Governments “must hold themselves to high PFM standards”

13 Jul 16

Governments around the world need to hold themselves to the same high standards as they expect from the private sector, the president of the International Federation of Accountants has said.

Speaking at the CIPFA conference in Manchester today, Olivia Kirtley said it is “remarkable” how many governments and public sector bodies were not implementing best practice.

She highlighted that many use low quality and incomplete information to develop policy or manage assets and liabilities, do not consider accruals a priority, and fail to meet international standards in areas like transparency, governance and internal controls.

“Our expectation of the public sector should be no less than theirs of the private sector. We have to demonstrate the duplicity of governments’ having expectations of the private sector and not adhering to those same high standards,” she stated.

Kirtley pointed out that globally, public sector spending is “massive” and makes up an “important component of global GDP”.

“Given the huge sums of money that flow through governments there is an acute and urgent need for public financial management reform. All too often we see the consequences of poor PFM: poor public services; sovereign debt crises; municipal banking crises; things that really disrupt and destroy lives.”

She pointed to a number of global initiatives working to challenge this, including partnerships and collaborations between IFAC and CIPFA, projects like IPSAS or IFAC’s Accountability Now campaign, which advocates sound financial reporting, improved transparency and stronger accountability in the public sector.

Building capacity among national accountants, establishing a pipeline of well-trained accountants and raising government and public awareness of the importance of having them are key, she stressed.

“Countries that stand to benefit the most from sound PFM often lack the accountancy capacity necessary to bring about that reform, and don’t even know that they lack it,” she added.

Also speaking at the session were Ian Carruthers, chair of standards at CIPFA and chair of IPSASB, and Helena Ramos, senior PFM specialist at the Public Expenditure and Financial Accountability (PEFA) secretariat.

They both outlined updates to key tools developed by CIPFA and PEFA that can be used by accountants to strengthen PFM in their organization. Carruthers explained that CIPFA will be launching an updated version of their Whole Systems Approach in November, which can be accessed through an interactive web portal.

Professionals at all levels will be able to utilise the portal to access resources from CIPFA and other bodies. The portal will provide all-encompassing guidance on how to strengthen PFM across a whole organisation and across all of its functions, centered around accruals accounting and linking PFM to things like good governance.

Ramos introduced the upgraded PEFA framework, which was launched in May and can be used to measure public financial management systems. The framework provides an assessment of the strength of a PFM system based on a series of indicators and to establish the basis for improvements.

The framework, which is already widely used around the world, has now been updated to encompass the most up-to-date best practice, fill important gaps not covered previously such as public investment management and to clarify some areas.

Finally, Kirtley stressed the importance of accruals accounting: “Too often we hear that [it] is important but not a priority. We strongly believe that consistent and comprehensive data can only be acquired through accruals accounting.

“We should not consider the journey complete until we reach accruals accounting.”

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