Budgetary accounting and reporting practices in Bahraini governmental units: An empirical study

International Business Review 18 (2009) 168–183

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Budgetary accounting and reporting practices in Bahraini governmental units: An empirical study Sayel Ramadhan College of Business and Finance, Department of Accounting, Ahlia University, P.O. Box 10878, Manama, Kingdom of Bahrain

A R T I C L E I N F O

A B S T R A C T

Article history: Received 3 July 2007 Received in revised form 12 June 2008 Accepted 12 January 2009

Each government engages in a full budget cycle involving the preparation of own budgets and supportive documents. In Bahrain, important administrative changes and major reforms have been implemented aimed at improving the overall efficiency, effectiveness, transparency, performance, accountability and sound budget management. This has been through State Budget Law No. 39 for the year 2002 which applies to all ministries and government organisations. The main purpose of this study is to identify, describe and analyse budgetary accounting practices and reporting requirements across Bahraini governmental units. The paper also contains a short description of the internal control reforms in Bahraini government departments. Questionnaire survey, structured and unstructured interviews and archival documents were used to collect the data. The results of the study indicate that budgetary accounting is the most important component of the accounting system in the government. Fund accounting is not used and the basis of accounting used is the modified cash basis. In preparing the budget, the lineitem approach is used and questionnaire respondents are dissatisfied with this approach to budgeting. However, State Budget Law recommends that the necessary steps be taken to gradually implement performance and program budgeting beside line-item budgets. Moreover, encumbrances, budgetary revisions, and emergency budgets are used. In financial reporting, the statement ‘‘consolidated fund’’ maintains fiscal transparency. All revenues and expenditures get routed through the consolidated fund and controlled by the budget and no separate fund is permissible to credit receipts. Based on the findings, some recommendations for development and improvement are highlighted. In this regard, comprehensive implementation of performance and program budgeting is worthwhile for effective control on government expenditure, efficiency and accountability. Further, it is recommended that the accrual basis is introduced when preparing the government-wide budget. ß 2009 Elsevier Ltd. All rights reserved.

Keywords: Accrual basis Bahrain Budgeting Governmental accounting Line-item budgets Performance and program budgeting

1. Introduction Governments are a critically important force in our society. They spend considerable sums and employ a substantial workforce. For example, the Bahrain budget for the year 2006 exceeded BD1558 million (BD = $2.65). The government employs over 39000 employees (33624 in 2002) and the manpower budget for the year 2006 is BD628 million which accounts for more than 40% of the total expenditure (both recurring and project). Citizens come into daily contact with governmental units and non-profit entities. When using public services, or working for others, people contribute to or benefit from these organisations. The pervasive influence and economic significance of governmental units and non-profit

