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Public Sector to Public Services: 20 years of ‘Contextual’ Accounting Research

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Public Sector to Public Services: 20 years of ‘Contextual’ Accounting Research
Jane Broadbent
Roehampton University
James Guthrie
The University of Sydney

Paper for Accounting Auditing and Accountability Journal

The authors are grateful for comments received from attendees at the 5th Asia Pacific Interdisciplinary Research on Accounting Conference, Auckland, July 2007. The paper also benefited from constructive comments by the two referees, and also Professor Lee Parker and Professor Richard Laughlin. Thanks for their research and editorial assistance to Carlos Sterling and Fiona Crawford of The University of Sydney and Mike Johnson at Roehampton University. We are grateful for research funding provided by the Faculty of Economics and Business at The University of Sydney.

Public Sector to Public Services: 20 years of ‘Contextual’ Research.

This review forms part of this special issue, which celebrates two decades of AAAJ. The purpose of this paper is to review and critique the field of public sector accounting research since the Broadbent and Guthrie (1992) review. Many nation states deliver essential public services (e.g., health, education, defence, utilities, social security) directly. In recent times, many of these nations have been involved in programmes of ‘modernisation’, which, in part, means that these public services now are significantly managed, delivered and governed by private and third sector organisations.
Design Methodology/Approach
The paper employs a literature-based analysis and critique of public sector accounting articles published in the selected journals from 1992 to 2006. The paper uses the 452 selected articles to address two questions: (1) What has been done? and (2) What could be done? From this, a descriptive meta-analysis of the characteristics of the research will be discussed. Finally, a conceptual analysis of the selected literature will be used to evaluate the field and address a possible future research agenda.
The paper seeks to demonstrate that the central focus of this field of public accounting research has moved from a public sector analysis to a public service focus reflecting that the source of supply of services is now more mixed. A substantial number of the analysed research papers recognise the changing nature of the field to that of ‘public services’. The descriptive analysis highlights that amongst the research papers reviewed there were several interesting patterns that emerged concerning public service research. Also, the dominance of Australasia and UK research was noted. The extent of research in different levels of government/jurisdiction indicated that the majority of research was organisationally based. Finally, when the various functional types of accounting are considered, management accounting remained the most researched area of interest. Whilst the analysis demonstrates the recent emergence of several new areas of interest (e.g., PPP/PFI; social and environmental matters; governance; and intellectual capital).
Research Limitations
The paper only considered research within eight selected journals and over the period 1992 to 2006. Therefore, for instance, American mainstream public sector accounting research has not been reviewed These journals representing would be more ‘positivistic’ in approach, as they consider large populations of data, rather than focussing on the use of accounting in particular organisational settings.
The main implications of the paper are that ‘contextual’ public service accounting research has a strong tradition and, through the process of reflection and critique of the body of work, several important insights are provided in order to highlight areas for further research and policy development.
Keywords: public sector accounting, public services, modernisation, literature review
1. Introduction

In 1992, we reviewed ‘alternative’1 approaches to accounting research in the public sector (Broadbent and Guthrie, 1992). We now return to this theme as part of a series of reviews of aspects of accounting commissioned by Accounting Auditing and Accountability Journal (AAAJ) to mark 20 years of the Journal’s publication2. The aim of this paper is to contribute to the several thought pieces3 within this special issue of AAAJ, by focusing on the state of public sector accounting research and to provide a discussion on its relevance to accounting and policy making and also explore avenues for future research. Other authors have undertaken reviews of this nature over the past 25 years. For instance, Lapsley (1988) provided a seminal review of the overall field to launch AAAJ and van Helden (2005) has reviewed management accounting contributions4. However, this paper seeks to make a particular contribution; its objective is to consider the state of what is more often now described as public services accounting research (PSAR)5, reviewing 20 years of published research from 1987 to 20066 and in doing so building upon the insights developed in Broadbent and Guthrie (1992). Simply stated we wish to ask two questions: (1) what has been done; and (2) what could be done? By addressing these questions, we will implicitly be considering what is ‘new’ in relation to the field of public services accounting research. This will inform an agenda suggesting what should be done.

