Improvement of local government financial management systems
Why
In most countries, the current level of government services and provision of additional services will
only be affordable in the future if the effectiveness and efficiency of the local government administration is continuously improved.
Increasing attention is therefore paid to concepts like value for money, accountability and openness
and it is crucial that the financial management systems is improved, so more services can be provided
for the same money.
What
Programmes of local government administration have to be launched and supplementary initiatives
taken to improve financial management in general and productivity and effectiveness in particular.
Financial management entails the processes and actions by which managers (political and administrative leaders) assure that resources are available and used effectively and efficiently in the accomplishment of the organisation’s objectives.
The principal components of local government financial management are book keeping, accounting,
controlling and auditing, but budget preparation and implementation, financial planning, expenditure
management and development of good information systems are, however, also important for the improvement of the financial management in a broader definition.
Further, the prevailing approach to financial management often gives a risk that financial management
and the financial department become isolated in the organisation and diverges from the process of
service production and the overall management of municipal affairs.
To prevent this risk experiences show that the overall process of financial management should be
broadened and also focus on management of results and management of the organisational capacity.
How
The improvement of local government financial management systems in the local governments should
start with a review of the existing systems, processes, the organisation and the legislative framework.
The review should include international benchmarks as background for the assessments.
The local government financial management systems can be improved by concrete projects e.g. in
budgeting, accounting, revenue management and enhancement, contracting out, improved audit
systems. Projects can include elaboration of handbooks and manuals for the staff in the financial departments and for politicians.
It is also important to move towards an output based system, i.e. introduction of performance budgeting and auditing to ensure that as much service as possible is provided for the available finance.
A brief illustration
In 2008 and 2009 LGDK reviewed the financial management in the two largest municipalities in
Bhutan and supported the development of a Municipal Finance Policy (MFP) for them and other
emerging cities. The policy deals with all aspects of municipal finance from budgeting to accounting
and audit. It is designed to create more autonomy for the municipalities, enhance their possibilities for
revenue generation, develop better and more transparent financial management and direct municipal
activities towards service delivery.
To develop the policy in Bhutan an assessment was carried of the existing situation for financial
management in the larger municipalities and an extensive list of recommendations listed for immediate
implementation.
The draft MFP was developed based on the assessment and international best practises in close consultation with all stakeholders. The MFP covers all elements of municipal finance – budgeting, revenues (property taxation, fees and charges), expenditure management, budget execution, accounting
and audit. It was presented in several seminars and adjusted subsequently based on the comments
from the stakeholders.
For the financial management part, the MFP specifies in particular procedures for municipal budgeting
and budget implementation and proposes implementation of a new and much better accounting
system with an integrated computerised system in Navision 5.0 developed by the Danish Municipal
Data Company. The integral solution can also handle municipal revenue management.
The MFP will in 2010 be presented by MWHS to the Gross National Happiness Commission and the
Cabinet for their approval so it can be implemented fully.