The Chart of Accounts is more complex in government than the private sector. The COA changes to reflect reform - accrual accounting, program budgeting, performance management, organizational changes etc.

1. FreeBalance®
Public Financial Management
Good Practices
PFM Domain CORE PUBLIC FINANCIALS
Good Practice MULTIPLE YEAR CHART OF ACCOUNTS
Applicable ALL COUNTRIES, ALL TIERS OF GOVERNMENT

2. why is the Chart of  Many governments are increasingly adopting Commercial-Off-the-Shelf (COTS)
Accounts critical in software to replace legacy and custom developed software applications for
government financial, budget, expenditure, tax, treasury and civil service management.
financials?  Government organizations can chose to acquire Enterprise Resource Planning
(ERP) software from large software firms whose software is used in multiple
“vertical” markets or Government Resource Planning (GRP) software designed
exclusively for governments.
 Government budget classifications, often called Charts of Accounts (COAs),
represent the underlying meta data for Public Financial Management (PFM) for
statutory financial statements and decision-support.
 COAs tend to be more complex in government than in the private sector.
Government COAs include multiple segments such as fund, organization,
program, economic purpose, geography and object. COAs are often consolidated
across agencies and departments or across all government levels.
 Government COAs capture budget and allocation information, support
international standards, provide reporting information and are increasingly used
to map government objectives to performance outcomes.
what is the COA  Government organizations are challenged to adapt COAs to support
challenge in modernization such as the introduction of program budgeting, accrual accounting
government? or new national reporting. Changes within the organizational structure of
government are also commonplace requiring changes to the classification
structure.
 Many countries should improve Budget Classifications according to Public
Expenditure and Financial Accountability (PEFA) reviews.
 Many governments are reforming financial reporting to support international
standards such as the International Financial Reporting Standard (IFRS),
International Public Sector Accounting Standards (IPSAS), Classification of the
Functions of Government (COFOG), Government Finance Statistics (GFS),
International Aid Transparency Initiative (IATI), and the eXtended Business
Reporting Language (XBRL).
 Many governments find that underlying custom-developed or Commercial-off-
the-Shelf (COTS) ERP software make changes to COAs difficult.
 Frequent changes to COAs across fiscal years makes reporting and comparison
difficult. Budget preparation and analysis requires the ability to compare
information across fiscal years even though that information is classified
differently.
2
FreeBalance®

3. what are some good  Integration of budget and accounting classifications: in countries where the
COA practices? budget classifications are not integrated with the COA, or only partially
integrated, there is risk of loss of important information undermining the
effectiveness of budget control and reporting.
 Sufficient structure for fiscal management: the COA should include fund source,
organization, economic and function classifications.
 Adaptability: The COA should be able to be changed—particularly in the context
of an Integrated Financial Management Information System (IFMIS)—to respond
to changes such as reorganization of government and changing needs.
 Simplified structure: to facilitate data entry, the structure of the COA should be
intuitive and usually no more than 30 digits in total and support easy ways to find
the right classifications
 Reporting Objects: The COA can drive external reporting and transparency
without adding any burden to data entry through the use of alternative roll-up
structures or “side concepts”.
 Integration with authorization: permissions and access within the GRP system
should be directly linked to the COA to control access.
 Error checking and validation: across COA segments so that it is impossible to
associate an expense against programs or economic purposes that are not owned
by a line ministry and to validate debits and credits
what is a multiple year The COA should allow flexibility for future additions and changes as far as possible. A
Chart of Accounts? multiple year COA enables governments to map across classifications through many
years including:
 Reporting on any fiscal year based on the COA of any year in the system
 Matching aggregate budgets and programs across multiple years
 Supporting accrual accounting reporting on previous non-accrual years
 Calculating the reality of cost savings initiatives like departmental consolidation
or shared services
 Supporting multiple year commitments and obligations even though
classifications have changed
 Providing full budget histories across multiple years to assist in developing more
credible budgets
 Identifying cost efficiency opportunities through multiple year comparisons
3
FreeBalance®

4. Classifications frequently change in government to accommodate organization structure, international
standards, reporting requirements, accrual accounting and performance information.
how is a multiple  COA designer in GRP software requires flexibility to change structure such as add
year COA supported segments, change organization alignment and re-classify some or all of the
in GRP software? metadata
 COA designer must have ability to map classifications from year to year
 Data integrity must be supported to eliminate any “orphan” COA elements
 Specialized reporting objects that are not visible for data entry are enabled. This is
used to roll up detailed information from the COA in different methods to support
changing reporting requirements
 Adding a new line item within the existing COA structure during the fiscal year
should require little effort
 COA designer should support valid code combinations and standard offset
accounts to reduce data entry errors
 Desirable that the tool for COA design is graphical, supports XML import and
provides for draft classifications for review
4
FreeBalance®

5. Good Practice Conclusions
1. Government Resource Planning (GRP) software should enable the modeling of
complex Charts of Accounts including support for reporting objects, valid code
combinations and other error-prevention techniques
2. GRP software should not require significant effort to deploy a new COA
3. GRP software should support multiple year COA to enable government decision
making
There are very few “best practices” but many “good practices” in Public Financial Management.
FreeBalance, a global provider of Government Resource Planning (GRP) software and services
shares good practices from experience with developed and developing country governments
around the world.
www.freebalance.com
5
FreeBalance®
www.freebalance.com