How well do you really understand the financial reports from your government?
If you (bother to) read this blog, chances are that you are above average educated in accounting and reporting.
In that case, look at other important stakeholders, like parliamentarians, journalists, and civil society groups, and ask yourself how they would understand the information and, more importantly, if the financial reports in their current form also answer their questions on how the government is doing?
Most likely, many of them have little experience in reading a proper balance sheet and a profit and loss account (that is, if the public sector entity would be able in the first place to deliver that information using accrual accounting).
Moreover, it is not easy to assess how this financial information relates to effective, efficient, and economic public service delivery, as they are compiled on a different basis.
To narrow the gap, we could set out on a journey to better educate the various (internal and external) stakeholder groups in the intricacies of public financial reporting.
Although it would be useful to increase the general knowledge of what constitutes good and bad accounting, the task would be quite daunting.
Not only because there are so many stakeholders with legitimate information needs about the government’s finances who don’t speak the language of public financial reporting, but also because it is not on top of everyone’s priority list, and stakeholders also frequently change: think about periodic elections that regularly bring in fresh batches of politicians.
Maybe it would be smarter to put a better GUI around the public financial reports.
‘Public financial reporting is the language in which public sector entities communicate their financial position and performance with their stakeholders. But if these stakeholders don’t speak that language, then there is also no real communication.’
So, what is GUI?
GUI is a term from the computer world and means ‘graphical user interface’.
The concept is quite simple.
You may remember that 25 or so years ago, people were urged to learn a computer language in order not to miss out on the IT revolution.
Quite soon, however, the IT world understood that most people do not want to learn a computer language and also figured out that people don’t need to learn a computer language in order to use IT effectively as a means to their ends.
What they did was adding an additional layer, a ‘graphical user interface’ such as Windows, over their computer code that people were able to understand without much additional training.
Now, even your three-year-old can steal your pad, pod, or phone, simply click on the apps, and use it all day long. This really set off the IT revolution.
Do not discount the importance of the underlying software though: every popular app is powered by thousands of lines of programming code.
But this is now under the surface and no longer visible to the average user.
The same approach could and should be taken for improving the understandability of public financial reporting, simply by no longer presenting financial code, but by starting with the questions that users have about the finances of the government, like “how did we get the money?”, “on what programs did we spend it?”, “how successful has that been?”, and “how much money have we still left over?”.
Next, we should answer those questions in plain English, ideally supported by simple graphics.
Also here, don’t discount the role of a modern accounting standard like IPSAS, which is crucial for adequately capturing, processing, and analysing all the intricacies of public finance.
That does not mean, however, that we then simply should throw these raw numbers ‘over the fence’ to the public and let them sort out what to do with it.
If we really want to set off a PFM revolution, we must mirror the approach from the computer world and present them with something that they can understand and find useful.
The ‘Simply UK’ series, developed by one-man firm of Martin Wheatcroft, is a good example of how good public financial reporting might look like in the future, as it starts from the typical user questions and then delves into the numbers to provide an understandable answer.
After reading that booklet you realise that every member of your Parliamentary Accounts Committee, as well as all those other stakeholders, should have locked her/him self up in their study for months – just like Martin Wheatcroft did - to be able to competently hold the government to account.
But had they read Martin's booklet they wouldn't have to lock themselves in their study for months - because one expert translating it for them would be more efficient and effective than them trying to working it out for themselves.
Of course, additional improvements are necessary.
Next stage, for example, could be to better connect the financial performance with the service delivery of the government, for example in the form of an integrated report.
Another issue is that, ultimately, the government itself is responsible for communicating with its stakeholders in a (more) understandable way and should, therefore, take up this challenge.
We accountants can help in that respect, simply by putting some GUI over the financials.
