Managerial accounting in the implementation of deliverology using the example of Ukraine

Managerial accounting has long been a key factor in business development, but in the public sector the issues of managerial accounting are not often discussed by researchers. However, the need for managerial accounting in the public sector is almost as important as in business. First, it is a question of managing resources based on performance indicators. Secondly, as in business, the public sector needs to identify budget deviations and their causes in a timely manner to make quick decisions. Brown and Sprohge (1987) have written about the importance of applying managerial accounting in the public sector way back in 1987. Most often, the need to apply managerial accounting tools arises in the area of education and health services. In fact, these services mostly utilise the money collected from tax payers and their amount and quality of services are key topics during elections (Agyemang, 2004; Aidemark, 2001). In fact, one of the key areas of management accounting in the public sector is the quality of services provided to citizens and the efficiency of such services. That is why deliverology is one of the most important objects of managerial accounting in the public sector.

Deliverology ideas were first introduced by former Prime Minister of UK Tony Blair's office to ensure that election promises were honoured. The main components of deliverology are setting goals that are based on previously stated priorities, evaluating target indicators, and using dedicated feedback channels to monitor the achievement of goals. This approach has proven effective in public administration not only in the national level, but also in the sub-national level (Cleary, 2007; Freeguard & Gold, 2015).

Deliverology is, in fact, a citizen-centred approach. In addition, it is a performance-based approach that requires transparency and accountability. The implementation of this approach requires the organisation to work with massive volumes of information, which cannot be organised without the use of information technology (IT). Information technologies help to reduce the cost of database development, updating, analysis and monitoring of data for stakeholders, and so on.

This approach is partly used in post-communist countries, as the need for it is much higher due to higher risks of corruption, including political corruption (Fedosov & Paientko, 2018; Fedosov & Paientko, 2019). It should be noted that there is no single approach to the development of deliverology, as the process of deliverology implementation is influenced by the institutional environment, the legal and regulatory framework, and the economic condition of the country.

The prerequisites for local development in Ukraine emerged after the consolidation of mid-term budget planning and amendments to the Budget Code in 2019 (Budget Code, 2010). The amendments to the Budget Law consolidated typical forms of local budgets and organised the consolidation of tasks of local authorities. Deliverology ensures that planning for budget expenditures is not only decentralised but also focussed on achieving national strategic objectives. It should be noted that implementation of deliverology at the local level in Ukraine is slow as there are no common standards for the provision of primary information, its analysis and disclosure.

Deliverology is focussed on maximising the efficiency of resources used and to deliver public services efficiently. Therefore, the implementation of deliverology principles is impossible without the use of managerial accounting tools. First, it concerns about the control of deviations of indicators of budget programmes from the planned ones. Secondly, it concerns about the identification of causes of deviations.

It should be noted that the idea of deliverology is relatively new; there isn’t so many studies on its implementation. Existing research is devoted to deliverology in general or to the implementation of deliverology in developed countries. Our research focusses on the implementation of deliverology at the local level in countries that do not have sufficient experience in fiscal decentralisation.

The aim of the article is to show how the application of a managerial accounting approach in the public sector can contribute to the introduction of deliverology at the local level using Ukraine as an example.

This study is to demonstrate the application of managerial accounting tools at the local government level. The results of the study will be interesting for scholars and practitioners who work on the problems of improving the efficiency of budget programmes in developing countries, especially in post-communist countries.

The article is organised as follows: the literary review of the investigated problem is conducted in the second section. The third section describes the research methodology. The fourth section displays the main results of the study. The fifth section is devoted to the discussion and synthesis of the results. The sixth section presents findings and prospects for further research.

The role of managerial accounting in the public sector is considered mainly from the point of view of ensuring efficient use of taxpayer funds (Bjornenak, 2000; ter Bogt & van Helden, 2000). de Bruijn and van Helden (2006) emphasise the need to use performance management in the public sector. This enables not only to evaluate the effective use of financial resources allocated to public services, but also increases the level of accountability of government. By observing the dynamics of performance management indicators, it would be easier for citizens to understand the performance of government authorities.

