Category: Accountability

Introduction

There is an emerging trend in large and small companies around the globe on sustainability reporting since the “early part of the 1990’s, when it became the focus of academic and skilled accounting” (Lamberton, 2005). This trend is a result of more people becoming aware of the importance of sustainability development and the benefits and impacts it brings to businesses and society at large. Additionally, sustainability is becoming a way of life mainly in developed countries as businesses endeavour to be responsible and sustainable at the same time (GRI, 2015). The thrust of this case study will focus on sustainability, accounting and accountability and on the social and environmental impacts of human activities around the globe by analysing the 2018/19 Sainsbury’s Group PLC sustainability report. From this premise, a theoretical framework for analysing the place for sustainability development as a galvanising ethos in multiple policy frameworks and its pivotal role in a variety of scales (Bebbington & Larrinaga, 2014) will established.

The case study will also explore and discuss the misconceptions and arguments on public accounting practices as a form of corporate self-reporting and explain systematic failures to open up substantive critique. Spence (2009) posits that “rather than rendering transparent the contradictions within capitalism, corporate social accounting primarily obfuscates these”. The case study will further advance accounting and academic theories such as agency, legal and stakeholders and the Global Reporting Initiative, AA100, ISO2600, SA8000 frameworks, focusing on different aspects of the Sainsbury’s Sustainability report. Furthermore, literature on sustainability development and reasons why most business reports on sustainability are deemed unsustainable will be utilised. Lastly, the essay will explore sustainability, accounting and accountability with the main focus of linking them to theories highlighted within the Sainsbury’s Sustainability Report.

Sustainability is a complex field with a lot of uncertainties and everyone has a part to play to avoid unforeseen circumstances in the next decade or so (Holland & Wielgus, 2013). For example, breathing air, food, global warming, carbon foot print, waste and environment impact, including the social aspect of life. All these factors have to be looked at in detail when analysing and reviewing sustainability development. The European Union (EU) defined “corporate and social responsibility as a concept whereby companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders on a voluntary basis”. This definition shows that in order to be sustainable, global partnerships must be maintained with other nations, and all stakeholders are to be educated by utilising technology and available sustainable learning tools. The United Nations (UN), for example, developed 17 Sustainable Development Goals (SDGs) and set a target to be achieved by 2030. The SDGs include “no poverty, no hunger, good health and well-being, life below water, responsible consumption and production etc.” (UN, 2015).

All the above goals can be adopted by Sainsbury’s Group PLC as one of the big four retail supermarkets in the United Kingdom. There has been negative press on large organisations that outsource their operations to less privileged countries where they pay workers salaries that still put people in poverty. The research by the United nations revealed that approximately half of the world’s population live on a salary of about $2 a day. Hence, there is a need for societies to create decent working environments to ensure that poverty is eradicated. The Business World Council (BWC) defined sustainability development as, the commitment of a business to contribute to sustainable, economic development, working with employees, their families, the community and society at large to improve their quality of life’The BWC places much emphasis on stakeholders, a theory that can be applied in this case study. This theory looks at those stakeholders who have a direct influence on decision making or affected by the organisation. According to Deegan (2014), stakeholders were divided into primary and secondary. In simple terms, primary stakeholders are the owners of the business or those who ensure that the company will continue operating on an ongoing concern basis whilst secondary stakeholders are defined as those who influence or affect, or those who are influenced or affected by the organisation. This shows that in order for organisations to be successful and act sustainably, they must ensure that all stakeholders that have an interest either directly or indirectly get involved in one way or the other in order to attain the complex issue of sustainability development.

Stakeholder theory looks at the power and interest that each stakeholder has. For example, shareholders have high power and interest in the businesses and wants to get all the positive returns of their investments and employees have less power and interested in the business for job security. Care must be taken not to dissatisfy to third parties like the government, trade unions and NGOs and they might either promote or negatively impact the reputation of the organisation (Geegan & Unerman, 2011).

Likewise, the World Commission for Environment and Development (WCED, 1987, P54) views sustainability development as development that meets the needs of the present, without compromising the ability of future generations to meet their own needs. This definition has been used interchangeably with corporate and social reporting. In exploring the WCED definition, it becomes clear that every decision that we make now has either a positive or negative impact to present and future generations. A study of the Sainsbury’s 2018 update on sustainability shows a reduction in the clothing carbon footprint by over 8,600 tCO2e and saved over 11 million m3 of water since 2012. However, there is still more work to be done as most of Sainsbury’s products where not sustainable and certified by environmental standards. In criticising sustainability reports within businesses, it is not mandatory for every company to produce one, and these reports are not audited. As a result, companies tend to cherry pick the areas of interest to their stakeholders so that they are seen as being socially and environmentally sustainable. The more interesting definition of corporate social responsibility comes from Horrigan (2002) who postulates that “a responsible corporation is one which produces and sells only safe and beneficial products; does not accept government subsidies or special tax breaks, provides secure jobs and a living wage, fully internalises its environmental and social costs, and does not make political contributions or otherwise seek to advance legislation or policies contrary to the broader public interest”. This is more relevant to Sainsbury’s as a retail supermarket. There must be an understanding and integration by all stakeholders from the inception of the product to the final output, and all the production process must be done through sustainable means to ensure the present generation does not consume everything now without looking to the future and taking into consideration the risks involved. This is why the UN came up with their 17 SDGs to ensure that no one is disadvantaged by 2030.

On the other hand, accounting is the process of identifying, Measuring, recording, processing and communicating information to users of the business. Using Sainsbury’s report. Sainsbury’s Annual financial statements report has been prepared in accordance with the International Financial Reporting Standard (IFRS), International Accounting Standards (IAS), United Kingdom (UK) Company Act 2006 and Generally Accepted Accounting Practice (GAAP) in line with the UK company law (Sainsbury’s Annual Report, 2019). Accounting is linked to accountability. Deegan (2014) defined accountability as a duty that must be rendered by those appointed to run the affairs of the business on behalf of the third party and then give a report on their findings to those that have an interest either directly or indirect to the business.

For example, the Sainsbury’s annual reports were directed the shareholders of the business appointed to run the company on their behalf with the aim of maximising shareholders wealth. It is well known that, the aim of every business is to make maximum profit on every return invested and to ensure that the business is running on a going concern. However, shareholders do not put all their reliance on directors due to the fact that directors have their own personal interest in enlarging their profile and ensuring that they receive their bonuses when due. Hence, auditors are appointed by the shareholders who act as independent agents to the company and analyse the financial statements of Sainsbury’s in accordance with the IFRS, IAS and UK accounting standards and then report their findings back to the shareholders with their opinion as to whether financial statements prepared by those directed show a true and fair view and that the company will continue to operate in the foreseeable future. This theory is known as Agency Theory. Sainsbury’s have applied the agency theory effectively on its financial statements but unfortunately it is not clear who has reviewed or audited its sustainability report. All committee members are employees of Sainsbury’s and there are no independent members to suggest that Sainsbury’s sustainable report has been prepared in accordance with the Global Reporting Initiative as the main guideline framework for sustainability reporting. This is why organisations are seen to be a form of corporate self-reporting on sustainability as stated by Spence (2009). Needless to say, organisations cherry pick the areas of interest or current hot topics on sustainability so that the businesses are seen to be sustainable.

Being a voluntary report (GRI Framework), sustainability is not transparent and this can be explored further buy looking at the triple bottom line reporting (Sridhar, 2012). This theory explains that organisations will be acting sustainably and seen to be sustainable by stakeholders if their focus is on the Profit, People and Planet. Profit looks at the overall aim of the business which is to get a positive return on shareholders investments and this attracts potential investors. Whilst people is concerned with the social aspect of life for all stakeholders such as employees, trade unions, equality of life and gender issues and lastly the environment we live in to ensure that it is well looked after for future generational benefits (Deegan, 2014).

Sainsbury’s report has highlighted the benefits and negative impacts on sustainability reporting. The Chief Executive Officer of Sainsbury’s Mike Coupe alluded to the values they stand by that in order to be champions in the retail business, they must have a positive impact nationally and internationally with all their partners to build a sustainable future (Sainsbury’s Annual report, 2019). They have also stated that in their report Accounting for Sustainability (A4S) that their value is to remain competitive with their main rivals, have a strong brand awareness and by being efficient and effective in applying sustainable approach which leads to better integration with other stakeholders across the globe. They have adopted a prioritisation approach to tackling sustainability issues by looking at three key areas namely total impact, full business values and system thinking. This approach looks at the High Low method on value creation, business protection and also importance to shareholders and potential for sustainable impact (A4S). This type of approach is very questionable and imbalance. For example, if there is a sudden shift of sustainability impact to the environment and society after the report has been made, the reputation of the Sainsbury’s Group PLC will be held to account. This is why (Gray, 2010) stressed that “is accounting for Sustainability actually accounting for sustainability…and how do we know?”. The other thing is that been one of the large retail business, competition is very high and not intellectual capitals (Deegan, 2014) will be disclosed as competitors my carry out reverse engineering.

It is good to see that Sainsbury’s has taken full use of International Integrated Reporting Council (IIRC) as a guiding principal in their business. The IIRC looks at the six capitals that are connected namely Manufactured, Intellectual, Human, Social and Relationship and Natural Capitals (Barry Elliott and Jamie Elliott 2017). These capitals play an important role in sustainable value creation. An example here shows how these are linked, if human capital is misused, it will have an adverse impact on the environment and the reputation (intellectual capital) of the company will be at risk and in turn the brand or image of the entity will be affected. This in turn will have a negative impact on the financial capital the shareholders in generating their return and will put away potential investors. IIRC will also help Sainsbury’s in using Integrated thinking in effective decisions making and how they compete with there rivals. However, both integrated framework and GRI are voluntary guidelines and organisations have options to report on areas that they are doing well, where this is seen as self-reporting (Spence, 2009).

On the other hand, Sainsbury’s have highlighted the key importance of sustainability in their business which include, obeying the law, building their brand, to be commercially viable by cutting down on energy use and abnormal costs, attract talented people to enhance their brand image, attract potential investors in moving the business forward and to be resilient on their values that brings sustainability. They also joined The Prince’s Accounting for Sustainability Project (A4S) in 2006 to ensure that financial leaders were inspired so that they can make informed financial decisions-making to matters that affected the social and environment factors. In the report, the Sainsbury’s CEO stated that there is still a lot to be done and the business had no clear goals and understanding on what long term goals on sustainability meant to the organisation. Sainsbury’s are also seen to be adapting the 17 United Nations SDGs. However, the last UN Climate Conference held in Madrid, on 02 December 2019, called “the Conference of Parties 25 (COP25) attended by over 30000 people”, and reported by Channel 4 News highlighted a shocking revelation on tackling climate change Channel 4, 2019). The UN Secretary General, Mr Antonio Guterres asserted that “we are now confronted with global failure” and some people think that 25 years of sustainability has resulted into 25 years of failure. At the same conference, it was discovered that not all the report and information was openly disclosed as it was considered to be highly sensitive. Therefore, it makes it difficult to ascertain sustainability implications without fully disclosing information to the general public for a big institution like the UN. Another example is the speech by Prime Minister of Netherlands Mr Mark Rutte who theorised that 7 million people in his country will disappear in the near future if drastic measures on climate change and global warming are not implemented effectively. The Prime Minister was asked to create positive change in his country by stopping subsidies and fossil fuel in order to combat climate change. The prime minister’s response, however, showed that this quest for sustainability was only on paper but far from practical implementation.

