Management Control and Reforms in Local Governments

1
Management Control and Reforms in Local
Governments

• By
• Stephen Kasumba
• Essex Business School

2
Lecture Overview

• What are local governments?
• Roles of local governments
• Traditional Management Controls in Local
  Governments
• Why Reforms in Management Controls in Local
  Governments
• Nature of management control reforms in local
  governments
• Evidence from empirical studies
• Summary

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What are local governments?

• Local governments are administrative units that
  are smaller than a state or national government
• Different countries have different configurations
  of local governments

4
Comparative Configurations of Local Governments
(1)

• United Kingdom
• The system of local government is different in
  each of the four countries of the United Kingdom
• England
• 9 Regions divided into counties and
  districts(also known as boroughs in some areas)
• Northern Ireland
• 26 districts
• Wales
• 22 counties (county boroughs)
• Scotland
• 32 council areas
• Each of these countries have different services
  provided by their local governments

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Comparative Configurations of Local Governments
(2)

• Australia
• Local government is the 3rd tier of government in
  Australia, after Federal and State.
• It has 8 states and territories controlled under
  a federal system of government.
• Uganda
• A district is the highest level of local
  governments
• Districts are further divided into subcounties
  (Municipalities, Town Councils, City Divisions)

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Comparative Configurations of Local Governments
(3)

• China
• Twenty two provinces, (sheng)
• Taiwan (is considered the 23rd although the
  island maintains autonomy)
• Four municipalities directly under the Central
  Government (including Beijing and Shanghai), Five
  autonomous regions (including Tibet and
  Xinjiang), and
• Two special administrative regions (Hong Kong and
  Macau)

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Comparative Configurations of Local Governments
(4)

• The Netherlands
• There are two levels of local government in The
  Netherlands
• provinces and
• municipalities.
• United States
• Local government of the United States refers to
  the governments at the
• City,
• Town,
• Village, or
• Borough

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What do local governments do?

• Provide various services depending on powers and
  authority granted to them by the central
  government, including
• Education
• Community Services
• Health
• Infrastructure development and maintenance, such
  as roads, housing
• Environment protection
• Solid waste management trade development
  services and licencing, etc.
• Usually have some power to raise taxes, though
  these may be limited by central legislation.
• In some countries local governments are partly or
  wholly funded by central government taxation.

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Why interests in local government reforms?

• Usually local governments control significant
  amount of public expenditure
• In the UK
• Local councils spend over 113 billion a year,
  accounting to about 27 per cent of the total
  managed public expenditure in UK .
• Local governments employ over two million people
  making it one of the largest employers in the UK.
  
• In Uganda
• Local government system have expenditure of over
  Ug Shs1 trillion (over 333 million pounds)
  representing about 22 of the total public
  expenditure
• Local government system is the largest employment
  sector

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Traditional Management Controls in Local
Governments (1)

• Budget Formulation
• Incremental budgeting, focusing on Inputs
• Short-term, usually on yearly basis
• Devolved budgets, most policies made from the
  centre (top-down)

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Traditional Management Controls in Local
Governments (2)

• Budget Management
• By Technocrats
• Compliance with budget limits and financial
  regulations (Anessi-Pessina and Steccolini, 2007)
• Limited flexibility in budget management

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Traditional Management Controls in Local
Governments (3)

• Budget Reporting
• Focusing on financial expenditure
• Cash- based reporting
• (Anessi-Pessina, et al, 2008 Monsen, 2002)

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Why Reforms in Management Controls in Local
Governments?

• Economic Crises (turbulences in the economy)
• Economic Contradictions
• Increasing demand for public services and
  decreasing resources to finance them
• Greater demand for public services, but increased
  demands to reduce on taxation
• Search for efficiency and effectiveness in
  delivery of public services
• Searching from private sector management styles
  to solve public sector problems
• New Public Management (Hood, 1991, 1995 Bogt,
  2008)

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Advocates for the changes in management controls

• Supranational agencies, such as
• World Bank, IMF, DfID, Danida, EU
• Professionals and their networks
• Accountants, Public sector specialists, IT
  experts
• Emulating successful organisations and countries
  (Benchmarking)

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Nature of management controlreforms in local
governments (1)

• Budget Formulation
• Output or Outcome Budgeting, with performance
  indicators
• Medium term budgeting
• Participatory budgeting (fostering good
  governance) involving various stakeholders
  (bottom-up)

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Nature of management controlreforms in local
governments (2)

