Sunday, 12 July 2015

AND NOW THERE IS GREECE - Government accounting is now really found wanting.

There  is a lot of news going on. Roger Federer reaches new heights in the Wimbledon Men’s Singles, England roundly defeat Australia with a day to spare to start the home Ashes series. The Chinese stock market crashes (relatively). Then there is Greece and the Eurozone. This goes beyond all else for historically profound significance in peacetime. Yet the circumstances are commonplace in 'real' life. It is at last sinking in that countries are no different from households and businesses when it comes to financial health. The eurozone has to manage itself as if a global industrial conglomerate and Greece a subsidiary company.

This weekend the European authorities have to decide whether and how to rescue that country from bankruptcy when they don’t trust the competence and commitment of the Greek government with an unsustainable total debt and faced with popular but induced uncomprehending vote to “end austerity”. The very real and present disaster is with them already because the banks have run out of money and all trade and other transactions are at a standstill. Famine stalks the streets. The IMF has now in effect said we won't touch Greece with a bargepole. Once again it’s the poor wot suffers.

Yet no country has a ‘top of the range’ financial system and only 14 nations do balance sheets according to the IMF. Europe has failed its audit for some 20 years. Only since 2009 has UK produced  ‘proper accounts’ which are heavily qualified by the auditors and these are said to lead the field. What is so terrifyingly odd is that the ‘powers that be’ don’t know what a financial system looks like and why such an out-of-date situation is so avoidably dangerous. The penny hasn’t dropped yet with the high-flown economists and political scientists.

The chair of  CIPFA international (Chartered Institute of Public Finance and Accountancy) tells it like it is but even he seems to be trying not to offend and lacking  full technical appreciation[1] . Why “net worth” ? UK isn’t for sale is it ? Or perhaps Ian Ball has in mind content and presentation of loan applications. Again, he uses that anaemic word “transparency” as a purpose. That purpose should be, looking ahead, to continuously produce management and operating data in standard conventional format in as nearly as possible real time to be taken together with feedback to prompt re-direction and ‘touches on the tiller’.

[1] CIPFA International chair Ian Ball has urged governments across the world to use balance sheets and accrual accounting to improve the transparency of their public finances. July 2015.
Speaking at CIPFA’s International seminar today,   Ball said the challenge was to get all governments to use these methods as the basis for financial management and budgetary decisions.
The publication of public sector balance sheets was “going back into favour” as  a measure and could be used as a measure of government’s “net worth”, he told delegates.
“However I would say they are not back in favour in that senior policymakers and politicians are not using them for their decision-making. I think that is the next step.”
This would be implemented by all governments, Ball added, as the public finances could not be managed properly unless governments thought about how the decisions it makes impact on its net worth.
“The net worth is the much better measure of the government’s fiscal position – but people don’t talk about it in these terms  because most governments don’t have that information.
“And if you want to do an international comparison like the Org for Economic Co-Operation and Development and the IMF would do, you can’t do that because it isn’t shown. The IMF said in its latest report that 14 governments had provided it with a balance sheet, but you need more than 50% compliance.
He did acknowledge, however, that governments in some parts of the world – particularly Latin America and Africa – were promoting good governance and accrual accounting, such as Brazil and Tanzania.
The use of balance sheets also allowed policy plans to be matched against outcomes, he said.
“For example when we see the UK budget this week I would like to see a forecast set of financial statements.
“(This way) we can look at the end-of-year WGA and say how do they compare with the budget we saw at the beginning of the year.”
In addition Ball highlighted the importance of having qualified Chief Finance officers to make the system run smoothly both in departments of government and at the centre.
“There needs to  be a very strong financial management function in the treasury”., he concluded. “in a way the test is when that is integrated in into the budgetary decision-making process. The people who look at the budget have got to be  a team with accounting and economic skills”.

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