Accounting reforms in municipalities: The case of Bangalore city corporation

Abstract

The fund-based accounting system that was implemented in Bangalore Mahanagara Palike (BMP) is widely acclaimed for its comprehensiveness and effectiveness. The revenue and expenditure statements and balance sheets have been published under the new system for the last three years on a timely basis. The system has been running smoothly for a few years and is on steady stream and it can be taken as a case of successful implementation of accounting reform. It is an appropriate case to highlight the synergistic effect of synchronizing organizational change, reengineering of processes, modernization of accounting system, and automation of accounts. It is quite difficult in this process to single out the factors that contributed maximum to the effectiveness of the Modern Accounting System (MAS) as implemented in BMP. It is equally difficult to attribute everything to the new accounting system. It can also be seen as a case of change management in the accounting system domain.

The case of the BMP illustrates the changes that were brought about in the accounting system. The new accounting system — MAS — adopts the best of fund-based accounting system, accrual system, and reporting system. Its contrast with cash accounting system, its advancement over the old system, and compliance with national accounting standards are also discussed. The organizational and change contexts are presented to help understand the drivers of change. The salient features of the accounting system implemented in BMP are:

compatibility with accounting standards

granularity

dovetailing accounting system to organizational reengineering

comprehensive management information

reporting system.

The implementation is analysed as a case of change management process of implementing of accounting reforms in municipal organizations. MAS is analysed through the framework of management control system which helps to integrate various dimensions of institutional factors that go with accounting reform. MAS is also analysed for its contribution towards accounting information for strategic control, management control, and operational control. It was observed that even though the system has features for decision making and control, it is primarily used for operations and compliance. The focus is still more on transactional level than control or decision level.

The case raises interesting issues about the following:

the purpose of the accounting reform

sustenance of the old system

demand for the new system

areas where accounting reforms took off

areas where reforms did not happen

incentives to maintain status quo and incentives to change which are discussed through the control system framework.

One area where we can find the reasons are the triggers for change. The change drivers are discussed in terms of changes in the financing pattern, exposure to market borrowings and ratings, introduction of user charges, and passing of Transparency Act. Ultimately, it is suggested that the change drivers, though helpful, in ushering in the changes, can slow down the pace if the signals are weak. Weak signals could result in reinforcing the existing agency relationships.