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organisations require the public to understand how they are organised and managed and how they can be held accountable for the resources they spend (Douglas, 1991). As such, questions surrounding the management of public funds, controlling of government expenditure and balanced budgets, have been areas of study for government and researchers alike over the past several years. The main purpose of this study is to identify and describe budgetary accounting and reporting practices across Bahraini governmental units and suggest specific recommendations for improvement (see Reginato & Fadda, 2004). The motivation for the study is that it provides a broad range of information about the complex governmental accounting and financial reporting system in Bahrain. Being able to read and understand the budgetary process and financial statements prepared by government and understanding the accounting principles that underlie those financial statements can be of interest to students at universities, researchers, investors, creditors, citizens, lawyers, labor unions, and financial and other managers working in government departments. In addition, the recent reforms in the Kingdom of Bahrain and the transition of Bahraini governmental accounting creates new opportunities for accounting research and for the further development of accounting education. Finally, the study is the first to be carried out in the context of the Bahraini environment. To date, no research has examined the accounting and reporting practices in Bahraini governmental units. This paper addresses this deficiency. The next section provides a background on the use of funds, the budgetary basis of accounting, the budgetary process and the different approaches to public budgeting. Section three discusses the methods used to collect the data. Section four provides empirical evidence about the governmental accounting system and a description of reforms contained in the State Budget Law No. 39 (2002). Section five provides some suggestions and recommendations for improvement. The last section concludes the study and suggests some areas for further research. 2. Issues of public budgeting Generally, the basis of accounting used by governments is the modified accrual basis which falls between the cash and accrual bases. Transactions are generally recognised when they occur (similar to the accrual basis), but the timing of the ultimate cash receipt or cash disbursement may have an impact on when the transaction is recorded (similar to the cash basis). Under the modified accrual basis, revenues are recognised when they are measurable and available (Rupple, 2004). Revenues are measurable when they are reasonably estimated and available means that the revenue is collectible within the current period or soon enough thereafter to pay liabilities of the current period (60 days of the end of the current period). The measurement focus refers to what the government entities are trying to measure when they prepare the financial statements. The economic resources measurement focus is based on whether the entity is economically better off or worse off as a result of the events and transactions that occurred during the fiscal period being reported. It is used by funds that undertake business-type activities. The current financial resources measurement focus is used only by governmental funds. In the governmental units and governmental type funds the focus is on the resources available for spending and the liabilities that are to be paid during the current period. Financial statements prepared using the current financial resources measurement focus reflect changes in the financial resources available in the near future as a result of transactions and events of the fiscal period being reported. Increases in revenues are reported as revenues or other financing sources and decreases in spendable resources are reported as expenditures or other financing uses. The use of fund is an important tool for governments to demonstrate their legal compliance with the lawfully permitted use of resources. Fund accounting for governments was developed in response to the need for governments to be fully accountable for their collection and use of public resources (Hay, 1989; Rupple, 2004). The financial statements of a government are prepared in accordance with generally accepted accounting principles (GAAP) and Governmental Accounting Standards Board (GASB) requirements. They include information reported on a government-wide basis. Chow (2004) introduced Whole of Government Accounting (WGA) as a means to improve government ability to manage the economy and that (WGA) style reporting strengthens accountability to Parliament, government, planners, taxpayers and managers as a result of improved accounting information disclosure. Various budgeting approaches are commonly used and fall into: line-item or object of expenditure approach; performance and program budgeting; and zero-based budgeting (ZBB). The line-item budgeting allows the accumulation of expenditure data by organisational unit and is consistent with the lines of authority and responsibility in organisational units. As a result, this approach enhances organisational control and allows the accumulation of expenditure data at each functional level (Granof, 1998). In addition, the line-item budget approach is simple and the budgets can easily be prepared and understood by users. Moreover, information presented in the budget can be incorporated into the accounting system and detailed comparisons between budgeted and actual revenues and expenditures can easily be made (Ives, Razek, & Hosch, 2004). Although this approach offers substantial advantages, critics have identified several shortcomings that may make it inappropriate for certain organisational environments. A major criticism is that it presents little useful information to decision makers on the functions and activities of organisational units. Since this budget presents proposed expenditure amount only by category, the justification for such expenditures are not explicit; it does not provide information about the purpose of the expenditures or about the programmes for which they are allocated, nor about the efficiency and effectiveness of the programmes. The line-item classification also results in the lack of appreciation of the costs of the projects or programmes involved. Additionally, it provides a framework for a set of financial statements that comply with legal requirements rather than with providing useful management information (Ives et al., 2004). This approach also encourages,