More explicitly, our paper signals a recognition of changes in context in the perceived significance of the ownership of public services by nation states and suggests that the delivery of public services is increasingly accepted as a focus by a range of regulatory and government agencies. Equally, public services are progressively seen by policy makers to be as significant as the commercial sector in the context of wider economic and social development. This increasing recognition has arguably consolidated the impetus, already in existence at the start of this period, that demanded changes to ensure that the nation state ‘delivers’. A pertinent example is provided by the World Bank (2007), in which it notes:

A well functioning public sector that delivers quality public services consistent with citizen preferences and fosters private market-led growth while managing fiscal resources prudently, is considered critical to the World Bank’s mission of poverty alleviation and the achievement of millennium development goals7.

This quotation indicates the importance that is placed upon public services by significant regulatory and policy bodies such as the World Bank, but raises in it many other issues. For example, what constitutes ‘delivery’? This is a concept that is bound in both context and ideological preference. ’Delivery’ as a concept is something we take for granted and because it is not self evident; this review will explore it further. Another issue we will examine is the nature of the relationship with the private sector. The quotation hints at the assumptions of those who wish to develop a transformational agenda, showing their belief in the importance of managing fiscal resources. Accounting is an important technology in this respect - although what it can do, and what it is perceived to do, are not necessarily the same thing.
Overall, the main objective of the paper is to consider what has been achieved in the past two decades and what remains to be achieved by public sector accounting researchers in the early 21st Century. We wish to move beyond understanding and towards making a difference by engaging in critical public policy debates about public services.
The paper has three corresponding aims. The first aim is to take the arguments of Broadbent and Guthrie (1992) as a foundation from which to build. The second aim, in light of an analysis of the published work that has been undertaken in the period (1987-2006)8, is to establish the relevance of the analysis in our earlier paper. This paper will focus particularly on the nature of the research agenda rather than emphasising the nature of the approaches to research that have been adopted, as was the case in the previous paper. The third aim is to identify the diverse aspects that have been studied, highlighting those areas we see as significant as well those areas that have been overlooked or silenced.
The work that we review is from a significant set of accounting journals in the area, and does not cover the public management and administration journals. Although we recognise that the latter journals do not ignore the accounting literature entirely – Public Money and Management for example deals with accounting and management issues – the recognisable boundary provided by the purely accounting focused journals is adopted despite the limitation this produces9. The reason for this is simply to consolidate a concern with public services accounting, auditing and accountability issues. Hence we review the content of the following journals: Accounting, Auditing and Accountability Journal (AAAJ); Accounting Forum (AF); Accounting, Organizations and Society (AOS); British Accounting Review (BAR); Critical Perspectives on Accounting (CPA); European Accounting Review (EAR); Financial Accountability and Management (FAM); and Management Accounting Research (MAR). In making this choice we are not considering the content of the ‘American Mainstream’10 and those similar journals that concern themselves with more positivistic approaches in which populations of data rather than the use of accounting in particular organisational settings is considered. In this respect, the following analysis respects the contextual and qualitative approaches explored in 1992 as “Alternative” forms of understanding. So, as in 1992, the review is not exhaustive but aims to give a ‘flavour’ of the work in the field (Broadbent and Guthrie, 1992). One of the limitations of such an analysis is that, although the database11 used is extensive, in one paper such as this only a general view of the landscape is able to be provided.
In order to achieve this task the substantive arguments of the paper will be structured in the following fashion. Section Two addresses the question of whether our previously provided framework of the nature of the public sector is relevant in light of the contemporary context. The relevance of the categorisation of the approaches to research adopted in the literature will also be revisited. In Section Three, the research methods adopted will be described and the descriptive meta-analysis that falls out of this will be discussed in Section Four. Section Five will undertake a conceptual analysis of the literature and provide insights into significant trends and address a future research agenda. Section Six will provide our conclusions.
2. Defining boundaries: What constitutes the Public Services and ‘Alternative’ Accounting Research?

