Making accounts serve

Press, 15 December 1983, Page 32

Making accounts serve

By

DONALD GILLING

Quangos, or quasi-auto-nomous non-governmental organisations to give them their full title, exist in large numbers and come in a bewildering variety of shapes and sizes. At one extreme are public bodies, such as hospital boards and universities, dealing in millions of dollars and affecting large numbers of people. At the other end of the scale are small, specialised bodies, such as the New Zealand Artificial Limb Board, whose activities directly concern only a very small group and who normally operate far from the public spotlight. Quangos are publicly accountable for the resources entrusted to them and for the results achieved with those resources. The ways in which that obligation of accountability is met vary considerably. The audited annual accounts of the Artificial Limb Board provide a marvellous example of the inconsistency, inertia and contradictions that exist in quango land accounting. The Limb Board was created on February 1, 1970, by the Rehabilitation Board by means of an instrument of delegation under the Rehabilitation Act, 1941. The new board was to take control of the manufacture, fitting and repair of artificial limbs. Its expenditure is measured in thousands of dollars and its annual accounts have for a number of years been available to everyone by virtue of their inclusion in an annual report to Parliament presented by the Department of Social Welfare. This is in stark contrast to the situation of hospital boards and universities. The accounts of the former have only just become publicly available, and even then citizens who elect the hospital board members have to make a special request to receive a copy. University accounts are still not publicly available! We have come to expect the accounts of hospital boards and councils not to be available until at least

250 days after the end of the financial year. The Limb Board, however, reports within 60 days. Hospital boards provide only limited information in a standardised and prescribed format, but the Limb Board provides a full and comprehensive set of manufacturing accounts, profit and loss account, balance sheet and statement of changes in financial position. The reason for this is that the Limb Board is effectively classified as a trading operation. Limbs are manufactured and sold. In the case of war pensioners, the cost of the limbs supplied by the board is met by the Department of Social Welfare; in the case of civilians, mainly by hospital boards. Because the public moneys flow to it indirectly, the board is free from the constraint of government-spon-sored accounting regulations and is, therefore, able to account in a meaningful way for its costs and its revenue. It is noteworthy that the board accounts on the basis of accrual accounting, rather than the cash basis used by hospital boards. This results in the paradoxial situation that it is possible to report the true cost of manufacturing an artificial leg or arm for one individual but it is not possible to measure the true cost of delivery of hospital services to the community at large. In other words, a small quango, with a very specialised function, is potentially a shining example of what public sector financial reporting ought to be like. I say potentially, because the actual accounts do not fulfil their initial promise. The format and terminology is standardised, unchanging, and occasionally out of date. Thus, for example, depreciation is provided for, but credited to a depreciation reserve. Information on costs is comprehensive and is presented in alphabetical order year-by-year. Expenditure is reported on a type of

expenditure basis and little aggregation of expenditure is undertaken. As a consequence, we learn that in 1983, $253.64 was paid for freight and $37.30 was received in income from the sale of scrap. By contrast, we are told that $1.5 million sales were made to civilians, but we are given no information on the division of this income between sales of new limbs and income from repairs of limbs for ongoing clients. Likewise, we are given no information on whether more artificial legs or artificial arms are manufactured and sold. The accounts of the Artificial Limb Board raise a number of questions about accountability. Unlike hospital boards, the Limb Board provides complete and consistent information. I wonder, however, whether the information is really relevant to the needs of those most closely associated with the board’s activities. Public accountability is at the best of times an abstract notion. While it is desirable for the general public to be educated as to the nature and importance of the board’s function, we must look to the rehabilitation industry for real understanding of what the board has done and failed to do. I imagine that the services of the board could be classified into the following: manufacture of limbs, rehabilitation services, ongoing services, and research and development. Those directly associated with the artificial limb industry would presumably be much more interested in how much was spent in these areas and the changing emphasis on these services over time. The problem with so many of the accounts produced by quangos is that they equate public accountability with making information publicly available. Effective accountability requires some very careful thinking about the questions; to whom and for what is a board accountable? The Limb Board, like so

many other quangos, appears not to have thought about these fundamental questions. When it does, it will find some useful answers in the Department of Social Welfare annual report. This report is structured to identify the programmes administered by the department and a clear statement of policy objectives for each programme. If the Limb Board was to move in this direction, and away from the present concern with type of expenditure and source of income, the information needs of all interested parties would be more likely to be met and significant strides would be made towards real accountability. The apparent commercial emphasis of the accounts gives prominence to the profit produced by the board. From 1980 to 1982, the profit of the board as a percentage of income has been around 11-12 per cent. In 1983, it has dropped to 7.5 per cent, due no doubt to significant increases in the costs of overseas components and a freeze on the board’s selling prices. The board’s activities can, and will, be evaluated on a number of criteria by a number of concerned parties. I find it strange that a board performing a social function should, by the structure and format of its accounts, attempt to measure its achievements by essentially financial criteria. Considerable dangers exist for any entity having a mismatch of objectives and criteria used to measure the achievement of those objectives. If the board is not careful, it might be led into making decisions and developing policies based, not on medical or rehabilitation criteria, but on financial or accounting criteria. If that happened, the board would be financially successful, but at the expense of its objectives and of its clients. Accounting should be the servant of decision-making and decision-makers, not the master.