areas such as tax and finance to work with governments, donor agencies and professional bodies to develop the global accountancy profession and to advance the public interest. By promoting our global standards, and supporting our members wherever they work, we aim to meet the current and future needs of international business both in the private and public sectors.

Specific comments 

PFM definition

We agree that there should be a clear definition which underpins public financial management and it should reflect financial management in its broadest sense. You mention in the text that expectations of accountability and transparency are high in public services. We totally agree with this and believe the definition could be strengthened by making accountability more explicit. It could be as simple as changing the wording. For example,

'Public financial management is the system by which the financial aspects of public services' business are directed, controlled, influenced and made accountable to support the delivery of the sector's goals.'

Relationship between PFM and contextual factors

The contextual factors and enablers listed on pages 22 are comprehensive. However, we think that it is also important to recognise the influence of the private sector on PFM systems, particularly, given the increasing use of partnerships schemes around the globe, such as PPP/PFI to fund and deliver public services.

We are supportive of a 'whole systems approach' to public financial management and agree that its focus should be on achieving sustainable outcomes for the public, community and individuals. This closely aligns to research commissioned by the ODI ‘ Results orientated budget practice in OECD countries' which found that OECD countries are placing increasing emphasis on outputs and outcomes, and there are a number of lessons to be learnt for developing countries. Also, rather than re-inventing the wheel we agree with your approach to map out the key components which make for an effective financial management system. The ‘whole systems approach' is useful for considering whether the various components are working well together and for identifying weaknesses and examples of potential support that major institutions could offer to less developed countries.

In our view the proposed ‘whole systems approach' could be further strengthened by highlighting in the ‘institutional framework' the full range of key global accountancy bodies involved in helping to support PFM. We believe that it is important to recognise that in certain circumstances the combined strengths and skills of a range of accountancy bodies can help to support developing countries address a complex range of financial management issues which cut across the public and private sectors. The economic and financial management issues that need to be dealt with in developing countries are not exclusively the domain of the public sector they often cut across the private sector and require a diverse range of financial skills to address them. In these sets of circumstances it is important that accountancy bodies work together either locally and/or nationally to help build financial and budget capacity. Financial support can be given across a whole range of areas including: taxation advice; corporate governance; budgeting; financial regulation and supporting the introduction of financial standards etc.

Also, it is more than likely that you will get wide ownership of the proposed ‘whole systems approach', if you give recognition to other accountancy bodies, in particular their ability to work together.

PFM Process Architecture

We agree with the process architecture that underpins effective PFM. In particular, its categorisation into legislation and regulation, standards and codes, strategy and planning, operations monitoring and control, assurance, scrutiny and learning and growing.

We believe that having a strong financial management function is core to delivering effective public service outcomes. However, one of the problems in both the developed and developing world is that there is variability on linking finance to performance management. If the goal is to improve the quality and effectiveness of programmes then both financial management and performance management systems need to be integrated. Although elements of an integrated approach are reflected in the ‘strategy and planning' and ‘monitoring and control' sections, it would be helpful to emphasise the importance of an integrated approach and perhaps to highlight in what contexts integration would be easier and where it would be more difficult. The ODI report on ‘Results-orientated budget practice in OECD countries' is a useful reference source for strengthening these sections.

We agree with the hypotheses highlighted in this paper and that the ‘whole systems approach' offers a robust approach for offering additional ways to choose priorities for improvement and for improving financial decision making in the long- term. It also helps improve accountability and transparency amongst key stakeholders.

The international Architecture: Institutional Framework

We agree with the taxonomy of the institutional architecture. However, we would like to re-emphasise that many of the problems with public financial management cut across both the public and private sectors. Therefore, it is important to recognise that a diverse range of financial skills are needed to address them which only a combination of accountancy bodies can provide. You seem to be suggesting in your consultation that only accountancy bodies with a public sector qualification can help where clearly this is not and has not been the case for helping to improve financial management in both developed and developing countries. For example, ACCA works with national bodies, donors, local accountancy bodies, regulators to build financial capacity in those countries that most need it. The debate is not whether accounting is or is not a universal discipline, but whether accountancy bodies can work together in partnership with one another and key stakeholders to help resolve and build financial capacity in countries that are in most need of it.

ODI, Results-orientated budget practice in OECD countries, working paper 209, 2003