Accountability perspectives in Italian municipality accounting systems: the gap between regulations and practices.

Author:Reginato, Elisabetta


Public sector reforms, developed since the 1980s in most countries of the Organization for Economic Cooperation and Development--OECD--(Hood 1995; Pollit and Bouckaert 2004), have changed the meaning and the contents of public sector accountability. In fact, public organizations have to be accountable, both in detail and comprehensibly, for the use of public resources and for the results achieved.

Accountability relationships in the public sector involve citizens and elected officials on one side, elected officials and public managers on the other. These kind of relationships are discharged by means of three "accountability codes"--financial, managerial and professional--which use different accounting tools and whose evolution is studied within the New Public Financial Management--NPFM. In recent years NPFM literature has focused on the actual effects of the accounting system reforms trying to find out the reason for the gap between formal changes introduced by laws and regulations and their actual implementations (Olson et al. 1998; Ter Bogt and Van Helden 2000).

In Italy, as in many European countries (Luder, Jones 2003; FEE 2007), local governments--LGs--have been the driving force2 of a financial management comprehensive reform (Pavan and Reginato 2004). This reform process, that started in 1995, has involved LGs' control and accounting model--budgeting, book-keeping, and financial reporting (Caperchione 2000). The set of laws ruling the implementation of the new financial management model is incorporated in the Consolidation Act for local government--Testo Unico degli Enti Locali--, hereinafter referred to as TUEL. The TUEL is supported by the accounting standards issued by the Committee for Local Government's Accounting and Finance established within the Italian Ministry of Domestic Affairs--Osservatorio sulla finanza e la contabilita degli enti locali,, from now on referred to as Osservatorio. These standards are not mandatory, but they provide explanations of the TUEL provisions in order to help LGs to comply with the law (Farneti 2006; Osservatorio 2004).

Basing on the Italian LGs' case, this paper analyses the effects of the NPFM reform on LG accountability, inquires whether a gap exists between the accountability codes at the normative level and the practices, and tries to find out possible reasons that seek to explain this gap in order to create a framework to be tested in other countries' cases. To this end a survey carried out on a statistically representative random sample of Italian municipalities with more than 5,000 inhabitants together with semi-structured interviews to privileged observers are used.

This study is part of a wider research project conducted in cooperation with the Osservatorio. The paper is organised into five sections. The section to follow provides the concept of accountability in the public sector and how it is discharged through the LGs' accounting system. The third section presents the research questions and the adopted methods. Section four focuses on the Italian local government accountability codes at the normative level, and on their practices, while the fifth one inquires into the possible reasons for the gap between them. The final section discusses the results of the analysis and draws some conclusions.


Literature on accountability has attempted to define this concept whose meaning is different according to the referential context (Boyne et al. 2002; Dubnick 1998; 2005; Gray and Jenkins 1993; Mulgan 2000; Sinclair 1995; Stewart 1984) and whose theoretical bases can be found in the agency theory (Mayston 1993). When talking about accountability it is necessary to ascertain who is accountable, to whom, how, for which actions and results, and what are the tools for rewarding and punishing the accountor's behaviour (Fearon 1999; Behn 2001).

In a democratic system elected officials are in an agency relationship with their electors--political or external accountability (Sinclair 1995; Stewart 1984, Romzek and Dubnick 1987). Likewise public managers are in an agency relationship with the elected officials managerial or internal accountability (Sinclair 1995; Stewart 1984, Romzek and Dubnick 1987). The latter determine the goals, check up on results, and exercise the power to appoint and to revoke the agents, according to the principle of separation between political decision making and public management3. Public managers manage resources, and are accountable for the goals achieved.

The actual working of these different accountability relationships and their changes influences the features of the accounting systems and hence the information provided that are studied within NPFM (Guthrie et al. 1999; Lapsley 1999). In particular the NPFM implies a shift from a bureaucratic and formal management model to a managerial one. The former focuses on the compliance with laws and regulations, the latter emphasises efficiency, effectiveness and results of actions, in terms of both outputs and outcomes. For each single phase of this shift we can determine a consistent accountability code--financial, managerial and professional--that better satisfies citizens' information needs (GASB 1987; IFAC 2000)--table 1. The presented accountability code model derives from a review of the available literature on the information required for accountability purposes and the related accounting tools and documents (Boyne et al. 2002; Gray and Jenkins 1993; Stewart 1984).

In a bureaucratic model, the financial accountability code, which focuses on the compliance with the budget and with laws and regulations, prevails. The information provided regards the amount and quality of tax collection and public expenditure, and the compliance with the spending authorization. The accounting system is on a cash and obligation basis in order to control the monetary flows, and the other accounting tools are the budgetary statement and the compliance and financial audits.

When the relations between citizens and elected officials and between the latter and public managers place more emphasis on results and efficiency, the financial accountability code is no longer suitable. The traditional public sector accounting system shows its lacks because it does not provide the information required by the stakeholders. With specific reference to LGs, stakeholders may be distinguished in external and internal groups. The former include citizens--i.e. taxpayers and consumers of public services--, business and voluntary organizations i.e. service users, local authority partners or competitors in delivering services--, upper levels of government, oversight bodies, and investors. The latter include institutional bodies, political parties, public managers and public employees (Borgonovi and Annessi Pessina 2000; Boyne et al. 2002).

LGs' stakeholders need information about: outputs, cost and quality of the supplied services, efficiency levels, public net assets and their changes during a period of time, debts and financial assets level, composition and dynamics, correlations between outputs and resources. In particular such correlations are relevant to know how much public action costs and who and when must pay for it. As the intergenerational equity principle predicts the generation that uses assets and benefits from facilities should pay for them. The respect of this principle implies an accounting system which allows that every liability, even if only estimated, is timely accounted and disclosed (GASB 1987; Jones and Pendlebury 2000: 202).

All these kind of information can be produced by the managerial accountability code which uses the accrual accounting, the cost accounting, the management control, a performance measurement information system based on outputs and efficiency, and requires documents such as the accrual budget, the statement of financial performance, the balance sheet and the statement of changes in net assets.

Thus this code points out the responsibility of elected officials and public managers for the use of public resources and for the results achieved.

Finally in order to ensure that the relations among the stakeholders are based on the principle of the highest transparency and responsibility, the results should be expressed in both terms of outputs and outcomes, and information about programs through which goals are settled are also required. Accordingly, the professional accountability code emerges. Its accounting tools are the strategic control, the medium term planning, the popular reports, and a performance measurement based on outcomes and effectiveness.

Not all the situations clearly show a prevailing accountability code but, from time to time, new features appear that do not replace the previous ones but integrate them.


As stated above this paper aims at analysing the effects of the NPFM reform on Italian LGs' accountability; thus about fifteen years after early reforms it is questioned:

  1. Which are the actual Italian LG accountability codes?

  2. Is there a gap between accountability codes at the normative level and the practices?

    Empirical studies conducted so far have revealed discrepancies between regulations and practices, however they analysed only some aspects of the reform such as budgeting or book-keeping and focused on municipalities with more than 40,000 inhabitants (Anessi Pessina and Caccia 2000; Anessi Pessina and Steccolini 2001; 2005; 2007; Buccoliero et al. 2005; Nasi and Steccolini 2008) or on small municipalities--(De Matteis and Preite 2005). Besides, the studies that explored the Italian LGs' accounting systems and control models as a whole did not use a representative sample (Mazzara 2003). Finally as none of these studies focused on the reasons for the highlighted discrepancies the paper also aims at:

  3. finding possible reasons that seek to explain this gap in...

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