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Output Based Budgeting Australia

Output Based Budgeting Australia

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ACCRUAL OUTPUT BASED BUDGETING SYSTEMS IN AUSTRALIA
The rtietorrc-reality gap
Tyrone M. Caiiin and James Guthrie

to reaff^ft^ In

lyrone M. Carlin and James Guthrie Macquarie Graduate School of Management Macquarie University bydney, NSVv/, 2109 Australia

Routledge

Vol. 5 issue 2 2002 145-162 Public Managsmont Review ISSN 1471-9037 print/ISSN 1471-9045 online 5 2003 Taylor &.francis Ltd bttp://wvw.tandl.cc.uk/journais nOI: 10.1080/1461567032000066372

represents reality and constructs that reality through the discourse and images created. th. viewed from an alternative perspective. However. Thus.ho«#n. That ip. This neutral technico-centric view of the reforms carried otit in jurifedid. ifechnjcal.ioltis such . it does influence them. new asset valuation methodologies and accrual output based budgeting systems. in practice of the adoption of accrtial output based budgeting (hencfeforth AQfiB) in Australia. 2001a). Therefore. and in particular. English et al. financial reporting and budgeting reforms are more than nieittral. contracting and market based activities (tftrkep akiA Gtatkrie 1993'. the purpose of this article is not to attempt to add to fh%.g. capital charging. Gittbxie 1^94). technical ot process oriented changes in management techniques are represented as neutral. which in turn impact on the form pf accioiit^tiftg c.e key objective of this article is to shed light on the effect. politically or economically neutral (Broadbeflt aftd Guthrie 1992. with some nations or jurisdictions vnthin nations adopting public sector financial manageixient techniques radically different from traditional methodologies (Jones et al. While the material contained in this article is written in awareness of these debates. 1998. Alford and O'Neill 1994. society). although accounting doefs ii()t dorpinate in the^fe. Australia (and the various states and territories which compiris^ the federation) is an exanjple of a country whicti has Ichosen a radical rather than conservative or traditional approach to public sector financial management (English et al. perhaps eVen as agnostiCj. In pursuing this objective we contrast our fjEidijags about practice with the claims made ahout expected practices it) the 'ofiicial^ literature on this subject^ that is. accounting is a form of communication that both. shapte' ao factors (e. politico-critical lit^rsfture on public sector management and reform. ptil^lic seirtor accounting is not socially. whfcrleby old discourse ideals and methods of management have hew gradwlly sa. Rather. This has not been a uniform global experience.k% Australia pervades official normative and descriptive literature relating to the intfodwctitm of methodologies such as accrual accounting and financial reporting. This degiree of change can be interpreted in several ways. public sector financial management. 2002). ifpffle processes.peisaded by managerialism. the adoption of accrual accotjnting VbA biidgeting techniques has been part and parcel of broad based public sectot refibrjii. in thej sense that they theoretically lack decision bias towards one set of outcomes (for example maintaining the public sector as the locus of considerable economic and social activity) versus another (disperstagi tnatty of the roles and functions traditionally carried out by the public sector to private sector operatives). According to this approach. Sipiilariy. bkt rather to adopt an analytical approacji to the subject matter. 2002). Olson et al. the descriptive normative literature produced by govefnrnent centiml finartcial Sgendes .146 Public Management Review INTRODUCTION The past two decades have witnessed considerable changes in the manner and mode of public sector management. disinterested activities (Guthrie 1998). in choosing what to account for and vs^hen aad how to account fbr it. Often. stich as that offered by Hines (1988). acCoilntants.

This stream. or takes . while 'real' budgetary battles still take place over iVhd gets how much money for y/hat programmes. Ca. we offer some conclusions and thoughts relating to possible profitable future research agendas.' Our analysis is informed by the discrepancies we observe between the characteristics of accrual output based budgeting systems as implemented and predictions and explanations contained in normative theories about such modes of administration and resource allocation. and where the money will be spent (Wildavsky 1988.p. Some have agreed that these new budget fads come and go. An importsint stream of central budget literature is that which examines the public policy debate .Carlin & Guthrie: Accrual output based budgeting systems in Australia 147 from a range of jurisdictions in Australia explaining the 'necessity' and 'desirability' of such reforms.an'economic approach focusing on central economic and'fiscal management concerns. control. behavioural (Wildavsky 1969. in section five these claims are contrasted against some evidence we have collected in relation to the actual operation of AO'BB systems in Australia. nature. i'^unction and benefits of AOBB systems. deficit control through 'no-fault' budgeting and balanced budgets (Schick 1966. 1993) with emphasis on similarities and differences. In section fo^ur we artalyse claims. Irrespective of the analytical or explanative approach taken to describing or viewing budgets and budgeting systems. incremental. In section three. the central public budgeting problem is able to be . as well as political institutional systems explaining these variations in practice. Other authors have focused on the form of budget documents (e. Subsequently. made in relation to the role. institutional economics (Smith and Bertozzi f998)..serious attempts. line items and performance) with emphasis on explaining tlie legislative intent and structure of budgets (Joyce 1997). oyersight)' (Tyer and WilLand 1997).literature indicates that the last fifty years has witnessed a riumber of . management and budgeting by objectives.about its iniain objective (fol' example executive accountability. Tyer and Willand 1997). Gray et al. entrepreneurial activities (Lynch ajnd Lynch 1997). Jones 1997) and performance management (Lu 1998). This article is organized into five subsequent sections. In section two we explore the nature of AOBB systenis in light of some pertinent literature on budgeting regimes. which we bave classified as rhetorical in their. Another Stream is that literature which deals with budgetary theory vwth its emphasis on the theoretical underpinning of certain budget systems.rderi and Wildavsky 1974. AOBB k m THE NATURE OF BUDOETIMG SYSTEMS Traditionally the literature on central budgeting has focused on comparisons with practices ioternationally (Knight 1970. a brief review of AOBB systems adopted in a variety of Australian jurisdictions is outlined. Jones 1997: 49). Finally. For instance. at central budget transformation wth the implementation of new procedures and processes. This was th.e case with program budgeting. of .

