The expenditure plan will prioritize transport, water and sewer systems, affordable housing, and aquatic facilities because they are the most urgent needs raised by the city residents during the citizen review and participation phase of the budget planning process. The planning and allocation of the 10-million-dollar fund will be based on public sector accounting principles, integration of fund accounting and financial controls, and conformation to government financial reporting requirements. The following list describes the adopted priorities with their budgetary implications; first, transportation system enhancements. Transportation issues are often cited as among the most pressing concerns for city residents. Therefore, about 11% of the fund will be set aside for pavement maintenance, street reconstruction, main street streetscape special improvements and sidewalk replacements. The 11% allocation will supplement the street maintenance budget by setting aside an additional $217,000 to revamp pavements, $565,000 for reconstructing streets and compensating adjacent property owners, $120,000 for building new sidewalks, and at least $200,000 for special improvements on the main street.
Secondly, the $10-million fund will prioritize the upgrading of water and sewerage systems. There is a need to increase budgetary allocation for water and sewerage systems in the city in order to serve the needs of the ever-growing population. By the end of the current fiscal year, it is estimated that the city population will be at least 100,000, thus, making water and sewerage development a top priority. Hence, 16% of the fund will be added to the current water and sewer fund to optimize the water supply and maintain public health and sanitation standards in the city. Part of the money will be used to build a 7.3-million-gallon water storage reservoir in the city. Expanding the water and sewerage infrastructure will support the city's utility operations and capital projects heavily reliant on water.
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Thirdly, a quarter of the 10-million-dollar fund will be set aside for affordable housing. Housing remains a major challenge for many city residents. The high prices of land have led to a rise in the cost of housing. Therefore, the city council should implement a comprehensive, affordable housing project whose focus will be to increase the budgetary allocations to the Community Housing Fund. Additionally, 25% of the 10-million-dollar fund allocated by the city manager will be added to the Community Housing Fund to support community-led housing projects. The fund will enhance access to affordable housing and reduce congestion in city households.
Lastly, the fund will prioritize the building of an aquatics facility. Past surveys have pointed out the limited life-span of the current city swimming pool, which is the only outdoor public aquatic facility. The pool could soon become a public health and safety risk, particularly when the population increases. Therefore, 9% of the fund will be used to design and construct a new outdoor aquatics facility.
Public sector accounting principles will be used to manage the 10-million-dollar fund. The premise of public sector accounting is budget-linked budgetary accounting. In other words, the primary objective of accounting in the public sector is to ascertain that state entities have spent their monies legally and consistently with the set budgetary provisions (Oulasvirta, 2016). In contrast, private sector accounting's main objective is to establish internal controls for recording and managing business transactions and setting the foundation for the company's financial statements. Therefore, a fundamental distinguishing principle of public and private sector accounting is the primary goal of accounting. The development of the expenditure plan for the 10-million-dollar fund will be based on public sector accounting principles because the fund belongs to the city council, which is a public entity. Moreover, basing the expenditure plan on public sector accounting principles will ensure spending is budget-led, an important aspect of promoting accountability. The advantage of using public sector accounting principles is that cases of fraud or misappropriation of funds will be minimized or averted, thereby ensuring services are delivered to the people as intended. In summary, budget-linked budgetary accounting will be adopted to enhance accountability.
Secondly, public and private sector accounting differ in their calculation of profits and losses on an accrual basis. Since public sector agencies do not aim to generate profits, they do not need to use the accrual basis. They can use the cash basis instead (Fumiki, 2007). The main advantage of cash-based accounting is that it considers both the flow of revenue expenditures and capital expenditures to implement infrastructural projects and transfer expenditures. The cash basis accounting yields more critical information for public policy decision-making. However, cash is only a single item of assets and liabilities, and cash basis accounting ignores critical information on stocks, fixed assets and debts, which could cause serious fiscal management ramifications. Therefore, the development of the $10 million expenditure plan will adopt the cash basis accounting and consider other items of assets and liabilities, including the debts owed to property owners by the city council.
Thirdly, public sector accounting differs from private sector accounting in the former's superiority in procuring resources. While all economic entities are supposed to behave rationally and have an equal footing in the market, public sector agencies enjoy hierarchical bureaucracies that exist in the distribution of resources (Fumiki, 2007). Governments have the power to impose taxes and forcibly procure resources by causing the involuntary submission of resources by private sector agencies. In this case, the expenditure plan for the 10-million-dollar fund will benefit from the city council's advantage in resource procurement, thereby expediting the execution of projects in the four priority areas identified above.
