International Public Financial Management

Essentials of Public Sector Accounting

Gary Bandy

• Editorial: Routledge
• Año: 2018
• ISBN:
  9781351128285
• Edición: 1
• Categoría: Negocios y empresa
• Categoría: Negocios en general

Running public sector organizations requires specialist accounting and finance skills to overcome the unique challenges of the sector. Citizens rely on their governments to provide a wide range of public services from an inevitably limited budget and therefore the better that the public money is managed the more services that can be delivered. Just as there is no single best way to manage a business there is no single best way to manage public finances.

Co-published by the Chartered Institute of Public Finance and Accountancy (CIPFA), the world's leading professional public finance accountancy body, International Public Financial Management: Essentials of Public Sector Accounting provides an expert introduction to public sector accounting and finance. This book was conceived to accompany CIPFA's International Public Financial Management (IPFM) qualifications as a resource for students that seeks to capture the essential elements of the modules they study, and reflects good practice as put forward by CIPFA in its examination syllabuses.

Students of public management and public sector accounting will find this a useful text. Practitioners working in the public sector will also find this concise book vital reading in seeking value for money in providing public services.

1 Introduction

Christine Lagarde, the managing director of the International Monetary Fund, wrote: ‘Public financial management – the fine art of budgeting, spending, and managing public monies’ (Lagarde, 2013). It is important that public money is well-managed because citizens rely on their governments to provide a wide range of public services from an inevitably limited budget. The better that the public money is managed, the more services that can be delivered.

Public managers in government ministries, schools, libraries, hospitals, etc., have different specific goals and objectives from each other, but they share the need to spend public money to achieve their goals. This is different from the private sector. Managers in many (but not all) companies are spending other people’s money and they are expected to do so in a way that increases shareholder value (in short, they are spending money to make more money).

The objectives of public financial management (PFM) for a government or any other public organization are:

• to maintain a sustainable financial position
• to allocate resources effectively to sectors, ministries, departments, projects, and programmes
• to provide public goods and services efficiently.

There is no single best way to manage public finances, just as there is no single best way to govern a country or manage a business. This book, however, reflects good practice as put forward by the Chartered Institute of Public Finance and Accountancy (CIPFA – the only professional accounting body in the world which specializes in public sector accounting and financial management) in its examination syllabuses.

This book was conceived to accompany CIPFA’s International Public Financial Management (IPFM) qualifications as a resource for students. Those students receive between four and ten workbooks for each module of the qualification. There is a massive amount of information in the workbooks (naturally) along with quizzes and test exam questions. This book is not a substitute for the module workbooks: instead it is intended to be a complementary book that seeks to capture the essential elements of the modules. (For more information about the IPFM qualifications, see www.cipfa.org/qualifications/ipfm.)

This book will be useful to readers who are not studying the IPFM qualification but are thinking about it because it can give them some insight into what would be involved and what they would be expected to learn.

The book also has something to offer to readers who are interested in the subject of managing public money even if they do not intend to take the IPFM qualifications. These might be politicians, managers, or accountants working in the public sector anywhere in the world who will find the book useful because it encapsulates the important concepts of public financial management and will help them to improve the value for money of the public services in which they are involved.

Structure of this book and how it links to the CIPFA qualifications

There are 12 modules in CIPFA’s IPFM qualification and passing the assessment for all of them results in the full professional qualification and the right to use the CPFA designation. The IPFM qualification is structured, however, so that passing some of the modules can result in the award of a certificate, diploma, or advanced diploma. Table 1.1 is an overview of the modules in each level of the qualification and includes a reference to the relevant chapter in this book for each module.

The chapters in this book are not ordered exactly in line with the progression suggested by Table 1.1. Whilst the book can be read from front to back, the chapters are independent of each other so it is possible to choose your own order for reading them.

Contents

The first two chapters are the certificate-level modules because they are the foundation of the remainder of the qualification. Chapter 2 is about financial accounting, which are the aspects of accounting that focus on bookkeeping, control of systems, and producing financial statements for external users. The chapter describes the principles and main activities of financial accounting, but it does not go into depth on how to do bookkeeping or reconciliations: that level of detail would require a whole textbook on its own.