(i) The Domain of the Public Sector
In Broadbent and Guthrie (1992), we defined the public sector and its domain with a focus on ownership and control. In this paper we argue that the changing nature of the field has led to its re-naming to public services. Our guiding assumptions now follow those outlined by Hutton (2006) on the role of public managers12. Based on this definition, public services are those activities which are enshrined within the notion of public good or service based on universality of access for the citizenry rather than the private provision through a market. It is assumed these ‘public services’ should be available for all members of the given society, supplied in an equitable fashion. This is a substantial shift in the definition and boundary of the nature of the subject of our research. The paper will explore this issue in some detail as the analysis also gives the opportunity to consider some recent literature.

[Take in Figure 1]

The changes in the public sector that required a corresponding modification to our definition - from public sector to public services - was already in existence in 1992. It is illustrated by the difficulties that accompanied the task of constructing the domain of the public sector in the earlier paper. Figure 1 illustrates the different sub-elements seen as the domain of the public sector. In 1992 there was arguably an assumption that the public sector comprised the organisations providing services to the public that were publicly funded, owned and operated. Ownership and operation were crucial to the concept of the public sector. However, the domain was already in flux in the wake of privatisations and corporatisation (Guthrie, 1993) and these changes meant that some assumptions about state ownership and operation were no longer valid, although not affecting the assumption of some need for state funding, either directly or through subsidy. There was in this respect some separation of purchaser and provider roles (i.e., ‘steering’ and ‘rowing’ see, Gaebler (1992) as well as some reconsideration of what were essential universal services. State control of some public services was seen as important to retain, particularly in the case of utilities, and this was made possible through regulation of prices.
When framing our research in 1992, it was necessary to make decisions about what organisations to include in the domain of the public sector. Because it was considered that ownership and operation were no longer strictly essential to the concept of the public sector, the domain went beyond local and central government departments. However, Central and Local Government (or those similar units such as Federal and State Government) were (and remain) key elements of the domain. This is because of the bureaucratic relationship that links government to the universal provision13 of the service, and as such these elements can be relatively easily identified even though their nature may be different in diverse jurisdictions14. Examples include the direct Government Departments such as Defence or the provision of the audit services offered by National Audit Offices, as well as environmental services or social services provided by local (state) government or municipalities. Some of these elements have since been floated.
In Broadbent and Guthrie (1992) two other elements were also identified as important elements of the domain of the public sector. Public Institutional Systems (PIS) and Public Business Enterprises (PBE) were also considered to be part of the domain of the public sector because they provided public services albeit in different ways. For instance, PIS were seen as part of the public sector because they provided central public services such as healthcare and education. They were nevertheless separated from central and local government, despite being funded through taxation, because of their size and significant bureaucratic structures. The largest of these in the UK was the National Health Service (NHS). Since 1992, it has separated further from central government and operates with greater freedom from direct detailed government control. In other jurisdictions, such as Australia, the involvement of charities in the provision of health care services has also differentiated the health service from the government sector.
PBEs are mainly comprised of utilities, such as water electricity gas and telecoms. Although in 1992 these utilities had been privatised they were still associated with the public sector and the services they provided remained central to public life. In 1992, there remained a strong rhetoric that there was public involvement in PBE, through share ownership. Shares in PBE were marketed heavily to private investors with the view that this retained public control whilst freeing them from public bureaucracy. In all these cases there was a residual regulatory element ensuring some government control remained. Thus, they were included in the domain of the public sector.
(ii) Domain of the Public Services
While changes have made in a variety of aspects of service provision over the past twenty years, we argue that the elements identified as the domain of the public sector in 1992 are still relevant in 2007. However, the justifications for their inclusion have been reviewed and replaced by several different assumptions as Figure 2 illustrates. The notion of a public sector that requires public funding, ownership and operation of services is no longer appropriate. Instead the provision of public services may be organised in a variety of ways and control is achieved through different organisational and regulative mechanisms. Public services might have some element of government funding, ownership, public direction or regulation, in different combinations but there is no longer a need for direct government ownership for the involvement in provision of these public services.
