Behavioral aspects of government financial management
The Authors
Mortimer A. Dittenhofer, Florida International University, Miami, Florida, USA
Abstract
Financial management in government is unique because of the basic differences between the
operation of organizations in the public and private sectors. Regardless, financial management is
conducted by people and people react differently because of these unique characteristics in
government operations. These basic differences are identified and described and their impact on
managers and accountants are presented. Motivation and the management of change are given
emphasis as are the factors that tend to improve productivity in the government financial
management operation.
Article Type:
Technical paper
Keyword(s):
Government; Financial management.
Journal:
Managerial Auditing Journal
Volume:
16
Number:
8
Year:
2001
pp:
451-457
Copyright ©
MCB UP Ltd
ISSN:
0268-6902
Introduction
Financial management in government as well as in industry is becoming more mechanized as we
develop sophisticated electronic equipment that produces information, assembles it, edits it,
analyzes it, and in many cases stimulates action guided by artificial intelligence. Other nonpersonal devices and operations conceivably replicate the ideal in each of these processes.
These mechanical systems, however, are at the beck and call of government financial managers
who, in the long run, are charged with the responsibility of efficient, compliant and effective
operations. Their constituents are not content with sophistication in decision-making unless it
produces good governmental operations and benefits for the customers, the electorate. We must
also keep in mind that government today has a visibility unheard of a decade or two ago.
The result of this state-of-the-art management information process must be evaluated by human
financial managers and arrayed against their arsenal of experience, professional expertise,
judgment, and instincts. These qualities in the end are based on underlying behavioral
relationships resulting from education, background, and basic human reactions to stimulants
introduced by the situations and environmental conditions described by the sophisticated devices
of the accounting and management information systems. Thus, the government financial
manager is a captive of a mass of information and mechanical guidance on one hand and of his
or her basic instincts and his or her experiential patterns of operations on the other hand.
The basic concept of psychology is that it is the relationship between an individual and his or her
environment. This relationship is based on a series of reactive attitudes to stimulus, in this case,
supplied by the grist of the information systems. So, no matter how hard we try to mechanize the
government financial management system, in the end it has to transverse the human interpretive
tunnel that is permeated with the basic behavioral climate and structure that is present in all
mankind – though admittedly, to differing degrees.
Thus, we hope to see how these basic behavioral phenomena serve to filter out the mass of
information, and to help indicate the direction to which the government should proceed. Much of
the material is taken from two basic governmental works. The Application of Government
Accounting Principles and Applying Government Auditing Standards, both published by
Matthew Bender. Material is also abstracted from the behavioral chapter in Sawyer’s Internal
Auditing published by the Institute of Internal Auditors. The writer is closely associated with all
three of these sources and has considerable freedom to use their content.
Behavioral aspects of government financial managers
The government financial manager must be responsive to a series of differences in operations
from those in the private sector[1].
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The public official must serve a government that is a creature of law and that can do only
what the law provides, unlike the private sector, in which an organization generally can
do anything the law does not prohibit. This restriction can cause inflexibility and
resistance to change on the part of government officials.
There is a general fear of visibility. The government official is more comfortable in
obscurity; visibility is pounced on by political opponents, peer adversaries, and the media,
and can be uncomfortable for the official and can adversely affect tenure and
advancement.
There is resistance to change. The public official generally is comfortable with present
methods, even when inefficient, since change tends to be disruptive. Changes made to
enhance an already adequate operation can be misconstrued to indicate that previous
methods were faulty.
Fears of encroachment into one’s area of authority can result in “turf conflicts.” Since
government salaries are related to financial and physical measures of responsibility,
rather than to managerial ability, losses of personnel, facilities, or resources can adversely
affect the individual.
The top echelons of government are composed of fixed-term appointed or elected
officials. These officials frequently owe allegiance to nongovernmental groups and are
interested only in short-term results, resulting in resistance to change from the career
professional bureaucrat.
These are significant operational differences between the public and private sectors (Eddy, 1981,
pp. 7-10).
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Performance criteria. The private sector has customer satisfaction converted into profits
as a measure of performance. The public sector tries to use efficiency, effectiveness, and
conformance to budgets as performance measures. These criteria are subjective and,
therefore, difficult to measure.
