A Thesis Report Submitted to School of Business in Partial/Fulfillment of the Requirements for Award of the Master of Science in Accounting and Finance (Msc. A&F) of Mzumbe University
The financial management in the Local government can be improved by the development of an integral accrual accounting system to enable the preparation of accrual-based budgets, financial statements and performance reports to meet the needs of the various stakeholders. Traditionally the management of government expenditures has been focused on a system of expenditure control, which is based to ensure that budgetary authority granted by the legislature is not exceeded. The cash basis of accounting does not measure the resources consumed during the period under review, thus the true costs of government programmes and projects are not correctly measured, controlled or reported. In the absence of accurate cost information, performance measures of efficiency and cost-effectiveness cannot readily be determined. The establishment of International Public Sector Accounting Standards (IPSAS), these standards introduce the accrual basis of accounting and is a significant step towards transparent and accountable information. The study was specifically designed to achieve the following specific objectives:-
i) To determine whether a budget system links with strategic outcomes
ii) To determine whether a performance reporting framework is on cash basis or accruals basis?
iii) To determine whether there is a sound internal control system in the council
iv) Determine whether the internal Audit functions properly and does its work independently.
Key findings of the study
The financially successful and efficient Local Government is headed by competent management and makes use of effective budgetary control. Effective budgetary control is based on operating budgets that are closely linked with long-term strategic plans and desired outcomes. The operating budgets are then compared with actual results, on an accruals basis, in order to measure performance and efficiency. It is clear from the above that three basics exist for financial management performance measurement, namely:
(i) committed and competent head of department;
(ii) outcomes-based budgeting; and
(iii) Accruals-based reporting.
A Financial performance measurement framework that uses the balanced scorecard as a base are developed for Local governments and incorporates (i) the implementation of an outcomes-based budget; (ii) the use of an accruals-based cost/revenue allocation to measure the costs of the various outputs; and (iii) a performance statement.
Committed and competent head of department is the first condition for financial performance measurement. The responsibilities and training needs of the Executive Authority and Head of department are clearly defined and the training needs of Local government officials are highlighted.
Outcomes-based budgeting is the second condition for financial performance measurement. The Management in Local governments should take cognizance of the shortcomings of the current budgeting process and consider the implementation of activity-based budgeting. Reporting on an accruals basis is the third condition for financial performance reporting. Internal reporting in Local government departments should be revitalized and the activity-based costing should be implemented to facilitate accruals-based cost allocations to all the various activities and processes that are required for each output.
Finally, the study recommends an audit committee and finance committee should basically discuss various issues concerned with council financial performance and financial statements of Local government departments.