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Send  Share  RSS  Twitter  20 Jul 2009

Business: Local Authorities Need Help

 





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George Higgins, Associate Director for Public Sector Accounts at Ernst and Young, explains that local authorities in specific are struggling to move across to the new standardised accounting model, Generally Recognised Accounting Practice (GRAP).

“Until now local authorities have been using an accounting standard set by the Institute of Municipal Finance Officers which is an accrual basis of accounting but vastly different from GRAP. There are, however, differences between the way that government departments and local authorities account for expenditure and this could lead to difficulties when attempting to reconcile transactions between the different systems.

While implementing a single standard across the public sector will solve many of the problems facing government in this area at the moment, there are real challenges that face government during the changeover.

“Part of the problem facing local authorities is the issue of attributing value to the specifically property, plant and equipment, as they have neither the manpower nor the skills to embark on a project of this complexity,” he comments.

He explains that as part of implementing GRAP, something that has been mandated by the South African government, local authorities have to place a value on all their assets. This becomes difficult when accounting for specific elements of infrastructure as items such as electricity grids and water and sewage pipes.

“With infrastructure that is distributed across the entire reach of a local authority and in many cases is buried underneath the ground it is difficult attribute a value to this in order to comply with the new accounting standards,” he says.

“To accurately value these assets it is necessary to have access to specific engineering skills which most local authorities would not have on call,” he explains.

He adds that an additional challenge for local authorities will be the implementation of more complex accounting rule and systems. “The situation as it stands today is that in many of the smaller local authorities the level of skills in the finance office. This means that in addition to implementing new rules and systems to comply with GRAP, it would be necessary for local authorities to raise the skill levels in order to be able to run the finances of the authority post implementation.

This is not likely to be a problem in the larger local authorities as they have, over the past few years, invested heavily in deploying enterprise resource planning systems, to enable them to account more accurately for their operations. However, many of these systems have been entirely focused on the financial side of the business rather than the operational side.

“What is need right now is for national government to provide assistance to those local authorities that are struggling to move across to GRAP,” he says. “This assistance would need to be focused on putting the correct financial controls in place, allowing the local authority access to the experience that is required.”


 
 
 
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