Cavalluzzo and Ittner (2004) and Jarvinen (2009) discuss the peculiarities and intricacies of the implementation of new approaches to public sector management and the role of managerial accounting in achieving new objectives of public sector management. Assessment of the effectiveness of public service delivery in education and healthcare requires trust and exchange of information, which requires trust-based management patterns and the trust-based managerial accounting. At the same time, the institutional administration should be market-oriented and have a formal control. This can be problematic, as formal control can be a threat to trust. Therefore, performance control in the public sector should be implemented for monitoring performance indicators through a defined mechanism.

Many recent publications (Aidt, Veiga F., & Veiga L., 2010; Alford & O’Flynn, 2012; Majette, 2019; Da Veiga & Major, 2019; Ouda & Klischewski, 2019) also focus on the effectiveness of the delivery of public services to citizens, especially in the context of election promises made by politicians. In fact, the interest in managing public sector functioning effectively has contributed to the development of a new approach or mechanism in public management, namely deliverology.

According to Watkins (2013), deliverology is defined by many researchers as a control system that ensures maximum success. Success is achieved through an approach that closely links expected results to current activities (Watkins, 2013; Bald, 2016). At the same time, current results are continuously monitored to improve the actions of the implementers. It should be noted that this approach requires working with massive data, processing and analysing them continuously. Rapid response to changes in performance indicators allows timely adjustment of tactics to achieve the set objectives.

Deliverology is seen by many researchers as an approach to improving public administration (Barber, 2008), Barber, M., Kihn, P., & Moffit, A. (2011b). Gash, Hallsworth, Ismail, and Paun (2008) believe that improving the quality of public administration is achieved through clear goal-setting and rigorous monitoring. The achievement of objectives is often linked to providing adequate quality public services. Therefore, timely information on the current state of affairs is needed to achieve the stated outcomes.

Bouchal, Kidson, Norris, and Rutter (2014) argue that the implementation of deliverology contributes to social justice. This outcome is achieved by increasing government accountability, both at the central and local levels. Publishing the information on the funds received and the results of their use appropriately helps to reduce the risks of the inefficient use of taxpayers’ funds.

Some researchers compare deliverology in the public sector with performance-based management in the business sector. They believe the complete focus on results alone contributes the effectiveness of government (Box, 1999; Boyne, 2002). Many scholars have also studied the impact of deliverology on improving the quality of education, health care (Barber, 2017), and government cost effectiveness (Shepherd, 2018). The most recent publications, for example, Birch, Jacob, and Baby-Bouchard (2019); Haws (2018); Jakobsen, Baekgaard, Moynihan, and van Loon (2018) discuss the role of deliverology in delivering on election promises and increasing government accountability. In other words, the role of deliverology is increasing, and in the future the need to implement this approach in the public sector will increase.

The implementation of deliverology requires the active application of managerial accounting principles. First, it involves the field of budgeting, determination of performance indicators, identification of reasons for deviations from targets, and development of new solutions. This part of the problem is not covered adequately in research publications.

Thus, Alonso, Clifton, and Diaz-Fuentes (2011) emphasise the need to implement new approaches in public management, including decentralisation. Blum, Manning, and Srivastava (2012) discuss the possibility of applying a problem-solving approach in public management. The necessity of evaluating the quality of services provided by the state, that is, to use a performance-based approach, is described in an article by Holt and Manning (2014).

It should be noted that management accounting approaches in the development of deliverology will differ from country to country. As Andrews (2008) notes, the concept of good management can vary. A similar idea is outlined by Booth (2014), which answers a number of questions about why management approaches that have been successful in some countries is not working in others. This is often due not only to economic conditions but also to institutional differences among countries. If you consider Europe as an example, it will be clear that lot of differences will exist between post-communist countries and countries that have never experienced a communist regime in the implementation of managerial accounting approaches in public administration.

Many researchers point to the fact that the application of managerial accounting tools in public management depends on the institutional environment of a particular country. Similarly, the implementation of deliverology depends on the specifics of the public sector development. Therefore, there is a need to supplement existing research with case-studies both on individual countries and their groups which are already used for the research.

The research methodology is based on qualitative and quantitative methods. Quantitative methods were used to describe the implementation of deliverology principles in the work of local authorities, as well as to determine performance indicators of budget programmes.

