Brazil: Challenges in Implementing a Costing System for the Public Sector
By Victor Holanda and Mario Pessoa
As part of the public management reforms in Brazil, the federal government implemented in 2010 an innovative cost information system (SIC) in the public sector. A major goal is to improve budget allocation decisions but it is early days to see any tangible results. The emphasis of the system is on improving the efficiency of the public sector by changing the behavior of the public sector managers. The federal government, following the successful implementation of the integrated financial management information system (SIAFI) providing budgetary data, has created a large information system that allows all public sector managers to produce cost information according to two dimensions: institutional (administrative units); and programmatic (government programs), but with the flexibility to define cost centers and activities at a more detailed level according to the peculiarities and needs of each public entity.
SIC can generate cost information from two perspectives: (i) from the general to the particular (deductive or top-down approach), produced by the central agencies in a more aggregated form, and (ii) from the particular to the general (inductive or bottom-up approach), produced by budget executing units, for which other information is available including the quantitative information of goods and services produced. This model was denominated "the bus station" because it is the place in which information is collected and consolidated according to a variety of interests. The model is strongly focused on integration of available information and is responsible for a substantial reduction of time to implement it because it was not necessary to use pilot projects to test the system before expanding it to all entities. These characteristics allow SIC greater flexibility and provide managers a tool to enter in more details and adapt the system outputs to their needs. In summary, the model allows for "flexibility" without losing "comparability", two fundamental elements to evaluate performance and results of the system.
SIC started its operation in the first half of 2010. 150 employees were trained. All of them are members of cost committees created in each ministry and in units of the legislature and judiciary. The initial objective is to encourage the use of cost information at the level the system is capable of producing. However, one major challenge is the lack of culture for using cost information in the public sector. Another challenge is the lack of incentives and accountability procedures: many managers are uncomfortable with the idea of being evaluated by the cost of goods and services they produce. Some of them argue that there is no market comparator for many of the services. The tradition in the public sector is still one of compliance and financial controls, not of cost and productivity. Finally, the government still has to define how cost information will be used in the budget process.
The cost project is described in detail in the article "Guidelines and Conceptual Model of the Public Sector Cost System of the Brazilian Federal Government”, by Victor Holanda and Nelson Machado, and in the book "Cost System in the Federal Public Administration: A State Policy ", by Victor Holanda, Fernando Lattman-Weltman, and Fabricia Guimaraes. Overall, the article and the book describe the main factors that contributed to the implementation of SIC: an adequate theoretical approach aligned with the Brazilian circumstances; high-level ownership by the authorities; and adequate communication and coordination among stakeholders.
For more information, access the article and the book, visit: http://www.socialiris.org/livroSIC
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