Accessibility of government decision-making to external influence. All government work
is open to the public, to interest groups, and to the media. Businesses, except in directors’
meetings, can operate in reasonable privacy. Thus the public official may be responding
to conflicting priorities and values.
Conflict between government policymakers and administration. Elected officials usually
make policy, and the administration carries it out. These two groups generally have
different goals and objectives, respond to different interests, and are rewarded for
different functions.
The employment contract. Patronage and civil service systems in government reward
employees for political activities or seniority rather than for efficiency and productivity.
Intense scrutiny by the media and public-interest groups. Since government resources
come from the public in the form of taxes, the government is fair prey for the media and
public-interest groups. Government officials thus exert much time and effort in protecting
themselves, which is usually counterproductive to innovation and risk taking.
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Emphasis on stability and reliability. The emphasis in government is on reliability,
accountability, and legality rather than on maximum effectiveness and flexibility.
Emphasis on fast and visible demonstrations of progress. Long-range planning is often
sacrificed in government organizations because of the election process, the need for
political support, and the need to show short-term accomplishments.
Atmosphere of control and mistrust. Since the government worker is subject to strict
controls designed for the lowest common denominator in capability and trust, the capable
and trustworthy employee may conform to these low expectations.
Difference in status. Working for the government is, in many ways, considered a lowerstatus occupation than working for private-sector organizations. This situation is a morale
problem in many government agencies.
The consideration of these factors is important, because they describe a series of unique, personal
problems that affect the attitudes of government officials. The government manager is not only
responsive to the usual personal and group behavioral pressures, but also influenced by reactions
to many of these factors.
Management accounting systems do not function in a vacuum; they are created, designed, and
operated by people, and are used by them for various managerial functions. Thus, these systems
directly and indirectly affect many people. They provide information, in terms of economics,
finance, and output, about the operational aspects of events in the public sector and an overall
view of the economic condition and status of public-sector entities.
Managerial accountants in government should consider the behavioral aspects of managerial
accounting:
By systematically analyzing the relationships between accounting systems, other forms of
control, and human attitudes and decisions, the social and behavioral sciences can focus our
attention not only on the underlying conflicts and contradictions which characterize so many
accounting problems, but also on the undoubted organizational and social potential of accounting
itself (Hopwood, 1974, p. 4).
A different approach in identifying the importance of the behavioral aspect of management
accounting, which is now normally a part of the government accounting process, is exploring
how management accounting information influences behavior:
in all of the various stages of the management process, including: (a) the setting of goals; (b)
informing individuals what they must do to contribute to the accomplishment of these goals; (c)
motivating desirable performance; (d) evaluating performance; and (3) suggesting when
corrective action should be taken (Caplan, 1971, p. 3).
The use of government management information
Although computers can be programmed to react automatically to variations between standards
entered into the system and the accounting manifestation of current condition, people must
analyze a management accounting report to start some type of operational reaction. These report
observers, public-sector managers and officials, being human, react to the behavioral stimuli to
which all humans react – motivation, perceptions, resistance to change, and reaction to stress and
conflict. Thus, the mental state of the report reader largely determines the action taken after
considering the report or whether the report is considered at all. Therefore, management
information must be presented in a manner that promotes its reception by its users.
How can government accounting be changed to conform to the many configurations of
behavioral aspects of the readers and users of financial statements? Can generally accepted
government accounting principles (GAAP) be modified to conform to motivating managers who
are most receptive to the self-actualizing motivational drive? It is possible to substantially
improve government accounting systems to make them more responsive to human interaction.
The recent position of the USA Government Accounting Standards Board in GASB 34 requiring
dual (accrual and modified accrual) reporting in the USA is a step towards more descriptive
information. The traditional government accounting system normally is designed to respond to
the accountability demands of society, and not to assisting in the achievement of more efficient
and effective uses of the public resources. The current systems of government reporting certainly
provide information that could motivate any public official to operate honestly and, thus, to be
responsive to the basic human instinct of self-protection. However, government accounting
systems should be designed to stimulate improved performance or to respond to the needs for
decisions in the effective planning and organizing aspects of government.