• Budget Management
• Technocrats-led but closely monitored by peoples
  representatives (local politicians)
• Focusing on attaining outputs and outcomes
• Greater freedom to revise budgets, usually
  approved by local politicians
• Advanced financial management systems for
• Timely and accurate management control
  information for
• Decision-making
• Reporting and accountability
• Increasing transparency in resource utilisation
  (especially through integrated financial
  management systems)

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Nature of management controlreforms in local
governments (3)

• Budget Reporting
• Accrual Reporting Practices
• Based on achievements
• To a variety of stakeholders, including local
  communities (downward reporting)

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Effects of the changes in management controls on
local governments (1)

• According to Hofstede (1981) the adoption of
  management control systems does not succeed in
  the public sector because they do not take into
  account the differences in the context in which
  they are applied.

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Effects of the changes in management controls on
local governments (2)

• Hofstede (1981) argues that there are four
  criteria against which management processes and
  activities are categorised with regard to
  managerial control purposes
• Where the objectives can be precisely and
  explicitly expressed
• The extent to which organisational outputs can be
  precisely measured
• The extent of the managerial intervention in
  influencing outputs or outcomes
• The degree to which organisations activities are
  repetitive or otherwise

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Types of Management Controls (1)
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Types of Management Controls (2)
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Power relations and changes in management
controls in local governments

• Various local government actors with different
  interests, power and societal expectations
• Techno-bureaucrats
• Politicians
• General Community
• Tensions and conflicts between changes in
  management controls and the interests of local
  government actors
• Politicians usually have significant amount of
  power to decide (Tambulasi (2007 Modell and Lee,
  2001)
• Decision-making based on political sentiments
  rather than technical aspects of the changes in
  management controls (Anessi-Pessina and
  Steccolini, 2005 Ezzamel, et al, 2007Jansen,
  2008)

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Case Study
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Evidence from empirical studies (1)

• Budgeting
• Seal (2003) revealed the persistent of
  incremental budgeting in an English local
  authority as a product of structures of
  domination where powerful actors resisted changes
  to the existing systems.
• Ezzamel, et al, (2007) revealed that the
  preparation and monitoring of budgets in the
  devolved UK bodies were mainly implemented for
  gaining external legitimacy
• Lapsley and Pallot (2000) observed the
  persistence of incremental budgeting, despite the
  changes that had been intended to introduce
  policy-led budgets.

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Evidence from empirical studies (2)

• Budgeting contd...
• Callanan (2005) posited that participatory
  budgeting structures were usually captured by a
  few powerful actors of the organisation (Hickey
  and Mohan, 2005 Francis and James, 2003).
• Participatory budgeting systems are always
  reduced to a mere consultative process with no
  direct consequences on the final budget (Lapsley,
  2008 Bräutigam, 2004).
• However, Askim and Hanseen (2008) argued that
  through the consultative processes politicians
  gained more information about local needs and
  priorities through interfacing with local
  residents

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Evidence from empirical studies (3)

• Budget management
• Bogt and Helden (2000) revealed that changes in
  MACS in Dutch governmental organisations have
  very little impact on the intended consequences
• Politicians and managers rarely utilised the
  accounting innovations and the management
  accounting information produced for
  decision-making purposes.
• Anessi-Pessina and Steccolini (2005) argue that
  certain innovations, like strategic plans, were
  likely not to influence decision-making on actual
  utilisation of resources when local politicians
  possessed significant control over the routines
  operations of local governments in Italy

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Evidence from empirical studies (3)

• Performance Reporting
• Jones and Pendlebury (2004) observed lack of
  compliance with accounting standards by local
  authorities during their disclosures in the UK,
  mainly due to lack of external users
• Ryan, et al (2002) revealed that although the
  quality of performance reporting in local
  governments in Australias Queensland local
  governments, the disclosures were not
  comprehensive
• Modell and Lee (2001) observed that performance
  reports were not forming appropriate basis for
  managerial control because of too much data
  provided than the managers and politicians could
  analyse for decision-making.

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Summary

• Accounting literature on the changes in
  management controls in local governments has
  mixed findings on their effects
• In some cases, new management controls lead to
  improvement in service delivery (Askim and
  Hanseen, 2008
• In other instances, unintended consequences arise
  in the changes being implemented for symbolic
  purposes (Modell and Lee, 2001 Anessi-Pessina
  and Steccolini, 2005 Lapsley and Pallot, 2000)
• In short, contextual factors, such as power
  relations of actors, their interests, intentions
  and expectations are crucial for understanding
  the changes in management controls in local
  governments