The applicability of accrual based budgeting in the Maltese general government sector

Abstract

Purpose: The principle aim of this study is to investigate and analyze the applicability of accrual based budgeting in the General Government Sector. This budgeting methodology is credited with providing better cost information, improved capital asset management, an increase in transparency and accountability, as well as highlighting future government obligations. Design: This study encompasses a literature review that focuses on those countries that have either adopted full accrual budgeting or include accrual information in other types of budgets. A number of interviews were conducted with senior officials at the Budget Office, the Treasury, various Ministries, departments, Local Councils, and government entities, who are involved in various stages of budget development. Findings: It has resulted that the introduction of the accruals methodology has improved transparency in both local councils and government entities but their managerial autonomy in budget decision making is very restricted by their respective Ministries and the Budget Office. Before this methodology can be introduced in the rest of Central Government, an investment in a robust Financial Management Information System is required. Such a system can be used to compile cost information which is essential in determining the cost of outputs, outcomes or programmes. This is already being done in government entities not forming part of the General Government Sector. If accrual budgeting is introduced, it would prove useful to control and manage certain long term liabilities while increasing the awareness and sustainability of other government obligations. But before accrual budgeting can be implemented in the General Government Sector, a change in financial legislation is required. It also necessitates a substantial investment in training at all levels of government due to its inherent complexities. Conclusions: The cash-based budgeting system, which offers a high level of control, should be maintained even when the accruals methodology is implemented. The cash budget is still an important budget required for decision making by any type of organisation. Other types of budgeting solutions can then be gradually applied to various departments in order to improve their performance. Accrual based budgeting would then complement the cash baseJ budget, but not replace it.