Financial management and control in government organizations

48 The means are the resources of complex organizations. Therefore, the primary objective of financial planning and management is to maximize benefits for any given set of resource inputs. A basic tenet in financial management is that costs should be incurred only if by so doing, the community or organization can expect to move toward agreed upon goals and objectives. Deterring whether commitment of governmental resources improves conditions in the broader community can get complicated, however, particularly when no basis exists for assessing the value to individuals of such actions. The pareto criterion suggests that the welfare of a community is improved if some members are made better off while on one is made worse off. This criterion has no logical flaws and does not require interpersonal comparisons of utility. Not all members of the community are likely to benefit equally from a given government action. There, many public choices are still open to political decision. Despite the best efforts to achieve rigor and sophistication, scientific analysis cannot provide definitive answers to many of the questions involved in the allocation of government resources. Nevertheless, a continuous search must be maintained for more productive ways to operate public organizations to assess their capacity to meet changing conditions and demands for the delivery of services. The common denominator among the various resources of any organization is the cost involved in their utilization. The production of public and quasi-public goods and services requires the acquisition and allocation of relatively scarce resources, the value of which are measured and compared in the common unit of dollars. Consequently, the focus of management most often is on financial resources (Steiss and Nwagawu, 2001).

49 The essential tools for managing financial resources include techniques for assessing the long- term fiscal needs of the organization and for acquiring these resources, rational procedures for allocating resources and managing costs, and appropriate mechanisms for recording and disseminating relevant financial information. Giving the increasing role that government and other not-for-profit organization play in the economy, the public’s stake ineffective performance of these organizations institutions is mounting. In the absence of the verdict of the marketplace, the role and the responsibilities of financial management in the public sector are given greater than those in profit oriented organizations. Financial management involves the acquisition and allocation of organizational resources and tracking of performance resulting from such allocations. Ina profit oriented enterprise, financial statements form the basis for the stockholders assessment of performance of management. In not for profit organizations, management seeks to satisfy the needs and desires of its constituents within a set of financial (budgetary) constraints. In either case, financial resources are the focal point for managerial decision making action, and accountability. Methods and techniques utilized in the performance of this financial function are relevant to managers in all types of organizations. Financial management in the public sector borrows liberally from the tools and concepts of business management. The transfer of techniques cannot be complete, however, because of the basic features of government services which include the need to provide for the common welfare and safety of the community and to allocate basic public services on other than the criterion of the ability to pay. These same features limit the extent to which business management techniques can be

50 applied in the management of public resources. Several functions are common to financial management, however, whether in the private or public sectors. A traditional role for financial management is that of score keeping. Reports of past performance are prepared for internal management as well as outside groups, such as stockholders, creditors, and the general public. The extent to which these reports can pinpoint responsibility for any deviations from anticipated performances largely depends on the degree of sophistication builtin to the accounting and related management control mechanisms. If financial control mechanisms become overly rigid and lose sight of their operating objectives, countermeasures and subterfuges will emerge that may destroy the effectiveness of the system and possibly the organization itself.

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