Additionally, public sector accounting strictly complies with the consistency principle. Fundamentally, the consistency principle requires that once a particular accounting method is selected, it should be maintained until a preferably better method comes along. Private sector accountants do not necessarily comply with the consistency principles. Jumping between different accounting treatments of transactions makes it difficult for businesses to discern their long-term financial results. When developing and executing the expenditure plan, accounting procedures will ensure strict compliance with the consistency principle. The advantage of following the consistency rule will be to enable the city manager to discern the long-term implications of meeting the four priority needs identified above (Fumiki, 2007). In other words, the consistency principle will facilitate monitoring and evaluation of the various projects that will be run under the four priority areas listed above. Failure to comply with the consistency rule could complicate the monitoring and evaluation of the new projects. As expressed, public sector accounting will be used because of its strict compliance with the consistency principle.
Moreover, public sector accounting principles emphasize the full disclosure of financial statements or all information necessary for the understanding and interpretation of financial statements. On the other hand, private sector accounting only focuses on setting up internal controls to record financial transactions and may not disclose all information relevant to a particular transaction. The advantage of public sector accounting is that it promotes transparency and accountability as the individual is furnished with all the relevant information (Fumiki, 2007). Transparency in the private sector is limited as accountants may not be obliged to disclose any information beyond what they deem necessary. Therefore, the $10 million expenditure plan will utilize public sector accounting principles to ensure that all information relating to every single transaction in every project is disclosed. The city manager will have a deeper understanding of how the $10 million was spent if he is furnished with all the relevant information. Therefore, public sector accounting will be used because of the need to fully disclose all financial statements and information to the city manager.
Additionally, private and public sector accounting differ in their treatment of capital expenditures in accrual basis accounting. Private sector accounting treats capital expenditures such as those on infrastructure construction as profit and loss transactions since private sector entities are profit-making organizations. In contrast, public sector entities do not pursue profits and, therefore, treat capital expenditures as either "capital transactions" or "exchange transactions." Capital transactions are for capital expenditures that directly impact reducing capital, while exchange transactions have the opposite effect (Fumiki, 2007). Therefore, using accrual basis accounting in the public sector may not be an effective tool in evaluating government activities' performance. The development of the expenditure plan for the 10-million-dollar fund allocated by the city manager will use the cash basis accounting, which will focus on capital expenditures and clarify the council's accountability for managing the funds.
A number of fund accounting and financial controls will be applied in the management of the fund to ensure the set objectives are achieved. A fund management committee will be set up and charged with authorizing payments to vendors to control extravagant expenditures. The fund management committee will have a transparent chain of communication and command to enhance accountability in decision making and financial management practices. Moreover, a vendor database with details of their purchase records will be maintained to promote efficient cash outflow management. Strong internal controls safeguard cash flows and inventory (Kabuye et al., 2019). Additionally, a clear and consistent reimbursement framework will be maintained to ensure city property owners are compensated as deemed necessary. The reimbursement framework will contain expense reports and receipt verifications to prevent fraud or cases of double compensation for property owners.
Importantly, selecting the best control and management approach of public expenditures is necessary to ensure the fund's goals are effectively met. The contemporary approaches of control and management of public expenditures include allocative efficiency, operational efficiency and aggregate fiscal discipline. Aggregate fiscal discipline entails the development of a budget to guide all expenditures (Schick, 1998). The spending and other budget totals are determined or set independently before decisions on the budget's specific areas are made. All spending is consistent with the budgetary allocations. In other words, the spending totals are not varied to meet the changes in demand that could occur along the fiscal year. Aggregate fiscal discipline ensures there is no budget deficit since all projects are executed within the budget. Besides, aggregate fiscal discipline ensures transparency and accountability in public expenditure management. The second approach is allocative efficiency that entails developing a budget that can be adjusted to accommodate minor changes in demand or other economic dynamics (Schick, 1998). Decisions on budgetary allocations and spending are made centrally, while decisions on readjustments on the budget are decentralized. The budgeting process is flexible and takes into consideration the fluctuations in the market. There are clear chains of communication in different departments, which allows for transparency and accountability. The heads of departments or managers justify their budget portfolios' adjustments by providing detailed receipts or payment verification statements. The last approach to public expenditure control and management is operational efficiency, which shifts the focal point of spending controls from inputs to outputs. The operational efficiency approach decentralizes all decisions on budget planning and making and manages operating resources. Comprehensive audits are carried out at each decentralized unit for accountability purposes. In summary, the three approaches to public expenditure control and management are allocative efficiency, operational efficiency, and aggregate fiscal discipline.