towards outputs and outcomes. in the hope that this will result in greater management efficiencies. technical budgeting system.148 Public Management Review viewed generally as the process by which government funds are distributed among competing interests. but rather. the resource governments transform into the goods and services consumed by the public (Bland 1946). complex budget systems have developed where major actors in the process have set criteria and discourse as a means to resolve choices about allocation of funds (also 'new' policy choices). Cash is the resource extracted by governments from the household and corporate sector. For that reason. Irrespective of these recent alterations to perspective. a major feature of future budgeting is the use of performance measures which focus on outputs and outcomes. and cash is. in some jurisdictions. in a modified 'accrual' format. the following themes have been identified (Lynch aiid Lynch 1997. via the budgetary process should have cash as its focus (Guthrie 1998). and another changing feature is the use of the currency of 'accruals' to replace more traditional public sector accounting (focused on cash measures). In most jurisdictions. and hence. The budget process and the annual budget itself are immersed in these political processes. . For instance. traditionally it was appropriate that the discharge of accountability exercised. movements in inventory balances. etc. accrual budgeting is most often not highlighted as an end in itself. The use of cash based budgeting was questioned in various Australian jurisdictions from the late 1980s onwards. due to its inability to measure the 'full cost' of government service provision (see Officer 1993. it is worth noting that the traditional currency focus of the governmental budgeting process has been cash. as various pundits claimed that it was aflawedsystem. SACA 1:994). as a means of shifting the emphasis of the budgetary process away from cash inputs. it is not a focus of this article. in New South Wales this had the effect of driving a vvedge between disclosed cash payments and the 'cost of services' (cash disbursements adjusted for non-cash items). The rationale for this phenomenon is simple. towards the presentation of budgetary data. Though comprehension of the politics of the budgetary pi*ocesses is central to understanding budgeting. In order to imderstand the recent transformations taking place generally in central budgeting. This usually involved simple transforitiation cif traditional cash based budgets to reflect non-cash items such as depreciation cbargesi. and indeed the technical aesthetic of the budgeting process itself is deeply enmeshed in the overlayed political structure wjiich makes use of the underlying. despite suggestions from some quarters to the contrary. In the official literature. better outcomes for governments and the communities they service. This resulted in the movement. 161—180): • • • budget formats and procedures are important as they do influence policy outcomes.

Garlin & Guthrie: Accrual output baseo budgeting systems in Australia 149 Theoretically. but rather.n. the foundation of the funding decision is laid is the collection of outputs produced :by agencies. ft'om a consideration ai the. early 1990st) (Bartktt land. an important point to which we return later in this article. While it is the case that th. operationial plans of the agency in terms of the production qf outputs . acting as principal. the recog. the character. In. a . by agencies as^ a result of the expenditure of their effort and resources.. have subsequently raised questions as to whetlier tlie mere presentation of numbers in a particular format has actually changed underlying incentives and behaviour.ipgdpm. This allegedly differentiates management use O't AOB.ension.nition of 'fulF cost ought to inspire governments and their agencies to seek greater efficiencies in their processes and resource usage.system is necessarily hased on a .hase outputs from providers.l<. AOBB represents an attempt to transform the public budgeting process into a ..ol traditional cash based ipput budgeting systems.nAO.system within which goveriiraents puri. . outputs they agree to produce for governments on an annual basis. the clearing house for a range of market and quasi market based transactions between central financial management departments.B systemis versus cash systems.stimuius. Knowledge of this heritage assists in explaining. and a range of agent providers. Harrison 1'9'93). Outputs are to be conceptualized as goods or services produced. the object on which..es. it needs l. I.focus on this dim.BB systems. to a consideration of the inputs recjuirec! to finaoce the desired operaticmal ends. Revelations that for many agencies. becomes much more than a simple resource allocation system. (most pa^ticulatriy the NHS internal market model introduced in the.o be recognized that AOBEi systems provide an explicit mechanism for the determinaticn of the cost of providing goods and services within a public consupiption framework. In contrast to traditional cash based input budgeting systems. this does not of itself suggest a diffetential focus on matters of eperational concern.. particular. often publicly funded government departnients.of outcom. then transformed into the basis for funding agencies for the quantum of.ignc!r'an(.e measures of total cost . The AOBBi systenis which have developed in Australia have their lineage in eai-lier contract base<| budgeting systems which evolved in New Zealand (Robinson 2000) and the lUiiiited.. In this sense. outsourcing. and objectiyies of ylOBB systems. This meGhani'STO acts to support extensive market testing. the only hint of 'accrual reporting' came with the passing of a limited number of year end adjusting journal entries. thoujrh logically. they cannot be ariialysed within framev/orks appropriate for the assessment .. Since these systems act as much in relation to resource allocation as they do in relation to tlie provision of a market clearing infrastructure." The resource management process witliin tbe context of AOBB should proceed. the budget mechanism. and contraqtingi activities hy central agency 'purchasers' acting on bebalf of governments (DQFA 1998:: vii).and achievement .there is no reason why the use of a'cash'systeni is predicated o.e of operational ends any more than the use of an AOBB' .constructed ij^nder both systems will differ.