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rather than discourages, spending. Managers believe that they should spend exactly the amount budgeted and that if this amount is not spent, the following year’s appropriations will be cut. 3. Research methodology Multiple sources of evidence were used to examine and describe the governmental accounting and reporting practices in the Kingdom of Bahrain. First, archival documents such as, State Budget Laws, the Constitution of the Kingdom of Bahrain, the budget manual, and other official documents were reviewed. Second, unstructured interviews were conducted with key personnel in three large ministries namely, Ministry of Electricity and Water, Ministry of Education and Ministry of Health. The persons interviewed were the budget director/officer and the director of financial affairs in the three mentioned ministries. Moreover, the finance manager at The Civil Service Bureau (CSB) was interviewed because of the Bureau’s close responsibility regarding recruitment of people in various government departments (a total of seven interviews). Such responsibility is referred to in the budget manual which specifies that the manpower expenditure and the approved ceiling should be estimated in coordination with the CSB. The people interviewed are senior members and all have academic qualification in accounting and finance and a minimum work experience of five years. The interviews were conducted during the period of February through May 2006 and, on average, the time spent on each interview was one hour. These unstructured interviews helped the author to prepare a final draft of the questionnaire. Third, in order to confirm the data and results generated from the analysis of the documents and the interviews, an additional task was carried out and a brief questionnaire was developed. The questionnaire consisted of three sections, the first section includes questions about the date when government departments start preparing their budgets, the people involved in preparing the budget, the budget committee, the types of budgets prepared, the budget review, the key phases in the budget cycle, the basis of accounting used and the bases used to estimate each type of revenue and expenditure, emergency budget and the deficiencies of line-item budgets. Section two solicits answers on budgetary accounting such as, the use of fund accounting, how the budget is recorded in the accounting system, and the use and purposes of encumbrances and allotments. Section three covers budgetary reporting requirements and the internal control procedures to ensure efficient budget management. The questionnaire was distributed by hand through accounting students taking the governmental accounting course (Acc. 341) during the second semester 2005/2006 to (50) accountants working in 25 ministries and government organisations (two questionnaires for each governmental unit). All questionnaire recipients served in budgetary accounting and reporting capacities in their organisations at the time of distribution. The students collected the questionnaires and confirmed their responses directly with the participants after the administration of the questionnaire. Interviews were carried out to make sure that all questions were answered and to answer any queries that might be raised by the respondents. Thirty-five questionnaires were completed and returned (a response rate of 70%). The questionnaires received represent all ministries and government organisations in the Kingdom. Job titles of persons completing the questionnaires range between director of finance, controller, senior accountant, director of finance and human resources, and accountant. This indicates that the people who filled the questionnaires are involved in accounting and budgeting. Analysis of the data received through the questionnaires indicates that the responses are in line with the data generated from the interviews and the analysis of the documents. This is expected because governmental units are governed by state laws and legislation in performing their transactions and they are supposed to use uniform accounting and reporting practices. Given that questionnaire respondents unanimously agree that uniform accounting and reporting practices applied by government departments, archival, survey and interview data were integrated and some analysis and descriptive statistics were generated from the questionnaires. It was assumed that combining the questionnaire data with archival results and interviews and focusing on a case study approach will provide the required information. Finally, analysis of the data was carried out by analysing the questionnaires, reviewing and analysing the articles of State Budget Laws, the budget manual, the interviews, and the budget document for the year 2006. This analysis helped in providing the necessary information regarding budget preparation (revenue and expenditure cycles), the different bases used to estimate revenues and expenditures, budgetary accounting and reporting practices, and internal control procedures. 4. Results and discussion 4.1. Background about Bahrain Bahrain has a mixed economy, with the government controlling or even owning some of basic industries including the important oil and aluminium industry. Between the years 2000 and 2006, Bahrain Government expenditure increased by 170%. During that same time, government revenues continued to depend on oil and increased by about 200%. The government has used its modest oil revenues to build and advance infrastructure in transportation, communications and other projects to improve the standard of living, health, education, housing, electricity, water and roads. Oil and natural gas are the only significant natural resources in Bahrain that dominate the economy. Because of limited oil reserves, Bahrain worked to diversify its economy over the past decade. It has stabilised its oil production at about 40,000 barrel per day. The Bahrain Oil Company was established in 1932, has a capacity of about 250,000 barrels per day and was the first in the Gulf. In 1980, 60% of the refinery was sold to the state-owned Bahrain National Oil Company (BANOCO). Saudi

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Table 1 Oil and non-oil exports (in millions of Bahraini Dinars; BD = $2.65). Year Oil exports Non-oil exports Total exports Oil as a % of total exports

2000

2001

2002

2003

2004

764.5 282.7

672.1 308.8

365.0 272.4

490.0 269.4

490.0 278.4

890.3 345.0

895.7 360.0

1047.2

980.9

637.4

759.4

768.4

1235.3

1255.7

73.0%

68.5%

57.3%

64.5%

63.8%

2005

72.1%

2006

71.3%

Source: National Oil and Gas Authority.

