The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s planned switch to an accrual financial reporting system has been praised as “fantastic”, a leading accountant arguing it will boost accountability and improve Budget planning.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that the proposed modernisation of the Government’s accounting practices would result in future administrations being held responsible for spending commitments made during their respective terms in office.

The existing cash-based bookkeeping method only accounts for government spending when the monies are actually paid, and Mr Winder said the accrual switch should eliminate charges of ‘unknown spending commitments’ and the subsequent political finger-pointing when administrations “change over”.

The Deloitte chief also called on the Government to ensure it received value “for every dollar spent”, and that it collected all revenues due to it, describing these as its “greatest challenges” from a fiscal perspective.

Urging it to reform taxes that were either underperforming or unfair, Mr Winder said the Government also needed to ensure its accounting system “truly reflect” areas where tax breaks and exemptions were offered to the private sector.

A leading advocate of government bookkeeping reform, which he has previously called for via this newspaper, Mr Winder told Tribune Business: “It is fantastic news that the Government has decided to move from a cash accounting to an accrual accounting method.”

The move was foreshadowed by Prime Minister Perry Christie in his 2014-2015 Budget communication, and Mr Winder said accrual accounting had to be implemented “before we can begin to address the deficits and see whether we’re moving in the right direction”.

He added: “Before we can truly say the deficit is going in the right direction, we have to be accurate in saying the expenditure was accrued in the right period.

“If the expenditure was not accrued in the right period, we are not getting a true reflection of the movement and the incurred deficit. Expenditure has historically only been recognised when monies were paid out, and now when they were incurred, which is the proper accounting treatment.”

While the Government’s current ‘cash based’ system recognises funds only as they are spent or taken in, the ‘accrual’ method accounts for the value of future spending commitments and guarantees when they are made.

By using the former, the Government is failing to recognise future spending it had already committed to via contracts and guarantees, and which should represent existing liabilities.

Mr Winder previously said this meant the Government was massively underestimating its true liabilities by millions of dollars, adding that Bermuda, Barbados and Jamaica were already ahead of the Bahamas when it came to converting government accounting to an accrual system.

Now, following the Government’s accrual accounting pledge, Mr Winder said: “This will assist us in better planning and the ability to do Budgets......

“With this accrual method, we will be able to prepare better Budgets, and this issue of change over from one government to the next regarding expenditure that has been incurred but is not reflected in the results unless paid, will go away.

“We will have a better cut-off at year-end between what has been incurred and what has been paid. We will have better planning, better analysis, and far more accurate reporting regarding the incurred deficit on an annual basis.”

Mr Winder said numerous government liabilities had not been recognised, and not included in the $5.567 billion national debt, because they had yet to be paid - a practice that had existed for 40-plus years.

“Governments, under an accrual basis, will be more accountable for obligations undertaken during their term as opposed to expenditure paid during their term,” Mr Winder told Tribune Business.

“Currently, governments coming in have to deal with these obligations.”

He added that it was vital for the Government to obtain value in its spending if it was to bring the public finances under control.

This, Mr Winder said, meant ensuring that whatever was spent - whether with the public or private sectors - did not have to redone.

“The Government has to ensure it is getting value for every dollar spent, and make sure that it does not have to come back and pay for things to be done again,” he told Tribune Business.

“In the past we have had too many situations where there was duplication, and where the Government was paying for something to be done in the public sector and then have to go out and raise someone in the private sector to do something already paid for.”

Mr Winder said the Government needed to view the collection of existing taxes as its “primary objective to ensure we get a better yield from taxes on the books”.

“If the Government underperforms with a particular tax on its books, or thinks a particular tax is unfair to a certain segment of our country, we should make the necessary adjustments,” he added.

“Having made the adjustments, we should ensure those taxes are collected. These are still the biggest challenges for the Government: Value and collectibility.”

Mr Winder said the Government’s accounting systems also needed to reflect tax breaks and incentives granted to certain industries and products, so they did not falsely show “millions and millions of dollars” in uncollected taxes.