In government, financial accounting entails the recording, communicating, summarizing, analyzing and interpreting financial statement in aggregate and in details(Onuarah & Appah, 2012). Government accounts have the dual purpose of meeting internal management requirements while providing the public with a window on government operations. Government financial reports should be prepared with the objective in mind of providing full disclosure on a timely basis of all material facts relating to government financial position and operations (Achua, 2009). Financial reports on their own do not mean accountability but they are an indispensable part of accountability. The intention therefore of financial accountability is to ensure economy and efficiency in the delivery of outputs required to achieve desired outcomes (effectiveness), which will serve the needs of the community (appropriateness). Strengthening the financial management capacities of Governments by improving government accounting and auditing systems and government financial controls improves management of financial resources and greater accountability. If there were proper accountability for financial and physical resources, senior public officials would not be able to loot public properties and the treasury (United Nations, 1999). Experts argued that officials know when there is inadequate recording of public financial resources and accountability is lost when Governments fail to ensure that financial basics such as recording, calculating balances, summarizing receipts and expenditures and reporting to the people are not properly undertaken.
Government of Uganda has over the years introduced a number of reforms aimed at enhancing transparency, accountability of public resources and improved service delivery. Government therefore, adopted the practice of open and transparent budget consultative process, which was further enacted by Public Finance Management Act 2015. Workshops have been organized to consult all stakeholders (development partners, local governments, central government ministries and departments) at National and local government levels to guide in the process of priority setting and resource allocation(MOFPED, 2017). Kabale district local government formulates her Budget Frame Work Paper by involving all stakeholders and continues to emphasize decentralized and participatory development planning and budgeting process as stipulated in the Local Government Act CAP 243 under section 36(3). The Local Government Budget Framework Paper outlines district interventions for social and economic development in the fiscal year. Kabale district local government suffers from inadequate local revenue collections due to political influence and poor administration and Fluctuating Indicative Planning Figures from central government(Kabale District Local Government , 2015), which have inched on the district’s financial accountability. While the (Auditor General, 2017)does not indicate incidences of poor financial accountability, cases of inadequate controls surrounding management of domestic arrears and understaffing at the district remain critical and unattended to. Despite the many years of decentralization policy in Uganda, and numerous efforts to reform the local government system, (Auditor General, 2017; Eton, Murezi, Mwosi, & Ogwel, 2018:106) financial accountability at local government remains a challenge in Uganda. It’s upon these basis therefore whey the researchers conducted these study.
Literature review
From the theoretical perspective, financial accountability was discussed in view of the Principal-agent theory. The principal, who are the citizens grant some authority to the agents (politicians and civil servants) to act on their behalf (Shah, 2007; Agwor & Akani, 2017; Gailmardy, 2012). The principal-agent theory relates the customer (principal), who pays for services or goods, and the agent. More than often however, the agent least does what the principal expects (Hlavaeek & Hlavaeek, 2006) yet the principal is limited in his ability to monitor and judge the contractor’s input and output(Keil, 2005), which leads to mistrust and can only be avoided under high monitoring costs. In ideal situations, the public empowers government officials to promote public welfare using public resources. But more than often however, government officials serve their own interests, which jeopardize service to the public. According to (Berner & Smith, 2004)accountability is interpreted as the ability of the principals (public) to question the conduct and behavior of the agents, and to impose sanctions where such conduct or behavior falls short of the requirement. This would be demonstrated in the ballot box on the side of the politicians, but how about the civil servants? In growing democracies, the agents override the principals, thus denying them full participation in their demand for accountability of the actions of the agents (Cabannes, 2005) to the point of denying them full participation through information exchange. Principals only disseminate information to advance their own self-interests and to maximize their own utilities (United Nations, 1999). According to (Birskyte, 2013), the public attempts to demand accountability from politicians and civil servants however, a wider range of principals lack the capacity to hold agents accountable. This research argues that while the public can be involved in demanding accountability from politicians and civil servants, the public is also driven by personal interests, political patronage, resource shortage and foreign backings. In turn, the agents do not consider the targets of the constituent principals. In other words, the principal-agent-theory cannot apply in dynamic situations where power is not directly delegated. As people continue to look to politicians for cash in exchange for their votes, this implies a decrease in their legality to demand accountability (United Nations, 2005). Since resources are in the hands of an elected government, people must be corrupted by accepting bribes for their votes, which constrains effectiveness and delivery of public goods.
