Public Finance Management and The Culture of Trust
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| Michael Armstrong (FCA and ICAEW - Regional Director for the Middle East, Africa and South Asia (MEASA), |
Effective public financial management is essential for economic
success, and at its core is the need to build and maintain trust. Trust grows
out of a culture of rigorous independent scrutiny which enables citizens to see
that the decisions their leaders take are in the public interest.
According to ICAEW’s recent report on building trust in public
finances, a culture of trust is pegged to a number of factors and elements.
Strong public financial management requires transparency in how
resources are raised, managed and used, together with accountability, to instil
confidence and promote continuous improvement.
For example, in Uganda, the budget information is usually uploaded
on a website. This promotes transparency and accountability by showing detailed
information on how resources are allocated and used, plus performance
indicators from national down to parish level. Citizens and other stakeholders
can provide feedback on service delivery in their local areas and report
suspected corruption. An SMS and telephone service is also available to improve
access for marginalized communities.
Strong governance and controls will ensure public officials are
held accountable for the stewardship of public money, with feedback and
sanctions when behaviour falls short of expectations. These also provide
assurance that the system is operating as intended.
A wide range of professional skills are needed to ensure
government has the capability to undertake the financial management of large
public bodies in a complex stakeholder environment. Clear guidance on ethics
will help public servants in situations of conflict. It is vital that
robust systems and processes are underpinned by core accounting disciplines to
ensure financial information is relevant, reliable, comprehensive, complete,
understandable and produced on a timely basis.
A key example of how strong systems and processes can be
implemented, lies in the ‘four-eyes’ method used by the European Commission.
The concept entails separating the initiation and verification of transactions
so that an action must be approved by at least two people.
Good financial management practices will include clearly defined
responsibilities, segregation of duties, adherence to documented procedures and
controls, regular management review, and reconciliation of account balances.
Independent audits give citizens confidence that the numbers presented
by government are accurate. Internal audits should have a high degree of
operational independence, while external audits should have constitutional
safeguards that ensure their independence from the executive.
Social dimension
It is also vital to uphold the ‘social contract’. Citizens must be
confident that they are protected by the law and that public institutions and
servants will act in accordance with it. Public institutions with
operational independence from political control are more likely to be trusted
to act in the public interest.
A well informed population is far more likely to be confident
about investing for the future. This means both providing appropriate
information in ways that are accessible and easy to understand, and educating
citizens as well as inviting them to participate in decision making.
Effective public financial management requires that decision
makers, citizens and other stakeholders, are all able to ‘follow the money’ to
see how taxes were raised, why decisions to spend it were made, how the money
was actually spent and what was bought. Where government plans and activities
are measured against expected outputs and outcomes, citizens and other
stakeholders will be able to judge the performance of government. This in turn
provides the basis for feedback and continuous improvement mechanisms.
For the public to believe that public officials will do the right
thing, a range of controls to promote integrity and ethical behaviour and to
tackle fraud and corruption are required. Most importantly, the public must
believe that individuals will be held responsible for their actions, no matter
who they are.
A climate for investment is created when investors believe a state
is stable, well run and that political and fiscal risks will be managed
effectively. A world of strong economies depends on trust in the public
finances. Public servants spend other people’s money and citizens and investors
need to have confidence that those funds will be properly and effectively used.
Governments have a duty to demonstrate that they deserve that trust.
Follow this link below for the report:
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The role of professional accountants is
fundamentally about creating trust. Trust that numbers are correctly stated
and that a true and fair account has been produced, showing what money has
been raised and how that money has been used.
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