The performance indicators in the selected budget programmes are designed for public services delegated by the central to the local level within the framework of public functions, such as provision of public goods in the field of education, health care and social protection. Since Ukraine consumes a lot of energy resources, energy savings indicators are envisaged as targets in the budget programmes of local authorities in the recent years.

Quantitative methods are used to develop an algorithm for collecting data on indicators, as well as to calculate performance indicators. Information on the implementation of budget programmes is posted on the official websites of local authorities. It should be noted that information is posted in different formats complicating its systematisation. Part of the budgets and reports on their implementation are presented in excel format, while the remaining part is presented in pdf format. We have developed programming code using R software for automatic reading of both formats. The programming code allows us to automatically load the necessary data and process them further using R.

The calculations were done in R software. The Difference in Difference (DID) method was used to calculate the indicators. DID is usually implemented as an interaction term between time and treatment group dummy variables in a regression model.

The package contains tools for computing average treatment effect parameters in DID models for more than two periods, with variation in treatment timing across individuals, and where the DID assumption possibly holds on covariates on conditional basis.

The research results showed that the application of managerial accounting tools for the implementation of deliverology at the local government level is a promising area for further academic research. The implementation of deliverology depends on the characteristics of the institutional environment in a particular country, the degree of fiscal decentralisation and the organisation of public management. All these factors have an impact on the degree of application of managerial accounting tools in public management, and, therefore, on the quality of information on delivery of public services. The peculiarity of deliverology is the difficulty in using group analysis tools for its study. Therefore, cluster analysis can be conducted based on individual case-studies in the future and will be worthwhile. It should be noted that the theoretical aspects of deliverology are actively researched, but there are very few empirical studies. Therefore, our study contributes to the development of empirical research on the application of managerial accounting tools for the development of deliverology at the local level.

It should be noted that the development of deliverology at the local level requires solving of many practical problems. For example, local government accountability must be a part of deliverology. Implementing accountability requires processing, storing, and presenting large amounts of data in a single format. Our study found that this is a challenge for post-communist countries. First, these countries have weak traditions of accountability. Second, these countries often lack the resources to manage such data. Therefore, this study is also a starting point for building local deliverology bag data systems.

Applying managerial accounting principles to the local delivery decision making creates several advantages in utilising the performance information. First, the independence of local government is not violated, but its patronage and accountability are ensured. Second, gathering and analysing performance indicators for a specific period makes possible to estimate quantitative and qualitative composition and adjust it if necessary. Thirdly, the modern multi-criteria decision-making methods are applied to the efficiency metrics and analysed in combination with other economic indicators, and benchmarks will create new opportunities for researchers to formulate the territorial and public policies to optimize the goals of a delivery unit. The proposed in this publication conception based on implemented in the local budget programmes performance indicators. Further data format will be developed according to the delivery unit's needs and scholar's research.

In fact, since 2019 the deliverology approach has been implemented in Ukraine at the local level. Clear regulation for planning local budgets pattern and its maintenance as a continuation of the formalisation of the list of the budget programmes within the specified parameters is a mandatory task for local government officials, and therefore they must interact with relevant Ministry to review expenditures including recounting inter-budgetary subventions–are all the signs of a centralised influence on the local management and setting directions and parameters for calculating expenditures according to the principle ‘top-to-down’ to provide the public services. Medium-term budget planning with three year forecasts under the central patronage, must include the upper limit of subventions, clear regulation of the management of educational institutions, and in the future, the centralised National Healthcare Service allocating finance to the health care institutions at the local level must know how to calculate the finance needed by the health care institutions at the local level, must be aware of the policies of the centre, and inform the centre of the progress and the consequences of any changes in policies or in finance allocation.

At the same time, it is not necessary to increase the number of performance indicators. Performance indicators can be efficiently utilised only in the case clearly defined targets. In the absence of informational system, the main risk for the local level budget programmes in Ukraine is furthering their formalisation, which will not provide adequate information about either the efficient utilisation of budget funds or effective management. Governing the relevant services for delivery management needs transparency and clear data to enhance the informational evidence and its possibility of analysis.