International Journal of Governmental Financial Management20

Public Sector Accounting: Democratic Control of PublicMoney by Using Administrative Cameralistics

Norvald Monsen -norvald.monsen@nhh.no

Norwegian School of Economics and Business AdministrationUnfortunately, there are very few scientists and practitioners having any interest in thedevelopment and standardisation of the cameral bookkeeping method, something which isstrongly to regret with a view to the importance of these questions.

(Mülhaupt, 1987, p. 119; translated from German)

Introduction

Public sector accounting has traditionally been different from business sector accounting (i.e.,commercial accounting), because public sector management traditionally has been differentfrom business sector management. While there is a ´profitability´ focus in the latter sector,the focus in the former sector has been on democratic (political) control of public money. Inlater years, however, as traditional public sector management (TPM) is being replaced bybusiness sector management, referred to as new public sector management (NPM), the moneyfocus is accordingly being replaced with a profitability focus in public sector accounting.In this article the money focus of traditional public sector accounting will be revisited, byreferring to cameral accounting. Cameral accounting was developed in continental Germanspeaking European countries (Austria, Germany and Switzerland; se e.g., Buschor, 1994),and is known to a limited extent only beyond the German speaking countries. In threeprevious articles in

International Journal of Governmental Financial Management

, however,I have explained this particular accounting model to some extent to a non-German speakingaudience. First, cameral accounting was presented as an alternative to commercial accrualaccounting (often referred to as ´accrual accounting´, see Monsen, 2008a). Thereafter, thetwo main variants of cameral accounting, namely administrative cameralistics (ACAM; seeMonsen, 2008b) and enterprise cameralistics (ECAM; see Monsen, 2009) were explained,including the use of numerical examples. The purpose of the present article, however, is toexplain ACAM in more detail than in Monsen (2008b). More specifically, the purpose of thearticle is to explain how traditional public sector accounting in the form of ACAM fulfils fourmain tasks, aiming at contributing to democratic control of public money.The article is structured as follows: the next section departs from the main accountingconcepts of revenues and expenditures, and points out that we face two different principles,which can be used when accruing the revenues and expenditures. Thereafter, an overview of the main tasks of traditional public sector accounting is given, followed by a brief introduction to ACAM. ACAM is thereafter explained in more detail, first by focusing on theclosing of the accounts and budgetary comparisons. Thereafter, a numerical example isprovided to illustrating ACAM in more detail. A separate commentary section departs fromthe numerical example, explaining how the four tasks of traditional public sector accountingare taken care of within ACAM. Thereafter, public sector organizations are first comparedwith commercial enterprises, focusing on their different ways of acquiring financialresources. Departing from this comparison, traditional public sector accounting in the form of ACAM is thereafter compared with new public sector accounting in the form of IPSAS-

International Journal of Governmental Financial Management21

standards (IPSAS – International Public Sector Accounting Standard). A conclusion ends thearticle.

Revenues and Expenditures

The main accounting concepts are revenues and expenditures (Mülhaupt, 1987).

Revenues

represent claims on cash receipt, while

expenditures

represent obligations for cash payments.This means that the revenues and expenditures always will have a

money effect,

either in theaccounting period in question (in the form of present (or actual) cash receipts and present (oractual) cash payments, respectively) or in later accounting periods (in the form of future cashreceipts and future cash payments, respectively). The revenues and expenditures could alsohave another effect (in addition to the money effect), namely a

profitability effect

in the formof revenues earned and expenses incurred. As distinct from the money effect of the revenuesand expenditures, which influences the cash deposit of an organization, the profitability effectof the revenues and expenditures influences the equity of the organization (i.e., the differencebetween the assets and liabilities of the organization).This means that the revenues and expenditures can be accrued according to two differentprinciples, namely a

money accrual principle

and a

profitability accrual principle

. Theformer principle could be referred to as the

principle of current dues

(Oettle, 1990; Englishtranslation of the German term

Anordnungsprinzip

) and it is used for reporting the moneyeffect of the revenues and expenditures. The latter principle – often imprecisely referred to asthe

accrual principle

– is used for reporting the profitability effect of the revenues andexpenditures.