The recommended approach of control and management of public expenditure is allocative efficiency, which allows for adjustments to be made to the budget to accommodate the dynamic economic environment. Another advantage of the allocative efficiency approach is that it empowers decentralized units to make independent decisions about their own resource needs. In essence, the decentralized units' empowerment promotes optimal functioning in all departments (Schick, 1998). The allocative efficiency approach will be used to develop the expenditure plan for the 10-million-dollar fund set aside by the city manager. By using the allocative efficiency approach, every unit will be required to determine its own resource requirements and submit them to the fund management committee. The committee will be the central decision-maker on all spending. The committee will also make adjustments based on the reports submitted by the different units. During the budgeting process, about 15% of the fund will be set aside for such adjustments as they may arise in the course of the fiscal year. In essence, the auditing of the expenditure on different projects will be conducted centrally. Every department or unit will be required to justify expenditure by providing relevant transactional documents.
Upon completing the 10-million-dollar expenditure plan, the financial statements will be developed according to the government's financial reporting requirements. Financial reporting is the premise of sound fiscal management. High-quality financial reports are required to help the government and policymakers take appropriate decisions. The quality of financial reports is determined by their completeness regarding the scope of the financial information captured, their comprehensiveness with regard to the entities covered, and their integrity with regards to the extent of accuracy or validity of the financial statements (Hatch, 2013). The government financial reporting requirements include budgetary integrity, operating performance, stewardship, and systems and control.
Budgetary integrity requires financial statements to provide accurate and verifiable information on how the budget resources were obtained, allocated and used. Every financial report needs to be accompanied by the statement of budgetary resources that highlights the budgetary resources, scope, obligations and outlays (Hatch, 2013). Secondly, operating performance is the requirement of financial reports to provide information regarding the expenses and accomplishments of programs and activities as well as the management and control procedures of assets and liabilities of the reporting entity. Specifically, the financial report could include the net cost statement that details the net cost of operations of the entire operating government entity and other related expenditures.
Thirdly, stewardship is the requirement of financial reports to include information on the nature or state of the reporting entity's financial position during the period covered. The financial report ought to provide information on whether the entity's fiscal position improved or declined and whether the present budgetary resources are sufficient to achieve future goals and obligations (Hatch, 2013). The need for financial reports to include information on the government entity's financial position over a particular period informs the reader of the report whether or not the government has been a good steward or custodian of public resources during that period. Lastly, systems and control is the financial reporting requirement that mandates financial reports to help readers establish whether financial management protocols, administrative controls and internal accounting procedures implemented by the reporting entity are sufficient to meet the requirements of budgetary integrity, stewardship and operating performance. In addition to the financial report, the management of the reporting entity provides written assurances that the report meets the objective of the systems and control requirement.
The expenditure plan for the 10-million-dollar fund will meet the government's financial reporting requirements by ensuring strict compliance with accounting principles to avert fraud or misrepresentation of facts. There will be transparency in the budgeting process. Every unit will be allowed to present their views on the budget, consistent with the allocative efficiency approach. Additionally, the financial information presentation will consider the management and control procedures of the city's assets and liabilities. The accounting methods and principles will be consistent to allow for the discernment of the long-term implications of the $10 million fund. Lastly, a stewardship statement will be presented to the city manager, detailing the effect of the 10-million-dollar fund on the city's overall fiscal position. Expectedly, implementing the projects in the four priority areas identified above will strengthen the city's financial position and paint the city manager as an effective steward of public resources.
In conclusion, the expenditure plan for the 10-million-dollar fund will prioritize the four main areas identified in the citizen review and participation phase of budget planning, namely: improvement of the city's transportation systems, development of water and sewer systems, building a bigger and safer aquatics facility and affordable housing. The expenditure plan will be premised on the cash basis accounting that considers both the flow of revenue expenditures and capital expenditures for the implementation of infrastructural projects and transfer expenditures. Thus, cash basis accounting will yield adequate information for decision making. Moreover, a fund management committee will be established to authorize payments to vendors and control extravagant expenditures. The expenditure plan will also adopt the allocative efficiency approach to public expenditure management and control. Hence, 15% of the fund will be set aside to accommodate adjustments in the different departments' budget portfolios. Finally, the expenditure plan's reporting will comply with the government's financial reporting requirements of budgetary integrity, operating performance, stewardship, and systems and controls.
References
Fumiki, S. (2007). Public sector accounting system and public governance. Keizai Sangyo Journal .
Hatch, G. (2013). Federal financial reporting: An Overview. Global Research Service , R42975 , 1-27.
Kabuye, F., Kato, J., Akugizibwe, I., & Bugambiro, N. (2019). Internal control systems, working capital management and financial performance of supermarkets. Cogent Business & Management , 6 (1), 1573524. https://doi.org/10.1080/23311975.2019.1573524
Oulasvirta, L. (2016). Accounting principles. In: Farazmand A. (eds) Global encyclopedia of public administration, public policy, and governance. Springer, Cham. https://doi.org/10.1007/978-3-319-31816-5_2278-1
Schick, A. (1998). A contemporary approach to public expenditure management. Applied Sciences Knowledge , 1 (1), 1-143.
