The Influence of Management Accounting Departments Within German Municipal Administrations

• Author: Joachim Schauß,Christian Nitzl,Bernhard Hirsch
• DOI: http://doi.org/10.1111/faam.12052
• Published date: 01 May 2015
• Date: 01 May 2015

Financial Accountability & Management, 31(2), May 2015, 0267-4424

The Influence of Management

Accounting Departments Within

German Municipal Administrations

BERNHARD HIRSCH,CHRISTIAN NITZL AND JOACHIM SCHAUß∗

Abstract: The achievement of better performance from municipal administrations

is an ongoing challenge. We use the contingency theory perspective, which

concentrates on the specific environmental settings of organisations, to examine

the influence of management accounting departments within German municipal

administrations. Our findings indicate that as the size of municipalities increases,

the level of their administrative performance decreases. We additionally show that

this negative effect can be mitigated when management accounting is seen as

being highly relevant and when the management accounting department performs

well. Furthermore, a comparison of the accounting systems (cash versus accrual

accounting) used in municipal administrations reveals that a successful working

management accounting department can only exert a positive effect when the

municipal administration acts under an accrual accounting regime.

Keywords: municipalities, management accounting departments, performance,

accrual accounting, partial least squares

INTRODUCTION

One basic goal of New Public Management (NPM) is to improve the transparency

and performance of municipal administrations (Torres et al., 2010, p. 3). For

various reasons and given particular concerns (see Hyndman and Connolly, 2011;

and Anessi-Pessina et al., 2008, p.323, for the relevant literature), European

∗The authors are all from the Institute of Management Accounting, Finance and Risk

Management, Bundeswehr University Munich. Previous versions of this paper were presented

at the ENROAC conference 2011 in Lisbon, the 2011 session of the CIGAR conference in

Ghent and the 2011 International Research Colloquium ‘Innovative Administrations’ in Linz,

Austria. The authors thank Dominik Hammer, Andreas Scherm and Matthias Sohn for their

valuable assistance. They also thank the anonymous reviewers for very helpful comments.

Address for correspondence: Prof. Dr. Bernhard Hirsch, Institut f¨

ur Controlling, Finanz-

und Risikomanagement, Universit¨

at der Bundeswehr M¨

unchen, Werner-Heisenberg-Weg 39,

D-85577 Neubiberg, Germany.

e-mail: bernhard.hirsch@unibw.de

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MANAGEMENT ACCOUNTING IN GERMAN MUNICIPALITIES 193

municipalities waited for a long time before implementing NPM (e.g., Lapsley

and Pallot, 2000, p. 215; Pollitt, 2000, pp. 184–85; Pollitt and Bouckaert, 2004, pp.

74–96; Groot and Budding, 2004, p. 421; and ter Bogt, 2008, p. 32). The financial

crisis in 2009 has, however, stimulated an increasing number of municipalities

to make their administrations more efficient and effective through the further

implementation of NPM ideas (Torres et al., 2010, p. 3).

In several contributions to the literature, private sector-proven management

techniques have been designated as central elements of the NPM concept.

Examples of these management tools are accrual accounting (´double-entry

bookkeeping´), cost accounting, product budgeting and the implementation

of financial performance indicators (Hood, 1995; Guthrie, 1998; and Anessi-

Pessina et al., 2008, p. 323). The implementation and application of these

management tools correspond to the basic requirement of ´managerial or

internal accountability´within municipalities (Guthrie et al., 1999).

Whilst municipal administrations in many European countries have been

paying more attention to continuous improvements in effectiveness and

efficiency since the 1980s (Kloot and Martin, 2000, p. 232; Jorge, 2008; ter Bogt,

2008, pp. 31–33; and Pina et al., 2009, p. 794), German municipal administrations

only started implementing elements of NPM in the 1990s (Reichard, 2003,

p. 349; and Ridder et al., 2005, p. 444). These reform activities were driven

by three primary goals: first, to create more transparency around the financial

situations of local administrations; second, to support the municipal administra-

tions in their efforts to control the short-term impacts of resource allocation and

third, to encourage local politicians to adopt new, more strategically oriented

decision making processes (Pollit and Bouckaert, 2000; and Ridder et al., 2005).

To fulfil these goals, two initiatives were started. First, eleven of Germany’s

sixteen federal states committed to implementing an accrual accounting system

(double entry bookkeeping) at a municipal level (Hirsch et al., 2009, p. 53; and

Bud¨

aus and Hilgers, 2009). Second, requiring a management accounting department

within municipalities was suggested (Bundesministerrium des Innern, 2006,

p. 14). The task of a management accounting department is to improve the

performance of the municipal administrations by consistently bringing the

employee’s actions and the organisational processes in line with the (political)

goals of the (entire) administration (Bogumil et al., 2007, p. 10).

In our study, we performed a survey on the relevance and performance of

the management accounting departments within German municipal adminis-

trations. Because management accounting departments should be orientated

towards improving the performance of the municipal administration’s actions

and processes, we focused on the performance contribution of these departments.

We used an online survey, and our respondents were those individuals

responsible for management accounting in German municipalities. Our findings

first show a negative effect from a large municipal size on the municipalities’

efficiency and effectiveness. Second, this effect is positively moderated by a

strongly performing and highly relevant management accounting department.

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