(R)evolution of public sector financial management. Does stakeholder orientation matter?

Paper for the 6th Transatlantic Dialogue, Siena, Italy, 24th June – 26th June

Iris Saliterer, Ass.-Professor, Department of Public, Nonprofit & Health

Management, Alpen-Adria-University, Klagenfurt, Austria
Sanja Korac, Research.-Ass., Department of Public, Nonprofit & Health
Management, Alpen-Adria-University, Klagenfurt, Austria

Throughout the world, public sector management has undergone dramatic changes since the 1980ies.
These developments have been identified as the post-bureaucratic paradigm of public management
(O’Flynn 2007) and have brought with them different ways of financing and new management
methods, governance structures, patterns of responsibility, modes of control and – as one of the main
feature of various reform strategies in different countries – fundamental change in the design of the
traditionally cash based budgeting and accounting systems.

An effective way to describe the evolution in governmental accounting innovation and in the
application of accounting techniques is that of identifying ‘trajectories’ (Pollitt and Bouckaert 2004).
According to its proponents, the evolution from cash-based accounting and budgeting systems via
‘double entry bookkeeping’ and result-oriented budgeting to ‘full-blown accrual accounting with
extended cost calculation supported by multidimensional performance measurement systems’ is the
result of a trajectory along which countries are ranked according to their stage of progress towards the
final goal. As far as the technical aspects of accounting are concerned, a wealth of instruments has
been made available and most research on public sector accounting still focuses on systems design and
the development of sophisticated technical solutions (contingency theory/rational instrumentalism).
Comparatively little attention has been paid to the social processes whereby such systems are adopted
and operated or if and how accounting information is used by different stakeholder groups
(institutional theory/cultural approaches). It thus appears appropriate to shift the attention to the power
and pressures exerted by different groups of stakeholders and how these affect the demand for and use
of accounting information (see also Brignall and Modell 2000, p 282 in a performance management
context ). Starting from the paradoxical observation of a gap between an ample supply of financial
data and a modest demand for the information it provides (see also Grossi/Reichard 2009), the paper
analyzes the decision-making environments, the influencing factors and the readiness of public key
stakeholders (e. g. senior civil servants, politicians, citizens) to use and understand the “new” available
data.

In the first part we describe the options available to public sector institutions in adopting different
“new” financial management tools. When discussing the evolution of public sector accounting reforms
comprehensively, we have to consider the following main development points: (1) from cash-based
accounting to accrual-based accounting systems, (2) from cash-based budgeting to accrual-based
budgeting systems, (3) development and implementation of (International) Public Sector Accounting
Standards and (4) the introduction of performance-based budgeting. Changes in accounting practices
are then compared internationally by presenting the status quo of financial management reforms in the
national governments of 17 countries: The next section discusses the results comparatively and
attempts to provide an explanation of the factors influencing the adoption of different accounting
practices and their influence on stakeholder involvement and transparency.

Is there any evidence that countries, which have implemented “full blown financial management
systems” also have a greater budget transparency and stakeholder orientation, in terms of participation
and relevant information?

The analysis is based on an extended literature review and available empirical evidence from several
country surveys, statistical data and case studies.
Brignall S., Modell S. 2000. Management Accounting Research.: An institutional perspective on performance measurement
and Management in the “new public sector”. Management Accounting Research, 2000, 11, pp. 281–306
Grossi, G./Reichard, Ch. 2009: Why are politicians and public managers reluctant to use financial data for administrative
decision-making? paper for the IRSPM XIII-conference 2009 in Copenhagen
O’Flynn, J. (2007), “From New Public Management to Public Value: Paradigmatic Change and Managerial Implications”,
Australian Journal of Public Administration, Vol. 66 No. 3, pp. 353-366.
Pollitt C., Bouckaert G., 2004. “New Zealand,” in Public Management Reform: A Comparative Analysis (Oxford: Oxford
University Press, 2004), pp. 277-281.