Weapons of Mass Distortion

Weapons of Mass Distortion

The application of business accrual accounting to the public sector has fostered a controversial 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.

Anyone who has 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 has been happening in government.

Over recent years governments in Australia and New Zealand have led the Western world in the switch from undeniably problematic cash-based accounting systems to the sorts of accrual accounting systems used by business. Along with the application of business principles and practices, these reforms were badly needed and have played a part in making government more efficient and effective.

But a growing band of critics is now questioning the way the reforms were implemented, claiming ideology has been allowed to get in the way of good practice. As a result the application of business accrual accounting to the public sector has fostered a controversial 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.

Some will see that as a good thing. But the Australian National University's Emeritus Professor Allan Barton says the accounting reforms have also distorted the government's mission and deformed the public service culture. And they have overlooked numerous roles of government: insignificant little things like provision of public goods, services and social welfare; managing cultural and environmental assets; and macro-economic management - not to mention minor inconveniences like the non-negotiable requirement that government be fully accountable to its electors.

"These reforms contain many fictions and they fail to recognise that the public sector has unique characteristics, including the collective provision of public goods and the need for transparency and accountability, which differentiate it from the business sector," Barton says.

Recognition of the problems has been growing apace over the past year, as accounting bodies and governments have been forced to confront the consequences of the policy. Now there are people within both the Department of Finance and Administration and the Treasury working assiduously on the issues. Information teams in departments and agencies are facing some significant changes, and the costs are certain to run to many millions of dollars.

These costs could have been avoided had ideology been left out of the equation. Barton says good information system design demands an organisation's financial management information and reporting system suit the needs of management and other external users of information. Accounting, however, should be a "clean" discipline, undistorted by ideology. The systems currently in use across government fail both tests.

Unseemly Haste

The reforms were initiated by former NSW premier Nick Greiner before being mirrored by the federal government. It was Greiner's anxiety to push public choice theory (PCT) - a neo-liberal philosophy promoted by The Chicago Group, a US professional management consulting firm, which seeks to severely curtail the role of government and apply market forces to as many as possible of those services that remain - that led to an unduly hasty adoption of the reforms. Under PCT, the role and size of government is reduced through privatisation of government business enterprises (GBEs) wherever possible and the outsourcing of as many government services as possible.

That is a program fully endorsed by the Howard government. Its Commission of Audit, run largely by senior business people and chartered accountants and chaired by Chicago Economics and Finance graduate Professor Bob Officer from the University of Melbourne's Business School, reported in June 1996. The commission urged the role of government be substantially curtailed and outsourcing and privatisation promoted wherever possible, and accepted only two narrow views of the role of government: to correct for market failure in the private sector, and to provide some very restricted social welfare activities.

The influence of The Chicago Group is one reason why Western governments have shifted so much to outsourcing and privatisations over recent years. The only trouble is, according to Barton, The Chicago Group understood little about the full scope of governments' responsibilities. Hence its conceptualisation leaves out all sorts of important roles of government, like macro-economic management and the provision of social welfare and public goods.

In fact, he says, the chartered accounting firms and major IT consultancies, which so zealously drove and promoted the move to accrual accounting, had minimal understanding of the true role of government or how it differed from business. Their proposals ignored externalities and overlooked many of the vital functions of government.

Barton says there are other serious problems with the position as it stands: problems that go to the very heart of the loss of transparency. All of these problems are going to have to be fixed - and the burden on government CFOs and CIOs is certain to be considerable.

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