cash calculated and line item driven approach to budgeting and reporting began to manifest themselves in the early 199Gs.^ A comprehensive output budgeting reporting regime was implemented from the 1998—9 budget period onwards. Queensland (Queendand Treasury 1997a. Wearing 1997). 4 a series of output meastires for each department. Western Australia (WA Treasury 1996). DOFA 1998). have traditionally been presented. tod has. and those subsequently coilstructed have been on an accrual basis includihg all parliamentary appropriations. . Solnyay 1997. Tasmania (Tastaania 1994). though the budget ihanagement process and overall reporting framework in that period retained an input focused flavour.150 Public Management Review ADOPTION OF AOBB SYSTEMS IN AUSTRALIA Various governments in Australia have introduced AOBB reforms. For instance. 199Sb. like those of other jurisdictions with parliamentary processes modelled on the Westminster example. Victoria (Victoria Treasury 1996). Actua! data for 199'2—3 and'estimated data for 1 9 9 3 ^ were presented. the Commonwealth has now adopted a full accs'ual based management and reporting system for all agencies. managed and reported on a cash basis. 1997c) and the federal goyernment (Khan 1997. in which a hmited numher of agencies implemented and reported on the basis of a full accrual framework. Victor'ia included in the 1 9 9 3 ^ Budget Paper no. However. including an accrual budget and quarterly accrual reports from 1999—20G0 (DOFA 1999): The ti"ial having been judged successful. Victoi-ia's 1998—9 budget. For example.^ The ACT' prepared an accrual based output budget for 1996—7 and 1997—8 with improvement in output definition and quality of perfo]*wiance measures over that period (ACTTreasqry 199Sa. 1997b. The Commonwealth engaged in a series of trials during 1998—9. like Victoria. since that initial flirtation. ptocess of the Victorian public sector environment. QueemiflriJ puhlished output related data as appendices to individual agency based programme statements in the 1998—9 budget year.* This accrual basis complements an output based view taken by the budgeting. l99Sb). This relatively rhinor step was the precursor to a more material change which occurred in 1996—7 in Victoria with the introduction of budget documentation containing improved dfeHnitiohs of outputs and extensive sets of performance measures in the reporting of outputs. Victorian budgets. included a capital charging reginde as an integrated element of its new budgeting and reporting model. Small adaptations to this traditional input based. That jurisdiction has continued with this line of i-feporting subsequently. NSIf presents accrual hudget andfinancialstatements for agencies in budget estimates (it has yet to decide on whether it will shift to an accrual appropriation). Australian Capital Territory (ACT 1995a. earning a reputation as a somewhat recalcitrant jurisdiction. the State of New South Wales has backed away from further changes to budgetary processes or documentation. South Australia (SA Treasury 1997).'^elve agencies in 1996-7 (NSW Treasury 1996). It published output measures for forty-one agencies and outcome measures for tv.

a general tlirust towards the adoption of AOBB systems in Australia (with the notable exception of the oldest and most populous jurisdiction.^ Whether that is the case as a question of fact is immaterial fc'r the purposes of this argument. full accrual budgeting was introduced in 1999—2000 (Queensland Treasury 1999). and moved to a full accrual output based budgeting model in 1999-^2000 (SA Treasury 1999).and cash fiow statements for 1998—9 to 2000-0. This ploy is somewhat unfair.OIJT A0B8 SYSTEMS The key rhetorical device used in an attempt to legitimize the introduction of AOBB systems is the resort to claims that under previous budgeting regimes that the procurement of goods and services within the public sector was subject to a high degree of inefficiency.position . R. the private sector is more 'effi'cient' tlian the public sector.e non-market system which existed historically. Furthermore.1 inclusive (WATreasury 1999). or indeed within individual jurisdictions across.Garlin & Gtithrie: Accrual output based budgeting systems in Australia 151 Subsequently. Wales). brought about by chronic market failure.TheAVestern Australian AOBB model. The more important question for the purposes of this article is to consider Cole's analysis of the . . instead reporting a cash bfisedi budget surplus of SA2. time (since the adoption of AOBB Sdeals). South Australia began pilot trials of output based budgeting during 1998—9. a subject of ongoing interest in public sector management research in Australia (and elsewhere internationally) has been the question as to the relative efficiency or inefficiency of the public sector when compared to the private sector. Though there has been. Withotit comment or remarking. given the not uoreasDnable expectation that the objectives of a purely market driven system of resource planning and allocation roight differ extensively from th.and extended to all funding in 1998—9. the cost of supporting a pure market architecture would be expected to differ from the cost of supporting a non-market system with greater accomitability a. statements of financiai . when the acCTual based figure was a surplus of $ A200 million (Harris 20'02).ecentlY. New South.closely to the arguments set out above.nd transparency demands. includes a capital charging system. it appears:that the federal government has quietly abaildo-ned its cDTOmitment to accrual budgeting. like those of Victoria and the Commonwealth. the 2002 federal bydget moved away from accrualfiscalmetrics. CLAIMS AB. Agencies are expected to provide estimated operating statements. Related . within seven days of the end of die month. In addition. Ihsmaaia implemented output based accrual budget in 1999—2000.tliere is no sense in which a if^niforrn btidgetary management or reporting framework has been adopted Jtcx-oss Austretlia. Cole (1988) notes that the weight of evidence suggests that as a rule. Western Australia's experience with output budgeting began with all new funding for tlie 1997-8financialyear . A full accrual based budget was iraplemented for 1998—9. all agencies bave been expected to produce moiithlv accrual financial reports from 31 July 1998 onwards.1 billion..