Arabia provides most of the crude oil for refinery operations via pipeline from Abu Saafa offshore oil field. The Bahrain National Gas Company (BANAGAS) operates a gas liquefaction plant that utilises gas piped directly from Bahrain’s oil fields. Despite the government of Bahrain’s efforts to diversify, oil and gas still play a dominant role in the country’s economy, providing about 77% of government revenue and more than two-thirds of total exports. A non-OPEC member, Bahrain’s oil export are increasing over the period 2001 through 2006. As Table 1 shows, in 2003, oil exports comprised 64.5% of total exports, amounting to BD490 million, a 7.2% increase from 2002. In 2006, Bahrain’s oil exports rose to BD895.7 million. In 2006 oil imports, mainly crude oil from Saudi Arabia for the refinery and re-export increased 17.5% to BD1843, million (BD1567.8 million in 2005). Oil imports in 2006 represented BD1843 million (54.8% of total imports of BD3362.8 million). 4.2. Budgetary practices 4.2.1. The Budget Directorate and budget manual The primary responsibility of preparation of the government budget rests with Budget Directorate. It performs this function in conjunction with other Directorates in the Ministry of Finance (MOF) and spending ministries. The Director of Budget is in overall charge of the Directorate and supervises the budget preparation and management in all respects. The main section, which helps him in this task, is the Revenue and Budget Coordination Section, but the other sections provide the required function-wise support. Major duties and responsibilities of the Budget Directorate are budget development, budget formulation, budget implementation oversight, budget monitoring and reporting, revenue enhancement, expenditure management, public expenditure management strategy, accountability and transparency in financial administration, and training and development. Each department in the budget directorate is responsible for a sector (e.g., Civil Aviation Affairs, Electricity, Airport, Economic Services). The budget directorate functions under the supervision of the Assistant Undersecretary of Financial Affairs and has the following organisational structure (Fig. 1). A budget manual has been drafted for the use of professionals engaged in the preparation, monitoring and reporting of the state budget (primarily for the use of the staff of the MOF to provide the required guidance and assistance to them in their day-to-day work). Care has been taken to detail the various procedures and systems to be followed and to explain them in lucid language. Any amendments and modifications to the manual will be carried out by the budget directorate, with the approval of the MOF. 4.2.2. Budget classification The treatment of governmental accounting mainly as an instrument of monitoring and reporting performance against the budget still determines the employment of uniform budgetary classification and uniform principles of financial statements

Fig. 1. Organisation structure—Budget Directorate.

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Table 2 Total revenues and expenditures for the fiscal years 2005 and 2006. Chapter code

Description

BD 2006 Actual

2005 Actual

Oil Non-oil Grants

1,416,652,363 394,704,691 28,200,000

1,265,311,106 366,375,098 39,721,080

Total revenues

1,839,557,054

1,671,407,284

628,056,610 473,210,382

585,510,156 438,703,460

1101266992 457,169,896

1,024,213,616 264,963,543

Total expenditures

1,558,436,888

1,289,177,159

Surplus (deficit)

281,120,166

382,230,125

Revenue 1 2–3–4–6–7 5

Expenditure 1 2–7

Total recurrent expenditure 8

Manpower Services, capital assets, consumables, maintenance, transfers, grants and subsidies and other expenditure

Projects

Increase in total revenues in 2006 = BD168149770 (i.e., 10% of actual revenues for 2005).

