Turning A Profit

Turning A Profit

Anyone who’s ever doubted the potential of poorly designed and conceived information management systems to distort the role of the organisation should take a look at what’s been happening in the Commonwealth Government over recent years.

If the Commonwealth Government’s financial statements could be believed, the Defence Department must be the single most profitable enterprise in Australia. In 2000-01 it apparently received revenues of $19 billion, had a surplus of $6.5 billion; and paid a dividend to the Government of $5 billion. Better still, the books show the Department is a self-funded entity, since the Government directly contributed only $735 million towards its net assets of $44 billion, which were largely funded from accumulated surpluses. And without any significant debt, Defence would seem to be both a highly profitable and financially strong entity, without par in the Australian corporate world.

It’s utter nonsense of course, and the books can’t be believed — not for a minute. Government departments don’t make profits; they provide services and rely on budget appropriations to fund their activities. But they can certainly appear to make massive profits under accounting reforms collectively named New Public Management (NPM), which one critic says have since their introduction supported an ideological agenda designed to shrink the role of government, force governments to act more like businesses and allow the operation of free markets unfettered by government interference.

The Australian National University’s Emeritus Professor Allan Barton, who’s been examining the changes that have been wrought in the public service culture and accountability since the Commonwealth adopted a business model of accrual accounting, says the Defence’s Department’s profits are an illusion and transparency in government accounting has disappeared.

“There’s no transparency whatsoever. It’s a tragic joke, and it is an expensive joke for taxpayers,” he says.

And Barton says the changes have not only malformed the public service culture but have served to conceal the true costs of privatisations and outsourcings, and the “many very poor outcomes from outsourcing contracts”. Moreover, the total abandonment of cash accounting measures in favour of accrual accounting methods much more suited to business have made if difficult if not impossible for the Government to fulfil its role of accountability to the electors who keep it in power.

“The Parliament is hopelessly confused by all this, because they don’t get the cash figures, and it’s the cash figures they have to actually approve in the Appropriation Bills,” Barton says. “So they’re lost. And this is why the Public Accounts Committee gets so upset.”

Barton says the move to accrual accounting was an outcome of the Coombs Royal Commission established to query both the extent of government activity and the efficiency of its operations. Accounting information systems were integral to the reforms introduced post Coombs. Barton says those reforms which were designed solely to enhance efficiency, effectiveness and accountability have been clearly beneficial and he is full of praise for the Department of Finance and to a lesser extent the Auditor General for implementing them. “The job of doing all this was a fantastic job,” he says.

But he says the adoption of a business accrual accounting model and related “marketisation” reforms designed to fit into this model were inappropriate to the public sector environment and were done in pursuit of ideology, not the public interest, a situation even the Finance Department has now woken up to and taken steps to address.

Prof. Barton says now there are people in the Finance and Treasury Departments working around the clock to fix the problem, which means there are big changes looming which will impose “a huge burden” on information teams in Departments and Agencies. And he says it could all have been totally avoided, had ideology been left out of the equation in the first place.

Look for more extensive coverage in future issues of CIO and CIO Government.

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More about Commonwealth GovernmentDefence DepartmentOffice of the Auditor GeneralWoolworths

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