[Take in Figure 2]
Whilst the functions have not changed, there has been considerable change in funding, governance and accountability for control and operation of these public services, as well as the accounting and auditing of them. There have also been some structural changes and more private sector involvement, as well as the introduction of private sector approaches to service provision. We noted the existence of hybrid organisations in 1992 (e.g., Mackintosh, Jarvis et al., 1994), in which private sector approaches were used by the public sector and public service organisations (for example, universities) were urged to be ‘more commercial’. This is still the case but even more so, for instance, many universities now sell significant parts of their services (e.g., Guthrie and Neuman, 2007; Parker, 2007)15. However, the direct involvement of the private and third sectors in the ownership and provision of services noted above and illustrated in Figure 2 is a phenomenon that has increased significantly. Hence whilst the domain of the public services is similar to that of the domain of the public sector described in Broadbent and Guthrie (1992), Figure 2 describes a more complex situation in relation to funding, governance and accountability by regulation arrangements.
Several changes have taken place since 1992 that have been recorded in the accounting research literature16. PBE were created by transferring ownership to shareholders, predominantly by central or federal government, and extended to other shareholders through various privatisations (Guthrie, 1993; Arnold and Cooper, 1999). A good deal of detailed sectoral work in this area has concentrated on the utilities, for example in electricity (Thomson, 1993) or ports (Arnold and Cooper, 1999). This change has been analysed by authors such as Ogden and Vass (Vass, 1993; Ogden, 1995a; Ogden, 1995b; Ogden and Anderson, 1999) who explored the nature of the changes in the water industry in the UK in some depth and Jupe and Crompton who have worked on the rail industry in the UK (Crompton and Jupe, 2003; Jupe and Crompton, 2006). The extent to which these regulatory attempts have been successful is open to question (Cole and Cooper, 2006; Jupe and Crompton, 2006).
Privatisations were undertaken around the globe and promoted by international financial and regulatory institutions (see, for example, the description in EAR Vol. 2, No.1 in 1993 provided by the UN Secretary General (see, UN, 1993). Examples in Australia are similar to those sectors privatised in the UK, demonstrating the close policy links between Commonwealth nations, but privatisation was by no means restricted to the Commonwealth and has been a worldwide phenomenon (e.g.,Ruffing, 1993; Shaoul, 1997; Arnold and Cooper, 1999; Guthrie, Humphrey and Olson, 1999; Uddin and Hopper, 2001; 2003; Craig and Amernic, 2006). Interestingly, there is little evidence of these international examples in the accounting journals analysed, reflecting the parochial interest of published writers in the field, especially in the early days of privatisation. International comparisons are important and there is some evidence of an emerging literature in the area of PSAR covering a wider range of nation states.
In the context of privatisation, regulatory frameworks were, in many jurisdictions and notably in the UK and Australasia, also created to control pricing and protect the public interest. Regulators, like the UK Office for Water regulation (OFWAT), were created to retain control over the pricing of utilities, demonstrating an intention to keep some control over public, private or third sectors providing water services. Arguably it is the perceived nature of the service and the residual public control that defines PBE as part of the domain of the public sector. Over time, therefore, recognition of the change in ownership of the providers of services has been a significant element contributing to the change of title to public services, rather than public sector.
To use a definition of the domain of public services that relies on the perceived nature of the services and the regulatory regime around it is nevertheless complex. Two main issues impact on this. The first main issue concerns the nature of public services and is determined largely by the context in which the public services are provided, that is, the boundary of public services is not fixed, but varies from country to country. Take, for example, the difference in the provision of health care in the USA and Australia (e.g., Chua and Preston, 1994; Abernethy, 1996). As the comparative work undertaken (e.g., Olson, 1998; Guthrie et al. 1999; Guthrie, et al. 2005) in the field has illustrated, the activities that comprise the public sector are bound by their context and things that are seen as public services in one nations may not be judged as such in others. This same comparative work also illustrates how the sectoral boundary changes over time; a prime example is the way in which privatisations were used to dispose of areas of public activity. Thus, if we use ownership as the basis of the definition of public services, then the definition will be different in different jurisdictions as well as over time even within the same jurisdiction.