preparation (Jurga & Nowak, 1995). The budgetary classifications have the character of legal regulations because they are prescribed by the MOF. The Government of Bahrain follows the ‘line-item’ budget classification which ensures effective control on the spending by the government and accountability over the use of the resources. This approach specifies how much money each ministry or government organisation will be granted in the budget according to objects of expenditure such as manpower (basic salary, overtime, fringe benefits and allowances), operating expenditures (e.g. supplies, utilities, and rent) to implement its approved programmes and projects. The MOF can make sure that expenditure does not exceed those limits. As a result, the MOF virtually plays the role of a ‘controller’ of expenditure through established detailed procedures designed to prevent overspending. To facilitate revenue collection, resource allocation, spending and monitoring, revenues and expenditures have been classified into seven and eight chapters, respectively according to the type of revenue and expenditure (see Table 2). 4.3. Budget preparation The Constitution of the Kingdom of Bahrain is the basic source of authority for the state budget. Article 109(b) of the Constitution provides that the government draws up the annual budget. The MOF lays down the accounting standards, basis and financial rules which have to be followed by ministries and government organisations regarding revenues, expenditures, assets and liabilities. As reported by respondents, the basis of accounting followed in budget preparation is the modified cash basis (also called modified accrual basis) like most other governments in the world. Revenues are recognised on the cash basis and expenditures such as wages and salaries are recognised on the cash basis and other expenditures on the accrual basis (i.e., when goods or services are received). The preparation of the budget follows specific guidelines imposed by the MOF that apply to all government organisations. These guidelines mostly refer to the allowed percentage increase of various categories of expenses, compared to the actual figures of the previous year. Questionnaire respondents indicated that they start preparing their budgets six months before the start of the new year. They prepare two types of budgets: operating budgets and project budgets using the line-item approach to budgeting. At ministerial level, respondents stated that a committee is formed to prepare the budget and the committee consists of Director of Financial affairs; senior budget analyst, department head and the accountant. The budget committee is supervised by the undersecretary, or head of financial affairs, or financial resources manager. Respondents were asked to indicate who is responsible for reviewing the budget in their departments and to specify the designation as well. They stated that the budget is reviewed by a committee consisting of the Financial Affairs Manager/Director of Finance; Assistant Undersecretary and sometimes members from different directorates in the ministry concerned. They also stated that the budget review committee is appointed by the minister or the budget director in coordination with the Assistant Undersecretary For Financial Affairs. At the MOF level, there is a budget committee consists of the director of budget along with a core team of two to three staff. For the entire government, the budgeting is more complex and estimates provided by ministries are reviewed by the Budget Directorate through a budget review committee which consist of chief infrastructure and public administration; chief-social and economic services; chief-revenue transfer budget and director of budget. The budget committee is an informal group works under the supervision, control and direction of the Budget Director. The committee is supervised by the Minister of Finance and Undersecretary. The budget period is 12 months starting on January 1 and ends up on December 31.

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It is permissible to prepare the budget to include more than one financial year. On the recommendation of the Minister of Finance, the Council of Ministers determines the duration of the ‘financial period’ for the purpose of multi-year budgeting. In this regard, the Minister of Finance, along with the Draft State Budget, submit to the cabinet a statement covering the following two financial years (biennial period), consisting of the estimated aggregate revenues and expenditures, the expected surplus or deficit for each financial year as well as the maximum anticipated public borrowings, and a statement regarding the macro-economic indicators for the medium term, which shall be presented to the Parliament along with the draft state budget. A detailed budget is prepared for the first year and an aggregate budget is prepared for the following year. The purpose is to reduce clerical paper-work and to give adequate flexibility in its preparation. Recently, there have been regulations on preparation of the budget for the years 2005–2008 (i.e., four years). But estimated revenues and expenditures for two fiscal years 2005 and 2006 will be prepared by organisational units and by source of revenue (article 23). The budget can be issued at a deficit. For example, the budgets for the years 2005 and 2006 were issued at a deficit and the deficit was to be covered through local borrowings or treasury bonds. The steps which deal with budget preparation and implementation, are summarised below. 4.3.1. Budget circular, policy guidelines and budget instructions The budget circular is the vehicle for conveying the policy goals of the government to the participants. Although often viewed as a routine affair, it facilitates communication before and during the entire budget process (Premchand, 1994). The budget circular is prepared by the Budget Coordination Section in the budget directorate and sent out to all ministries and government organisations six months before the start of the next budget period. The budget circular for the financial period should call for budget estimates and budget proposals from the line ministries separately for each year of the relevant biennial period. In view of its importance, and the need to receive comprehensive data and information relating to the budget estimates at one place and in time, the budget circular should include reference to all the various details required to be provided by the ministries and government organisations. The circular includes the following information: rules and procedures to be followed by the ministries and government organisations in preparing their budget estimates; general instructions, as required, for the relevant period; method of estimating revenues, recurrent and project expenditure; sample tables and formats and instructions to fill them; and procedures for preparation of data entry spreadsheets. Policy guidelines should be followed by the ministries in the preparation of budget proposals for the budget period. These guidelines explain the government policy in broad terms based on the priorities agreed upon by the Cabinet. They include financial and economic objectives of the Kingdom; fiscal and economic policies approved by the Cabinet; current situation and future economic outlook of the country; growth rates achieved; revenue enhancement measures; rationalize expenditure and enhance and support the role of the private sector in social and economic development through privatisation or the provision and management of some public services; and any comments and recommendations raised by members of the Parliament and Consultative Council during their discussion of the budget for the previous year. The budget instructions include: budgetary policies which should be considered when preparing the budget; instructions on how to prepare and implement the budget; forms and work sheets to be filled when preparing revenue and expenditure estimates; actual revenues of previous year; expected growth rates and decrease in the level of a service or activity; and any expected increase in revenues due to new taxes, licenses and fees. 4.3.2. Revenue estimates Respondents indicated that revenues are classified by type and they include oil, non-oil revenues, and grants. All ministries and government organisations prepare their own budgets for revenue in accordance with the instructions issued by the Minister of Finance and send them to the budget directorate. Review of budget manual, budget law, interviews and questionnaire responses reveals that the following bases are normally used to estimate revenues. (a) Previous year’s actual results. (b) Likely expansion in revenue base and likely increase in revenue rate (e.g. production quantities of oil and expected oil prices in a conservative manner). (c) Investment income is estimated on the basis of actual income in the previous year from shares and dividends in a number of companies and banks in Bahrain and the Arab region in which the government has a stake. (d) Non-oil revenues (comprising taxes, fees and government sale of electricity, water and other services) are based on actual revenues of previous year and considering a 3% growth rate and using statistical techniques such as trend analysis. (e) Grants. These are estimated based on the directions of the leadership of the kingdom at the level of previous year to be received from Kuwait and United Arab Emirates. The actual realisation of these grants depends on the leadership of the respective countries and prevailing circumstances. (f) Other revenues like licenses, fees, fines, permits and penalties are based on previous year’s actual results and policy guidelines by the management of the department concerned. (g) New changes in activities of the economy which have effects on revenues. (h) Projected current year surplus or deficit. The MOF will be advised of these estimates within a specified period of time. If a ministry or government organisation fails to meet this deadline, the MOF estimates these revenues on the basis of the budget for the current year taking into

