International Public Sector Accounting Standards likely to deal with runway corruption.
New York-based global organisation for the accountancy profession, the International Federation of Accountants (IFAC), has recommended Kenya adopts the International Public Sector Accounting Standards that show all the state’s financial operations as a way to deal with runway corruption.
The method, known as accrual accounting, also takes account of the assets and liabilities without necessarily recognising revenue, compared to the cash-based accounting that only looks at receipts and payments but ignores everything else.
The Kenyan government currently uses the cash method when reconciling all financial statements into a consolidated one — given that some institutions use accrual and others use the cash accounting.
With the cash accounting, there is a tendency to spend a lot of money during the last month of the fiscal year but this ends up as pending bills due for payment in the next year.
These escape the accountants who only record receipts and cash payments.
IFAC executive director for quality and development Alta Prinsloo said in an interview that the use of the cash method had numerous loopholes that encourage corruption.
“A cash-based system leaves blind spots which can be exploited. Where there is opacity in public finances, corruption can occur. In these cases, auditors have little visibility into determining the source or reason for potential discrepancies,” she said.
“By tracking all financial events as they happen, accrual accounting is more transparent, safe, and easy to understand — resulting in increased accountability.
Accrual accounting also means more accurate identification, measurement, recording, and management of assets and liabilities, which produces better, more informed decision-making.”
Mrs Prinsloo said there is also a tendency to misrepresent debt obligations when the cash method is used.
“Systemic lack of transparency creates the opportunity for corruption.
“Reporting finances on a cash basis and without a balance sheet which includes liabilities renders debt virtually invisible to policymakers and citizens.
“This lack of transparency makes it possible to ignore or misrepresent long-term debt obligations,” she said.
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