The concept of Financial Accountability
Accountability is generally defined as accepting and meeting one's personal responsibilities, being and feeling obligated to another individual as well as oneself, and having to justify one's actions to others (Wilson, Reck, & Kattelus, 2010). Accountability has frequently been presented as rational practice to ensure responsibility by individuals and institutions, which should be implemented in all civil societies, economic institutions and organizations (Agwor & Akani, 2017). He noted that the traditional tools of accountability are often considered by non-profit organizations as unnecessary formal tasks and excessive bureaucracy, which can have important consequences both organizationally and managerially. According to (Onuarah & Appah, 2012), accountability focuses on the extent to which feedback recipients perceive they are responsible for, utilizing feedback information for development. A sound system of public expenditure management needs to take into account the wider values and requirements of society. Accountability, transparency, predictability and participation are important instruments for sound budget management, but also have an intrinsic value, and are generally seen as the four pillars of good governance. If budget managers do not comply with parliament's authorizations, or if public funds are used for private purposes, it is doubtful whether either aggregate fiscal discipline or efficient resource allocation, or both, will be achieved. Financial accountability is about assuring its stakeholders regarding the use of public resources (stewardship) as well as to underpin decision-making about how to allocate scarce resources like time, personnel, space, equipment and money (Doussy & Doussy, 2014). The allocation of resources may affect the entire operation and success of an organization, which often hinges on the quality of its financial management. Thus public entities have to provide information about financial activities to its stakeholders in order to discharge financial accountability. Financial accountability is a very important component of the public sector financial management process.
Financial accountability mechanisms
Expenditure controls
There is a tendency for spending on wages and salaries, goods and services and other items of recurrent expenditure to be higher than the approved budget, and for spending on the development budget to be lower than the approved amounts. The under spending in development expenditure is mainly due to capacity limitations, weak project implementation and possibly a lack of reporting on execution of donor-funded projects(Cabannes, 2005). Overspending in the recurrent budget can be attributed to weaknesses in expenditure controls, including inadequate commitment controls. The lack of data integrity is a big issue, both for aggregate and individual budget items, thus reducing the overall quality of financial reports. Credibility in public expenditure is assessed by comparing aggregate expenditure out-turn to original approved budget, composition of expenditure out-turn to original budget and aggregate revenue out-turn to original approved budget (PNG Government, 2015). However, (Hladchenko, 2016) advises that when the resource envelope allows, the government should shift its policy focus towards improving the quality of public expenditure. Such restraints normally arise from the weak budget forecast.
Annual financial reports, which are a reflection of final budget outcome, may indicate an overall level of budget execution which was in line with the initial approved budget. For example, a very small difference between original and executed budget can be explained by the supplementary budget that was adopted in-year and helped reallocate expenditure among sections (Dunleavy, Margetts, Basto, & Tinkler, 2006). This helps to increase the overall level of budget execution. Without this supplementary budget, most public entities operate under-execution of the budgets. Similarly, (Pelizzo & Stapenhurst, 2013) noted that it is possible for the recurrent budget to appear overspent while the development budget is regularly under-executed. These two items broadly compensate at the overall level. At the end of the year, departments tend to transfer lapsing funds into trust accounts, which results into a recorded increased level of budget execution even though these transfers represent no more than an accounting transaction between different government accounts (Lytvynchuk, 2014). Effective expenditure control is attained when the extent to which the composition of expenditures differs from the original approved budget is compared, and that public entities can predict the extent to which the budget is predictable, reliable and reflects the implementation of stated public policy (Pelizzo & Stapenhurst, 2013; &Pillay, 2013). This suggests that documents containing a large amount of detailed information with vast accompanying narrative should be provided. In a related view, (Miller, 2012) adds that any discrepancies in the data for total revenues and expenditures should be presented in the documents. A lack or shortage of information on important fiscal indicators such as the debt stock, financial assets, fiscal risks and tax expenditures, in addition to a medium-term budget framework impinges on the level of financial accountability. Moreover, presenting the development budget for each agency in the same section as the current budget, and modifying the definitions of the development budget would reflect genuine capital expenditure (Shah, 2007).
