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Aligning Accounting Systems and Performance/Cost Information


SBO, Paris 27-28 October 2008 Aligning Accounting Systems and Performance/Cost Information the Accrual Reform and Taximeter in Denmark Special Advisor, Ministry ... – PowerPoint PPT presentation

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Title: Aligning Accounting Systems and Performance/Cost Information

Aligning Accounting Systems and Performance/Cost
Information the Accrual Reform and Taximeter in
SBO, Paris 27-28 October 2008
  • Special Advisor, Ministry of Finance
  • David Fjord Nielsen

  1. The Accrual Reform, the Chart of Account and Cost
  2. Danish Experiences and a View on detailed Cost
  3. Activity-based Budgeting in the Sectors of Health
    and Education
  4. Benefits and challenges in the Taximeter Model

Accrual Accounting/Budgeting and Cost Information
  • Background
  • Danish state agencies and departments
    operational expenditures and associated capital
    spending transferred to accrual accounting 2005
    and budgeting 2007
  • Covering around 10 pct. of the state budget
  • A new cash management scheme and a new chart of
    account in 2007
  • Purpose
  • Increase managerial freedom and incentives to
    plan investments
  • Improve cost information hidden cost revealed
    in the agencies

Level of Appropriation Expenditures and
Cost Expenditures Cost
The State Chart of Account
  • Chart of Account is aligned to handle accruals
    but not to provide standardised cost or
    performance info. to FM/Parliament
  • States chart of account Mandatory general
    categories (wages, depreciations) and
    specifications (standard wage, overtime wage)
  • Agencies have internal accounting specifications
    (types of purchases) and dimensions (project,
    office, time) for the agencies internal economic
  • Standardisation and comparability across agencies
    vs. local needs

Downsides to detailed Cost Information
  • FM focus on the big numbers. Decentralised
    responsibility for cost control and performance
    management to line ministries
  • Unit cost info and detailed budgeting to specific
    services/tasks requires detailed cost allocation
    no matter if the accounting system is in
    accruals or expenditures
  • Need to have a purpose comparable units, an idea
    of the right cost, a better budget method
    (activity volatility) or possibly outsourcing
  • Most agency programmes, projects or services
    cannot be managed by unit cost

Beneficial use of Cost Information in specific
  • Procurement extra mandatory specifications to
    the chart of account
  • Establishment of Shared Service Centre need for
    cost information (what is the cost of a support
    function accounting, ICT)
  • Efficiency Targets in Performance Contracts
  • Activity based budgeting
  • - new pilots budgeting to unit cost of
  • - the taximeter model in education and health

Taximeter in Education and Health Care
  • Rates for each type of education are set in the
    annual Budget
  • Rates for operations according to DRG (Diagnose
    Related Group system)
  • Both systems a block appropriation and activity
    based appropriation
  • Rates are being paid to institutions according to
    the number of produced operations / number of
    full-time students following and completing their

Rates for diff. Types of Educations in 2009 Budget
Education Educational rate Complete-ment rate Support-service rate Capital rate
Security Guard 9.000 Euro 1.000 Euro 2.000 Euro 2.000 Euro
Farming 10.000 Euro 1.000 Euro 2.500 Euro 2.000 Euro
Fitness instructor 9.000 Euro 1.000 Euro 2.000 Euro 2.000 Euro
Baker 10.500 Euro 1.000 Euro 2.000 Euro 3.000 Euro
Activity-based Budgeting Efficient Allocation of
Funds to Hospitals and Educational Institutions
  • Quasi-market Funds are automatically reallocated
    between different hospital/institutions and
    educations as a result of actual activity/demand.
  • Transparency and equality Allocation of funds
    is based on objective criteria (number of
    students or operations) not possible for strong
    institutions/hospitals to obtain bigger budgets
    through negotiations
  • Effectiveness Gives an incentive to service
    improvements (to attract students, patients) and
    output delivery (produce operations, masters) to
    gain funds

Downsides of Activity-based Budgeting
  • Difficult to set rates according to real costs
    due to information asymmetry
  • Detailed cost studies to define rates DRG vs.
  • Institutions and hospitals tend only to draw the
    governments attention to increasing costs (and
    not decreasing costs)
  • Education Rates are based on average costs and
    not the marginal costs of an extra student
  • Health care Marginal costs above production
    target, but when?
  • Lower quality as a result of the economic

Marginal Cost at Production Target of 200
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