The government accountant or designer of a government managerial reporting system must
answer some basic questions about the needs of report users to present accounting statements and
reports that provoke a positive response from their readers:
1. Who are the users of the information?
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What is their background and experience?
What is their sophistication in handling information? In decision-making?
For what are they accountable?
What is their visibility to the public?
How are these people motivated, and what is the strength of the motivating drives?
1. What information is needed?
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What level of detail is necessary?
Is comparative information needed?
Are standards available?
How should the information be structured? By program? By organization? By function?
By object?
1. How is the information to be used?
2. How often should information be provided?
3. What type of management philosophy is being used?
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Autocratic?
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Supportive?
Participative?
Collegial?
1. What are potential adverse reactions of government groups?
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To workers being measured by standards?
To officials being measured by budgets?
1. What are the potential rewards for success and punishments for failure?
Answers to these questions, and to others that the provider of management information
anticipates as important, help to set the parameters of the government reporting systems’
structure.
In the design of the government management reporting system, the accountant must include
reports that conform to the needs of the governmental report users. The accountant should forego
traditional theories about financial reporting, and, if necessary, should compromise conventional
ideas of limiting reports to pure financial reporting. Only in this manner can the system produce
reports and information that government management will use, because the reports and their
content are perceived as responding to their needs.
Basic assumptions about government accounting
To understand the environment in which the government management accounting process
functions, it is necessary to uncover the assumptions that affect the record provider and the
government manager:
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assumptions about organization goals;
assumptions about participants’ behavior; and
assumptions about management’s behavior management[2].
1. Organization goals
2. The assumptions about organization goals include:
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Legislation, regulation, or directives prescribe organization goals. When these goals are
obscure, they are identified by accountable officials. There may be announced goals;
however, the intended goals may be secondary or the result of achieving the announced
goals.
Organization goals may be subverted to the goals of a dominant member of the
organization, or subject to constraints imposed by another member of the organization or
by the external environment.
In modern government, there is no single organization goal. The organization has other
formal goals, usually related to the area of the original goal, for example a fire
department puts out fires but it also prevents them.
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In the modern government organization, the formal goals of the total organization tend to
be subjected to subversion by attention to the goals of the composite units. The
procurement operation, for example, may be more interested in efficient purchasing
procedures than in accomplishing its parent’s mission.
Qualitative goals in government replace the profit characteristic of the private sector.
Thus, the government’s goals are to be accomplished as efficiently and effectively as
possible.
It is presumed that accomplishment of unit goals will be conducive to the
accomplishment of the total organization’s goals.
1. Participants’ behavior
2. The assumption about the behavior of participants include:
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1.
2.
3.
4.
5.
Organization participants are motivated by a wide variety of psychological, social, and
economic needs and drives.
The extent of an individual’s participation varies directly with the expectancy of the
achievement of his or her individual goals.
The efficiency and effectiveness of human behavior and decision-making in the
government organization is constrained by:
– the ability to concentrate on only a few things at a time;
– limited awareness of the environment;
– limited awareness of alternatives and their consequences;
– incomplete and inconsistent preference systems; and
– limited information about the situation or information overload.
1. Management’s behavior
2. The assumptions about the behavior of management include:
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The manager in government operations is accountable for managing government
resources honestly, efficiently, economically, and effectively.
“The management role is a decision-making process subject to human rationality and
cognitive ability” (Caplan, 1971, p. 40).
The manager is influenced by motivational needs and other behavioral influences that are
described in this paper.
The essence of management control and power is that acknowledged by other participants
when they accept the authority of management. This willingness may be unstable.
Although responsibility and authority are assigned from above, responsibility must be
accepted from below to be effective. Thus, there is no precise relationship between the
manager and the managed.
Motivation
If someone were asked, “What makes the organization function?”, the answer would, without
question, be “motivation.” This dynamic aspect of our daily activities receives the praise or the
blame for most everything that happens, good or bad. Government operations are no exception;
in the government arena, however, some complicating pressures or constraints modify the basic
drives.
