GUIDE TO PUBLIC SECTOR ACCOUNTING SYSTEMS [UPDATED]
The public sector accounting systems is actually a series of systems and subsystems that track the financial activities of government and government agencies.
Financial management of the Government is concerned with budgetary and financial operations of both individual departments and agencies and the Government as a whole.
Objectives of Public sector accounting systems
- It enhances full disclosure of the financial results of department and agency activities;
- To enable the production of adequate financial information needed for departments and agency management purposes;
- For the effective control over and accountability for all funds, property, and other assets for which each department and agency is responsible;
- It gives a reliable accounting report to serve as the basis for preparation and supporting of department and agency budget requests to control the execution of the budget and to provide financial information;
- It enhances a suitable integration of department and agency accounting with the central accounting and reporting operations of the Treasury Department.
Techniques for Accounting in the Public Sector
In the public sector, techniques of accounting depend on financial decisions which are usually formulated on the basis of the information generated from the accounting systems, and also on the type of fund operated.
The techniques may be summarized as follows:
- Vote Accounting It is concerned with the receipt, custody, disbursement, and transfer of public and trust monies as required by law.
- Fund Accounting A fund is an independent accounting entity and must be accounted for using a separately identified set of accounts in such a way that it is possible to identify the specific assets and liabilities that represent the balance on the fund.
Reasons/uses of Fund Accounting
- It allows for the demonstration of fiduciary stewardship. That is, it shows that resources have been handled in a proper way through proper procedures.
- It assists in reaching fund’s objectives based on policies and program, requirements of its implementation, monitory and evaluation
- It provides rules of accounting and responsibility of stewards who operate the funds.
- In the public sector, diversity of functions and restrictions on how certain resources may be used makes it necessary to focus attention on individual areas of operation and to segregate resources provided for a specific purpose. This is made possible by the use of Fund Accounting.
- Financial reporting on government is seen as a series of reporting units and Fund Accounting allows some flexibility in defining reporting units as entities within an explicit framework of controls.
- Project Accounting It involves controlling, measuring and analysing the activities and lifeline of a specific project.
- Donor Support Accounting This is concerned with receipts, custody and disbursement of the financial donation of donor or support organizations.
- Environmental Accounting
Environmental Accounting is the process incorporating environmental issues into the government financial reporting systems.
Environmental Accounting is often referred to as Green Accounting which incorporates environmental assets and their source and side functions into national accounts.
Reasons for considering Environmental Accounting
- Possible revenue generation may off-set environmental cost.
- Environmental cost and benefits may be overlooked or hidden in overhead accounts
- Possible significant reduction or elimination of environmental costs
- Benefitting from environmental products and services to the citizen
- Can support the development and running of an overall Environmental Management Systems (EMS) which may be required by regulation for some types of businesses.
- Positive impact on human health by improving environmental conditions.
- May result in more accurate costing or pricing of products and more environmental desired processes.
Benefits of the accounting systems
- Formulate the general objectives of the agency and co-ordinate the policies of individual’s financial needs of the various units.
- Relate each spending units requirements to the economic resources estimated to be available and the total claims to them.
- Keep expenditure within the total resources of the year.
- Advise management and each unit about financial control measures of the agency.
Chart of Accounts
Definition of CoA
CoA is a structured set of codes that provides a framework for Recording, Classifying, and Organising Budget Data and Accounting Transactions into Reports and Statements. It provides various perspectives on financial transactions and facilitates budgetary controls.
This technique of revenue and expenditure classification is very necessary to show the complex nature of government or public sector accounting. On the chart of accounts MDAs and MMDAs are used as expenditure heads and it is possible to trace revenue collected into the Consolidated Fund to its primary source.
Segments of the harmonised CoA
- Institution Segment- This segment is used for coding an Institutional Unit which stands as an economic entity. An institutional unit as defined in the GFS 2001 Manual “is an economic entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities and in transactions with other entities. These entities should be treated as separate government units if they maintain full sets of accounts, own goods or assets in their own right, engage in non-market activities for which they are held accountable at law, and are able to incur liabilities and enter into contracts.”
- Funding Segment – The Funding segment provides a means to track the source of funding for expenditures within a consolidated reporting scheme. Expenditures are assigned against the appropriate funding code, independent from the organizational or program structure.
- Functional of Government (COFOG) Segment – This segment provides coding for functional classification of expense to provide a strategic view of the allocation of budget resources between different sectors of the economy. This is based on the United Nations Classification of Functions of Government (COFOG). It is a detailed classification of the functions, or socioeconomic objectives (e.g., health, education, defence, etc.), that Government units aim to achieve through various programmes.
- Organisational Segment – The Organizational segment provides the basis for establishing the responsibilities for the day-to-day administration of government business. The structure of the organizational hierarchy is reflected in the series of codes for ministries, departments and agencies (Cost Centres/ Spending Units) reporting under the Sector Ministries.
- Program and Sub-programme Segments – These segments provide the basis for recording transactions associated with a specific program or sub-program that is operating under an organizational unit
- Activity Segment – This segment provides the classification of various activities related to specific programmes, sub-programmes or outputs.
- Location Segment – Provides geographical location of an institution, organisation, programme, etc. based on established political and administrative districts of Ghana.
- The Natural Accounts segment – This is an Economic Classification which provides the basis for recording specific activity by the kind of transactions by which the Government performs its functions. This segment provides classification and coding for revenue, expenditure, liabilities, etc.
Uses of harmonized chart of accounts may also be explained as follows:
- Harmonization of accounts of MDAs and MMDAs;
- Uniform classification of accounts in public financial management;
- Control of accounts in public financial management;
- Tracking of revenue and expenditure in public financial management;
- Efficiency and effectiveness in budgetary resource allocation; and
- Design of audit trail