Financial reporting by public bodies in N.Z. a shambles

Press, 7 March 1984, Page 25

Financial reporting by public bodies in N.Z. a shambles

This article is part of a series on publicsector accounting by DR DONALD GILLING, a senior lecturer in accountancy at the University of Canterbury. Dr Gilling specialises in the auditing and public-sector fields of accounting.

New Zealand has a very large number of public bodies. It has been suggested that we have more public bodies per head of population than any other country. But while we have been quick to create public bodies, we have been exceedingly slow in putting in place the accountability mechanisms necessary for effective public scrutiny of their activities.

A necessary condition for public accountability to occur is the provision of full and complete information on the resources under the control of the public body and the results that have been achieved by using those resources. In plain terms, public accountability requires an effective system of financial reporting. In New Zealand, financial reporting by public bodies is in an appalling state. Serious deficiencies permeate all parts of the process. Some bodies do not publish accounts, many bodies do not account for all the resources under their command; few bodies account in a meaningful way or provide information relevant to the needs of those who may read the financial statements.

Consider, for example, the universities. In 1984, they are still not required to publish their finapcial statements. In 1970, the nonpublication of university accounts was the subject of some comment in the report to Parliament by the Controller and Auditor-General. In 1976, the Auditor-Gen-eral again expressed his concern at their non-publi-cation and firmly expressed his belief that public accountability required “that the accounts of statutory bodies which spend substantial amounts of public money should be made available to the public.” Again in 1983, concern was expressed about their non-publication and lack of standardised format. The Auditor-General did note that some progress had been made in introducing public accountability to university reporting in that the report to Parliament by the University Grants Committee now included a summarised financial statement of operating costs for each university institution. This summary, however, raises more questions than it answers.

As part of a research project on the accountabil-

ity of New Zealand universities, a colleague and I wrote to all seven university institutions requesting a copy of their accounts. Three universities provided them, three refused and one failed

Centre, but he cannot find out how much it cost to build or what liabilities the council has taken on to finance the building. Accounting in public bodies is normally geared to explaining how the ratepayers’ or government moneys that have been received have been spent. Other sources of income and other resources are ignored and excluded frOm the accounts.

Local bodies, for example, effectively account for the payments from their general funds. Special funds, as a consequence, are ignored. In 1983, the Welling-

The concern for this measure of fiscal prudence is reflected in the Local Government Loans Act which requires local bodies to provide for their ordinary obligations out of their revenue for the year.

Put simply, this means that councils have to live within their income. The format of accounts prescribed by the local government accounting regulations, however, does not allow compliance with this obligation to be measured. The regulations require the use of the flow-of-funds accounting method. A feature

ally published in 1982 — five years later. The 1982 Hamilton City Council accounts took 414 days to publish. In the local area, the situation is not much better. Christchurch City Council took 260 days to publish its accounts; the Akaroa and Paparua County Councils took in excess of 317 days; and the North Canterbury Catchment Board had to wait two days short of a year to have its 1982 accounts audited. The great paradox of financial reporting in New Zealand is that in the private sector there is a uniform piece of legislation — the Companies Act 1955 — that requires the publication of accounts and imposes reasonably demanding requirements for disclosure of information. In the public sector, there is no uniform legislation relating to financial reporting. Instead, there is a miscellaneous collection of acts, regulations, ministerial directives and codes of practice, that have little in common beyond the fact that they are usually out-dated and irrelevant. Catchment authorities for example, still account on the basis of the Soil Conservation and Rivers Control Act of 1941. Forty-three years later the North Canterbury Catchment Board is still providing 44 pages of financial information but no balance sheet or income and expenditure statement. Whereas in the private sector the criteria by which a company’s activities are evaluated are determined by the Government, in the public sector, those whose activities are being evaluated write their own rules and establish their own criteria. Public body accounting is certainly complex and difficult. It is understandable that successive governments have turned to those in the area to sort out the problems and determine what should be done. But those same people have an incentive to make life easy for themselves and to develop criteria that makes the process of evaluating their achievements or lack of them, difficult if not impossible.

The trouble is that the regulated have become the regulators, and in the process the public interest in having meaningful, timely and complete information about what is being done with the public’s money is being ignored.