Have Recent Financial Reforms Improved Financial Accountability in the Australian Commonwealth Public Sector?

Australasian Accounting Business & Finance Journal, Aug 2007 by Bowrey, Graham

ABSTRACT

Since the early 1990s the Australian Commonwealth public sector has undergone significant financial reforms, due primarily to the current federal Liberal government's drive to improve the financial accountability of the Commonwealth Government. These reforms include the adoption of accrual accounting and budgeting and the development and implementation of an outcomes and outputs framework. These reforms culminated in the first full federal budget to be developed on an accrual basis in 1999 - 2000. This paper will examine the implementation of these reforms and the associated processes to determine whether or not the Commonwealth government is more financially transparent and better able to discharge its financial accountability. It is argued the complexity of the processes associated with, and the reporting requirements of these reforms may have actually decreased the level of accountability to the key party to whom accountability is due - the Australian public.

Key words: financial reform, financial accountability, accrual accounting, outcomes and outputs framework

INTRODUCTION

The Australian Commonwealth public service has undergone significant financial and non-financial reforms over the past two decades in an effort to improve its efficiency, effectiveness and accountability (Guthrie 1998, p. 2; Barton 2005, p. 138), its transparency (Barrett 1994, p. 2), as well as its productivity and competitiveness (Boxall 1998, p. 18). The two main objectives of the financial reforms identified by the previous Secretary of the Commonwealth Department of Finance and Administration (DOFA), Dr Boxall, is the encouragement of a culture of performance and making the public sector more responsive to the needs of government (1998, p. 18). These objectives are reflected in DOFA's statement that the financial reforms were implemented to place greater focus on "measuring what is being produced, what is being achieved and what is the full cost of individual goods and services, and on the reporting of performance" (1999, p. 2). The most noted financial reforms have been the adoption of accrual accounting and budgeting and the development and implementation of an outcomes and output framework

These reforms resulted in the first full federal budget to be developed on an accrual basis in 1999-2000. The outcomes and outputs framework, by which government appropriations are specifically directed to government organisations, was developed in parallel with the first full whole of government accrual budget. It is important to note that along with the adoption of accrual accounting and budgeting and the implementation of an outcomes and outputs framework the federal government also introduced specific legislation to support its reform agenda. This legislation included the Financial Management and Accountability (FMA) Act 1997 and the Commonwealth Authorities and Companies (CAC) Act 1997, which provide for the use of Commonwealth resources, as well the reporting and accountability rules for Commonwealth organisations, the Charter of Budget Honesty Act 1998, which provides a framework for the conduct of Government fiscal policy, and the Auditor-General Act 1997 which provides a broad reaching mandate for the Auditor-General and the Australian National Audit Office (Barrett 2004, p. 7).

The Senate, also known as the House of Review is one of the main mechanisms used by the government and parliament to discharge their financial accountabilities. The Australian Constitution, section 81, outlines that "all revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Commonwealth". The Senate, through various legislative committees, scrutinises the planned government organisations' estimates of required funds [budget estimates], contained in specific appropriation bills, which are created as per section 83 of the Australian Constitution "no money shall be drawn from the Treasury [Consolidated Revenue Fund] of the Commonwealth except under appropriation made by law". These annual appropriation bills, secure money for the implementation and delivery of services of the government and the parliament for the financial year (Evans, 2004). Appropriation Bills No. 1 and 3 provide funding for the "ordinary annual services" of Government (DOFA 2006a) and while Appropriation Bills No. 2 and 4 provide funding for capital injections as well as administered funding for government outcomes. The government organisation is expected to use the funds obtained from its accrual appropriation(s) "to manage all its finances, including capital replacement and working capital requirements" (National Commission of Audit (NCOA), Chapter 9).

To assist senators, who participate in the legislative committees, as well as other members of parliament to understand the various appropriation bills, each government portfolio produces a portfolio budget statement (PBS). These PBSs are designed to "inform Senators, Members and the public of the proposed allocation of resources to Government outcomes. The PBS provides an important means by which the Executive Government remains accountable to the Parliament" (DOFA, 2006a) as well provide an agenda for the senate legislative hearings.