Conclusion

This paper researched, analysed and discussed a case study focusing on Sainsbury, a retail organisation based within the UK. This study was deemed necessary for the purposes exploring the misconceptions accountability findings of the case study where to critically analyse the academic literature and theorical frameworks that helps businesses to be sustainable and help to eradicate the social, environmental issues around the globe. The report also highlights key achievements by Sainsbury’s in 2018/19 by following the SDGs (UN 2015) guidelines and using lessons learnt to ensure that they are ahead of the game and remain competitive. From the environmental point of view and complexity of reporting on sustainability, Sainsbury’s PLC has adopted the use of advanced technology and has joined forces with other partner so that they work collaboratively and integrate the businesses with the use of six capitals of the business (IIRC). It is still unclear and more has to be done to ensure that all organisations act responsibly and follow the guidelines and abide the law. The deadline set by the UN for 2030 is still debated with the recent findings on current issues and impact of global warming during COP25. This is why all stakeholders are to get involved at every level regardless of their demographic. Finally, sustainability reporting will be seen to be very effective if all companies are mandated to report on it. However, there are still concerns that due to the choices given to companies to report any issues they think is relevant to their business on a voluntary basis, reduces its effectiveness and audits are not carried out by third parties (GRI).

Abstract

This paper is to discuss civil society and its role in promoting accountability in Botswana. This is to discuss the duties of civil society in Botswana and how they promote accountability. BOTSWANA COUNCIL OF NON-GOVERMENTAL ORGANISATIONS ( BOCONGO) as a civil society in Botswana is to be analyzed and assessing its role in promoting government accountability. The paper will discuss the role of the above organization in Botswana in terms of its duties with example’s focusing on how the organization promotes government accountability to ensure democracy. The paper will also look into the response of the government to the existence of civil societies i.e. does the government of Botswana see civil society as an entity to hold it accountable for certain issues.

Government accountability

This is where by government is obliged to provide information or justification of their actions or decisions on certain duties. It is there to insure that actions and decisions taken by public officials meet their stated objectives and are of the interest of the citizen or the community they service. This include reasons behind every action and every decision that include the interest of people. Government accountability is important because by evaluating the ongoing effectiveness of public officials or public bodies, it ensures that they are performing to their full potential and not using government properties on personal interest, providing value for money in the provision of public services, instilling confidence in the government and being responsive to the community they are meant to be serving.

Civil society

Civil society is the population of groups formed for collective purposes primarily outside of the state and market. This are groups of people formed outside the government and not for profit. This societies can be either recognized within the country by the law or internationally. They can also be unlawful but existing as private sectors or organizations. For example emang basadi is a civil society that is recognized under Botswana but not international, but the media is an international organization that is recognized in more than one countries. Either international or national, civil societies have the same goal the difference being the other operates within a nation and the other operates in more than one country. According to World Bank “The term civil society refers to the wide array of non-governmental and not-for-profit organizations that have a presence in public life, expressing the interests and values of their members or others, based on ethical, cultural, political, scientific, religious or philanthropic considerations. Civil Society Organizations (CSOs) therefore refer to a wide of array of organizations: community groups, non-governmental organizations (NGOs), labor unions, indigenous groups, charitable organizations, faith-based organizations, professional associations, and foundations.”

Civil society emerged during 1980s in eastern and central Europe and Latin America as a response to issues on that time. During the time citizen were denied basic rights. They was lack of civil and political liberties. This was the time when the state had the power over economic and social transactions leading to lack of participative citizenship. As people searched for an alternative in governance they organized into that could make and pursue democratic projects of all kinds of freedom from the state power. The groups will use peaceful demonstrations to send a message or to show uncertainty about different issues of democracy. People will turn to strike or do peaceful walks seeking answers from the authorities on certain issues.

Through this organizations and institutions civil society plays a vital role in running of governments and ensuring democracy. This organizations and institution support, challenge and ensure that all decisions and activities are transparent to the citizens and accounted for. They also have a say on human rights and makes sure that neither the government nor any individual violates them. Botswana has different civil society organizations that are classified basically according to their role or the main aim of the organization. They are 3 main roles:

• Organizations that promote the welfare or interests of members and the population at large- this are organizations that deals with making sure the interests of certain or specific minority groups are met. For example child line.
• Organizations that play advocacy role- this are organization that deals with being a voice and preventing discrimination against certain group of people by the government or the nation at large. For example Ditshwanelo
• Ad-hoc organizations- this are organizations which emerged to deal with certain issues and people affected by such storm. For example organizations that came about to deal with HIV/AIDS.

NB: For NGOs to be recognized by the government of Botswana it must register with the Registrar of Societies.

The Botswana Council of NGOs (BOCONGO)

The Botswana Council of NGOs (BOCONGO), a leading voice in Botswana’s civil society, is the national umbrella body for NGOs. It assists in establishing an enabling environment for the NGO sector to become a recognized partner in governance and the development process. To ensure transparency and accountability among Botswana-based NGOs, BOCONGO has set out an NGO code of conduct.

This Organizations (BOCONGO) was established in 1995 to coordinate the work of Non-Governmental Organizations (NGOs) in Botswana. The NGO Policy provides for a coordinated approach to the implementation of the national development plans and priorities as well as enhancing communication and partnerships between government and CSOs. BOCONGO also advocates for different NGOs to be recognized and their voice to be taken into consideration. BOCONGO works with NGOs and other stakeholders to strengthen the NGO sector through coordinating the sector’s contributions to the development in country and beyond. The organization works with merging the ideas of different organizations together with the government to build a better Botswana.

The organization focuses on four aspects or themes that promote accountability and democracy in the country:

1. Inclusive Social Policy
   1. Building accountable and transparent institutions at all levels.
   2. Advocating for responsive, inclusive, participatory and representative decision making at all levels.
   3. Advocacy for women’s full and effective participation and equal opportunities
   4. Strengthening sound policies and enforceable legislation for the promotion of gender equality and empowerment of all women and girls at all levels.
   5. Advocating for the rights of marginalized and vulnerable groups
2. Sustainable Environment and Resource Management
   1. This focuses on environmental damage assessment of all projects that are to be done or that exists. The organization is an advocate for the flora and fauna in Botswana concerning their use conservation.
3. Democratic Governance
   1. Civic Education and electoral processes.
   2. Building of democratic and accountable Institutions.
   3. Capacity Building for Transparency Monitoring.
   4. Engaging checks and balances.
   5. Promoting participation.
4. Economic Justice
   1. Promoting development oriented policies that support productive activities and decent jobs.
   2. Creating entrepreneurship, creativity and innovation.
   3. Promoting productivity and effective service delivery and tax justice

How BOCONGO promotes accountability

From the above themes that the organization focus on, democratic governance is the one that focuses more into promoting government accountability. As stated on the point the organization promotes transparency. This is to say every action done by the government shall be done under public notice or under the knowledge of the citizens. Through checks and balances the organization promotes accountability for example:

On July 07 2017 BOCONGO released an article titled we demand accountability and good governance. This was after the organization demanded a report from the auditor general for the year ended March 2016 and from the findings of the AG it was made to point that they was serious wastage of public funds and failure to account by senior public servants. The findings included failure to trace how the money was used together with the budget made to come to the summation of some amounts. Below are some findings from the Auditor General that the organization demanded answers on;

Department of Tertiary Education Financing (DTEF)

The Auditor General highlighted on serious misuse of the account from which the living allowances of government sponsored tertiary students are paid. The findings stated that though the auditor general had several times warned the officers responsible for monitoring the account, they still failed in offering a valid reason on why the account is not well monitored, the account which had a balance in excess of P1-billion as at March 2016. It was put to concern that even the permanent secretary did not fulfill his or her duty of attending to the matter in time

Ministry of Youth Empowerment Sports & Culture Development

The AG also questioned why about P1.5 million was spend on international trips by the Ministry during the Independence Day celebrations in September and why they exceeded the budget heavily and with no evidence of what did the excess money do.

Serule Police Station

The Auditor General also carried out an audit inspection at Serule Police Station and discovered shortcomings in the planning and execution of projects. In one instance, a fuel point facility that was constructed in 2004 was still sitting idle in 2015/16. In another instance, a contractor who was awarded a tender for upgrading a sewerage system at the police station in February 2010 had still not completed the project six years later, despite the fact that he/she had already been paid over P1.9 million. This brought a concern on the over cost of government projects due to delay.

Botswana Innovation Hub (BIH)

Since its inception in 2010, Botswana Innovation Hub (BIH) has failed to utilize P12million set aside by government as startup capital for the Innovation Fund. Though the chief executive officer (CEO) of BIH has in previous years promised to take the matter up with the Ministry of Finance and Economic Development, he had not done so by end of March 2016. Neither had he given any reasons for the delay.

BOCONGO Responds

Below is a response of BOCONGO as said by Executive Director BOTHO SEBOKO

“As the umbrella body of non-governmental organizations (NGOs) in Botswana, BOCONGO feels obliged to respond to such alarming findings by the Auditor General. This is in line with our responsibility to forge participatory democracy in Botswana by educating government, the people and political parties about their rights and obligations as democratic citizens. As BOCONGO, we have a vision of NGOs working together for a more just, equal and integrated Botswana.

Therefore it is our responsibility to lead the people of Botswana in demanding responsiveness, accountability and transparency from government. From the Auditor General report, we have observed a worrisome trend where Accounting Officers – some as senior as permanent secretaries and CEOs – have repeatedly failed to account to the Auditor General. Public accountability is a hallmark of modern democratic governance. Therefore those entrusted with management of public resources must account fully to the Auditor General, failing which they must be relieved of their duties. The people have a right to know how public funds are being used.

