Increased Transparency through Double-Entry Bookkeeping

Feature Article | June 27, 2007 by admin

Public administrations need to have a rethink. Citizens and business are demanding greater transparency in the work done by their local authorities and in their asset base. However, the cameralistic accounting technique, despite its track record over decades, is not up to this task. Although it provides information about whether money and material resources have been used properly, it says little about the results. Double-entry accounting is different. The profit and loss account shows the annual result of local authorities at a glance as the balance of expenditure and revenue. Additionally, the technique also covers assets that will not result in payment until a future point in time, such as pensions or repairs. Further, the new system rewards prudent and sustainable budgeting. Where under the cameralistic system unexpected surpluses would always see the departments quickly spending money shortly before the year end, the double-entry system enables unused funds to be carried over to the next financial year without difficulty.
In view of these benefits, many local authorities are faced with the challenge of converting their bookkeeping to the double-entry system. The federal state of Hesse set up a pilot project called “Neues Kommunales Rechnungs- und Steuerungssystem” (new local-authority accounting and control system, NKRS). It has four objectives – to document public assets, to create intergenerational fairness, that is to cover resource utilization in one period with revenues from the same period –, to secure the solvency of the local authorities, and to guarantee the right of the representative body, such as county, district, or city council, to decide the budget. Now a change to the Hesse local government code obliges the local authorities of the state to switch to the double-entry accounting system or an enhanced cameralistic system by the beginning of 2009.

To a modern administration in 16 months

The city of Frankfurt am Main is a pioneer in NKRS matters and converted its administrative bookkeeping to the SAP for Public Sector solution suite at the beginning of 2007. This implementation represented not only a reaction by the city to the statutory provisions, but also a modernization of its outdated heterogeneous IT landscape. Alongside a custom-programmed software application for cameralistic administrative bookkeeping and revenue management, it also signed up to various applications for administrative bookkeeping in the youth and social sectors and for financial accounting in a number of pilot departments. Faced with a budget the region of three billion Euros, the obsolete hardware and software equipment used for cameralistic accounting caused particular difficulties due to the high overhead required to operate it.
The city of Frankfurt launched the double-entry project in the fall of 2005 with an ambitious timeframe. It was to be completed by the end of 2006 – in 16 months. The project managers called on the expertise of the IT consultancy firm CSC for support, who managed the reorientation of the bookkeeping and implemented SAP for Public Sector with the functionality for integrated double-entry accounting. CSC collaborated closely with SAP AG and arf Gesellschaft für Organisationsentwicklung mbH. CSC focused on the implementation, SAP contributed process expertise, and arf provided consultation on business management issues.

New accounting structures

The main challenge of the project was in replacing the previous accounting solutions and ensuring a smooth transition to the new solution without loss of data. The aim was for all applications, processes, and reporting procedures to run on a standardized platform across the city. Further, the business management structures and processes had to comply with statutory provisions. Among other things, the team had to replace the previous budget grouping with a statutory uniform accounts structure. What is more, the numerous commercial units with their various tax codes also had to be mapped in the software for tax purposes.
SAP for Public Sector turned out to be the ideal solution. Its flexibility meant that specific requirements of individual administrations – such as different financial accounts or evaluations of existing assets – could be covered with ease. Further the city also has the flexibility to integrate a cost-performance calculation. This level of detail in the profit and loss account enables financial administrators to determine the costs of local services exactly and to define key performance indicators for comparison with other cities.
The team implemented the SAP software across the accounting department’s entire IT infrastructure and completely replaced the legacy systems. Further, they integrated the various preliminary and specialized procedures – for example taxes, youth and social security – in terms of content and technology. And finally all master and transactional data from the legacy systems had to be transferred and some thousand employees of the city of Frankfurt trained.

On time and in budget

Despite the comprehensive specification list, the team completed the NKRS project on time and in budget. The live start in January 2007 went without a hitch. As CSC had integrated the employees of the city of Frankfurt in the system selection and conception process, the acceptance of the new solution is high and the feedback positive.
Through the integration of some 40 preliminary and specialized procedures, the various processes and reporting structures are now standardized across the whole of the city administration. Furthermore, the SAP Public Sector Collection and Disbursement (SAP PSCD) application simplifies cash and revenue management in Frankfurt. It supports all cash management tasks in the public administration sector and is able to handle the high document volume efficiently.

A big step towards the future

To handle its financial and asset accounting, the local authority is setting up a central organizational unit “External Accounting and SAP Competence Center” which bundles previously separate accounting tasks. Among other things, the Center will produce periodic accounts and the consolidated balance sheet and undertake further development of the new procedure.
Double-entry bookkeeping has been a success in Frankfurt. The administration can now define strategic political objectives, quickly identify whether it will achieve these, and take corrective action if necessary. For this reason the city has taken a big step into the future with its SAP project in both functional and technical terms.

Dr. Julia Bertrams

Dr. Julia Bertrams

Hanns-Joachim  Kühn

Hanns-Joachim Kühn

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