A performance measurement approach to improve financial management in provincial governments in South Africa

English: The financial management in the public sector can be improved by the development of an integral accrual accounting system to enable the preparation of accrual-based budgets, financial statements and performance reports to meet the needs of the various stakeholders. Traditionally the management of government expenditures has been focused on a system of expenditure control, which is based on the cash basis of accounting, to ensure that budgetary authority granted by the legislature is not exceeded. The cash basis of accounting does not measure the resources consumed during the period under review, thus the true costs of government programmes and projects are not correctly measured, controlled or reported. In the absence of accurate cost information, performance measures of efficiency and cost-effectiveness cannot readily be determined. The Public Sector Committee (PSC) of the International Federation of Accountants (IFAC) is currently involved with the establishment of International Public Sector Accounting Standards. These standards will introduce the accrual basis of accounting and is a significant step towards transparent and accountable information. The financial successful and efficient organisations are headed by competent management and make use of effective budgetary control. Effective budgetary control is based on operating budgets that are closely linked with long-term strategic plans and desired outcomes. The operating budgets are then compared with actual results, on an accruals basis, in order to measure performance and efficiency. It is clear from the above that three prerequisites exist for performance measurement, namely (i) committed and competent line-managers; (ii) outcomes-based budgeting; and (iii) accruals-based reporting. The balanced scorecard is a useful tool to document the strategies and the performance measures of outputs. A performance measurement framework that uses the balanced scorecard as a base are developed for provincial governments and incorporates (i) the implementation of an outcomes-based budget; (ii) the use of an accruals-based cost/revenue allocation to measure the costs of the various outputs; and (iii) a performance statement. Committed and competent line-managers are the first prerequisite for performance measurement. The responsibilities and training needs of the Executive Authority, Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are clearly defined and the training needs of provincial government officials are highlighted. Outcomes-based budgeting is the second prerequisite for performance measurement. The public sector managers in provincial governments should take cognisance of the shortcomings of the current budgeting process and consider the implementation of activity-based budgeting. Reporting on an accruals basis is the third prerequisite for performance reporting. Internal reporting in provincial government departments should be revitalised and activity-based costing should be implemented to facilitate accruals-based cost allocations to all the various activities and processes that are required for each output. Finally, the study recommends a performance statement that can be incorporated into the financial statements of provincial government departments, which will be in total harmony with the income statement and the balanced scorecard.