Cole suggests that it is because the public service is not designed to be efficient (in an economic or financial sense).etits generated by the public sector. contracting out and other related piechanisms. Using:.partial counterweight to efforts for efficiency enhancement (Walsh 1989).' The strong legislative pro\dsions which exist in a variety of Australian jurisdictions to permit andfenforcejadicial revieWi of admiijistrative decisions as well as pei'mit access to a wide range.quasi markets. an emphasis which may very well override efficiency considerations. These markets. Assuming that it is not acceptable to drop efther the 'efficiency' or the 'fairiless and accountability' goal. This solution howeverj requires. private sphere. mean that the prevailiiig institutional Glim.and fair ness. on the other bring into relief a considerable conflict at'a stratefic'leveliwithin'tfie Au'stralian public sector. an internally unnavigable impasse lis reached. but rather. meaning'that unit costs ought tO' be abk to bb calculated (Cairlln'and Guthrie 200fa).ivith the aggregate cost of production. open. The adaption of oucjut based budgeting can be interpreted as a solution to this 'missing irtformation' problem.152 Public Management Review reason for this phenomenon.ate places a heavy emphasis op openness.frorti witliin the public sector sphere to the. or more accurately.. there is another alternatiYe — the removal. would require a comprelnensive set of cost or price inputs. which has the benefit of makipg 'commercial confidentiality' arguments to protect its position in a way that public sectonagencies (andiin particular' budget dependent or largely budget dependent general goyertiment sectoi" agencies) do not.the accrual . Two of the most important of these are the Administrative Decisions (Judicial Review) Act 1977 (Cth) and the Freedom of Information Act 1982 (Cth). or at least the credible threat of removal. AUars (1997) reviews some of the legislative requirements operative on the public sector. fair. yet information produced by public sector agencies had t. since budgets produced along these lines contain estimates of the quantity of 'outputs' (goods or services) to be produced by a g. fairness objectivity and accountability.'piiblic sector on'the one hamd^ constrained by a legislatisd duty for openfeess. which differentiate the public frona the private sphere.at kast:a.. How can the public service transform its efficiency to achieve 'private sector levels of efficiency'.of dqcum. a set of fully or nominally functioning markets frora which to dtaw price signals from competing resource providers. The''desire''for'efBciency in'the. oflarge chunks'of activity. and in particular the general government or budget dependent sector. while at the.raditionally not-given rise to detailed data relating to the cost of'produciBg iqdividijiat'gpcids er 'services. via competitive teridering. outscfurcing. However. The impact of these Commonwealth statutes (as vvell as similar state based provisions) is to impose a far. objective and accountable.greater degree of scrutiny on decision making by public sector bodies than would be countenanced by the private sector.'same time maintaining the fairness and openness required of it by legislation? The reconciliation of these goals becomes exceptionally difficult beyond a certain point. including traditionalbudget funded incumbents.o¥ernmentj togetjier'. the demands of the administrative review and openness process: afetjii'g: as. at a minimum.