Those who have been entrusted with power, or with control of state resources, cannot use them for private gain or to the detriment of citizens. Corruption can lead to abuse of fundamental human rights and denial of certain entitlements of some members of society. It is fraud and theft of public assets for public officers to authorize payment to contractors for no work done, as was the case at Serule Police Station. Public officers at DTEF should not be allowed to get away with failing to properly manage an account carrying billions of tax payers’ money meant to pay for students’ living allowances. Those students have in the past gone on strike after their living allowances were not paid and that lends credence to allegations of embezzlement of public resources and illicit self-enrichment by paying allowances to ‘ghost students.’ As BOCONGO, we cannot keep quiet while there is wanton dissipation of public resources at the expense of more pressing needs. On the one hand, government policy is flouted as millions are wasted on international frolics. On the other hand, government is cutting down on tertiary education sponsorships; children are left in limbo in schools as there are no books for them to read and no food for them to eat; while thousands of Batswana face threat of death due to rampant shortage of drugs and personnel in health facilities. We understand that there are competing needs, but government resources must be deployed based on need and deprivation. The people must come first. We demand transparency, financial prudence and good governance especially in these tough economic times.”

Conclusion

Looking at the above response BOCONGO as a civil society managed to request accountability from government authority. This information was then released to the citizens of Botswana as a whole which promotes transparency. Indeed proving that civil society play a vital role in promoting accountability. Their existence as non-governmental organizations keeps the concept of checks and balances between them and the government hence the government entities and branches may work at their best in meeting the interest of the citizens without misusing resources and with valid reasoning behind every decision the government takes. Since in Botswana not every citizen can demand accountability individually from the government civil societies like BOCONGO act as the voice of the nation in making sure that all government activities are well accounted for and those reasons are spread to the nation.

References

1. http://www.bocongo.org/index.php/home/
2. https://abhimanuias.com/state/Searchdetail.aspx?type=BL&id=4108
3. https://cdn.ymaws.com/www.istr.org/resource/resmgr/working_papers_toronto/malena.carmen.pdf
4. http://www.commonwealthofnations.org/sectors-botswana/civil_society/

Improving accountability and transparency of public spending can improve the financial management in the Malaysian public sector.

Transparency is operating in such a way that is easy for others to see what actions are performed. Transparency implies openness, communication and accountability.

Accountability however is an aspect of governance that has been subject to discussions related to problems in the public sector, non-profit and private sector that denotes answerability, blameworthiness, liability and he expectation of account giving.

The fall of the previous Malaysian government was due to the low levels of transparency in the government’s financial management and the alarming high levels of corruption and misappropriated funds in the government. Ever since the newly-elected government has taken its place at parliament, they are constantly speaking about how transparency and accountability should be the primary focus of the government. Back when our finance minister, Lim Guan Eng was newly appointed he opined that the public deserves to know the real state of the nation’s financial health. In more recent news, Dr Wan Azizah, the Deputy Prime Minister of Malaysia at the 5th ASEAN Supreme Audit Institutions (ASEANSAI) Summit reiterated that accountability, transparency, integrity and good governance are the norms of the current administration and is their priority agenda. Apart from that, the Prime Minister of Malaysia, Tun Dr. Mahatir has reinforced the current government’s stance on transparency and accountability of the government’s financials. He indicated that the primary reason of the Pakatan Harapan win was because the public was hopeful that the new government would be more responsible in upholding good governance, integrity and get rid of corrupt practices and the abuse of power. From the perspectives, of our country’s leaders, we could see how important transparency and accountability is the public sector be it financial accountability or management accountability.

A research on fiscal transparency and economic outcomes which was conducted based on IMF’s Code of Good Practices on Fiscal Transparency has found positive relationships between fiscal transparency and credit rating and income rank respectively (Diagram 1 and Diagram 2) proving the relationship between transparency, accountability and improved financial management.

Full implementation of accrual basis accounting

As we know Malaysia is in efforts of transitioning from cash-based accounting standards to accrual-based accounting standards by the year 2021 and currently practices a modified cash basis accounting which is the hybrid of cash accounting and accrual accounting. The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized. The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses. Both the federal and state governments are working towards the same direction in line with the Malaysian Public Sector Accounting Standards (MPSAS) which have been structured primarily based on the IPSAS with minor changes to the standards to fit the Malaysian public sector.

Globally, there is also a trend towards accrual accounting. It can be clearly seen that there is move on the spectrum of accounting practices from the more simpler cash-basis accounting and accrual accounting at the other extreme for the more effective financial management monitoring of activities. Figure 1 and Figure 2 extracted from a PwC survey on accounting and reporting by central governments depicts the extensiveness of accrual accounting in governments today and an outlook on how the adoption of accrual basis accounting will be dominating governments throughout the world. Through the complete implementation of accrual-based accounting in the Malaysian federal and state governments, the public sector will be able to provide quality and realistic information for decision-making in allocating resources. This accounting practice, also holds the government accountable for resources entrusted to them. In the context of Malaysia, resources would refer mostly to taxpayer’s money as tax revenue accounts for one of the country’s largest revenues. Accrual accounting is known to be more superior to cash accounting as it provides an accurate and holistic picture of the government’s financial position and enhance financial management transparency and accountability. Accrual accounting in contrast with cash accounting, will account for acquisition, disposal and management of government assets, liabilities and contingent liabilities which results in transparency and quality information accessible to the public.

Usage of Public Expenditure Tracking Surveys

Researches found that when information on how funds are channelled and utilised are accessible to the public, leakages and gaps in resources can be reduced. This can be illustrated by Public Expenditure Tracking Surveys (PETS) which have been used in many countries to highlight leakages and gaps in the delivery of funds to the public. In a research on the examination of education expenditures in Uganda using PET surveys found that on average only 13 per cent of the actual expenditure allocated for schools reached these schools. However, when this information was disseminated to the public through a campaign, the funds that reached the schools showed a substantial increase up to 90 per cent. The action of publicising the results of the survey had increased incentives for the local government in its oversight function strengthened the need for accountability in the government agencies.

The utilisation of PETS in Uganda have similar objectives as the FMAI in Malaysia. The FMAI or the Financial Management Accountability Index was implemented by the National Audit Department of Malaysia (NAD) to help public organisations and agencies to discharge their financial management accountability through the proper management of financial resources. As defined by the NAD, Financial Management Accountability Index is an objective, quantitative assessment of the financial management compliance of the auditees. The auditees involved are the Federal and State Government Ministries, Departments, Statutory Bodies, Local Authorities and Islamic Religious Councils. The introduction of the index is in line with the emphasis on Quality Management System and Key Performance Indicator envisaged by the Government. The NAD believes that the implementation of the FMAI would be able to create healthy competition among the parties being audited by them to improve their financial management of each body or agency which would further improve the transparency and accountability of the public service delivery. While the PETS only focused on expenditure and the transfer of funds through various levels in the public sector, the FMAI has a more broader view on control indicators in the public sector. Table 1 shows the elements of assessment that falls under the FMAI and their basis of selection.

However, the execution of both these tools and the method of communicating the findings differ vastly. In conducting PETS, the citizens are also involved in providing input through questionnaires and in the monitoring of public service delivery. The findings of the survey on the public expenditure and disseminated heavily through the use of the mass media to ensure a large outreach and a larger awareness on the whereabouts of public funds, exposing misappropriation, corruption and other sort of leakages. In contrast, the execution of the FMAI is by the staff of the National Audit Department involves very little engagement with the public in being a check and balance for the public sector. Although the outcome and findings of the accountability index is made accessible to the public, through reports published by the government. The government doesn’t intend to circulate this information to the mass public to ensure their awareness on the public service delivery. Hence, we believe that the implementation of PETS in Malaysia would create a new meaning for the public sector accountability and improved transparency of the government expenditures. The implementation of PETS in Malaysia would lead to better public sector financial management in the sense that, the legislators would be able to allocate funds to each government body and agency efficiently and any forms of corruption or mishandling of funds can be curbed.

References

1. https://www.theedgemarkets.com/article/malaysia-committed-implementing-accrual-accounting-standard
2. https://econ.lse.ac.uk/staff/rburgess/eea/svenssonjeea.pdf
3. FIGHTING CORRUPTION TO IMPROVE SCHOOLING: EVIDENCE FROM A NEWSPAPER CAMPAIGN IN UGANDA
4. Ritva Reinikka Jakob Svensson 2005 The impact of transparency and accountability on public service delivery
5. Chinedu Samuel 2018 http://www.pefa.org/resources
6. https://www.pwc.com/my/en/assets/publications/towards-new-era-in-govt-accounting-reporting.pdf
7. PwC Global survey on accounting and reporting by central governments 2nd edition July 2015 https://www.ifac.org/knowledge-gateway/finance-leadership-development/discussion/accrual-accounting-s-role-malaysia
8. Fiscal Transparency and Economic Outcomes, by Farhan Hameed; IMF Working Paper 05/225; December 1, 2005 http://siteresources.worldbank.org/INTEMPOWERMENT/Resources/486312-1098123240580/tool18.pdf
9. https://www.researchgate.net/publication/201883028_Financial_Management_Accountability_Index_FMAI_in_Malaysian_Public_Sector_A_Way_Forward
10. https://www.investopedia.com/ask/answers/09/accrual-accounting.asp
11. https://www.audit.gov.my/docs/BI/6Publication/3Guidelines/1.AIEngv4.pdf
12. http://sanitationandwaterforall.org/tool/public-expenditure-tracking-survey-pets/
13. https://www.theedgemarkets.com/article/govt-projects-scrutinised-better-service-delivery-%E2%80%94-wan-azizah
14. https://www.theedgemarkets.com/article/dr-m-graft-committed-openly-top-leaders

Police accountability is an issue that is under constant scrutiny in today’s society. The statement ‘police are more accountable now than they have ever been’ is a highly controversial statement with which I agree with to some extent. Due to the constant scrutiny our police force faces, there are continuous new ways emerging how to make the accountability of police officers more reliable. This is extremely important as accountability is essential for the maintenance of the public’s faith in the police (Walker, 2005). In England and Wales, the shift of the focus on accountability is clear from political issues in regard to who controls the police in the 1980s, to the focus we see today on police performance and effectiveness (Addidle 2014). However, even though new ways have emerged to ensure the police stay accountable such as body cameras and whistleblowers, there is still I high level of criticism that police accountability faces. As Bayley 1983 suggests the police are controlled and made accountable in a variety of ways but none of these is problem free. In this essay, I aim to critically evaluate the statement that police are more accountable now than they have ever been, with reference to the accountability mechanisms of body-worn cameras and XYZ…… I will also demonstrate how police accountability is not just a problem in England and Wales but also worldwide. I also aim to demonstrate how accountability is just one strand of a web that interlinks with each other where we refer to issues in law enforcement. As Baldwin 1987 argues, there are a number of bases on which support for policing can be founded and that accountability is just one of these.

