Accounting As Accountability in the Public Sector

E20-017 The three characteristics that distinguish public sector organizations from private entities and emphasize the need for accountability are objectives, ownership and funding. A private firm can measure its success by the profit it makes, as this is its major objective. This may be qualified by the reporting of achievement of secondary objectives, such as retaining a certain percentage of a quality market, employing people, reducing pollution or earning export dollars.
The public sector has different primary objectives to the private sector. These are a mix of the social, political and macroeconomic objectives. Matters such as jobs, interest rates, exchange rates, inflation, social property and public opinion can have an overriding claim on the attention of the government of the day. At an operational level, organizations are concerned with the quality, frequency, quantity and value for money of the service being provided.
E20-670 Of these operational objectives, only value for money can be measured in dollar terms, but it cannot be measured at all it the other dimensions of the service are not known. For example, was the service what was required, was it good enough, did it satisfy all the objectives? Simply reporting the cost of a service conveys no information about the service itself.
Accountability in the public sector is therefore a more complicated business than merely reporting on the bottom line profit. Each objective needs a means of describing it and a method of showing if it has been met. Such performance measures will differ from service to service: for example, what will measure the effectiveness of sewage disposal is obviously not appropriate for reporting the performance of the diplomatic crops. These measures are reported to public sector stakeholders by means of annual plans and statements of service performance. The need for measures of non-financial performance does not apply so much to the profit seeking parts of the public sector.
In the private sector, most firms are owned by the individuals who have chosen to adapt this role and who will demand access to information about their investments. In the public sector ownership is involuntary - everyone owns the public sector, whether they want to or not, and cannot individually sell their ownership. This global, non-selected ownership creates a greater need for accountability.
E20-820 In the private sector, expenditure is incurred for the purpose of generating income. For example, marketing expenditure and warehousing costs are incurred in order to produce revenue. By contrast, the source of income for the public sector are largely unrelated to expenditure. Most of the taxes and rates levied are unspecific - not intended to pay for particular services. Other income sources, such as rents, sales, fees and part charges, may relate to the service being provided.
Because of the nature of the services provided, receipt of public sector services can be invisible, reluctant or paid for by someone else - or even another generation. For example, tax can be used to prevent air pollution (which the taxpayer may be unaware of), used on defence or spent on hospitals (yet the tax payer may always be healthy).