efficiency increases and generally improved resource planning and allocation processes. Tui?ning. it is possible.services on the part of the producer wall often diverge in the case of a market exchange situation.resetatati".. . which lies at the heart of the expectation. competitive markets. all otlber things being. Whether in such a. In such markets.goods or services of a pre-specified quality to buyers.BB iprotagoriists.refer to aii im.. though the omnipresent threat of outsourcing certainly . transactions are contractual phenomena. set of circumstances the incumbent producer would be faced with the idecision as to whether to sell services or goods at a 'loss' or alternatively lose the frajicliise to produce has not yet been tested.d. a theoretical and practical separ. A key objective of tJie implementation of the accrual output based budgeting system is that a. the reduction of public sector'agency cost bases over time. in exchange for a kaovs-n p>rice. through 'wdiich ageacies are funded and monitored on the basis of deliyery (peirforiTiiarice.. on the part of AO. in which suppliers agree to provide known quantities of . it is wo^rth e. through a process of benchmarking.ll exchanges within the public sector would operate according to a simitar methodology.ods and . the suggestion being that this would improve transparency. A rep. drive down costs and ultimately result in more efficient and effective outcomes. Theoretically.Cariin & Guthrie: Accrual output based budgeting systems in Australia 153 accounting methodology to support tlie preparation of budgetary aggregates in theory means that 'full' costs of production are taken into account. adopted in that jurisdictiati'is: 'fcpirocess. reflection.'of'full' costs — as measured on an accrual basis.ation of purchaser and owner. concentriatio.which h^ve iieen costed on a full accrual basis' (Qucen'slfiind Treasury' 1997b: 17). with the result that the cost data produced by such a system should be broadly comparable to cost data prepared by potential private sector or other public sector competitive contractors.suggfests . which may be lower than tlic cost of production faced by the incumbent producer. more tijan anything else.') of oiitpaits . and description is conveniently drawn from ^ the state of Queeoslan.plicit cost of capital associated with the production of any particular gO'od or service. to derive an 'efficient price' for a good or service.xami!ning the description O'f AOBB and its benefits offered :by y\ustralian jurisdictions'in central "agency official literature.froiTi tbe^maciro to the micro.The definition' of accrual output based budgeting. ultimately draw their inspiration from the operation of pure.. It is claiiTied thit some of the benefits to Bo'w from such a system are: " " * • increasetj customer focus. it is the existence of this credible threat of replacement mechaaism.n on the supply of services/products.ation ot price and cost may be a powerful stimulant to. Internal markets such as those supported by the adoption of the purchaser-provider model referred to above.. It should be noted that the market price borne by the purchaser of goods or services and the cost of producMg the go.^e definitioja. that its adoption will result in cost savings.erefore.that dicbotomiz. ec{uaL Arguably th. This is especially so where 'cost' does not.

this type of phenomenon is troubling indeed. In relation to the use of performance indicators. focus on the production of outputs and the achievement of outcomes. we have also previously published data which calls into question the capacity of AOBB systems as we have observed them in implementation to deliver the types of managerial benefits discussed above.) In this article we put forward. 'flexibility in suppliers' and 'performance benchmarking'. 'agreements'. the shift in budgetary focus has meant a concentration on 'outputs'. In relation to output and outcome specification and definition. First.154 Public Management Review • • • provision of clear and informed choices to buyers of goods and services. appropriate definitions of outputs and outcomes need to be agreed upon. Thus benefits are contrasted with the outcomes offered under traditional cash based budgets which focus on inputs and processes (Guthrie 1993). ANTICIPATED DIFFICULTIES AND SOME CONTRARY EVIDENCE We posit that notwithstanding arguments put forward by central agency protagonists in favour of AOBB and setting out anticipated benefits to arise from the adoption of such a system. we have reported elsewhere the immense variability in the adoption and maintenance of these in Australian AOBB implementations. rather than the traditional focus on expenditure aggregates. not effective management of resources is suggested to be the key goal.newly collected evidence about the high state of flux in which the AOBB system implemented in Victoria (an early adopter in Australia and often . see Cai-lin ajid Guthrie 2(S)01a. there are several key preconditions to success in practice. outcomes and performance indicators in actual implementations gives cause to question the degree of success with which this goal is being met. leading to better management and value for money. the adoption of'definitions for 'outputs' which are actually outcomes or the faijureto specify and attenipt to measure outcomes at alL Given that it is critical that outputs and outcomes be accurately and appropriately defined and measured. stable performance measures and indicators must be identified and implemented to support an effective feedback mechanism. 'outcomes' 'prices'. and the poor quality of many indicators adopted over time by public sector agencies (Carlin and Guthrie 200fb). Some brief examples of the types of difficulties we have encountered include a consistent blurring of the lines between measurable outcome dfefinitions and broad brush 'vision' statements. (For detailed case studies of these types of difficulties. Examination of outputs. a great degree of confusion about the basic mechanisms underpinning the accrual budgeting methodology. in which compliance. and reveals instead. Our continued review of this phenomenon suggests that no material improvements have been made over the past year. provision of a conceptually sound basis for internal and external resource allocation. Thus. and useful.

This can be largely explained by the fact that most of that department's output groups were centred on'project based work. department. Each successive year's data refer to the survival rate of observed output groups when compared against the portfolio of output groups used by each department in the base year.This explains why survival rates for that year are set at 100 per cent for eacli department. m.Siirviu^i.. For example. Notwithtstaniding this.g. health) carrying out relatively constant operational missions over time. unlike many other Australiati jurisdictions.iroups .fates in output.ost departments (e.the data' capture period — replaced with tiiew projects undertaken.by lie. TatiJe 1 : . The Victorian public sector provides a useful forum for study of this issue because. this. much of vvhich matured earlv in .Carlin & Guthrie: Accrual output based budgeting systems in Australia 155 held up as a role model for other jurisctions) has existed over the past four years.'This means that oui" data observations are not obfuscated by material departmental portfolio shifts.entation discloses the output groups used by each department as the basis for their internal budgetary management raodels. In each case. The Victorian budget funded public sector is arranged into eight main government departments. within the management and budgetary framework. sotue' degree of variation in output groups would be expected over time. Each of these departments has its budgetary arrangements set out and managed on an AOBB basis.* In. for a ranige of individraal outputs produced by agencies on an ongoing basis.Victorian liEidget funded public sector 1998/9-2001/2 1998/9 1999/2000 2000/1 2001/2 Education Human services infrastructure Justice Natural resources & environment Pr^imier & cabinet State development Treaaury & finance 100 100 100 100 100 100 100 100 66 82 100 70 100 81 100 100 66 63 0 70 58 54 33 100 33 63 0 0 33 18 33 100 . Table 1 includes data for output group survival rates for each VictO'riati government department from 1998/9 through to 2001/2. the collection of agencies for wMch budget data is individuallyTeported has remained essentially unchanged. organizational setting is no't the norm. the Department of Infrastructure exhibits a 0 per cent survival raite from base yeir plus twO' onwards. However.. erfecatioti. annual budget docum. interpreting the data contained within the Table. note that the base year in which observations were taken was the 1998/9 budget year. since tJie implementation of AOBB systems in 1998. . We argue that the degree of changeability in this top level placeholder is a meaxiingful indicator of the nature of a jurisdiction's AOBB system in practice. Each output group is a placeholder.