The first degree of control in any police accountability system is the internal control mechanisms within the police service as it is preventing corruption and unlawful behavior and enabling them to be more accountable for their actions. Effective internal control mechanisms have an essential role to play within a police accountability system, both from a preventive and reactive perspective. The body-worn camera is a clear example of internal control mechanism at work. The use of body-worn cameras by police forces around the world is spreading quickly. The resulting mobile and ubiquitous surveillance are often marketed as an instrument for accountability and an effective way of reducing violence, discrimination, or corruption. Although body cameras are a clear example of police accountability developing, it would not have been without the development of technology. So, in this sense, I would argue that as technology and our society move forward, it is only fitting that police should become more accountable and different methods and mechanisms appear. Therefore, the development of bodycams leads to the agreement that “police are the most accountable they have ever been”. However, Manning 2015 argues that new technologies will not change police behavior unless There’s a corresponding change to law enforcement culture and therefore the use of developing technologies will not improve police accountability. I disagree with this statement from Manning to a certain extent however, a clear example of body cams not working to ensure police accountability is the George Floyd case (Coleman 2020). After the Michael Brown case in America, in which there were factual disputes as there was no recording of what led up to the shooting, Brown’s mother fought for police to wear body cameras (Aton 2016). This was a watershed moment that sparked the national movement toward police departments adopting body cameras (Sanburn 2014). Although officers were wearing body cameras in the George Floyd case, it still leads to a person being killed and did not deter this behavior. This demonstrates that body cameras cannot always deter police officers and make them accountable for their actions. Although both of these cases were in America, they still occur in England like the Sean Rigg case. Rigg was dealing with mental illness and died at the hands of the police. Riggs’s sister recently spoke out about the immediate parallels between her brother and George Floyd’s death. Once again highlight how the issue of police accountability is a worldwide issue, but more importantly, although times are developing and there are several new mechanisms in place to make the police more accountable, it raises the questionable nature of whether or not these new reforms change anything. This highlights my opinion that bottom-up techniques are not really working. Especially how they were intended. As well as BWC,

As mentioned above, there are constantly new things emerging when it comes to the development of police accountability. A clear example of how this has developed is in the form of top-down agencies such as the IOPC (formerly the IPCC) and the PCC. The Police Crime Commissioners (PCC) was introduced to oversee English and Welsh police forces to be the ‘voice of society and to hold the police to account by aiming to cut crime and deliver an efficient police service. Under The Police Reform and Social Responsibility Act, one of their roles is to make sure local priorities are joined up. By ways of transparency to ensure this union, they are required to publish a range of performance and finance reports online. This shows us a clear strength in the aim to reduce the ‘downward’ way of policing. These mechanisms allow for members of the public to hold their local police force accountable. This demonstrates a key way in which the accountability of the police has risen and become more important. This can be supported by Hood 2010 who states transparency is a pre-requisite of accountability because it gives the ‘principal’ access to potentially valuable data relating to their ‘agent’ (Hood, 2010). I agree with the statement from Hood 2010 as I believe that the demonstration of transparency is an extremely important aspect of the PCC’s aim to allow the public to ensure their local force is held accountable. In addition to transparency, discretion is another interlinking theme with accountability when it comes to PPCS. Addie 2014 supports this by stating, that the growth in public awareness of police discretion, has led to a stronger need for more effective accountability. By introducing the PCC it can be argued that it restores faith in the system amongst the public as it is intended to ensure transparency into police discretion and other issues within local forces. However, Murphy 2017 argues that there is a large risk in the growth of mechanisms such as PCCs as the public does not always have a clear explanation of the roles and responsibilities under the new arrangements. This makes it difficult for officials to account for their actions. He supports this argument by suggesting that the new arrangements are more complex. I agree with the claims Murphy presents in his article, as he highlights a key finding, in which, the public might find the new mechanisms too confusing. This defeats the object of the PCCs as it creates an opaque relationship between local residents and the reforms.

For this assignment, which is justifying contributions to the development of the poster for the 10 principles of a good public policy, five peer-reviewed articles that discuss the principle of transparency and accountability as a worthy principle of a good public policy were selected.

These principles were selected using a working hypothesis, thus, openness is a key element for the formulation of good public policy. This hypothesis helped me to lunch exploratory research studies (theoretical framework) and to critically deduce what ought to be considered as a good principle for public policy. My discovery from the exploratory research revealed several principles that could be considered in the formulation of a good public policy. However, keywords such as transparency and accountability were used. Purposive sampling technique using a criterion-based selection was employed. A content analysis was done and several case studies reviewed concerning public policy and public administration.

A content analysis technique was used to make replicable and valid inferences by interpreting and grouping the textual materials. A case study analysis was also conducted to determine certain situations under which these principles may not be applicable and how to come up with the best possible strategies in achieving a best-anticipated outcome. A specific and well-thought-out theoretical framework made me settle on transparency and accountability as my distinctive principle for inclusion in the 10 principles of good policy poster. This principle was subjected to my group’s approval before being included on the poster.

Below are discussions of summaries of knowledge deduced from the five peer-reviewed articles that influenced my contributions to the poster.

Background

For every nation to thrive democratically, transparency and accountability are key components that should not be overlooked in its administrative setup. When a system becomes so transparent, with established processes of ensuring accountability, both political and civil actors in democratic establishments are likely to become responsible and accountable to the people.

In our contemporary political dispensation, transparency and accountability have become a fundamental principle for the democratic edict. In this sense, countries where democracy reigns should promote an opening of the political system to make it more transparent and, in turn, more subjected to public evaluation (Filgueiras, 2016). Vayena and colleagues (2018) support Filgueiras’s point by stating that these principles are very essential in the development and sustainability of public trust.

Establishing good governance and restoring public confidence does take more than transparency alone. There has to be another side of participation. Good governance brings along respect to human rights, the rule of law, effective people participation in development, as well as transparent and accountable processes and institutions (Konrad, 2011). Thus, the government must produce a conducive environment for the public to participate in almost all sectors or stages of development, from planning, actualization, monitoring, and evaluation. It requires a breakthrough to enhance public transparency. In the administration study, Osborn and Gaebler (1993) offer an approach where the government must spare space for community participation for development (Wirutomo, 2011). This can be done by innovation as a way to make public institutions more transparent and participatory. It is true, though, that there is still a small room for the public to provide input on development planning. As a further reflection of democratization and participation as part of good governance, the development planning process should also be carried out through a participatory process.

Discussions

The birthing of transparency and accountability initiatives have come to stay and is a donor collaborative committed to strengthening democracy and development through empowering citizens to hold their governing institutions accountable (www.transparency-initiative.org).

According to Heald (2012), two types of transparency are highly regarded in the field of public policy, namely: event transparency and process transparency. He further posits that the event transparency has is associated with the transformation of inputs into outputs and outcomes, on the assumption that these can be measured and the process transparency, includes a distinction between procedural and operational aspects. Bringing both types of transparency in the financial arena, Heald argues that although very significant, it may be very tough to achieve. It, therefore, requires robust strategies emanating from the different contexts to deal with it. Achieving financial transparency in the public setting involves separating technical intricacies from political processes, which requires clear strategies in realizing that objectives. This assertion shows how transparency in public expenditure is achieved and the challenges that accompany it. We cannot separate politics from public policy, even though political influences could disrupt its effectiveness.

Concerning the healthcare sector, Adinolfi (2017) argues that when transparency is given too much power, it might have repercussions thus, it is prudent to have the right balance between transparency and confidentiality.

Transparency and accountability, like other principles, have their barriers. Whereas Etzioni (2010) points out challenges associated with transparency, no concrete solutions were provided. However, barriers associated with transparency in public expenditure, mostly constructed by policy actors were identified (Heald, 2012) making it easy to propose effective solutions in handling such cases. Adinolfi (2017) views the effect of transparency on institutions as upsetting and proposes a perfect solution to improve relations between transparency and actors with an equal aim of achieving its objectives in healthcare.

The new public management approach advocates systemic transparency, accountability, and innovation to spearhead good governance. The effectiveness of the public good involves transparency and accountability of processes coupled with the availability of information through the policy cycle. However, when citizens are fed with information that is not well understood or interpreted and processes shredded in secrecy, it is merely informing and could result in public distrust. Etzioni (2010) argues that food processing companies provide the nutritional content of products as the policy direction for consumers to make informed choices but not the processes involved. More so, this information provided is in technical terms that most consumers cannot interpret. Thus, the purpose of providing information to consumers is flawed. Since transparency and accountability are tools to gain public trust, the information provided must be realistic for public consumption. However, the legitimacy of the information provided to the public could also be delayed or withheld by actors would do not feel accountable to the public thereby, derailing the intended purpose for which the information is being made public.

Filgueiras in his article titled ‘Transparency and Accountability: Principles and Rules for the Construction of Publicity’ argues that increasing delinquencies of the public worker or civil servant warrant the introduction of a transparency policy to submit the government and its representatives to the public control. He was also quick to state that although transparency presents itself as a remedy for the vices and unacceptable practice in politics and in public management control, without working hand-in-hand with the principle of accountability, it cannot fully achieve its purpose for implementation. The concept of transparency, although viewed as a tool used in achieving public good and vital for public policy formulation, Etzioni and observes that it’s been overhyped and its objectives are not always attainable despite the associated good intentions.

According to Barnard (2001), accountability is a principle of basing decisions upon laws and policies within a democratic state. This principle has a strong moral appeal since it affords both the government and the citizenry to watch and control each order. Accountability can take the form of accounting process of rendering accounts or by taking place in a dimension of electoral democracy.

Bovens (2007) defines accountability as a social relationship in which an actor feels an obligation to explain and justify his or her conduct to some significant other. Argyrous (2012) views it as the starting point for the more demanding standard of accountability. He asserts that without transparency there can be little accountability; and states that about evidence-based policy (EBP), accountability involves subjecting the process of gathering, analyzing, interpreting, and presenting evidence to scrutiny so that it can be verified as credible. Gathering, analyzing, interpreting and presenting evidence require a series of detailed judgments on the part of the analyst, many of which could affect the findings (Argyrous, 2012).

As stated by Filgueiras (2016), the culture of secrecy, on the other hand, erodes the democratic process insofar as it is opposed to the very notion of democracy. Thompson (1999), posits that there is an estimated creation of three and a half million new secrets a year within the US state. Although frown upon, secrecy is a common phenomenon in most institutions and even democratic states across the globe. Thompson (1999) argues, that despite its acclaimed negativities, some amount of it may be acceptable as some policies necessitate secrecy and no transparency. Typical examples include police investigations, economic decisions on interest rates and financial policy and the fight against drug trafficking, fight on terrorism, etc.

Filgueiras (2016) however questions the transparency and accountability principle of public policy and advocates a different approach towards the democratization of the country, which is the policy of publicity. He argues that the transparency and accountability principle does not extend to tying government decisions to the authority of citizenship, either through institutions or through the participation of society itself in public choices and decisions. In his defense, the publicity principle which he has proposed rightly does so.

