Integrating non-financial performance indicators in budget documents: the continuing search of Dutch municipalities

Abstract

PurposeAlthough the topic of performance budgeting has received considerable attention in the literature, it is mainly explored in the field of public management and administration, and little research exists in the field of public sector accounting. The purpose of this paper is to provide more insight into how non-performance indicators are integrated in budget documents, thereby bridging the gap between the literature in both fields. Furthermore, the influence of potential drivers of differences in the incorporation of non-financial performance indicators are explored.Design/methodology/approachThis study starts with an overview of historical developments in Dutch local government for a period of 50 years. This is followed by an empirical assessment of the current incorporation of non-financial performance indicators based on a dataset of 107 municipal budget documents for FY2019.FindingsThe authors' historical overview shows that several initiatives were employed to encourage municipalities to integrate non-financial performance indicators in their budget documents. A search to connect policy and means can be observed, which has not developed linearly over time, but mostly in reaction to major changes in national legislation. The authors find a large variation among the municipalities in their current incorporation of non-financial performance indicators. Contrary to theoretical expectations, output indicators (and not outcome indicators) are most frequently incorporated. Furthermore, the authors find that more indicators are incorporated if a municipality is larger, more willing to innovate and if it has less financial resources.Originality/valueThis article contributes to the understanding of how to incorporate non-financial performance indicators in public sector financial statements. To the best of authors’ knowledge, this is an area that is not explored before.

Do non-financial performance and accrual-based cost information affect public sector budgeting?

“…Budding (2004) shows that managers' accountability responses and their responses to external uncertainty are largely determined by the extent to which they use accounting information. Budding et al (2021) further find that more non-financial performance indicators are incorporated in public sector financial statements if the sector has fewer financial resources. We assume that accounting for external uncertainty requires the contribution of budget officers, especially when reporting local government deficits.…”

Accounting for unstable environments in the public sector: managing post-COVID-19 times

“…However, linking resource allocation in budgetary decision-making in order to create public value is still under-researched and/or unclear (Bracci et al, 2019;Mauro et al, 2019;Douglas and Overmans, 2020). Of course, selecting and linking performance indicators to resources is not straightforward as it requires skills, competences and willingness to do so (Budding et al, 2022). Budding et al (2022) show how the quantity and quality of performance non-financial indicators in budgets is dependent on the size of the organization, the willingness to innovate and the presence of financial constraints.…”

“…Of course, selecting and linking performance indicators to resources is not straightforward as it requires skills, competences and willingness to do so (Budding et al, 2022). Budding et al (2022) show how the quantity and quality of performance non-financial indicators in budgets is dependent on the size of the organization, the willingness to innovate and the presence of financial constraints. This recalls us that internal and external incentives are at play when an effort to measure performance is required, as managers tend to focus on what is "technically easier to measure" (Micheli and Mari, 2014).…”

“…The set of papers (see Table 2) of this special issue attempt to bring back to accounting and accountability practices the contextual complexities of organizations and institutional settings. P€ arl et al (2022) and Budding et al (2022) deal with non-financial information construction and use in the forms of integrating reporting and performance indicators use. Corruption, bribery and un-ethical behavior represent complex contextual cultural and practical issues for most developed and developing countries and public sector organizations.…”

What is good work in a hybrid organization? On the efforts of sequencing registers of valuation

“…In this stream of research, it is foregrounded that hybridization is ongoing (Wällstedt and Almqvist, 2015; Ahrens et al , 2018; Convery and Kaufman, 2021) and happens because accounting plays a mediating role, which enables boundary-crossing discussions (Pettersen, 2015; Busco et al , 2017; Rajala et al , 2019; Zawawi and Hoque, 2020) and ongoing adjustments of evaluative principles (Chenhall et al , 2013; Sargiacomo and Walker, 2021). While these practice attuned papers develop detailed insights into how techniques of measuring performance hybridize (Budding et al , 2021; Costa and Andreaus, 2021; Sargiacomo and Walker, 2021), new ethics of accountability and trust-based control develop in hybrid organizations (Krause and Swiatczak, 2020; Baudot et al , 2021), how specific variations in the institutional environment–such as reputation and regulation–impact on the very operations of hybrid organizations (Giosi and Caiffa, 2020; Kim and Mason, 2020; Convery and Kaufman, 2021), the mechanisms of value-creation varies according to specific situations (Vakkuri et al , 2021), and how responses to PMS advance into new styles of evaluating (Ferry and Slack, 2021), they share the common denominator that performance measurement is assumed to be delimited by a PMS. In this respect, they pay less attention to the styles and practices of valuing performance, which are not included in or emerge as a response to a PMS.…”