By NEIL HARTNELL
Tribune Business Editor
A top accountant yesterday said it will be one of the Minnis administration's "crowning achievements" if it can introduce accrual-based accounting to the Government's finances before the next election.
Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that public sector accounting reform was "of the greatest importance" to restoring credibility and trust in the Government's financial reporting and projections.
Speaking in the wake of the threatened Moody's 'junk' downgrade, Mr Bowe encouraged the new government to follow through with the reform process set in train by its Christie administration predecessor during the 2015-2016 fiscal year.
Without accrual-based accounting, the BICA president warned that it will be impossible to get a grip on the Government's true financial position, while also setting up the now-regular "melee" when a new administration takes office every five years.
The Government currently operates a cash-based accounting system, which only recognises revenues when they come in and expenditures when they become due for payment.
It fails to capture spending commitments that the Government may have entered into, but which have yet to fall due, meaning that the current public sector accounting system does not reveal the full extent of its liabilities. This is what an accrual-based system will correct.
Emphasising that public sector accounting reform "is not an overnight implementation" project, Mr Bowe said it would likely take between three-five years to properly install the necessary changes across government.
"Bearing in mind that we're starting from cash-based accounting and budgeting, to move to full accrual, the typical timeline has been anywhere between three to five years," the BICA president told Tribune Business.
"The inventory of assets, the inventory of liabilities, the system and changes in policies and procedures is a gradual shift....... "It is a comprehensive system change, and most private sector organisations will tell you it takes place over two years.
"With the Government, that's magnified because of divergent systems that do not speak to one another. We would expect it to be a two-three year period," Mr Bowe added.
"There has to be consistency, and it has to line up with the political cycle. The previous administration started it, and hopefully one of the new government's crowning achievements will be to flip the switch on accrual accounting by the time the next election comes up."
Moody's cited a lack of trust in the credibility of the Government's fiscal projections and accounting as a key factor in its decision to place the Bahamas on 'downgrade review', which could result in this nation losing its' investment grade' status and being dropped to 'junk'.
Apart from the Minnis administration's $722 million borrowing requirement, the rating agency was also spooked by the $500 million deficit projected for 2016-2017 - a $150 million increase on the previous government's estimates just two months earlier.
A properly-installed and used accrual-based accounting system would help to restore some of the Government's lost credibility, while also ending the "recurring debates" over which administration was responsible for incurring certain liabilities whenever power changed hands.
"We know accrual accounting will stop this melee as to why expenditure was incurred, and we would have a true position at any point in time of our current assets and liabilities," Mr Bowe told Tribune Business.
"Truly, we have had this finger pointing every five years for the last 25 years. The new government says they met the cupboard bare, says that the previous administration incurred a whole raft of obligations. When we start talking about addressing our fiscal challenges, we have to know what spending drops to the bottom line and has an overall impact on liabilities."
BICA representatives, including former Ernst & Young managing partner, Philip Stubbs, sit on the International Public Sector Accounting Standards (IPSAS) Task Force created by the former government, together with officials from the Ministry of Finance, Public Treasury and the international agencies.
Mr Bowe said it was vital that the Task Force's work continue, with BICA having formed its own Public Sector Advisory Committee to assist the Government in reforming its accounting and fiscal processes.
"It's of the greatest importance," Mr Bowe said of the need to end cash-based accounting. "The reason being is several-fold. We currently have only financial information that speaks to revenue and expenditure, but no information on the Government's assets and liabilities.
"That's the balance sheet of the Government. It's a significant element of the financial position and performance of the country."
Mr Bowe said the Government's assets included its status as the Bahamas' largest landowner, with vast holdings of Crown and Treasury land. Also excluded from current fiscal calculations are infrastructure assets such as roads and docks.
As a result, he argued that it was impossible for the Government and Bahamian taxpayer to determine whether public assets are being used properly and if the former is maximising returns on its annual capital expenditure.
"Businesses look to see if their assets are being utilised properly or not," Mr Bowe explained. "What is as important as understanding the obligations the Government has is whether it is maximising its assets.
"Suppose the Government is constructing a building. Why not rent out a part of the building to cover the costs of construction?" He also suggested that user fees be implemented for assets such as docks and bridges.
"The asset side of the balance sheet is never spoken about, but it's an integral part of fiscal management," the BICA president told Tribune Business.