In the article ‘Evidence-Based Policy: Principles of Transparency and Accountability’, Argyrous (2012) provides a practical guide for improving the quality of the evidence-based policy. He observes, that evidence drawn from any methodology will improve if standards of transparency and accountability are followed in the process of gathering, analyzing, interpreting, and presenting evidence for policy. He further states that in order to make an evidence-based policy more transparent, the is the need to make the following available; raw data, data collection instrument, metadata, analytical assumptions explicit, analytical choices and their testing explicit, theoretical perspectives explicit, the relationship with past research explicit, and declare financial and other interests.

In an attempt to achieve these principles in public policy, Argyrous (2012) that these principles for transparency and accountability can be achieved through several means. The onus of implementing them rests partly with the producers of evidence in the policy realm, who must adopt these principles as practice. This is not solely at the individual level of the public servant, but also requires agencies to adopt these principles to develop a culture of evidence-based policy-making. Check-lists can be developed for any program or policy proposals to ensure these principles have been implemented before approval is granted. He, however, cautions that we must acknowledge, that the extent to which these standards of transparency and accountability are to be followed in any given context depends upon practical and ethical considerations.

Argyrous (2012) concludes by arguing that transparency and accountability, will continue to advance the quality of evidence, but they may also help explain the legitimate channels through which these other factors such as the political context of decision-making enter the decision-making process, and by implication, the channels that are not legitimate.

Conclusion

In conclusion, transparency and accountability are essential for public policy formation. As highlighted in the articles above, these principles have good intentions felt in the public policy discourse when it comes to the formulation of public policies in most democratically governed states. However, most of the authors have also pointed out that it can do more harm than good when their operations are not regulated to achieve its set targets. Arguably, I agree with the authors that not all information is safe for public consumption and not all processes can be subjected to public scrutiny as these might have dire consequences for a state than the public good. At the same time, I believe that some amount of it is good for the public in maintaining some level of trust in the actors entrusted with the power to make policies for the well-being of citizens.

References

1. Ackerman, John M., and Irma E. Sandoval-Ballesteros. ‘The Global Explosion of Freedom of Information Laws’. Admin. L. Rev. 58 (2006): 85.
2. Adinolfi, Paola. ‘Transparency and Spending Review: A Model for Italian Healthcare’. Symphonya. Emerging Issues in Management 2 (2017): 120-134. http://dx.doi.org/10.4468/2017.2.12adinolfi .
3. Banisar, David. ‘Freedom of Information Around the World 2006: A Global Survey of Access to Government Information Laws’. Privacy International (2006).
4. Berliner, Daniel. ‘The Political Origins of Transparency’. The Journal of Politics 76, no. 2 (2014): 479-491. DOI: 10.1017/S0022381613001412 .
5. Epperly, Brad. ‘The Provision of Insurance? Judicial Independence and the Post-Tenure Fate of Leaders’. Journal of Law and Courts 1, no. 2 (2013): 247-278.
6. Etzioni, Amitai. ‘Is Transparency the Best Disinfectant?’. Journal of Political Philosophy 18, no. 4 (2010): 389-404. DOI: 10.1111/j.1467-9760.2010.00366.x.
7. Florini, Ann. ‘The Right to Know: Transparency for an Open World’. Columbia University Press, 2007.
8. Ginsburg, Tom. ‘Judicial Review in New Democracies: Constitutional Courts in Asian Cases’. Cambridge University Press, 2003.
9. Heald, David. ‘Why Is Transparency About Public Expenditure So Elusive?’. International review of administrative sciences 78, no. 1 (2012): 30-49. DOI: 10.1177/0020852311429931.
10. Vayena, Effy, Joan Dzenowagis, John S. Brownstein, and Aziz Sheikh. ‘Policy Implications of big data in the health sector.’ Bulletin of the World Health Organization 96, no. 1 (2018): 66. http://dx.doi.org/10.2471/BLT.17.197426.
11. Thompson D. 1999. ‘Democratic Secrecy’. Political Science Quarterly 114(2): 181–193.
12. Konrad, Adenauer-Stiftung. 2011. ‘Concepts and Principles of Democratic Governance and Accountability: A Guide for Peer Educators’. Africa: Uganda Office.
13. Wirutomo, Paulus. ‘Social Development Policies on Informal Sector in Solo’. Jurnal Ilmu Administrasi dan Organisasi, Bisnis & Birokrasi. Vol. 18, No. 2 (May).
14. http://www.transparency-initiative.org/ (Accessed 10 November 2019).

Introduction

Q. What is financial accountability?

Financial accountability is a concept about respective accountability with in a financial process. This helps to maintain a string effective and efficient divisional financial control environment. This helps to understand the aspects of financial management and control within an organisation. Bifurcation and classification of roles and responsibilities and liabilities among organisational departments and divisions is one of the key aspect of financial accountability. With the help of financial accountability concept managers and employees become ensure each position and important role in financial process. Desired and eligible persons are appropriated and allocated financial position and roles for effective and better performance.

Financial accountability provides relevant information and data subject to better financial control and management. It reduces the level of errors and control in respect of effective management and operation. Financial process helps to maintain strong effective departmental financial control and environment. Moreover, it prevents misappropriation and fraud in business departmental financial process. Financial process of organisation would be able to produce appropriate and accurate information in order to attain financial expertises and control. A well designed and perfect financial accountability structure serves the foundation for building effective financial process with in organisation and business.

(1) Net income statement after tax

Net income after taxes (NIAT) is a bookkeeping term regularly found in an organization’s yearly report, and used to demonstrate the organization’s complete ‘primary concern’ for the bookkeeping time frame. At the end of the day, it demonstrates what the organization earned after the entirety of its costs, charge-offs, deterioration, and expenses have been subtracted. This figuring is typically appeared both an all-out dollar sum and a for every offer count.

Net income after taxes (NIAT) is basically the net gain of a business less all charges. It is the whole of all incomes less all costs, including cost of merchandise sold, deterioration, intrigue, and duties. While it is equivalent to total compensation, generally, it is utilized in budget reports to separate between salary before expense and pay after duty. Since it is the keep going line on an organization’s pay explanation, NIAT is additionally alluded to as the primary concern.

NIAT is a standout amongst the most examined figures on an organization’s budget report. The sum recorded gives a sign of the productivity of an organization which decides if the firm can remunerate its financial specialists and investors. An expansion in benefits over different periods commonly prompts an increment in the business’ stock cost. An organization with an overall gain that is negative or beneath normal might be a start-up firm, a forcefully developing firm, or a firm encountering a decrease in deals or poor cost the board.

To more readily look at organizations or businesses utilizing NIAT, it is increasingly successful to utilize the figure as a level of another. For instance, the net revenue is NIAT as a level of all out offers of an organization. The overall revenue apportions the amount of each dollar of offers an organization keeps in income. A 20% net revenue, for instance, implies that for every dollar of offers produced, an organization keeps $0.20 in benefits. The ordinarily utilized value income (P/E) proportion likewise utilizes the overall gain number to decide how much financial specialists are paying for every dollar of benefit the organization can produce.

Net income after taxes isn’t the all out money earned by an organization over a given period, since non-money costs, for example, devaluation and amortization are subtracted from income to get the NIAT. Rather, the income proclamation is the reference to how a lot of money an organization produces over a period.

While the net income after taxes calculation is a standout amongst the strongest proportions of an organization’s act, various bookkeeping embarrassments as of late have turned out to be under 100% dependable. Speculators assessing an organization’s main concern need to evaluate it for genuine and future costs that bookkeeping rules grant an organization to avoid from their current NIAT estimation.

Budgeted Income statement of OLA Plc for the year ended 2018

Particular

Amount (€)

Projected Sales

1,125,000

Projected Sales Revenues

45,000,000

Per Unit Information:

Sales Price

45000000

Variable Costs:

Direct Material

-4500000

Direct Labour (Variable)

-10125000

Variable Production Overhead

-3375000

-18000000

Contribution

27000000

Selling Expenses

Per unit information:

1. Sales price €45000000
2. Direct material = (projected sales-1125000 )*(direct material cost per unit-4)= 4500000
3. Direct labour = (projected sales-1125000 )*(direct labour cost per unit-9)= 10125000
4. Variable production overhead = (projected sales-1125000)*(variable production cost per unit-3)= 3375000
5. Gross profit = (sales price 45000000) – (direct material-4500000 + Direct labour 10125000+Variable production overhead 3375000) = 27000000
6. Net profit before tax = (gross profit 27000000) – ( manufacturing OH 2000000 + Administrative expenses 7050000 + selling expenses 10000000 + variable production overhead 33750000 ) = 4575000
7. Net profit after tax = (net profit before tax 4575000) – (tax 571875)=4003125

(2) Breakeven points in units

Break-even analysis is a technique widely used by production management and management accountants. It depends on ordering creation costs between those which are ‘variable’ (costs that change when the generation yield changes) and those that are ‘fixed’ (costs not legitimately identified with the volume of creation). All out factor and fixed expenses are contrasted with deals income all together with decide the dimension of offers volume, deals esteem or creation at which the business makes neither a benefit nor a misfortune (the ‘break-even point’)

Fixed Costs

Fixed expenses are those business costs that are not legitimately identified with the dimension of creation or yield. As such, regardless of whether the business has a zero yield or high yield, the dimension of fixed costs will remain comprehensively the equivalent. In the long haul fixed expenses can adjust – maybe because of interest underway limit (for example including another manufacturing plant unit) or through the development in overheads required to help a bigger, progressively complex business.

Variable Costs

Variable expenses are those costs which change straightforwardly with the dimension of yield. They speak to instalment yield related sources of info, for example, crude materials, direct work, fuel and income related costs, for example, commission.

A qualification is frequently made between ‘Direct’ factor costs and ‘Circuitous’ variable expenses.

Direct factor costs are those which can be straightforwardly inferable from the creation of a specific item or administration and allotted to a specific cost focus. Crude materials and the wages those taking a shot at the generation line are genuine models.

Aberrant variable expenses can’t be straightforwardly inferable from creation however they do shift with yield. These incorporate devaluation (where it is determined identified with yield – for example machine hours), support and certain work costs.

Breakeven point = (fixed cost 19050000) / (selling price 40 – variable cost 19) = 907142.85

(3) Breakeven points in monetary value

Profit volume ratio: profit volume ration defines the connection between the commitment and deals cost. There is a rate determined among commitment and deals for deciding benefit volume proportion. Deducting level of variable expense is another strategy to assess benefit volume proportion. With the assistance of benefit volume proportion records and administrators become qualified to bifurcate the variable cost edge for figuring commitment. Benefit volume proportion assumes indispensable job in regard of figuring earn back the original investment deals in money related esteem. This is likewise determined by estimating change in benefit and change in deals volume proportion (Green, 2011). This fundamentally remain related with minimal expense for better computation of commitment. There is one corresponding relationship found between deals edge and commitment which is on the off chance that the deal cost increment all the more similarly peripheral cost, at that point commitment rates goes higher. Same according to on the off chance that deal value decline, at that point commitment rate get decline.

