Regardless of how you feel about the issue of corruption in the country, one thing is for certain – the new International Public Accounting Standards (IPSAS) have the potential to create a more accurate picture of the Government’s financial health. This is because the new IPSAS will replace cash-based accounting with accrual accounting. Accrual accounting eliminates the need for financial transactions to be kept in check and will ensure that there is a more accurate accounting of government expenditure. This will also reduce the risk of corruption, because transactions will be more accurately recorded.
Accrual accounting replaces cash-based accounting
Several years ago, the Government of Jamaica decided to implement accrual accounting in the public sector. As part of this decision, the Ministry of Finance expected that the process would be gradual over a ten-year period.
The implementation of accrual accounting in the public sector will benefit the country’s finances and citizens in many ways. Firstly, the system will provide decision makers with relevant and reliable information. Second, the implementation will improve the management of the country’s resources. Third, the system will enhance citizens’ trust in their government. Fourth, the implementation will promote transparency. Lastly, the implementation will enable the country to measure government officials’ performance.
A number of countries have implemented some form of accrual accounting in the public sector. Specifically, the Institute of Chartered Accountants of Jamaica is supporting the Government of Jamaica as it lays the foundation for accrual accounting in the public sector.
The International Public Sector Accounting Standards (IPSAS) Board has been championing the change. It has released a report with 30 recommendations for public officials who are thinking about implementing accrual accounting.
The report is based on research, a survey of experts, and a series of roundtables. The best part is, the report is free. Some of the recommendations are in the form of free training. Other recommendations cover setting objectives, creating effective systems, and engaging stakeholders. Some staff are not taking the training seriously.
The most important recommendation is that the Government of Jamaica should consider the IPSAS system as the foundation for its public financial management system. The IPSAS system will provide reliable information and will increase citizens’ trust in the government. It will also help the country in the fight against corruption.
The IPSAS system will also be a useful mechanism to complement the Government’s Public Sector Transformation thrust. It will increase the transparency of the government’s finances and help to achieve its initiatives. In particular, the IPSAS system will provide reliable information for decision makers. The IPSAS system is the best way for the Government of Jamaica to achieve its goals of improving the management of the country’s resources and enhancing citizens’ trust in their government.
Accrual accounting eliminates financial transactions being ignored or unaccounted for
Using accrual accounting will yield a more accurate and thorough picture of the nation’s finances. It will also foster trust and confidence in the government’s ability to deliver on its promise of greater transparency. Using an accrual system will also improve resource management and help the government to better serve its citizens. In fact, the Ministry of Finance is planning to make the transition to accrual accounting over the next ten years. In fact, some government entities have already implemented the accrual model.
While it’s true that the transition to an accrual model will be a slow burn, there’s no reason to believe that this change will not have a positive impact on the nation’s bottom line. In fact, the Institute of Chartered Accountants of Jamaica is currently supporting the transition to the neo-financialists by providing free training in the IPSASB’s requisites. In fact, the IPSASB’s website currently features a special section dedicated to the ‘public-sector’ that is sure to keep government employees well informed and in the know. The aforementioned training will be administered by qualified and knowledgeable experts. It will be an exciting and rewarding new chapter for the accounting fraternity.
While it’s not exactly a walk in the park, the transition to an accrual model will provide government entities with the tools they need to improve transparency and efficiency in a time when citizens are growing increasingly restless and dissatisfied with their governments. The advent of accrual accounting will enable the government to do its part to help transform Jamaica into a more modern and progressive nation.
Accrual accounting will foster a more accurate picture of the Government’s financial health
Using accrual accounting to record financial transactions will provide a more accurate picture of the financial health of the Government. It will also foster greater transparency, provide a better picture of the financial sustainability of the Government, and build trust among citizens.
The Government’s decision to use accrual accounting in the public sector follows the launch of a number of initiatives, including Public Sector Transformation and Modernization. These initiatives are focused on improving government operations by reducing non-value-added bureaucratic processes and providing services to citizens more efficiently. Accrual accounting is also expected to foster greater control over performance and resources.
The Ministry of Finance is in the process of developing a new financial information system that will accommodate accrual accounting. Its implementation will be supported by the Institute of Chartered Accountants of Jamaica. The new Table of Government Financial Operations (TOFE) will be based on the Government Finance Statistics Manual (GFSM) 2001/2014. The financial information system will also be updated to accommodate the new chart of accounts.
The new financial reporting system will also include a financial balance sheet that will be ready for adoption by the government in January 2022. The TOFE will not provide a comprehensive institutional coverage. This may result in an incomplete balance sheet. It may also be inaccurate. The information contained in the financial balance sheet will be developed using existing information.
The new financial reporting system also does not provide a comprehensive depiction of the resources allocated to teaching, research, and knowledge transfer. The public sector’s liabilities and net worth are estimated at 86 and 33 percent of GDP, respectively.
The Court of Auditors has not yet moved to certify the government’s accounts on an accrual basis. This means that the Court of Auditors is not in a position to provide a “true and fair view” of the government’s accounts.
Accrual accounting has been implemented in some public sector entities in the Caribbean and Africa. It has also been adopted in Italy. However, Italy’s new accounting system was introduced four years ago. Its introduction is supported by the Law no. 240/2010, which requires all public universities to adopt accrual accounting by June 2014.
Some public sector entities are using accrual accounting today. The Ministry of Finance has planned to phase in accrual accounting over a ten-year period. In the meantime, authorities will revise the historical data series. The Institute of Chartered Accountants of Jamaica is supporting the Government in its transition to accrual accounting.
The impact of accrual accounting on corruption
During the past three decades, capital expenditure by the central government has been low in Jamaica. Some of the decline may reflect policy decisions made by the central government, but it may also reflect structural deficiencies in the public investment process.
Jamaica’s public debt is on a downward trajectory but remains high relative to other emerging market peers. The debt is projected to fall below 100 percent of GDP in FY19/20 and to 86 percent by FY21/22. It is largely underpinned by sustained fiscal consolidation, which is expected to continue. However, the downward trend is vulnerable to contingent fiscal liabilities from public bodies, slower growth, depreciation of foreign exchange, and natural disaster risks.
Public investment has also historically taken a disproportionate hit during the budget execution process. This is due in part to the lack of fiscal space for public investment, which has been constrained by low capital stock. The government has also closed 30 public bodies, and has identified 18 more for action over the next year. The government intends to implement legislation to create a single anti-corruption unit to investigate and prosecute suspected corruption.
The government has also been active in addressing the governance deficit, particularly in the area of AML/CFT supervision. The government has identified deficiencies in the AML/CFT framework, including a lack of effectiveness in encouraging non-bank financial institutions to apply AML/CFT preventative measures, and non-compliance with targeted financial sanctions. These deficiencies must be addressed before the end of the observation period.
Jamaica has also incorporated reforms that strengthen domestic institutions, such as streamlining the compensation structure for the public sector. This is expected to help close the infrastructure gap. However, the government has not yet fully addressed deficiencies in the AML/CFT framework, which includes not disclosing beneficial ownership and failing to encourage institutions to apply AML/CFT preventative practices.
As Jamaica prepares to exit Fund financial support, the government is focusing on strengthening its domestic institutions to better manage the country’s fiscal position. The country is also part of an enhanced CFATF follow-up process.