. Instead. can: i have been expected to have 'meaningfully" contributed. to enhanced public sector rnanagement. critical element of management'technique in previous budgetary regimes.needs to be more than an act of externa^l 'symbolism'. Due to space constraints and the very large amount data"^ we have gathered while conducting this highly detailed analysis. implyipg that the adoption of an accrual/output/outcome budgetary stance . perhaps even necessary..effect (Awty 3Q03). What we find inexplicable however. is the degree of change we have observed in the underlying data. simply because'the format and content of external buc^geti documents .must reflect an external. we havei. AOBB systems.. Face value comparability bleeds away to a profound . Rather. at least as implemented in Victoria. it was argued that one result would be a greater proximity between public sector and 'conventional' accountttig procedures. Where :an internal management shift does not take place. the notions of accruals/outputs and outcoiiies will need to pervade management culture in the same way that the focus on availahle cash resources has been a.156 Public Management Review In order to develop a more acute appreciation of the degree to which the AOBB framework across the Victorian budget funded public sector has experienced flux and volatility. All of this leads us to (question the degree to wbieh the'AOBB isystetft. Second. If change is to: be explained as the: artefact of a 'bedding down' process. announced a public hearing as part of its review of tbe effectiveness of the current budget docuixientation and options for enhancing its format and content. measurably improved orj^anizational economy^ efficiency or effectiveness. there is no reteon to expect. we posit that tbe rate of change should have slpwed as time from initial implementation lengthened. The Commonwealth Joint Committee of Public Accounts and Afidiit recently. than the headline rates of change reported iii'Table 1. let'alone. as a new budgetary system is put into operation. Hovrever. Further evidence of interest in these issues by various jurisdictions can be found in the report of the 2001 conference of the Australasian Council of Public Accounts Committees held in Canberra (AiCPAC 2001). open orientation. internal I'operating-str'Uctares . we are unable to report our fmdin.article. then explicit accounting guidelines will need to be adopted and disclosed. if improved transparency and accountability is to be a result of tbe adoption of accrual based budgeting.'' Yet it is becoming increasingly clear that tbis alleged prox.using:them to better''op'eratioual.changes. it is possible to drill down into the data to examine the rate of change in reported individual underlying outputs. it is possible to report that the level and rate of ch^tige of individual underlying outputs has been higher. Yet some evidence which has recently come to light in Australia suggests a groi^ng concern that managers and financial document users have difficulty in even understanding. Again. and more partictilarly.imity is a.Poiiqetn with budget papers is not confined to the ACT.we acknowledge that some degree of change would'be expected.. over the observation pei-iod. In the case of the implementation of accrual based btidgeting in Victoria.observed the rate of ickange Increasing.gs in detail in this. 'the i-atc df change. in order fOr the micro (management) level improvements to be realized.chimera. which has increased as we haveroLOVedfujfther away from the initial implementationj point. Third.