Breakeven point of in monetary value = Total Fixed Cost 19050000 / (Selling price per unit 40 – Variable cost per unit 19 / Selling price per unit 40)= €36285714

(4) A calculation of target volume in units in order to generate profit before tax of €6000000

Desired sales: this is calculated on the basis of fixed cost and considering desired profit. Organisation calculated desired amount of production for getting targeted or projected profit for a particular period. This is also a part of break-even analysis (Costa, Ramus and Andreaus, 2011). This helps to analyse the cost of operation and analysis of evaluation of optimum quantity of sales.

With the help of fixed cost desired sales units are calculated in given scenario. Fixed cost for is €19050000 for the year 2018. As per above business problem OLA plc desired sales is calculated as follows:

Formula = (Fixed cost + Desired or targeted profit) / contribution per unit

= (€19050000 + €6000000) / 21 = 1192857.143 units

as per above analysis of break-even sale if organisation wants to earn €6000000 for the year 2018 then it has to produce 1192857 units for the year 2018.

(5) A calculation of target in monetary value in order to generate profit before tax of €6000000

Calculation of sales monetary value on the basis of €6000000 profit are as

Target volume in units = Total Fixed Cost 19050000+ Target Profit Amount 6000000 / (Selling price per unit 40 – Variable cost per unit 19/ Selling price per unit 40)= 47714286

(6) A calculation of the margin of safety % assuming that the annual sale of 1125000 units are achieved

Margin of safety = (Projected sales 1125000 – Breakeven point 907142.85 / Projected sales1125000) * 100 = 19.36%

This shows that the margin of safety of Ola Plc is 19.36% after assuming the annual sale of 1125000 units.

(7) A calculation of how many units must be sold to earn profit after tax €5000000

Target units to be sold = Total Fixed Cost 19050000+ Target Profit Amount 5000000 / Selling price per unit 40 – Variable cost per unit 19 = 1145238

To achieve profit €5000000 OLA plc have to sell at least 1145238 units.

(8) Based on changes, calculation of breakeven points in units and revenue for 2019

According to report, the selling price of Ola Plc will be increasing by 10%, the variable costs will be increasing by 205 and the fixed costs will increase by around €2,500,000.

As per the report for 2019, Selling price per unit will be € 44,Variable cost per unit will be € 22.8,Total fixed costs will be € 21,550,000.

Breakeven point = (fixed cost 21550000) / (selling price 44 – variable cost 22.8) = 1016509 units

Breakeven point of in monetary value (revenue) = Fixed Cost 21550000 / (Selling price per unit 44 – Variable cost per unit 22.8 / Selling price per unit 44)= €44726415

Conclusion

This report is prepared to analyse financial accountability for subject to presenting financial performance. Financial accountability is measured by analysing profit subject to adjustment of variable and fixed expenditure. Concept of accountability is elaborated in respect of Ola Plc which is largest manufacturer of an oil based products. Profit is evaluated on the basis of accounting techniques. Break even analysis and margin of safety also defined in this context. How financial accountability helps to maintain finance management and better control of financial resources also defined in this context.

References

1. Drury, C. (2008) Management and cost accounting. London: South-Western Cengage Learning.
2. BSCI (2015) What is the Balanced Scorecard? Available at: http://balancedscorecard.org/Resources/About-the- Balanced-Scorecar
3. Davies, S. and Polverari, L., 2011. Financial accountability and European Union cohesion policy. Regional Studies. 45(5). pp.695-706.
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12. Green, J., 2011. Education, professionalism and the quest for accountability: Hitting the target but missing the point (Vol. 26). Routledge.
13. Zietlow, J. and et. al., 2018. Financial management for nonprofit organizations: Policies and practices. John Wiley & Sons.

Within this essay, I will explain what police accountability is, and detail both internal and external accountability as well. I will discuss the steps and measures that are taken to ensure police accountability and the mechanisms that are in place to provide an adequate check on police powers. I will also bring to attention some past debates that are in relation to police accountability, for example, the brutal death of George Floyd.

Police accountability is the action of holding individual police officers accountable for their actions and behaviors. Accountability takes place both internally and externally within the police force. Internally, this includes individuals of the police force reporting to the chief of police or other colleagues. Externally, this is the overall police department’s responsibility to ensure the service that is provided to the public is adequate and that the performance of employees is to the set standards. Whilst appealing to the public, council members, and the media. Accountability is important because it can influence the decision-making process of police officers ( HYPERLINK ‘https: journals. sage pub.comdoifull10.11771461355718786297’ Cronin and Reicher, 2009). Accountability allows for there to be true justice as individuals who have power over others can now be held to their actions, asked questions, and judged regarding said actions.

To help hold the police accountable there are mechanisms put in place, as there are three jurisdictions within these mechanisms that help to ensure accountability is had. Within Northern Ireland national policies have been put in place to help and adapt cross border issues. This is to help minimize conflict between both the north and the south of Ireland. Although the police department within divided Northern Ireland has been subjected to hard questioning. There is a significant difference between the policing system within Northern Ireland and within Wales, I will continue to discuss this whilst focusing on Wales. The UN declaration of human rights is a backbone to the police being held accountable when misconduct occurs as this gives knowledge to both the public and the police as to what their rights are and what is in violation of them. The Human Rights Act 1998 provides for adjudication by domestic courts and for the award of compensation in cases where public authorities have breached Convention rights. (January 2005) Dr. Rob Mawby and Dr. Alan Wright, Keele University. HYPERLINK ‘https:www.humanrightsinitiative.orgprogramsajpoliceres_matpolice_accountability_in_uk.pdf’ police_accountability.pdf – created by pdfMachine from Broadgun Software, http:pdfmachine.com, a great PDF writer utility! (humanrightsinitiative.org) I feel as though the legislations that have been put in place are adequate in holding police accountable, although there could be some improvements. For citizens to fully benefit from these laws they should be taught within every school so that most people are aware of their own rights and how they can report the misconduct of the police when their actions are used against the public.

Within recent years police accountability has been a topic of discussion all over the world, including. It has particularly been in debate with police-related deaths of black citizens. Although has developed there is still racism and prejudice that still exists today. We can see this through the statistics of racial profiling. Policing during the Covid-19 Pandemic took a turn and police were given more power to interfere and stop and question individuals on their comings and goings. Although there were a few incidents that made a viewing online such as people being wrongly fined. Apart from some incidents such as police being called for individuals not abiding by the changing laws and guidelines of the Pandemic, the police were a great asset throughout the pandemic they helped to ensure everyone`s safety and helped to stop the spread of Covid-19.

In conclusion, I feel as though the laws and legislations that are put in place by the parliament are an adequate way to keep police powers in check as the law is the law and has to be abided by everyone no matter their status of power. Although there still is a downfall to this as research shows that serious misconduct is often given light sentences, which can lead to the public becoming upset. Apart from this I still think it`s the best approach to keeping policing powers in check.

Bibliography

1. Accountability and transparency: Police forces in and Wales,( October 4, 2016) Volume: 32 issue: 3, page(s): 197-213) Peter Murphy, Peter Eckersley, Laurence Ferry
2. Accountability and transparency: Police forces in and Wales – Peter Murphy, Peter Eckersley, Laurence Ferry, 2017 (sagepub.com)
3. A state-of-the-art review on police accountability: What do we know from empirical studies? (July 22, 2018) Volume: 20 issue: 3, page(s): 225-239 Yin the Feys, Antoinette Verhage, Dominique Boels
4. A state-of-the-art review on police accountability: What do we know from empirical studies? – Yinthe Feys, Antoinette Verhage, Dominique Boels, 2018 (sagepub.com)Police Accountability (January 2005), Dr. Rob Mawby and Dr. Alan Wright, Keele University, Commonwealth Human Rights Initiative police_accountability.pdf – created by pdfMachine from Broadgun Software, http:pdfmachine.com, a great PDF writer utility! (humanrightsinitiative.org)

INTRODUCTION

There are two types of accounting and these are Managerial Accounting and Financial Accounting. Distinguishing these quickly, managerial accounting deals with activities within the company while as Financial accounting deals much with external information of an organization. Managerial accounting is what this assay will be discussing and mainly to do with management control systems. In management control systems, the main focus will be discussing what responsibility centers are, then later on we will be looking into the types of responsibility centers along with examples of those responsibility centers and how these responsibility centers operate in an organization. There are four types of Responsibility Centers (ABE, 2011). Namely, (1) Cost Center, (2) Revenue Center, (3) Profit Center, (4) investment centers, (Drury, 2001).

RESPONSIBILITY CENTERS

Traditionally, the owners of the organizations, companies or an entity, were divided into functional divisions/segments. A segment is defined as a fairly autonomous unit of company defined according to function or product line. As segments or rather put it simply, departments are organized along functional lines to perform specific function such as marketing, production, finance, purchasing, and shipping. Therefore responsibility center, is a department or segment or division of an organization for which a particular executive is responsible (Rutgers Accounting, 2020). In addition to this definition, Drury, define it also as the unit of a firm where an individual manager is held accountable for the performance of the unit under his or her control, (Drury, 2001).

TYPES AND EXAMPLES OF RESPONSIBILITY CENTERS

COST CENTERS

Accountability of a manager is limited to only costs under their control (Rutgers Accounting, 2020). Cost Centers are divided into two areas and these are (a) Standard costs and (b) Discretionally Costs. With Standard Costs is where the outputs can be measured and input required to produce each unit of output can be specified. In order to control this, it is expressed through making a comparison of the cost of inputs intended to be used in the process of production against the actual cost incurred, (Drury, 2001). The variance becomes the difference that is observed between the standard cost and actual cost. Later, is discretionally cost where outputs cannot be measured in monetary forms. There is no clear and observable relationship between inputs and outputs consumed and achieved. Managers control using cost centers come function in the following forms; actual expenditure has to be tarrying with the budgeted expenditure and this has to be for each expense category. Secondly, ensure that tasks allocated to each center have been achieved and successfully. Examples where cost centers are used are as follows; cost centers are used in (a) advertising and publicity, (b) research and development departments. Care should be taken into consideration here especially in research and development. Managers need not to underspend with intention of cutting cost. According to Drury, (2001, p.326-329) explained that “underspending in research and development could mean bad results since that may bring about undesirable outcome. Therefore the problem with discretionally is measuring of effectiveness. On expenditures, advertising using less expenses in marketing does not mean that advert expenses have been effective, (Drury, 2001). It could be due to poor timing, also may be directed to the wrong audience, wrong message and this tends to be a biggest challenge in cost centers under discretionally management control.