Nevertheless, despite the complexity around its definition, the inclusion of the category of PBE in the domain of public services arguably remains a valid one. It rests on the recognition that in the particular jurisdiction and at that particular point in time the services they provide are seen as essential public services. Organisations operating in this way are regulated to ensure that the public interest is served and may be provided with some element of public funding support. The regulatory framework is intended to manage the nature of the various services and ensure that the suppliers of these services do not abuse their power to provide services that citizens have little option but to use. The extent of the control of these services remains contextual; they are a social construct in a given society at a given point of time. A hypothetical example of this is that as ‘global warming’ affects climate and water availability, privatised utilities may come under intensified control and greater government intervention than previously. A specific example of this in Australia is the political debate around federal control of water supply in the Murray Darling Basin, where there is presently an extensive drought. This demonstrates the political tensions that contextual elements can generate.17 Accepting the dynamic nature of PBE, it remains arguable that they are part of the domain of the public services.
Second, consider the case of PIS, which are public services according to the traditional definition in which the organisation is part of central or local government infrastructure, such as Health, Education, Police or the Prison Service. They remain significant enterprises in their own rights and different governance processes have developed (in some cases to give qualified freedoms, for example the borrowing power of Foundation Hospitals and the reduction of bureaucratic regulation of Academy schools in the UK), as has accountability. These institutions remain an important part of the public services in most nations, particularly in relation to health and education which potentially have significant impact on the life chances of citizens. An interesting phenomenon that has developed during the 20 year period is the introduction of the private sector into the provision of these services – as well as to other elements of government provision such as transport infrastructure – through Public Private Partnerships (PPPs18). This has expanded the involvement of the private sector in the provision of public services in a different way to that exhibited in PBE. It is this expansion of private sector involvement that has changed the emphasis from public sector provision to the provision of public services.
Our argument is that increasing private involvement has had a significant impact during this 20 year period of PSAR. Privatisation is inextricably linked with ‘modernisation’, according to the state, and has been implemented throughout the 1990s (Broadbent and Laughlin, 2005). In the early 1990s, the foundation of these changes was starting to emerge. Governments were giving consideration to different institutional structures but, despite the ascendancy of a right leaning ideology that favoured markets and competition, citizen involvement was still seen as important in gaining legitimacy for change. Thus, in 1992 we saw private sector involvement in the sector growing through the privatisation of service, particularly the utilities and telecoms in Australia and the UK, but also infrastructure, such as the rail system in the UK. These were promoted as retaining public involvement through share ownership in PBE. The PIS, unlike PBE, saw more limited direct private involvement in running the services, usually through the tendering out of elements of service provision, and private sector involvement did not at that stage extend to ownership.
Governance structures have also developed in significance. Upon privatisation, many PBE became subject to the different disciplines of shareholders and external financial reporting, and also a regulatory framework to protect the social good (Guthrie, 1993). The failures of governance in the private sector, characterised by the collapse of companies such as Enron, means that governance has become a more important concern, and greater emphasis has been placed on this issue in the public services as well as the private (including the PBE). Governance arrangements in PIS have also changed and in 1992 the foundations of these changes were well in place. A key element of early ’modernisation’19 had been to give greater delegated involvement to managers at the level of the provision of service and to involve users more in governing these organisations (Broadbent and Guthrie, 1992). This delegation of responsibility has meant that there is even greater impetus to external and user involvement in governance processes in both the private and public sector and that citizen involvement in the governance of PIS is important. In addition, risk management is also now an important aspect of governance in both public and private fields of operation. In order to enable external parties to monitor risk and achievement in the public services20, new systems of accountability have been institutionalised through the use of performance indicators and performance management systems. Thus, users and citizens are integrated into governance structures and accountability to organisational governors as well as to central government has been cemented by the use of performance measurement.
Significantly, at the end of the period under consideration, there is little in the literature to suggest that the justification of privatisation by the argument that citizen shareholding provides a means of public involvement is valid. Rather the focus of ’modernisation’ has become ensuring the
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