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Fig. 2. Revenue flow chart.

consideration the factors or circumstances that may affect the estimate. The MOF verifies the initial revenue estimates and prepares the final estimates. The law provides that the revenue estimates shall include the total gross revenues divided into various categories (chapters). It also states that the expenses to be incurred in collecting revenues shall be included in the expenditure estimates and not deducted from the gross revenue estimates to yield a net estimate of revenues. The tasks of the revenue section relating to the forecasting and estimation of revenue and the subsequent functions are flowcharted below (Fig. 2). 4.3.3. Expenditure requests The State Budget Law (article 9) introduced the concept of affordable national level of expenditure (ANLE) for the forthcoming budget period with cabinet approval, based on the revenue projections. On the recommendations of the Minister of Finance, the Council of Ministers, at least three months prior to the beginning of each fiscal year, determines the level of expenditure that could be incurred for the budget period, taking into account the estimated revenues and the basis and the criteria for the allocation of the national expenditure among the different ministries and government organisations. Respondents indicated that ministries and government organisations prepare estimates for their expenditure, classified by chapters, sections and items, accompanied by the necessary documents, statistics and explanatory notes verifying each of the required allocations in the budget. These estimates are presented to the MOF within a period of time determined by the MOF and they shall indicate expenditures divided into categories in accordance with the instructions issued by the Minister of Finance. If a ministry or government organisation does not submit the estimate of expenditure within the specified period of time, the MOF, after notifying the relevant ministry or government organisation concerned, estimates the expenditures on the basis of the relevant ministry’s or government organisation’s budget for the current year, taking into consideration the amendments introduced during the year and other circumstances. Analysis of data collected shows that the following bases are used in expenditure estimates: (a) Recurring expenditures (i.e. salaries and wages) are estimated based on actual results plus 3% of basic salaries budget to cover annual increase in salaries and government annual contribution to the pension fund. (b) Changes in wages and salary levels. (c) Forecast market prices of capital equipment and other goods and services. (d) Financing opportunities available to the government. (e) Actual and fixed obligations against expenditures and matured loans. (f) Programs and projects which have been approved by the cabinet. (g) Consultants’ estimates of costs of new projects. (h) Instructions included in the budget preparation circular.