REVENUE CENTER

Mangers are made accountable for only financial outputs. Their full contribution is eyed at generation of sales revenues. Examples of revenue centers could be as follows, regional managers accountable for sales only within their regions. Selling and distribution of finished goods in case of manufacturing companies. Performance evaluation is based completely on sales target. The main challenge here is that since their concentration is only on sales, they do not have concern on profitability since they consider that not being their responsibility (Rutgers Accounting, 2020). This occurs when sales are not equally profitable and managers can achieve higher sales revenue by promoting low profit production. They are held accountable for selling expenses such as sales person salaries, and order getting costs.

PROFIT CENTER

According to Association of Business Executives (ABE, 2011 p.13-29) profit center, is defined as areas of organization for which sales and costs are identifiable and attributable. Both revenues are received and expenditures are controlled in this responsibility center. There is limited decision making authority. Defining profit center, Drury, (2001, p.326-329, are units or segments within an organization whose managers are accountable for revenues and costs. When mangers are given authority both in production and sales, there is a significant increase in managerial autonomy (Rutgers Accounting, 2020). Doing so, gives the managers freedom to set selling prices, choosing which market to sell in, make product mix and output decisions as well as selecting suppliers.

INVESTMENT CENTERS

Managers are responsible for both sales and revenues and costs. They have responsibility and authority make working capital and capital investment decisions. Good examples on this are ROI (Return on Investment), and Economic Value added (Drury, 2001). These measures are influenced by revenues, costs and assets employed and therefore reflect the responsibility that managers have for both generating profits and managing the investment base. There is highest level of management autonomy. They include company as a whole, operating subsidiaries, operating groups and divisions, (Drury, 2001). Here inputs are measured in terms of expenses and outputs measured in terms of revenues and in which assets employed also measured the excess of revenue over expenditure then being related to assets employed, (ABE, 2011).

CONCLUSION

Responsibility centers are established in order to ensure that every department or segment should be controlled using this centers. This helps the organization to device the course of action should there seem to be some disparities from the established goals. Therefore, the following are served as main reasons for establishing management controlling measures according to Drury, (2001); “express and aggregate the results of the wide range of dissimilar activities using a common measure, profitability and liquidity are essential to the success of all organizations and financial measures related to these and other areas are closely monitored by stakeholders and hence the managers will wish to monitor performance in monitoring terms, course of action benefits an organization only if it results in an improvement in its financial performance, managers need full autonomy for them to perform their duties properly as long as their acts are ethically proven.” Responsibility centers as control measures, are very important looking at the reasons for their existence. Monitoring performance in the form of conducting audit becomes easy since they deal with one segment from the other thereby pinpointing exact weak managers.

Accounting dates to ancient civilizations. For many years people have been engaging in trade and also coordinated systems of government, practices of record-keeping, accounting, and accounting tools have been in use. It prevails to enable people to be informed about their financial judgments. It is concerned with accumulating and assessing financial data and then transmitting this data to those preparing conclusions. (Wood, 2015)

This essay details the resemblances and differences between management accounting and financial accounting.

“Accounting is the process of identifying, measuring, and communicating financial information about an entity to permit informed judgments and decisions by users of the information” (Weetman, n.d.).

Accounting arranges and condenses monetary data so that policymakers can utilize it. This data is illustrated in statements called financial statements. Accountants examine, record, measure, gather, formulate statements and elucidate economic data. The series of steps included in originally recording data and transforming it into financial statements is called the accounting system. (Peter Atrill, 2005)

The fundamental goal of accounting is to enable decision-making. The users of accounting information come under two categories- internal users and external users.

Financial accounting is the field of accounting that attends to external decision-makers, such as stockholders, suppliers, banks, and government agencies. It is concerned with how accountants use bookkeeping data. the objective of financial accounting is to make sure the results of business undertakings during a specific period and to state the financial position as of a date at the end of the period. (Roger H. Hermanson, 2006)

Management accounting is a branch of accounting that generates information for managers within an organization. “It is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that helps managers fulfill organizational objectives.” (Stratton, 2008). It concentrates on internal users and on making forecasts for segments of a company. The data illustrated to internal stakeholders are in more detail, it is given more frequently and in various forms based on how the information is to be used.

Financial accounting and management accounting are the two main types of accounting. However, they differ from each other in various aspects. They are detailed below.

Financial accounting reports are for general purposes. It is prepared to keep in mind, various users. All the external users such as shareholders, creditors, banks, tax authorities, etc. use these reports. The existence of so many different groups creates difficulty in producing accounting information for all. Hence, financial accounting concentrates on generating information for owners and creditors. Management accounting, on the other hand, focuses on the internal organization. It primarily prepares reports to assist managers with decision-making which in turn will help in improved performance of the business. (Peter Atrill, 2005)

Financial accounting reports give a broad outline of the financial status of the enterprise. It doesn’t give detailed information. Management accounting gives detailed reports which are necessary for decision-making. Financial accounting gives broad information for the entire organization whereas, management accounting gives extensive data for the various segments of the organization. (Horngren, 2004)

Companies must comply with certain accounting regulations to make their information reliable and comparable. Adhering to Generally Accepted Accounting Principles (GAAP) helps gain external stakeholders’ trust and it shows that the company’s information is relevant. A vital distinction between financial accounting and managerial accounting is that managerial accounting reports are not directly restricted by GAAP. Management accounting doesn’t have to comply with GAAPs as it is solely for internal use. It isn’t even necessary to prepare management accounting reports if the company doesn’t want to do so. (Stratton, 2008)

Financial accounting deals with past information. It is all about what happened in the past. It shows the financial position and performance of an enterprise for a fixed period. It is essentially backward-looking in nature. Management accounting, on the other hand, is futuristic. It is prepared for decision-making in the future. These reports are prepared to keep in mind the needs of the management to take effective and efficient decisions which in turn will boost the profitability of the organization. Therefore, financial accounting relates to the past while management accounting emphasizes the future. (Wood, 2015)

Financial accounting reports are essentially monetary. All other aspects, for instance, the quality of staff, are ignored. On the contrary, management accounting considers even non-monetary aspects. These reports contain both monetary as well as nonfinancial information. (Peter Atrill, 2005)

Financial accounting reports are prepared regularly. It is usually prepared annually for an enterprise. It is required that companies prepare financial statements regularly. On the other hand, management accounting reports could be prepared as and when required. They are generated according to the management’s discretion and needs. There are no strict rules relating to these reports as they are prepared for the internal use of the enterprise. (Peter Atrill, 2005)

Financial accounting requires that the reports produced are objective, precise and verifiable. Precision is an important aspect of this field of accounting. As it shows the financial performance and position of the business, which in turn helps in decision-making, the data should be accurate and relevant. For management accounting, the data should only be relevant enough for making certain decisions. It is more subjective as it relies on estimates. Even though they are less objective, they still provide managers with the information they need. (Crosson, 2011)

Financial accounting is mandatory for an enterprise. It has been made compulsory for every organization to prepare financial statements to show the business performance as well as for tax computation. Management accounting, on the other hand, is optional. It is for the company to decide whether they have to do management accounting. The data generated in the process of management accounting are private and confidential, which is used only to assist the decision-makers of the company.

Financial accounting is more rigid as compared to management accounting. The preparation of financial statements requires the company to follow certain fixed rules and standards to make the data relevant, verifiable and comparable. This doesn’t allow for much creativity. On the other hand, management accounting allows for innovation. As it is done by internal management and as it is used only by managers, it is much more flexible than financial accounting. (Peter Atrill, 2005)

Both financial accounting and management accounting is extremely important to an enterprise. The basic difference between the two of them is that the former is used by those external to the organization whereas the latter is used by the internal organization. Management accounting is less constrained as compared to financial accounting. It is more flexible. Managers have more control over the information prepared. Other users can only use the data that has already been prepared. But the two forms of accounting are similar in various aspects. (Peter Atrill, 2005)

Both forms of accounting exist to give necessary information to the users. Therefore, both practices generate financial statements. Both forms of accounting require professional expertise and experience. Both types of accounting often require the accountant to undergo formal training at a university. Both practices require that the data be presented efficiently. The data should be timely, relevant, comparable, and verifiable. Management accounting reports don’t have to be as precise and objective as financial statements, but they still have to be relevant. (Anon., 2017)

Internal controls are essential in both forms of accounting. The management accountant assists managers in developing and executing internal controls, and a financial accountant scrutinizes internal controls while an audit, making sure that the internal controls are effective. (Anon., 2017)

For both types of accountants, accounting information system knowledge is crucial. The management accountant needs to use an accounting information system to illustrate information to managers, while the financial accountant employs the system to audit financial data to ensure it is accurate. Several companies stopped employing paper records. Hence, both forms of accountants should be aware of how an accounting information system works. (Anon., 2017)

Management accounting is extremely important for planning the organization. Formulating plans is one of the most crucial tasks performed by an enterprise as it is based on these plans that all other activities are performed. Financial accounting helps in controlling. The financial statements prepared show how effective planning was and serves as the basis for controlling. It helps in taking corrective measures to help the organization reach a better position.

Financial accounting emphasizes external services, but internal services are also contained. Management accounting and financial accounting have decided to follow the common prerequisites of contemporary enterprise accounting, which implies the users of accounting information deliver suitable data, to attain organizational goals and meet the obligations outside the company. So, the fundamental purpose of financial accounting and management accounting are the same.

Both financial accounting and management accounting are faced with self-improvement and development. They need to deal with the needs of contemporary management according to the organization and enactment of accounting management. These two forms of accounting are two sides of a coin and coexist in every organization.

References

1. Anon., 2017. Similarities Between Management Accounting & Financial Accounting. [Online] Available at: https://bizfluent.com/list-7154178-similiarities-management-accounting-financial-accounting-.html
2. Anon., 2019. History of Accounting From Ancient Times to Today. [Online] Available at: https://www.thoughtco.com/history-of-accounting-1991228
3. Anon., n.d. [Online] Available at: http://www.ddegjust.ac.in/studymaterial/mba/cp-104.pdf
4. Anon., n.d. Managerial Accounting. [Online] Available at: https://saylordotorg.github.io/text_managerial-accounting/
5. Crosson, S. V., 2011. Managerial Accounting. Mason: Cengage Learning.
6. Horngren, S. E., 2004. Introduction to Financial Accounting. Delhi: Pearson Education.
7. Larry M. Walther, C. J. S., 2010. Basics of Accounting & Information Processing. s.l.:Ventus Publishing.
8. Peter Atrill, E. M., 2005. Management Accounting for Decision Makers. Edinburgh: Prentice Halls.
9. Roger H. Hermanson, J. D. E. S. D. I., 2006. Managerial Accounting. 8th ed. s.l.:Freeload Press.
10. Stratton, D. B. J. S., 2008. Introduction to Management Accounting. New Jersey: Pearson Education.
11. Weetman, P., n.d. Financial Accounting: An Introduction. s.l.: Pearson Education.
12. Wood, F., 2015. Frank Wood’s Business Accounting 1. Harlow: Pearson Education.