Motivational drives and emotions cause a person to react in a certain fashion. In some cases, the
reaction is automatic – for instance, when physical safety is threatened. In many cases, it is a
cognitive action – the person reacts in a way that his or her emotions indicate will respond
positively to the person’s motivating drives. The motivating force may not be identified by the
person as a motivating drive. It is a feeling that the person has to satisfy – a need, sometimes
perceived, sometimes merely felt.
In general, modern motivation theory began with Abraham Maslow, a clinical psychologist.
Maslow (1954) identified five needs:
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5.
physiological;
safety/security;
social/affiliation;
esteem/recognition; and
self-actualization.
The physiological needs are those basic to human survival, including food, water, warmth, and
reproduction. The safety and security needs are the drive for physical and economic survival.
While the physiological needs are inherited, the safety/security needs are learned responses.
The social or affiliation needs include love, belonging, and intimacy. They include being a part
of groups at work, school, church, neighborhood, and family.
The esteem/recognition needs include the desire to excel and to be recognized for it. The selfactualization need represents the fulfillment of one’s ability to do activities that are enjoyable for
pleasure and for self-satisfaction, and not because it is required to fill a lower need.
These needs vary in intensity from one person to another and with one person from time to time.
Although the needs generally are considered as being accommodated in order, there are times
when a lower-level need, such as physical or economic security, may be overridden to perform
an act that brings esteem or recognition.
Diagnostic procedures for improving productivity
Government financial managers can use diagnostic procedures to help develop a motivational
strategy for improving worker productivity (Nadler and Lawler, 1981, quoted in Eddy, 1981, pp.
48-59):
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Find out what outcomes each employee desires. Use the theories of motivation, observe
behavior, and conduct interviews.
Establish a definition of the performance sought.
Ensure that the expected kinds and levels of performance are attainable and are perceived
to be so.
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Make clear and explicit links between the workers’ desired outcomes and desired
productivity. Develop goal congruence and a system of rewards that is perceived by the
workers as fair.
Ensure that there are no subtle conflicting expectancies in the situation resulting from
peer pressures or other organizational duties.
Check the strategy to ensure that it does not cause inequities.
The designers of government management record systems can use these procedure as a guide to
develop a scenario for the use of governmental management reports.
Relating accounting systems to motivation and behavior
Bentson (1972) summarized several items of research on motivation and accounting and
formulated a series of important findings: the philosophy can be applied to the broad government
financial management operation.
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Accounting systems encourage decentralization within the organization. Decentralization
has motivational advantages.
Decentralization assisted by accounting reports provides closer control by managers.
Accounting reports and budgets serve as a reliable means of communication about goals
and progress toward achieving them.
Accounting based on the smallest areas of responsibility becomes the fundamental
building block of the accounting system. This process allows a wide span of control and
operating decisions on a decentralized basis.
Assigning costs to the responsibility areas tends to motivate managers.
Budgets have different impacts on managers: implicit budgets have best performance;
medium and high budgets result in close achievement because of the challenge; and low
budgets – attainable but not too loose – result in lower performance.
The timing of receipt of the budget is important. Receipt before setting aspirations is best.
Budgets should be used to raise the manager’s level of aspiration, rather than to
communicate the top manager’s goals and decisions. The first objective benefits
performance.
Manipulation of budgets and reports by accountants to give false information about
performance is potentially dangerous and expensive. It is divisive and could result in
distrust of the accounting process.
Accounting reports give managers knowledge of their performance:
1. – Knowledge of performance increases motivation.
2. – The more specific the knowledge, the more rapid the improvement and the higher the
level of performance.
3. – The longer the delay in the accounting reports, the less efficient the knowledge
becomes.
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Overemphasis of goal-oriented cost reports becomes dysfunctional. The manager tends to
reduce discretionary expenses, and falsify inventories, to score higher rather than to
manage better. The proper emphasis is difficult to attain.
Managing change
All action results in change, and resistance to change is one of the constraints that works against
motivating forces. If one could visualize these two forces at work, the motivating force would be
pushing forward and the reluctance to change would be resistance causing inertia or the pulling
back of a countervailing force. Thus, in designing government accounting to motivate the
government manager, accountants must consider that the manager may resist change. Some
managers seem to want change – sometimes for its own sake. In this case, the information in
reports could be used to inhibit change, though that seems improbable.
