Making a Judgment of Accountability: An Analysis of Budgets & Structural Balance Utilizing State CAFR's

Abstract

Budgeting is a key financial management tool utilized by governments. It provides a prospective view of revenues and expenditures for a particular time period. An adopted budget allows the governmental entity, the public and other stakeholders to gauge whether these resources were received and spent as predicted. Thus, budgets are a tool for demonstrating accountability in order to compare to actuality, and in order to comply with balanced budget requirement policies, as applicable. Accountability offers greater transparency and openness in government affairs. One of the most utilized forms of accountability for all states is that of financial reporting through the Comprehensive Annual Financial Report (CAFR). The CAFR is guided by the Governmental Accounting Standards Board (GASB), which provides the recommended standard for state and local government financial reporting. Financial reporting facilitates accountability by allowing for a retrospective examination of revenues and expenditures. In terms of assessing accountability, GASB has recommended two types of analysis: 1) whether current year revenues were sufficient to cover current year expenditures (structural balance), and 2) whether legally adopted budget projections were achieved. To undertake this analysis, accountability has two parts: 1) the need for information, and 2) the assessment of information to make a judgment. With the implementation of GASB Statement No. 34, state and local governments were required to include their “original” adopted budget in their financial report, which was significant to meeting the first part of accountability – the need for information. This study addressed the second part of accountability by making an introspective judgment of accountability as it relates to budgeting and structural balance for the 50 states. By analyzing four components of accountability: probity and legality, process, performance, and policy, this research examined whether states met revenue and expenditure projections, whether states budgeted structural balance, and whether states effectuated structural balance. These results were applied to an accountability achievement scale. Overall, this project demonstrated that even though processes are in place to enhance information to assess accountability, those processes have not resulted in providing all of the information necessary to make an adequate judgment of accountability.