The prudential inquiry into Commonwealth Bank of Australia which delivered its final report in April 2018 identified three types of problems, they are as follows.

Governance

The first type of problem mentioned in the report is governance. Governance can be defined as the way in which decisions are made. This means how the financial objectives, values and strategic priorities undertaken by a firm impacts on the decision-making and risk-management and how such decisions which are made are implemented. Since governance involves decision-making, the Panel described the decision-making in CBA as overly complexed and bureaucratic. This had favoured collaboration over timely as well as the effective outcomes which slowed the process of detection of risk failings. Problems also arise when a firm is reactive rather proactive. The proactive approach focuses on taking actions before they appear and thus making a firm well prepared in order to deal with the problem when they arise. CBA however was reactive while dealing with their risks. It is always beneficial to have to plan before the risk appears rather than tackling and coming up with measures after they appear. Operational risk in CBA received attention only after they had emerged clearly. This also had an impact on their reputation. The solution to this risk may not always be timely and effective.

According to the Panel report on CBA, at all their levels, the degree of attention and priority given to the governance and management of non-financial risks was not up to the standard, considering the Commonwealth Bank of Australia being a domestic systemically bank. In terms of risk-management, the board along with their other committees, suffered from shortcomings in the governance of non-financial risks. The Board did not have the right balance of summarised and detailed reporting in the risk areas nor did they strive to make any improvements. While at the executive committee level, there was a lack of accountability for the non-financial risk management and lax remuneration practices. This ultimately led to inevitable weakness in relation to their emerging risks and customer related issues. The serious non-financial risk issues were also not identified and addressed in its early stage. The Panel observed an imbalance between the ‘voice of finance’ when it was compared to the ‘voice of risk’ and ‘customer voice’ collectively. The trade-off decisions were given a priority over the customers’ voice decisions even though treatment of their customers is very important for their reputation and public standing.

In order to deal complexity and to organise their risk governance, it has become a norm for the banks to implement the ‘Three Lines of Defence Model’. The first line of defence is the business, the second line is the independent risk management and compliance function and the third line is the independent audit function of both external and internal audits. However, CBA had failed to implement this model efficiently despite their number of attempts over the years.

Accountability

Accountability is one of the five of CBA’s core values and is the second type of problem mentioned in the Panel. It can be defined as a process in which the staff of CBA collectively and individually fulfil their responsibilities. It provides a better clarity on personal accountability for risk management through detailed mapping of accountability to roles. Training on softer skill development and mindsets helps to build a culture of active identification and mitigation of risks.

The staff also has to suffer the consequences of failing to do so. Remuneration outcomes is defined as one of the best methods to hold the staffs accountable for their mistakes. CBA’s application of remuneration policies to support the accountability and effective risk management hardly helped. The Board did not hold the senior authorities to account for the risk and outcomes which happened on their watch.

There are a number of reasons behind CBA’s struggle with accountability, like the trust, over consulting and the federated organisational structure. CBA suffered the consequences of having a federated organisational structure. The executives were empowered about their respective business units but still was confused about the accountability for risks and issues in such business units. There was also a lack of consent and vision at the executive committee level. Accountability also failed in AML-CFT compliance. There was a lack of awareness of the roles and responsibilities of Line 1 and Line 2. An example of such confusion is mentioned in the Panel. The project to achieve compliance was run by Line 2: group operational risk and therefore the accountability for achieving compliance was with that team. However, they failed to achieve the compliance where Line 1 was mentioned as the owner of such risk.

Limited appetite to apply consequence management is also another struggle. The first example under this topic, talks on how complexity is used as an excuse for spreading accountability. The second example mentions how the senior authorities at the higher levels were not held responsible for resolving unclear roles and responsibilities at the lower levels and the third talks on how the accountability of Line 1 was not applied consistently.

There was also a lack of accountability for risk systems such as the collateral management system which records collateral. The credit risk limit system monitors and manages the credit exposures relating to derivatives while the country risk management systems which is required Line 2 to sponsor the project to improve CBA’s ability to manage its overseas exposures effectively in the absence of Line 1.

Culture

The third type of problem is culture and leadership. Culture is the norms of behaviour for both individuals and groups within CBA, which determines their collective ability to identify, understand, discuss, escalate and action taken on the current and future challenges and risks which are faced by them.

Under culture too, the Panel mentioned the staff being reactive. The senior level has a reactive approach to the operational risks. The staff have been good at reacting, flagging and tackling the issues once the rise, however they are lacking in the follow through issue resolution. There has also been a slow and reactive approach to regulatory interaction.

The risk function had an uneven, inconsistent and weak influence across the CBA. The risk function is said to have faced more obstacles than the business units while carrying out its mandate. Credibility, authority and respect of the risk function has been inconsistent and weak across CBA.

The CBA staffs also failed to learn and reflect from their past mistakes. The meetings held tend to focus on speed and intellectual debate rather than on reflecting their mistakes.

The working environment in the CBA is said to have a high level of trust among the various staffs at different levels. According to the Panel, this strength was exaggerated and has somewhat led to over-confidence and over-collaboration in abilities.

CBA also strived to balance empowerment with challenge which was in the end not executed well. The objective to empower Group Executives and encourage challenge was well intended but it was not put into practice.

The CBA sees itself to have a strong customer orientation, however it is still incomplete. They did not pay enough attention on identification of systemic issues their customer complaints. The small percentage of the customers complaints was not addressed efficiently and CBA failed to devote a sufficient attention in identifying the systematic issues or applying a long-term mindset.

Impact of These Problems on Financial Intermediaries and Their Customers

These problems have a negative impact on the financial intermediaries itself and therefore leads to a negative impact on their customers too. Lack of accountability for non-financial risk management and lax remuneration practices at the executive committee level led to an inevitable attitudinal weakness in relation to emerging risks and customer issues. There has been too much focus on the short-term aggregate customer satisfaction and a lack of focus on resolving poor experiences from customers. The identification of customers complaints has been weak. The board did not receive any analysis on the customer complaints nor was there evidence on the review of any systematic risks that such customer complaints might highlight. The board materials did not include any discussion related to their customer complaints or any risk arising from individual complaints.

The customer complaints of CBA have found their way into the public domain and this has therefore casted CBA into a poor light. This can therefore lead to unsatisfied customers and can damage the firm’s reputation in the market in the long run. Financial intermediaries who want to have a good reputation among their customers and in the market need to train their staff to on how to identify, handle and solve such problems.

Role of Regulation in Addressing Governance, Culture and Accountability Issues in Financial Intermediaries

On the 28th of August 2017, the Australian Prudential Regulation Authority announced that it would establish a prudential inquiry within the CBA group. The main reason for this is to identify the shortcomings in the frameworks and practices in the area of the problems and to find a solution on how to address such shortcomings.

Regulation under governance can be done with the APRA’s Standards. The board needs to undertake the annual assessment of its performance and that of its directors in response to the requirements under the Prudential Standard CPS 510 Governance. This handles the over-confidence in operations of the Board Audit Committee (BAC) and Board Risk Committee (BRC) and lack of benchmarking in the financial intermediaries. The board is also required to form a view on risk culture under the Prudential Standard CPS Risk Management.

The regulation of culture and leadership is also done under the APRA’s standard. In order to ensure that CBA has a healthy risk culture, CBA will have to take a complete approach which includes the targeted steps to solve their cultural and leadership weakness. These steps which are undertaken must be aligned with the requirements of the Board and management to form a view on risk culture under the Prudential Standard CPS 220 Risk Management.

Regulation of accountability is done under the Banking Executive Accountability Regime (BEAR) which strengthens APRA’s power in assessing the transparency and accountability of decision-making processes withing the authorised deposit taking institutions (ADIs). In the year 2009, the Financial Stability Board (FSB) released its Principle for Sound Compensation Practices and accompanying Implementation Standards, which was designed to achieve a clearer alignment between the remuneration practices and prudent risk-taking. In the year 2009/2010 APRA then gave effect to these FSB’s principles through amendments to its prudential standards on governance and introduced the Prudential Practice Guide PPG 511 Remuneration. This established the minimum requirements and better practice expectations in relation to the design, the governance and to the implementation of remuneration policies.

The ‘Three Lines of Defence’ model too was also applied by various financial intermediaries in order to solve these three problems. We can therefore say that regulation plays an important role in financial intermediaries in helping them to address these problems.

Actions of Financial Firms to Identify and Rectify These Problems

The financial firms have to not only be prepared physically but also be prepared mentally in order to identify and rectify the problems faced. The Panel mentions how one should change their mentality from ‘can we do it’ to ‘should we do it’. To solve the problem of governance, CBA has applied the risk management framework, which helps in identifying, measuring, evaluating, monitoring, reporting and in controlling the internal and external sources of risk. CBA’s risk management framework for identifying and managing risk related to operational and compliance involved certain processes. The ‘Risk in Change’ is one of the process and was strengthened by CBA. This process is used in order to identify and manage risks. The BRC oversees the implementation and operation of this framework while the BAC provides an objective review of the effectiveness of the reporting and the risk management framework. The Board Remuneration Committee too plays a role in overseeing the bank’s remuneration framework and assists the Board to ensure that the remuneration objectives and the structure of its remuneration arrangements are appropriate.

Under accountability, the effective accountability mechanisms undertaken by firms can help in identifying and in escalating the new and emerging risk issues. CBA makes it clear to the staff regarding their responsibilities. In order to rectify the problem of accountability, CBA makes it clear to their staff that everyone understands and deliver what is expected of them. It also expects its staff to acknowledge their mistakes, to escalate and learn from them. The team leaders too have the responsibility of setting clear expectations of each person and the team. CBA identified that further investment is required in order to improve the understanding of accountability across groups. This involved training of staff and remediating the work on the ‘Three Lines of Defence’ model. Risk management program was also used to rectify and to address the problem of accountability. Accountability principles are used by CBA to make sure that their executives who demonstrate accountability ensures an effective supervision in delegated activities. They enable appropriate funding, resourcing and proactively responded to the material risk issues to ensure that they do not persist without effective resolution. CBA has committed to adopt all the recommendations from the ‘Sedgwick Report’ on sales commissions and product-based payments in the retail focused businesses.