What are the forces that cause the government financial manager to want to maintain the status
quo and to resist the changes that the reports imply should be made, or that his or her own
interpretation of the report and professional judgment dictate should be made? These forces
include (Sayles and Strauss, 1966, pp. 303-7):
1. Economic:
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fear of loss (i.e., job); and
fear of a reduction of the economic value of a person’s position, skill, and experience.
1. Inconvenience:
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the requirement to learn new work;
the possibility of having to relocate;
the reluctance to change one’s habits and usual way of functioning; and
the expenditure of energy in having to accommodate a new routine.
1. Uncertainty – the fear of the unknown:
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new methods;
lack of factual information; and
new supervision.
1. Symbols: changes in details that have been accepted as standing for qualities with which
one is comfortable and, usually, about which one is proud.
2. Threats to interpersonal relationships:
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threats to status or to socially developed skills or prestige;
requirement to work with a new set of supervisors and employees; and
reduction in the opportunity to exert leadership, formally or informally.
1. Resentment toward new orders and increased control: change requires more orders and
more control until it is accomplished. This situation frequently causes resentment and
resistance.
Resistance to change can be reduced, though the social psychologists say that it can never be
completely overcome. The methods suggested include (Sayles and Strauss, 1966, pp. 310-20):
1. providing economic incentives;
2. using two-way communication;
3. using group decision-making –
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unfreezing attitudes;
setting new standards; and
gaining commitments;
1.
2.
3.
4.
bargaining;
handling symbols;
making changes tentative; and
making changes slowly.
Some functions of the government reporting process can assist in overcoming the resistance to
change. The language used in financial reports should be positive – for instance, the difference
between government revenues and controllable expenditures could be titled “contribution to
noncontrollable expenditures/expenses.” Thus, changes made to achieve greater contributions
would be considered desirable.
When standards or budgets are used, the report recipients (the government operating mangers)
should take part in their development. Then the changes can be made in the planning stage, when
managers have a hand in the decisions process. Reports should have a section for the comments
of operating mangers so as to achieve two-way communication and to provide the manager the
opportunity to be the first to suggest the changes that in all probability should be made.
Accounting should provide “what if” types of reports. When changes are seen as a possibility,
the accounting arm should clarify the projected economic results by preparing pro forma
statements of the probable outcome. When these pro forma statements are prepared, the language,
titles, and account classifications should enhance the changed operation to overcome the
resistance to perceived loss of status, symbols of power, or leadership.
Before-and-after comparisons also should be prepared to clearly show areas of accountability
and responsibility, controllable costs, and contributions, and not only the excess of revenues over
costs or expenses. Moreover, reports should be footnoted to ensure comprehension, and the
language used should be simple and understandable.
The government accountant should be aware of the previously mentioned constraints against
change and should structure accounting reports so that the reports themselves do not become an
issue, but, instead, encourage change in the interest of achieving individual and organizational
goals.
Conclusion
The discussion of motivational behavior for government management reporting can be
summarized as follows:
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Design accounting/reporting systems to assist the government manager in
accommodating his or her motivational drives in the three highest motivation
classifications: social/affiliation; esteem/recognition; and self-actualization.
Attempt to determine the general outcomes that the government manager desires.
Inform the government managers of the government organization’s desired outcome.
Develop reward systems that are considered reasonable and fair.
Maintain a follow-up system to ensure that the government accounting/reporting system
is functioning.
Decentralize the reporting to the lowest managerial level possible. This suggestion
presumes that the organizational structure is also so decentralized.
Employ the concept of responsibility accounting.
Provide budgets that encourage the manager’s motivation and high performance: implicit
as to definition; and early receipt – before the manager sets his or her aspirations.
Provide accounting reports that motivate by: disclosing performance relative to the
budget; containing specific information; and being received promptly.
Design reports that emphasize overall performance, even that resulting from discretionary
expenditures, such as low deadline time of equipment caused by good maintenance.
Notes
1. The list of unique aspects of government are those used by the author in lectures,
augmented by ideas obtained from Eddy (1981).
2. Caplan, 1971, pp. 34-44. Some of this material is paraphrased and augmented.
References
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