Four Tasks of Traditional Public Sector Accounting

Public sector organizations are juridically accountable for their spending of public money:“All public sector organizations are accountable for the financial resources, whichthey have been allocated for management. In addition to the obligation forpreparing a budget, there are detailed rules regulating the cash accounts, thebookkeeping and the book closing. The specific characteristics of administrativecameralistics are reflected in these regulations.” (Wysocki, 1965, p. 17; translatedfrom German)It appears from this excerpt that ACAM has been developed for use by public sectororganizations, making it possible for them to fulfil the accountability for their spending of public money. This means that the accounts must report the expenditures of the public sectororganization, and how they have been financed in the form of revenues. Moreover, it alsomeans that the revenues and expenditures (as reported in the accounts) are to be comparedwith the corresponding budgetary revenues and expenditures:“The first task of the accounts of a public sector budget-financed administration isto report numerically correspondence or deviations between plan and executionfor this administration: ´The accounting books must be shaped in such a way thatit is possible to see how the budget execution is compared with the budget.´ ..Administrative cameralistics shall provide the figures for this comparison,referred to as ´budgetary accounting´.” (Wysocki, 1965, p. 18-19; translated fromGerman)

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This first public sector accounting task can thus be referred to as ´budgetary control´, sincethe accounts should be used for controlling how the budget is implemented. Another import-ant task for public sector accounting is ´receipt/payment control´, which is related to the basicseparation between receipt/payment instructions and receipt/payment executions (actualreceipts/payments) in the public sector (at least in continental Europe):“A basic principle for the public sector payment execution consists of the fact thatno payment can be undertaken without a corresponding payment instruction,issued by another organizational unit with

payment instruction

authority, and cashcan only be received by the cashier in accordance with a corresponding

receipt instruction

. Due to control reasons, the receipt or payment instructions are alwaysissued by an organizational unit, which is trusted neither with the receipt/paymentexecutions nor with the bookkeeping.” (Wysocki, 1965, p. 23; translated fromGerman, italics in the original)This basic separation between receipt/payment instructions and receipt/payment executionsconstitutes a key element of ACAM (see Mülhaupt, 1987). Both receipt/payment instructionsand receipt/payment executions are entered on the cameral account with ACAM, and they areentered in different columns. In fact, receipt/payment control is integrated within the processwhen using the single-entry bookkeeping method of ACAM, by comparing figures entered indifferent columns, containing receipt/payment instructions and receipt/payment executions,respectively (see below for a numerical example). Furthermore, it is not enough to controlthat the cashier receives or pays cash after having received receipt or payment instructions,respectively, from another organizational unit having such an instruction authority. It is alsoimportant to control the cash receipts and payments themselves:“As a result of focusing on the cash execution of the budget, administrativecameralistics pays special attention to fulfilling the task of

controlling the cashmovements

. The objective of the accounts is to keep an overview of the cashtransactions (i.e., the cash receipts and cash payments). The accounting booksshall at any time make it possible to ascertain the cash deposit; moreover, theyshall make it possible to keep an overview of non-budgetary money beingreceived and given to others.” (Wysocki, 1965, p. 19; translated from German,italics in the original)Hence, ´cash control´ is the third task of public sector accounting. With regard to the result of the public sector administration, Wysocki (1965) points out:“Finally, administrative cameralistics shall report the result of the publicadministration. This result can indeed not be an ´administrative result´ in themeaning profit or loss…; it is rather a matter of reporting to what extent therevenues

in total

or for

various activities

cover the expenditures. It is true thatthere is a general agreement saying that the so-called financial (money) result notonly can be reported as the difference between the revenues and expenditures fora specific period; it must also contain changes of the assets and the liabilities,caused by the budget execution. However, there is no agreement, either in theoryor in practice, over the way this is to be undertaken. It is considered adequate toprepare regularly a numerical overview of the assets and the liabilities, in additionto the systematic accounts themselves.” (Wysocki, 1965, p. 20; translated fromGerman, italics in the original)