Financial reporting
Financial reporting plays a major role in fulfilling government’s duty to be publicly accountable in a democratic society. Financial reporting is used in assessing accountability by comparing actual financial results with the legally adopted budget, assessing financial condition and result of operations, assisting in determining compliance with financial laws and assisting in evaluating efficiency and effectiveness (Wang, 2011).The accounting profession through oversight bodies, developed certain international rules and guidelines on how financial information is treated and communicated so that measurement and presentation are less subjective (Kumar, Langberg, & Sivaramakrishnan, 2012). These guidelines and rules for preparing financial statements are commonly known as Generally Accepted Accounting Principles (GAAP), The International Accounting Standards Board (IASB), the International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs). These standards start with a conceptual framework which anchors financial reports to a set of principles such as materiality (the degree to which the transaction is big enough to matter) and verifiability (the degree to which different people agree on how to measure the transaction)(Beyer & Guttman, 2012). The standards establish which resources and obligations should be recorded as assets and liabilities, which changes in assets and liabilities should be recorded, when these changes should be recorded, how the recorded assets and liabilities and changes in them should be measured, what information should be disclosed and which financial statements should be prepared(Li, 2005). In otherworld’s, the standards prescribe recording and reporting practices that are deemed to be acceptable when reporting on the financial affairs of an entity.
Today, all public institutions in Uganda are adhering to IFRSs to ensure the same understanding of the information by both the preparers and users of that information. The enforcement of accounting standards improves the quality of financial reporting(Auditor General, 2017).Unfortunately, literature recognizes that measuring the quality of financial reports like the financial statements is problematic especially because different users may perceive the usefulness of information very different from each other(Indriasari, 2008; Rabrenovic, 2009; Hladchenko, 2016).This is associated with the fact that most of the stakeholders will not have the ability or need to analyze the financial statements in detail or test the compliance with accounting standards. Therefore, concentrating on characteristics like understandability, comparability, verifiability and timeliness (Kedia & Philippon, 2003), which enhance faithfulness and representation to citizens, politicians, donors, government and NGOs; is far better. Stakeholders like CSOs and community members could be probably only interested in whether the statements are trustworthy, that no corruption took place, the budget were complied with and that the organization in question is in a position to provide value for money (Graham, Harvey, & Rajgopal, 2006). Therefore, financial statements must be transparent and easy to understand to enable making informed decision.
While the definition of financial accounting system points to set of procedures from data recording to financial reporting in order to answer budget implementation, financial accounting system can be measured by five dimensions: the accounting of cash, the accounting procedures, cash outlays, the accounting procedures assets, the accounting procedures in cash, and the presentation of financial reports. In government however, financial accountability statements are about accounting standards, which are structured to report on the financial position reporting entity (Elliot & Elliot, 2012). This suggests that emphasis of reporting is laid on accountability dimension, presentation dimension and disclosure. As the organization processes and reviews its accounting material, a systematic approach to the identification, analysis, evaluation, endorsement and periodic review of decisions taken involving such material is provided, which spans a number of accounting areas. However, at the end of the day, the final financial statements will include amounts based on judgments, estimates and assumptions by management (South African Institute of Chartered Accountants (SAICA), 2012).
A consolidated local government financial statement is prepared annually that includes full information on revenues, expenditure and financial assets including revenue arrears. These annual statements however, do not provide a full reporting on liabilities. They do not provide any information on expenditure arrears or accounts payable (Kabale District Local Government , 2015). Under the cash accounting system the source document for accounting entries is the payment voucher coupled with the electronically generated cheque or other payment instruction. Entries are dated using the date on the payment instrument. It is important to note that auditing is a crucial component of most modernist conceptions of accountability since it legitimates the information on which formal, financial accountability rests (Shulman, Gandal, & Ecker, 2013). The fundamental role of an auditor is to provide independent assurance to external users that a financial report of an entity is accurate and reliable.