Chapter 3 turns to management accounting which is the provision of useful information to aid management in decision-making, planning, control, and problem solving. A management accountant therefore has an internal focus rather than the external focus of financial accountant. The chapter covers some of the main things with which a management accountant would be concerned, namely costing (which is concerned with how much it costs a business produce goods or services and how much profit is generated from selling them), budgeting (including alternative methods for creating budgets), and budgetary control.

Table 1.1 CIPFA’s IPFM qualifications

Certificate in International Public Financial Management	Diploma in International Public Financial Management	Advanced Diploma in International Public Financial Management	Professional Qualification (i.e. full CPFA professional status)
Financial Accounting Chapter 1 Accounting concepts double-entry bookkeeping ethics preparing financial statements Management Accounting Chapter 2 Costs and cost behaviour budgeting control decision-making	Public Sector Financial Reporting Chapter 8 Reporting frameworks financial statements interpretation of financial statements whole of government accounts Audit and Assurance Chapter 12 Audit environment risk assessment audit testing internal audit Financial Management Chapter 4 Sources of finance treasury management risk management pricing working capital management Business and Change Management Chapter 5 Managing projects managing programmes managing change commissioning and procurement	Company Financial Reporting Chapter 7 Financial reporting frameworks single entity financial statements consolidated financial statements analysis of financial statements Public Finance Chapter 6 Public expenditure and revenue managing the economy public borrowing and debt taxation Strategy and Policy Development Chapter 9 Strategy and policy development framework stakeholders evaluating strategies configuring an organization Governance, Public Policy and Ethics Chapter 11 Governance ethics policy-making processes transnational policy making	Strategic Public Finance Chapter 10 Sources of finance for public sector organizations financial planning delivering public services Strategic Case Study All chapters

Financial management is the process of acquiring and using finance and it is the subject of Chapter 4. The chapter includes some basics of business finance such as sources of finance and the cost of capital which have some relevance to public sector organizations, too. The chapter also explains some techniques to appraise investment opportunities and the basics of risk management before tackling pricing. This is a subject of prime importance to a business, but there are many parts of the public sector where prices are charged so it has some relevance to public managers. The chapter also covers working capital management and treasury management.

Finance managers exist within an organization and they have a role to play in the change projects that happen in the organization. Chapter 5 therefore looks at the common features of business change management, including the general issues relating to justifying the investment of resources in a change project and key aspects of leading change. The chapter also has sections about project management and programme management. The final section is about commissioning change, and it covers the many ways that public sector organizations commission third parties to deliver services to citizens on their behalf.

Chapter 6 is about public finance. In particular it is about where the money comes from to pay for public services: such as taxation or from government borrowing.

Chapter 7 builds on Chapter 2 by looking at company financial reporting, which is the main product produced by financial accountants. The accounting standards that apply to public sector organizations like government ministries, hospitals, and local councils are based on the accounting standards used by companies. There is a lot of similarity, therefore, between the financial statements of a company and of a public sector organization. They are not the same, though, and Chapter 8 on public sector financial reporting explains the reasons for the differences and illustrates it with examples from the UK.

Chapter 9 is similar to Chapter 5 insofar as it is about a non-financial subject for which effective financial managers need a solid understanding. They need to understand strategy and policy development if they are to be able to give relevant advice to the senior managers and the governing body of their organization (whether a board of directors or elected officials). This chapter explains some of the key terms relating to strategy and policy and also introduces a wide variety of tools and techniques that can be used by managers to develop and analyse policies. An organization’s strategic approach to achieving its mission can also influence how the organization is structured, so there is a section about a range of different ways an organization can be designed and structured.

Chapter 10 is about strategic public finance. It looks in a strategic way at some of the activities and issues covered in earlier chapters. These include government borrowing (building on treasury management from Chapter 4), the balance of funding between grants and local taxation (an extension of Chapter 6) and public-private partnerships (building on from the commissioning section in Chapter 5). There is also a section on international development aid, an important source of finance for the public sector in many countries.

Governance, public policy, and ethics are important to all public finance managers, and this is the subject of Chapter 11. The governance part looks at how the UK’s public sector is structured at the macro level as well as considering corporate governance at the micro level of the organization. There is also a section on international policy making which covers issues like globalization.

The final chapter focuses on audit and assurance. The chapter is mostly about the role and responsibilities of external auditors (the provision of assurance about an organization’s published financial statements), but it includes a section about internal audit. The section about how to carry out an audit (e.g. audit planning and the types of test an auditor can do) is equally a...