Spanish Cost accounting of governmental services-Fished out from internet resource.
The experience of the Spanish National Institute of Meteorology
By Benito R. Mallol1 and Francisco Almonte Gregoria2
Consideration of the costs associated with specific activities in the private sector is a routine affair. Activities carried out in the public sector, particularly those relating to services, are quite another matter, though, for in that field cost accounting is still a little-used tool and there is little understanding of its function and potential benefits.
As a general rule, social welfare policies have unleashed substantial public spending increases in most developed countries. Since such spending exceeds income, those countries’ deficits are growing at an alarming rate.
The constant expansion seen in public services in recent decades is the result of consumers’ growing demand for more and better services. Yet the paucity of public resources calls for an increasingly effective rationalization of the management of spending. This is where cost accounting plays an important role, because accurately identifying and analysing costs, broken down by activity, can help an organization to:
- Achieve effective management control as a basic tool in the decision-making process;
- Ascertain in a transparent manner how effectively public resources are being used;
- Use rigorous procedures in order rationally to establish public rates and prices,
thereby avoiding inaccuracies that result from arbitrary estimates;
- Indicate the variations that could occur in the execution of budgetary spending and
evaluate the budgetary funds requested from, and justified before, the relevant
Ministry of Finance; and
- Facilitate the submission of data to supranational organizations.
The experiences in recent years of Spain’s National Institute of Meteorology (INM) have confirmed all of the above. The need for better clarification of expenditure on national and international research and development projects, improved control over the costs incurred by aeronautical meteorology, and better control over public spending in general, are but some of the pressing realities that are well known to, and universally shared by, the world meteorological community.
Advantages of cost accountings
Traditionally, economic information is provided by general accounting activities. Yet this information is not sufficient to enable upper management to take certain decisions regarding the structure of the organization—an exercise that requires cost accounting.
Its purpose is not to provide information on the organization’s cash flows, but rather to analyse its productive processes by focusing on the organization’s consumption (cost elements); units where consumption takes place (cost centres); its purpose (activities); and the relations between all of the above (distribution criteria).
For this reason, and given that cost accounting has no standardized methodology(is a dynamic tool), there is a need for a conceptual model in which the centres and activities are sufficiently well defined in relation to the organization’s information.