By NATARIO McKENZIE
Tribune Business Reporter
THE Prime Minister yesterday revealed that the Government is targeting end-June 2022 to fully switch to accrual-based accounting, describing the move as “no small feat”.
Dr Hubert Minnis, giving the opening address at the Bahamas Institute of Chartered Accountants’ (BICA) Accountants Week, added that 2023 was the timeline for rolling-out the accounting system to the wider public sector beyond central government.
He acknowledged that the Government’s current cash-based accounting system was “woefully lacking” when it came to providing a complete and accurate view of the Government’s financial position, activities and performance.
“As policymakers we value the importance of financial reporting that meets international standards. It is essential that we are in a position to utilise high-quality information to make informed and sound spending decisions, while properly managing our assets and our liabilities,” said Dr Minnis.
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. An accrual-based system will give a more accurate picture of the Government’s finances, as it will also recognise expenditures for which future commitments have been given, but monies not yet released.
Dr Minnis said the process towards moving to an accrual system was initiated by the former Christie administration during the 2015-2016 fiscal year, with a Government working group producing a paper outlining the road map for accrual accounting implementation.
“Moving to accrual-based accounting will ensure greater transparency and accountability in public sector finances, as well as a better monitoring of government debt and liabilities. The potential harm of the absence of these prudent practices was exposed in our recent assessment of the fiscal outcome for the year 2016-2017. As we now know, high levels of unbudgeted expenditure are poised to elevate the actual fiscal deficit some five times higher than originally budgeted,” said Dr Minnis.
“With the assistance of the IMF we are making progress towards finding a sound framework that will include controls of certain recurrent expenditures, taking more decisive steps with pension reforms and better managing subsidies to our state-owned enterprises.”
The need for government accounting reform was highlighted in the wake of the May 10 general election and subsequent 2017-2018 Budget, when the newly-elected Minnis administration revealed that the prior year’s deficit was expected to come in at $500 million.
This was five times’ the Christie government’s original $100 million estimate, and some $150 million more than its revised post-Hurricane Matthew forecast of $350 million, given just two months before the May Budget.
It subsequently emerged that the Minnis administration’s figures, and subsequent $695 million deficit estimate, had been produced by switching the Government’s accounting method to the accrual basis.
Moody’s, the credit rating agency, later reported that the Government’s deficit would have come in close to the Christie administration’s projected $350 million had cash-based accounting been retained, sparking political controversy between the two major parties.
Dr Minnis noted that transitioning to accrual based accounting is no small feat. “Transitioning public financial reporting to accrual based accounting is no small feat. We have targeted a date of end of June 2022 for full central government transition to accrual accounting and 2023 for the public sector at large.” Dr Minnis noted that based on regional and and international experience, the lack of adequate technical resources can be a major setback to the successful implementation of accrual accounting in the public sector.