PUBLIC SECTOR ACCOUNTING LECTURE NOTES

Public Sector Accounting 

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Several developments in recent decades have made the subject of Public Sector Accounting an important part of accounting studies the world over. Firstly, the size of the government budget and the contribution of public expenditure to the Gross Domestic Product (GDP) are very enormous, especially in developing countries.

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Secondly, an analysis of the concept and techniques of accounting applied to public sector accounting and general commercial accounting shows that there is only a thin line between the two accounting systems, mainly in the area of accounting methods and management principles.

Thirdly, accounting as an information system is very dynamic and its transformation, storage, retrieval and reporting very much depends on new and emerging technologies and information systems.

These new computerized systems are developed to apply to both general commercial accounting organizations and public service organizations with virtually very little or no modifications.

For example, several ledger systems, payroll systems, and pension administration vary little. Fourthly, governments throughout the world have quasi-commercial or sometimes purely commercial, state-owned enterprises.

Accountancy training must, therefore, be comprehensive enough so that a professional accountant can apply his knowledge and skills in a wide range of organizations whether commercial, quasi­commercial or a governmental unit.

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Brief History

Public sector accounting has a long history in Ghana. The first legislative reference to government accounts seems to have been made in 1954, in the Gold Coast (Constitution) Order in Council of that year.

But the reference is an oblique one, contained in Section 68, which provides for the “accounts of all departments and offices of government” to be audited by the Auditor-General.

This simply assumed that accounts existed and no obligation was imposed on anyone for keeping and rendering accounts; in fact, accounts of government had been kept and published under the authority of Colonial Regulations since the establishment of the Gold Coast Government in 1874. All constitutional legislation since 1954 has similarly repeated this oblique form of reference to the accounts of the government.

However, it was not until 1957, when the country attained its independence that the first comprehensive attempt was made to give legislative recognition to the accounts of the government.

This was the Public Accounts Ordinance, 1957 (no.37 of 1957). This was an enactment enabling rules relating to public accounts to be made; the Public Accounts (Audit) Rules were issued in the same year. They chiefly related to the audit of accounts but contained a section specifying the accounts and statements to be presented for audit by the Accountant-General.

IMPORTANCE OF ACCOUNTABILITY IN PUBLIC SECTOR

The 1957 Ordinance was replaced for the making of rules. Three sets of rules were issued – Public Accounts (Railway and Harbours Administration) Rules, 1959, Public Accounts (Treasury) Rules, 1959, and Public Accounts (Audit) Rules, 1959.

The Treasury Rules did provide for keeping and rendering accounts, and for several rules relating to how they should be prepared, e.g., specifying the financial year, and that the statements presented to Parliament “shall include only sums which have been paid or received within the period of account”.

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The Financial Administration Decree 1967 (NLCD 165) includes a Part VI- Public Accounts (Consolidated Fund), containing two paragraphs, “Keeping public accounts” and “The Public Accounts”.

These paragraphs, drawn partly from the Treasury Rules of 1959 Act, 1959 (Act 3) were eventually repealed by the Audit Service Decree, 1972 (NRCD 49), although some rules are still extant (e.g., the duration of the government’s financial year) had not been replaced.

NATURE OF THE PUBLIC SECTOR ACCOUNTING SYSTEM IN GHANA

The scope of activities of government has expanded tremendously since the country gained its independence initially from maintenance of law and order to a corpus of welfare schemes and social development activities.

At the same time over the years, the government has involved itself in creating jobs and providing goods and services for the citizenry by embarking on large scale public ownership of industrial and agricultural development and commercial enterprises.

The dynamic nature of governments and their programs in the country’s history has led to the restructuring, reforming, privatizing and re-organizing of the public sector. Hence the creation of diverse government organizations and administrations, the institution of new methods and management of operations that reflect the diversity of public sector accounting in Ghana.

The composition of the public sector in Ghana may be identified as follows:

1. Central government, ministries, departments and agencies,
2. Local government units – metropolitan, municipal and district assemblies, and,
3. Quasi- government institutions—Public boards and corporations.
4. Public educational institutions.

The essential features of these organizations may also be as follows:

Stewardship and control

1.  Accounting and accountability
2. Planning and budgeting
3.  Audit (internal and external)
4.  Fund accounting dominated by the consolidated fund;
5. Reporting.
6. Public ownership of assets and liabilities, cash, accrual,
7. Modified cash, modified accrual and commitment basis of accounting.
8. Treasury system of accounting, and ° Financial flows.

The public sector accounting system involves recording, analyzing, classifying, summarizing, communicating and interpreting financial information both in aggregate and in detail.

These activities should reflect all government transactions which involve the receipt, custody, transfer and disbursement of government funds and property. The main reason for these practices is that public officials need to demonstrate the propriety of transactions and their conformity with established rules.

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It is also to give evidence of accountability for the stewardship of government resources and to provide useful information for the good control and efficient management of government operations.

It is also necessary to recognize that public sector organizations tend to have an excessive emphasis on rules and procedures, a concern for details often dominated by budgeting and financial controls.

Defining Public Sector Accounting 

In light of the nature of public sector accounting, attempts are made to define public sector accounting. Several ideas that come to mind include:

An information system designed to measure financial information (transactions) of public sector organizations for purposes of the planning, appraisal, reporting, evaluation and management of the organizations.

A financial system designed to capture all transactions involving government funds, allow for comparison of actual and budge Led results, give government timely information about revenue and expenditure, and provide information useful to assess the efficiency of government programmes.

The totality of methods and procedures necessary for accounts keeping to produce the desired results of the objectives of government programmes and activities.

A set of methods and procedures adopted by public sector organizations to manage the financial business of the organizations.

Public sector accounting is concerned with recording, controlling, analyzing, classifying, summarizing, measuring and reporting the financial flows of government. It involves the receipt, custody and disbursement of public and trust monies as

required by law. The purpose is to demonstrate fiduciary stewardship that is to show that government resources have been approved and handled properly by ensuring that government monies are applied honestly, using proper procedures, within budgeted levels and legal limits.

All the definitions sound convincing although the last description of public sector accounting appears to be more comprehensive. The main points we need to know, however, are that public sector accounting is:

A dynamic financial information system.

It is broad-based and limited only to the needs of the information user.

It is based on laws, rules, regulations, policies, methods and procedures.

To determine that the information produced is analyzed and communicated in a timely way.

To ensure that stewardship and accountability to the public are major hallmarks of the system.

THE IMPORTANCE OF PUBLIC SECTOR ACCOUNTING

Whenever a state exists, and the government exercises coercive power by collecting taxes (revenue) and spending the money (disbursements) for the maintenance of law and order or a form of state activity some form of public sector accounting, whether primitive or rudimentary, would be practised. It can also be said that modern states cannot function effectively without public sector accounting. The reason is simple.

All government decisions, even in primitive societies where barter is practised, have to be ultimately broken down into financial terms. In recent years, however, a major effort has been made in several countries especially in the United States, Great Britain and Canada to bring modern techniques of management and financial analysis to bear on public sector accounting.

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