Save Taxpayers Millions By Expanding State Government Accounting Requirements

Huge budget deficits are forcing state governments to evaluate operating budgets and find ways to bring government spending in-line with government revenues. This exercise becomes increasingly difficult when governments must contend with plummeting revenues due to poor economic conditions. As a result, additional scrutiny should be applied to every tax dollar allocated in state budgets. By expanding accounting requirements, state legislators can save tax dollars, improve resource allocation, reduce fraud and waste, and increase efficiency by requiring government agencies to undergo regular audits and plan operations using managerial accounting principals.

Using the state of Pennsylvania as an example, the value of auditing government programs becomes very clear. When one looks at the auditing capabilities of state governments and the auditing requirements demanded by federal programs, it is not difficult to determine that auditors are stretched very thin and it is nearly impossible for them to conduct regular audits. This came to light in a performance audit conducted by the Pennsylvania Auditor General in August of 2009 titled Special Performance Audit of The Department of Public Welfare Special Allowance Program. This report outlined instances of departments not cooperating with auditors, wasteful spending, lack of internal controls, and significant opportunity for fraud and theft.

These findings are particularly alarming because the program in question has a budget of several hundred million dollars. The performance audit was released while the state legislature was trying to negotiate a new state budget that required significant cuts due to the poor economic environment. This report highlighted a place where legislators could save millions of dollars and forced budget negotiators to consider reductions in the allocation for this department. In addition to uncovering poor performance and waste, regular audits would presumably help prevent these negative outcomes if managers knew their operations would be subject to regular inspection by auditors. Once policymakers are able to identify poor management and inappropriate spending through regular audits, they can further improve efficiency and performance by incorporating the principals of managerial accounting.

The information that can be gained by utilizing the managerial accounting principals in the government services setting would prove to be invaluable. Most often the magnitude of any bureaucracy makes it very difficult to manage performance and cost at the micro level. As a result we come across egregious waste and sometimes fraud as discovered in the audit of the Pennsylvania Department of Public Welfare presented earlier. When policymakers require bureaucratic managers to utilize managerial accounting strategies they can accomplish several important objectives.  The internal evaluation and future planning associated with managerial accounting will require managers to develop long-term strategies that can improve the performance of the programs they oversee. In addition, the regular data collection associated with managerial accounting can provide many benefits in the government setting. The data recording and reporting will help managers and policymakers determine if programs are meeting intended goals. Moreover, the data reported under the managerial accounting model will help taxpayers better understand how their tax dollars are being used. However, the greatest value in this approach will be the information that is made available to policymakers. If budget negotiators have the wealth of information that is collected using managerial accounting practices, they would be able to identify areas that can achieve greater efficiency, and ensure that programs are accomplishing their intended mission, all of which would result is greater efficiency and an ultimate savings to the taxpayer.

This concept has had some success within the federal government as outlined in a report titled Managerial Cost Accounting in the Federal Government: Providing Useful information for Decision Making published by the Association of Government Accountants (AGA). This report presents several case studies of different federal departments and their utilization of managerial accounting and how it benefits each department. The common theme throughout the report is that more information results in greater awareness of the mission at hand which inherently fosters accountability and efficiency.

In the end, utilizing routine auditing and managerial accounting will result in several significant benefits. Most important is that routine audits uncover problems in many areas from managerial effectiveness to inappropriate use of tax dollars. Once these problems are identified by audits, policymakers can improve operations and efficiencies by incorporating managerial accounting principals. Clearly, to implement these strategies an increased investment in state government accounting capabilities would be necessary. This is an investment that policymakers should embrace. As we see by looking at some of the findings uncovered by state audits, as well as the success of the federal government managerial accounting requirements, there is tremendous opportunity to save taxpayers millions by expanding state government accounting requirements.