d constitutioniai problems could be changed via an act of parliarrtent and vTOuld not necessarily require a referendum. given tliat over time.a number of ..is .cash.appropriate an accrual (it would seem not). since cash is the resource appropriated by governments from the.is the. there is little consistency of opinion as.eaningless. measures. . and is certaJBly no't in keeping with 'conventional' noti. Again.questions as to the constitutionality of non-cash based appropriations.ons oif depreciatioin. to which 'accrual allocation' systems would in fact he constitutional. Aga. appropriated hy parliaineats: Can a parliament. Although such state base. wliich is'beiiig Carefully exa. there are . in our current accounting framewo-rk.supporting.earungfu. Put simply. the . w. comrnuriity and cash is the resource which drives the service provision process).l (wliich is uncertain. We suggest that this is one plausible explaBation for the fact that many large scale outsourcing initiatives undertaken by Australian public sector agencies have not yielded the sawigs mooted at the point at vi/hich the^ decision to outsource was made. capital charges. what is' th. pjurpose of separate capital allocation pro. given the traditional . and ttiis is so^mething.. The' idea iM highly' problematical. to them via cash funding for depreciation. it has been suggested in some quarters that the notion of accrual based funding is iitsell'nti. but see also Barton 1999).e role and.is mean that agencies will be provided with' cash .jurisdictions at present. for example.AOBB and . sfnce iJie :oHly true souixe of funds is cash. replacement cost methodologies dominate/Fhis has direct consequences for depreciation charges. cash required by agencies to replenish their operatijig capacity will have been provided. if appropriations are.Hiined'in'. into heightened cost estimates for public sector producers versus private sector alternative suppliers. FifA.urth.funding for their expected (budgeted) depreciation. Carlin 2000.the institutional factors at. through tiie . play in .grsimmeB. charges at tlie begiiirang of the budgetary cycle and be left to manage that cash as they se'e .in.hile in public sector settings. One key area in which a profound underlying difference is evolving between public and private sector financial measurement and financial reporting practices is in the field of asset valuation. Fo.Australia at present have conspired to emphasize the use of historical cost accounting for non-current assets by private sector entities (especially since lie coining into force of Australian Accounting Standard AASB 1041 for periods ending Septeniber 2001.parliamentary focus on .Cariin & Guthrie: Accrual output based budgeting systems in Australia 157 underlying lacuna between the substance of much of contemporary private sector financial reporting and that adopted by public sector entities.provision alternative was overcqsted relative tO' true cost. management mechanisms. and later). measures of organizational activity and efficiency such as turnover ratios and crude rate of return. or in reality can it only appropriate cash? Even if accrual based appropriations were possible and m. Further. and the apparent saviHjfs available as a result of' niieving to a 'cheaper' private sector alternative more illusory than'real. to take place on the bagis of'accruals' does th. these differences are articulated. we have previously published evidence to this effect (see.fit? If th. the public . case. We insist for exariiple.

. effectiveness of nnecljanisms put in place to ensure that agendas expend ca^h balances according to the will and desire of parliament — sometliing which was a feature of capital allocation systems under: cash based budgeting. There is no necessary nexus between the act of cost allocation and new investment. qiaestJonsneed to be raisedabout the. and that the change to AOBB as it currently stands in some jurisdictions is likely to be an act of symbolism rather: than a genuine change. subject to the errors inherent in the estimation procedures we employ. It appears that many aspects of the implementation of AOBB have not been fully debated. there appears to be a significant gap between the esltant rhetoric and the reality. As with many previous proposed (and implemented) shifts in public Sector managerial practice. and specific to certain implementations in the Australian context. Furthermore. At the same time. giveJi that this is under consideration in some jurisdictions.158 Public Management Review that depreciation is an allocation of the cost of using or consuming an asset's service potential. to the period when that loss or consumption occurred. something which imposes significant cost on the budget sector! but does not result in any matching gain. systems as implemented. there is no necessary nexus betDveeii ftill product (testing and future investment decisions. We have challenged these assertions on grounds both general to the adoption of AOBB systems. It is claimed that one reason for this is the superior quality of performance information generated via the output based budgeting system.e long term. the implementation of accrual output based budgeting also poses significant questions in relation to asset recognition and valuation as well as the management of the cost of capital.) Nowhere is it suggested that the depreciation charge is some type o f virtual' savings account itito which we deposit the necessary amounts for future investment. However. simply because of the axiom of organizdtional flexibility -.existed could arise. questions need to be raised about the effectiveness of cash management at an agency ^and more particularly whole of government level. but may not be a feature of accrual budgeting. even where they may have no present need or intent to invest. (Note that the use of the term measurement would not be appropriate in this situation. an undesirable situation where excessive unu$ed cash balances comnionly . CONCLUSIONS AND RECOMMENOATiONS FOR THE FUTURE Proponents of accrual output based budgeting have asserted that it is a management technology capable of substantially improving the efficiency and effectiveness of the public sector. cash is provided up front to agencies. If cash transfers to agencies were made vrithout explicitly matching those transfers to current needs.an agency's current asset base may be inappropriate or unnecessary in future operating environments and while the recovery of full costs (by including an overhead allocation comprising of depreciation and other costs) is necessary t© sustain aperating capacity in th. It therefore seems almost incoTOpreljensible that in some models of accrual budgeting.

