Public Sector Financial Management

Citation

MacLeod, R. (2010), "Public Sector Financial Management", Pacific Accounting Review, Vol. 22 No. 2, pp. 170-172. https://doi.org/10.1108/01140581011074539

Bergmann sets out to “bring together” from a “managerial perspective” the approach to public sector financial management (PSFM) used by economists, statisticians, accountants and lawyers. He describes the book as a “fil rouge, a thread that ties the various pieces together” (Bergmann, p. xi).

Given the lack of text books in this area, a text which is generic enough to explain PSFM structures and frameworks now found in many jurisdictions is to be commended.

The approach does not seek to provide background theory, or to explain the significant changes in approach in PSFM since the 1990s as these are topics of many other texts. Rather, it draws from what managerial disciplines presently require from public sector management. Though not made entirely explicit which discipline (e.g. economist, accountant, etc.) has what perspective, certain chapters focus on macroeconomic issues, others cover statistical requirements such as the system of national accounts. Some chapters are wholly devoted to accounting requirements, particularly International Public Sector Accounting Standards (IPSAS) and there is some coverage of legal issues such as the legal requirements surrounding a budget process and the Sarbanes‐Oxley Act 2002.

Bergmann also covers “integrated” approaches to assist management of public sector. Such approaches have been developed by institutions such as the World Bank and the IMF, where the requirements of each discipline are bundled together into a framework or standards, which Governments may be required to comply for international reporting purposes or for countries to obtain loans from international financial organisations or from donor countries.

1 Overview

The text tends towards an accountability perspective, that is, the requirement for Government and public sector entities to account for the resources used, and the supporting information, processes and structures.

The book is structured into eight chapters. The first chapter defines PSFM and cites the PSFM goals as classified by the World Bank. It briefly reviews structures (task based or institutional based) and the diverse roles of the treasury function of Government.

The second chapter takes an economic perspective and the types of information that is required to inform debate as to macroeconomic issues surrounding public sector spending, income, deficits and debt.

The rest of the text is primarily, but not wholly, focused on a more accounting perspective. Chapter three covers budgeting, including performance budgeting and benchmarking. Chapter four provides a high level overview of the cash and accrual basis of accounting, the requirement for independent assurance over the financial statements and information for the Government financial statistics.

Chapter five covers some of the financial reporting requirements under IPSAS. Chapter six covers internal control issues including the Sarbanes‐Oxley Act. Chapter seven looks at current and future developments such as sustainability, XBRL and public private partnerships. Chapter eight provides some illustrative case studies.

2 Evaluation

The text provides a lot of background information on a number of topics that will provide sound background information for students of public management or new recruits to treasury or finance ministries. It traverses a number of functions which managers in the area of public financial management are required to perform, i.e. provide economic advice on public finance issues, perform financial planning and budgeting, undertake public sector accounting and financial reporting, or provide assurance and internal control.

It is practitioner focused, with significant information being provided in the body of the text providing overviews of:

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  the requirements of the Public Expenditure and Financial Accountability (PEFA) Public Financial Management (PFM) performance measurement framework indicator set;

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  sections of the Sarbanes‐Oxley Act 2002;

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  classification of each of the IPSAS;

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  the Swiss Harmonised Accounting Model; and

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  sample statements of financial performance, financial position, cash flows and changes in net assets/equity.

Information required for rating agencies is not covered nor is any dialogue on the approach of these agencies to assess PSFM performance.

As noted earlier, the text aspires to be “fil rouge, a thread that ties the various pieces together” (Berman, p xi). Though Bergmann notes there is not an overarching concept, it may have been useful, given the intended audience of the book (students of PSFM) to refer contextually to some of concepts or theories underlying present day financial management such as transactional cost analysis and agency theory. Similarly, a little more explanation of New Public Management, and coverage of the accountability framework may have been useful as a mechanism to tie the chapters together to a cohesive whole. Certainly, this would be helpful to managers of public sector financial functions who would be required to have a keen appreciation of incentive frameworks underlying PSFM. More references to appropriate texts or journals would also be useful.

A lot of focus is given generically to PSFM functions and current informational requirements, but little coverage is given of the issues or areas of current debate. For example, the section on accounting standards covers recognition and measurement but does not indicate the difficulty in applying these concepts in a public sector context. Similarly, the section on performance budgeting and auditing (assurance) does not mention the problems in specifying appropriate performance measures, a significant current issue.

Again, the text is likely to have been strengthened by signalling where students of PSFM could undertake further reading on issues that are currently debated. Many of the same issues (e.g. measurement issues surrounding infrastructure assets) have been treated differently in different jurisdictions despite many jurisdictions following IPSAS or International Financial Reporting Standards. Interestingly, the notion of control, in terms of determining the scope of consolidation, is covered in the case study on Whole of Government Accounting in New Zealand, but the issue is not discussed as an accounting issue in the main body of the text.

Overall, the text bridges a number of disciplines and provides a useful base for students of PSFM. It bridges a wide range of subjects in terms of providing the high level requirements for information. For students, it may have been useful for the text to have been linked both “back” to concepts and “forwards” to areas where current requirements are being debated and may therefore lead to future change. This would assist students to deepen their understanding of this subject or gain a greater appreciation of the link between PSFM and the many associated disciplines.