GRAP 24 is a great initiative but government needs to make compliance easier for overstrained public entities.
The GRAP 24 standard now requires certain public entities, including many municipalities, to incorporate budget information in their annual financial statements. As the Accounting Standards Board makes clear, the thinking is to “hold entities accountable for their actual activities against what was planned, and how allocated resources were utilised”.1 Government is obviously incurring a fair amount of political risk implementing this standard, and must be applauded for embedding this tool of accountability into the state’s routine financial processes.
GRAP 24 gives concrete expression to government’s desire to improve service delivery— something that is long overdue, as one can see from the growing number of service delivery protests and their violence. It is also a welcome move to provide the country’s hard-pressed taxpayers with reassurance that their taxes are being used wisely. Linking budgets to actual expenditure will, in theory, “close the loop” by providing an easy way to hold public officials to account for transforming strategy (as captured in the budget) into action (as captured in the financial statements).
Critical success factors for GRAP 24
In order to achieve its goals, I submit that GRAP 24 has three critical success factors:
• Compliance should become relatively simple. These entities are often already under-resourced, especially when it comes to finance; care should be taken not to add to their burdens, risking a loss of focus.
• Standard and streamlined processes: It is preferable that all entities follow the same processes and that they are standard. Software solutions can help to automate and thus enforce these processes.
• Comparison between the budget and actual figures should be easy to make. This is important both for the bodies exercising oversight, such as Parliament, and the general public. As part of the process of creating an informed citizenry that is able to hold its elected representatives accountable, easy access to the pertinent information is vital. In both these areas, there are challenges that need to be overcome.
From the point of view of public entities, the budgeting process itself is already unnecessarily complex and time-consuming. Despite the budget reforms made by the National Treasury in respect of the Municipal Finance Management Act (PFMA), there are no real standards in terms of whether budgets have to be made public in terms of the PFMA.
If they do, what should their format be? In addition, governments tend to classify their expenditure in terms of the functions specified by their executive authorities, such as government departments, whereas state entities are more prone to report financial information in terms of economic classification, for example, staff costs, repairs and maintenance.
Lost in translation?
These are complex issues, but the crux is that budgets are typically drawn up in a different format from annual financial statements. Thus, when it comes to providing budget information in the financial statements as required by GRAP 24, public entities have to undertake an onerous and complicated translation exercise, from “budget-speak” to “annual report-speak”.
Another complicating factor is the fact that many of the smaller public entities covered by GRAP 24 do not have their own budgets, but fall within the budgets of a larger entity. This also makes the provision of budget figures for the annual financial statements extremely burdensome.
By making the process simpler to understand and execute, government would save lots of time and get greater buy-in from civil servants. A very positive example is how SARS uses and communicates “tax seasons”. In the past, submission to SARS was complicated and not communicated well; its new approach is a great example of how to make a complex process understandable and easy to implement.
As the old saying has it, simplicity is the ultimate sophistication. Creating transparency Once the budget and actual report figures are in the same format, I believe the next step is to make them easily available to citizens. This will ensure that the third critical success factor is fulfilled. It is unrealistic to expect people to access the financial statements, which might not even be published on the website, and then extract this information.
The same point is true when it comes to members of Parliament, provincial councils and municipal councils. Those who sit on committees charged with oversight of these specific entities would obviously be dealing with the full financial statements, but ordinary members need quick access to the essential comparison. This is, after all, the Information Age, and providing access to information should be routine.
Again, this issue could be solved by implementing a standard that all public entities (including municipalities) display this information, plus their annual financial statements, on their websites. GRAP 24 is a great addition to the GRAP standard, and needs our support. But to make it truly effective, the compliance process needs to be simpler and the resulting information more freely available. ❐
Accounting Standards Board, Executive summary –
Presentation of Budget Information in the Financial Statements (GRAP 24).
Author: Stephan van der Merwe CA(SA) is Product Manager, CQS.