Cost Accounting as a Set of Instruments for Performance Budgeting in Local Government Units

Abstract

Purpose:The article aims to demonstrate the notion of cost accounting for performance budgeting and the need for applying it. The article also evaluates the possibility of implementing the concept in question. Moreover, the imperfections of traditional budgeting and budget accounting were pointed out, while the need to implement performance budgeting in the local government sector was argued. Design/Methodology/Approach: The objective was achieved as a result of conducting a focused literature review, analysis of internal documentation of local government units related to budgeting and accounting system, objective observations of selected LGUs and interviews with their representatives, in addition to applying a general deductive method. The empirical studies conducted focused on updating the author's own study conducted so far in 23 cities with county rights. Particular emphasis was placed on units that implemented performance budgeting. Mainly larger local government units showed interest in performance budgeting (only two cities with a population of over 300,000, which means that performance budgeting was not implemented in 20% of the cases). Approximately 30% of the remaining entities implemented performance budgeting. Findings: The currently prevailing traditional budgeting procedure, in local government units, mainly consists of dividing public funds, which must be at disposal, without paying attention to how effectively they are disbursed. Accounting adopted for the purposes of traditional budgeting is also characterised by a great number of flaws; in particular, it does not provide information that can be used to precisely calculate the required expenditure on specific tasks accepted for implementation. One of the best solutions that can guarantee that the resources owned are managed rationally and effectively at the same time is modern performance budgeting based on modified (according to the needs) tools for effective accounting. The multi-stage procedure of calculating the costs of the tasks implemented makes it possible to measurably increase the effectiveness and efficiency while disbursing public funds and improving the quality of the activities taken by the local government unit simultaneously. Practical Implications: The proposed concept of cost accounting has potential practical applications.Knowing the total costs of tasks and their structure is crucial for the management. This knowledge makes it easier to consciously decide whether to continue a given task or stop doing it if it is expensive or ineffective, and thus allows for effective expense management. Moreover, costs of tasks can also be compared within a given unit, between different organisational units or different cities and over time.