Swimming in baloney
September 26, 2014
Then better to go for a swimming pool A random headline from the Dutch Financial Times of 10 February 2014. An alderman tells of having a quarter of the investments in the supply of land 'disappear' by means of an accounting system change. The alderman is not at all secretive about it. “The general reserves did not suffice to cover all of the impending losses. […] As a result, we could not build a new swimming pool and other facilities in the city center.” And thanks to this bookkeeping trick, we get our pool. Fortunately, the alderman did have a way to cover the loss. The budget for the years to come specifies 22 million euro in cutbacks.
Image: © Nationale Beeldbank
I was speechless for quite a while after reading this piece of news. I actually had to continue preparing for a lecture on the role of inspectors within the framework of supervision. What does an inspector do if an administrator comes close to acting outside the interest of the organization? Much has been written on failing administrations and there are countless analyses of what the supervision involves and how it can be further improved.
I could not get the sentence 'better to go for a swimming pool' out of my head. The reports stipulate measures that are to guarantee the sound administration of organizations. Could these measures lead to a better administration in the case of this alderman as well? For example, would the alderman react differently if a code of conduct for aldermen was to be introduced? For example: thou shall handle the municipal finances with due care and diligence. Could a course on the social benefit of the annual financial statements help, in which it is taught that the annual financial statements are to provide a true and fair impression of the assets and the results. Or would a mandatory course in risk management bring him to different statements?
Perhaps if it is explained to the alderman that the exact purpose of the resistance is to assess whether impending losses can be met. And that, if this is not the case, that appropriate measures should be taken instead of spending more. Or should we introduce an expertise test in order to bar aldermen of that kind?
These are examples of measures that have been taken in various sectors for the purpose of preventing improper management. Measures of this kind are probably taboo in political circles where it concerns prescribing these for administrators, such as aldermen. After all - I can just hear the alderman saying so - that would be at the expense of the democratic quality.
How can this alderman be stopped? Hopefully the residents of this municipality can see through the bookkeeping tricks at election time. That they realize that the municipality is not swimming in money and that provisions are needed, to be sure, but these should concern the bookkeeping. The losses will have to be met and in the end, the citizens will pay the price for the failing policy. Either the local taxes will be increased, or they will be no new swimming pool.
You need not read the reports to reach this conclusion, common sense will suffice. For example: thou shall handle the local taxes with due care and diligence.
Prof. Dr. Arco van de Ven RA is a professor of Accounting Information Systems at the TIAS School for Business and Society. This blog is based on a previously published column in the Controllersmagazine.