Posted by Franck Bessette
In a recent and much commented on PFM blog post, Sanjay Vani introduced what could be called the “Accounting First” approach to PFM reform sequencing. The naming is a reference to the widely-known “Basics First” approach to PFM sequencing originated by Allen Schick. The “Accounting First” hypothesis is this: NO significant PFM reforms are likely to succeed unless a robust and functioning accounting and reporting system is in place. This approach is bound to be controversial as there is a strong body of opinion among PFM experts that the budget formulation process is the core of any well-functioning PFM system, as it necessitates high value inputs, strategic thinking and coordination between various actors, and constitutes the channel through which policies have a chance to be implemented. In comparison, public accounting is often considered a low-value activity, passive by nature and void of any strategic function. It is even sometimes considered that some good software could take care of it all. In 1995, A. Premchand could write “although government accounting has existed for more than two millennia, it has not received its due. In fact, accounting has been looked down upon and viewed by nonusers as a set of archaic rules that have long since ceased to be relevant or effective.” This viewpoint is probably still prevalent today.
Based on my own experience, I believe that the “Accounting First” approach is very relevant, especially in a number of low income/fragile countries, such as the Democratic Republic of Congo. DRC is probably a striking example of a country where huge amounts of money are about to be poured into sophisticated and high-risk PFM reforms, such as MTEF, program budgeting, external audit, and fiscal decentralization in a context where there is virtually no reliable public accounting or fiscal reporting in place. As a recent Fiscal Affairs Department (FAD) mission noted, there should be a functioning network of more than 700 public accountants whose task it is to establish accounts based on single entry, cash-based accounting. In reality, these accountants receive no information from tax administrations on receipts. Many expenses are made directly through the banks without being recorded by any public accountant. These accountants are basically notes handlers (billeteurs) for payment of the salary of civil servants without a bank account. Only one fifth of them report on their accounts. There is no operational accounting framework and no chart of accounts coherent with the budget classification. The regulations governing public accounting (RGCP) date back 60 years and there are virtually no copies of it left.
Of course, the lack of a robust accounting system is greatly undermining the credibility of other areas of the PFM system. Do we need to put so much effort in the budget preparation process if at the end nobody has a clue where the money is actually spent? It also undermines the credibility of the reform effort. Do we need to build capacity of the Supreme Audit Institution (SAI) if there are no accounts to audit?
Now, even if the “Accounting First” approach makes a lot of sense, this does not eliminate the question of adequate sequencing within this subsystem. Building a coherent and hierarchical network of public accountants in the DRC probably comes first. Or, second, if you think that you need to first build a solid accounting framework. But then, do you first encourage that they use single-entry accounting, which DRC inherited from the Belgians and which they have been trained to use or to progressively build capacity to handle double-entry accounting as FAD has been trying to promote for several years? And what about accrual accounting, which will be the norm after they vote their new organic finance law? What about institutional issues? In DRC, the public accounting function is scattered over four directorates (one in the ministry of budget and three in the ministry of finance) and it is tempting to suggest the creation of a single directorate general for public accounting and treasury, but should this come first? Besides, will the network of accountants deal with provincial accounting or will there also be one network of accountants per province as some suggest?
A lot of question marks as you can see. Even simple approaches can be complex in developing countries.
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.