Service delivery
A service is an activity or a series of activities of more or less intangible nature that normally, but not necessarily, takes place in interactions between the customer and service employees and/or systems of service providers, which are provided as solutions to customer problems (Bajo, Primorac, & Runtic, 2017). Service delivery can be taken to be an outcome of performance depending on the context in which it is used (Yeo & Neal, 2004). According to (Birskyte, 2013), service can be expressed in terms of capacity to deliver desired services and from which customers get satisfaction. A service delivery gap is that gap between the established delivery standards and the actual service delivered (Goncalves, 2013). It is an inconsistency between service design / quality specifications and the actual service quality by the service delivery system. Effective engagement between citizens, service providers and elected representatives is essential to democratic service delivery.
Service delivery refers to programs or services that are provided either to the general public or to specifically targeted groups of citizens, either fully or partially using government resources. This includes services such as education and training, health care, social and community support, policing, road construction and maintenance, agricultural support, water and sanitation, and other services (Salahu, 2012). He observes that service delivery excludes those services provided on a commercial basis through public corporations. Similarly, (Public Expenditure and Financial Accountability (PEFA), 2016) points out that service delivery excludes policy functions, internal administration, and purely regulatory functions undertaken by the government, although performance data for these activities may be captured for internal management purposes. It also excludes defense and national security (Agwor & Akani, 2017).
Quality of service delivery has emerged as the most significant strategy in ensuring the survival of organizations and also a fundamental route to business excellence as well as extending market share of health care organizations. Service provision that is de-linked from citizen-influence and democratic decision making is unlikely to deliver quality services for the poor (Omolaye, 2015). For meaningful contributions, the poor require the ability and capacity to ask questions and, sufficient information of their right and entitlements, service options, local and national budgets, and the systems to address when decisions are taken undemocratically or when services are of poor quality. Local governments are assumed to be performing if the projects and services meet the demands of the citizens in the local areas (Agwor & Akani, 2017).
Shah, (2007)insists that service delivery has to be communicated over and over again to everyone. Employees at all levels must be aligned with a single vision of what the organization is trying to accomplish. Thus, effective internal communications is the requisite for integration and harmony in the service organizations activities and quality. Public Expenditure and Financial Accountability (2016) also emphasizes that the goal of any social service organization is to improve the results of the target population in some way by providing the right type of services and by providing them in an appropriate and adequate way.
Budget
Budget is a plan of financial operation embodying an estimate of proposed expenditures for a given period of time and the proposed means of financing them. In a much more general sense, budgets may be regarded as devices to aid management in operating an organization more effectively. Governments build budgets to demonstrate compliance with laws and to communicate performance effectiveness (Wilson, Reck, & Kattelus, 2010). It is worth noting that financial accounting and management accounting cannot be so neatly compartmentalized in the public sector, where management accounting refers to budgeting and control, rather than accounting solely in the service of managers. The budget is an expression of public policy and political preferences (Tsurkan, Sotskova, Aksinina, Lyubarskaya, & Tkacheva, 2016). It is an instrument of fiscal policy on revenue and spending to achieve macroeconomic objectives. It provides benchmarks for performance measured partly by the accounting system. Given their close relationship, it is often difficult to tell where budgeting ends and accounting begins. They reinforce each other in demonstrating and discharging fiscal accountability to the government's stakeholders, who are more numerous and diverse than the owners of a firm.