there is little evidence that this is tJie case. It lierefore seems strange that the next Vreat leap forward' travels no further down the route of allowing governpients and stakeholders to assess the effectiveness and efficiency of government than the tool w.e movements of cash. However. and may not result in an economically accurate estimate being produced. quality of healthcai'e. a mechaillsn:! by which an implicit cost of capitai was expressly included in government cost aggregates qis reported in annual budget paper series (Carlin 2002).hich it is destined (in the schedules of some central agencies) to replace.Carlin & Guthrie: Accrual output based budgeting systems in Australia 159 Moves towards AOBB have been chai-acterized by a willingness to embrace change. outcomes. It is of course possible to contemplate situations where outputs are produced jointly by two or more agencies.ith tools wliidb concentrate so'lely on tb.). etc.n. was and remains questionable. oijce government agencies begin extensive contracting with private sector organizations. While cash based (input) budgeting systems have been argued to be a useful tool for the dischai'ge of parliamentary accountability (which may explain the length of their survival despite other obvious shortcomings).e. either \y\' internal operatives or IOT public cLCcountability purposes. This type oi situation presents diffic:ulties lor those who argue that the implementation of AOBB systems will yield clear insights into the full cost of production. exceedingly difficult tO' measure w. including. DTF. in the case of calls for the abandonment of traditional input based budgeting. the extent to which these periormance measures were actually useful. This suggestion has of course been contested. in Hong Kciiig in April 2003. since in joint produiCtion situations^ costs measured at ari individual agency level are by definition partial. often based on the assumption tliat pre-existing systems of accountability are in many respects inadequate. they often claim the cloak of commerda. importantly. as a result of their faith based approach to the impiementation and description of reforms such as AOBB (see Carliji and Guthrie 2001a). Other complementary and radical changes to the budgeting framework adopted alongside the Introduction of the AOBB syvStem in Victoria was the implementation of a capital charging regime.1 confidentiality to shield themselves from the types of transparency costs discussed in this article. As reported in sonnie of our pre'^ious published work however. Outcomes may be quantitative. where it was awarded the prize for the best refereed paper. there may be a degree of justiiication. NOTES 1 We have labelled these mtluentlal agencies 'evangelists' in some of our earlier work. and any attempt to ^gg'^^'g^te across agencies is accomplished only through some process of cost allocation/This will require a series of assumptions about source of cost.ent. ?4elboiirne. overhead burdens and so (. iiey are unable to capture informati. See Carlin and Guthrie (2001b). but in many circumstances will be qualitative (i. 2 3 4 5 6 7 . This article was presented at ttse Seventh International Synaposium on Public Managem. On this point see Barton (2002). and hence. State of Victoria.oo relating to the entire budgeting process. Often. Ironically. See DepartToent of Treasury and Finance (DTF) (1$98) A Guide to tbe Budget Papers.

9:2 pp22—31. pp50-~Sl. However. Geelong: Centre for Applied Social Research. Allars. This causes material differences in both the balance sheets and profit and loss statements of private versus public sector organizations. Australian Accounting Review.private sector organizations tend strongly towards the almost exclusive use of historical cost rnethodologies for asset valuation. J. Canberra: ACPAC. these data are not reported here. W. Victorian Commission of Audit (1993). Does this goal mean adoptiqti of relevant Austi'alian accounting! staiidards. cbanges were coded as non-stirvival. pttblic sector organizations have almost exclusively adopted replacement cost values. F. D. Australian CPA. (1993) 'Quasi Markets and the National Health Service Reforms' in J.currently have these data arranged into seventy-two separate tables. Cirliii (forthcoming) includes a detailed examination of the extent to which budget sector entities. London: Macmillan. L. certain descriptiojis of output grQtipS' were replaced in otie iperiod with output :group$ described in siiBiletr. A. oi) a small . or even tlie much tao-fe: amorphous concept ofGAAP (and If so. (1999) 'Public and! Private Sector Standards: A Case of Non Identical Twins'.4Cr. and renders extremely difficult any direct financial comparisons. November 2002. National Commission of Audit (1996). (1994) The Contmct State: Tuhlic Management arid the Kennett Governmmt. whose CAAP)? For reasons of lack of space. for example relative output costs. (2002) 'Accrual Accounting in Government: A Review of its Applications. Vi/l^ere mipor descriptive changes occurred. otlierwise. CPA Australia. All tlie data used to construct Table 1 were Arsvfn from the Victorian budget papers for each period in question. A. Awty. Dealdn University. However. An output group was coded as surviving from one period to the next if it continued to appear in each successive set of budget doctanentation. We. (199Sb) Reform in tbeACT Public Service:Yom Guide toWhat it Means. Bartlett. Alford. Acheivements and problems and proposals for Regions'. South Australian Commission of Audit (1994). Bartlett (eds) Quasi Markets and Social Policy. In tile Victorian experience. not to mention indirect compariscms. (2002) 'Hong Kong Moves On'. but not the same language in later periods. Barton. which are discussed in English et al (2000). and Harrison. exactly what those 'conventional' procedures incltide is not clear. Barton. Austrahan Capital Territory: Financial Management Reform Directorate. 2002 Annual Research Lecture in Government Accounting. February. Sydney: Angus & Robertson. Le Grand andW. . and O'Neill. M. Bland. (\997) Australian Administrative Law. Briefly.ftumber of occasions. Australian Capital Territory: Chief Minister's Department. this yfork dernonsjfates that while. REFERENCES ACT Treasury (1995a) Guidance Taper Number 1: Outputs and Output Classes Gaidelinesfor tAe .160 Public Management Review 8 9 10 11 12 Demonstrated for example by the NSW Commissjon of Audit (1988). or perhaps the IAS framework. though adopting 'accrual' accounting according to a largely similar set of accotmting tiorms as those which inform and guide private sector practice. Sydney: Butterworths. create sets of accounts based on fbndata'eiitiaJly Afferelit •valuation norms than tliose foitnd in the private sector. Australasian Council of Public Accounts Committees (ACPAC) (2001) Report of the 6tk Biennial Conference. February. these were interpreted as falling within the defiriition of 'survival'. (1946) Budget Control. Victorian Management Improvement Initiative (1993). see Carlitu (forthcoming). This coding task was largely devoid of any requirement for active or subjective judgement as' to whfether survival or tjon-^sur-rival appropriately described astate of affairs. A.

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