Budgeting is an important mechanism for financial planning and management and, as a cyclical decision-making process, it allows for the achievement of organizational priorities and objectives through limited fiscal resources. The correct application of budgeting can contribute significantly to greater efficiency, effectiveness and accountability within any organization if a level of synergy exists between the policy direction and the fiscal framework (Berner & Smith, 2004). Being part of the control environment relating to the efficient, effective and economic utilization of resources, budgets are also an indistinguishable part of the broader planning and policy environment. Similarly, (Mikesell, 2007)expresses that a budget’s importance in a democratic setting should be aligned to both the legislative and executive management environments and emphasizes publicity, amongst others, as a core principle of any budget(Neblo, Estering, Kennedy, Lazer, & Sokhey, 2010). In essence, publicity requires budget openness and transparency during all the stages of the budgeting process, which include executive recommendation, legislative consideration and budget execution
In budgeting, this means uniting administrators, who have information on municipal finance and budgetary processes, with their constituents, who have information on their own preferences (Kim, Han, Jo, && Kim, 2010). This suggests that combining of information leads not only to new information but also to new understanding. The budget measures the extent to which aggregate budget expenditure outturn reflects the amount originally approved, as defined in government budget documentation and fiscal reports (Omolaye, 2015). He notes that aggregate expenditure includes planned expenditures and those incurred as a result of exceptional events such as armed conflicts or natural disasters; and expenditures financed externally by loans or grants should be included. However, if amounts are held in suspense accounts at the end of any year that could affect the scores if included in the calculations, they can be included. The budget recognizes that it is prudent to include an amount to allow for unforeseen events in the form of a contingency vote, although this should not be so large as to undermine the credibility of the budget(Salahu, 2012).
Where part of the budget is protected from spending cuts for either policy (for example, poverty reduction spending) or regulatory reasons (for example, compulsory welfare payments), this will show up as a composition variance(Berner & Smith, 2004). Assessors are requested to report on the purpose and extent of protected spending in the narrative.
Accurate revenue forecasts are a key input to the preparation of a credible budget. Revenues allow the government to finance expenditures and deliver services to its citizens. Overly optimistic revenue forecasts can lead to unjustifiably large expenditure allocations that will eventually require either a potentially disruptive in-year reduction in spending or an unplanned increase in borrowing to sustain the spending level(Public Expenditure and Financial Accountability (PEFA), 2016). On the other hand, undue pessimism in the forecast can result in the proceeds of an over-realization of revenue being used for spending that has not been subjected to the scrutiny of the budget process(Mikesell, 2007). As the consequences of revenue under-realization may be more severe, especially in the short term, the criteria used to score this indicator allow comparatively more flexibility when assessing an over-realization.
A robust classification system allows transactions to be tracked throughout the budget’s formulation, execution, and reporting cycle according to administrative unit, economic category, function/sub function, or program (Public Expenditure and Financial Accountability (PEFA), 2016). The budget should be presented in a format that reflects the most important classifications. The classification should be embedded in the government’s chart of accounts (the accounting classification) to ensure that every transaction can be reported in accordance with any of the classifications used. In the same line, (Tsurkan, Sotskova, Aksinina, Lyubarskaya, & Tkacheva, 2016) argue that the budget and accounting classifications should be reliable and consistently applied, providing users with confidence that information recorded against one classification will be reflected in reports under the other classification. In view of national budgets, a set of budget supporting documents must be provided by the executive to the legislature for scrutiny and approval. These documents provide a complete picture of central government fiscal forecasts, budget proposals, and outturn of the current and previous fiscal years (Mikesell, 2007). The arrangements for providing transfers from central government to sub national governments and the timeliness of information on those transfers ought to be captured. Financial reporting by sub national governments and fiscal risks to central government from sub national governments are addressed to governments through their budgets, or through conditional (earmarked) grants to sub national governments to implement selected service delivery and expenditure responsibilities(Salahu, 2012). The overall level of grants is usually determined by policy decisions at the central government’s discretion or as part of constitutional negotiation processes. However, clear criteria for the distribution of grants among sub national governments are needed to ensure a locative transparency and medium-term predictability of funds available for planning and budgeting of expenditure programs by sub national governments (Edeme & Nkalu, 2017). He further clarifies that every fiscal transfer from central government to the relevant sub national governments should be taken into consideration.
Legislatures play a critical role in the management of public finances. As part of their budget decision-making responsibilities, legislatures approve the national budget and subsequently provide oversight as the executive implements the budget (Wilson, Reck, & Kattelus, 2010). The challenge that remains with local government budgets is timeliness of reliable information provided to sub national governments on their allocations from central government for the coming year. It is crucial for sub national governments to receive information on annual allocations from central government well in advance of the completion (and preferably before commencement) of their own budget-preparation processes. Information on transfers to sub national governments’ budgets should be regulated by the central government’s annual budget calendar, which should provide for reliable information on allocations early in the cycle(Public Expenditure and Financial Accountability (PEFA), 2016).