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Some interviewees added the following: ‘‘new plans and activities of each unit are considered on a case-by-case basis; forecasting special needs for new locations; forecast the market when purchasing capital equipment’’. A flowchart of the expenditure budget preparation is provided below (Fig. 3). Finally, it should be pointed out that the entire revenues shall be meant to meet the total expenditures and no any revenue can be reserved to meet any special category of expenditure. Further, no part of the expenditure shall be deducted out of the revenue, except by law. In addition, it is not permissible either to deduct a part of expenditure out of a part of the revenue or to reckon the expenditure after adjusting the revenue against it. Table 2 shows the actual revenues and expenditures (broken by type) together with the surplus for the years 2005 and 2006. 4.3.4. Budget review and discussion The budgets will be reviewed by the budget directorate. A review committee, is appointed by the budget director, consisting of a team from the budget directorate and sometimes it consists of representatives from other ministries. The MOF will discuss with each relevant ministry or government organisation, its expenditure estimates and coordinates the provision regarding manpower expenditure with the CSB to determine the manpower requirements as would match their plans and programs. The MOF shall be consulted in the event of any dispute between the relevant ministry or government organisation and the CSB for resolving such issues. The decision of the MOF on such disputes will be final. The CSB obtains the approval of the Ministry before approving any modifications to the manpower in any relevant ministry or government organisation, if it involves additional financial burden on the state budget.

Fig. 3. Expenditure budget flow chart.

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4.3.5. Budget document The MOF prepares the draft budget in accordance with the provisions of the law as well as a statement in respect of the financial and economic position of the State, together with a statement regarding the arrangements made for the implementation of the current budget allocations and the effect that it may have on the draft budget. The budget document contains the following: estimates of all revenues, including grants expected to accrue to the government during the budget period; estimates of recurrent and project expenditures; estimates of interest and repayment of the loans; estimated budget deficit and proposed means to finance it; approved manpower for each ministry and government organisation; the actual revenue and expenditure for the previous financial year; and the actual revenue and expenditure for the year prior to the previous year. 4.3.6. Budget approval Based on the data collected, the first step in the approval of the budget is to submit the draft budget, together with the explanatory statement, to the Steering Committee consisting of the Undersecretary, Assistant Undersecretary, Director of Budget and nominated other Directors in MOF such as, the directors in charge of projects, economic affairs, and treasury and accounts. The Steering Committee will scrutinize the draft budget. The discussions of the Steering Committee will be minuted by the Director of Budget who will act as the Member—Secretary of the Committee. The draft budget will be modified, as required, in terms of the decisions of the Steering Committee and re-submitted for approval by the Minister of Finance who in turn presents the budget accompanied by the supporting statements to cabinet for approval. The Minister also presents it to the Parliament at least two months before the end of the financial year. Article 90 (C) of the State Budget Law provides that the budget will be discussed in the Parliament on the basis of the classification of its contents instead of by chapters, but does not refer to ‘chapter-wise’ classification. If the Parliament is not convinced with the budgeted amounts, the budget should be reduced. The aim is to equalise government expenditure with revenues in order to get a balanced budget and reduce public debt. Any amendments to the draft budget can be introduced with the concurrence of the government. In addition, the Minister of Finance presents the budget to the Consultative Council for consideration in accordance with the constitution. 4.3.7. Royal Decree After the budget is approved by the Parliament and the Consultative Council, it is issued by a law (article 109-d of the Constitution and article 26 of the State Budget Law). For this purpose the Budget Coordination Section should prepare a draft Royal Decree. The Director of Budget initiates action to obtain the concurrence of the MOF for the draft decree through Assistant Undersecretary for financial affairs and submits it for approval and signature by His Majesty the King, through the established channels, and for the issuance of the Royal Decree as per the established procedure. The law issued provides for the appropriation of money in terms of such budget. The budget is then recorded in the accounts by means of a budgetary entry. The Minister of Finance issues instructions concerning the implementation of the budget to ensure that it conforms with the provisions of the laws and regulations in operation. These instructions are communicated to the ministries and government organisations concerned at the time of notifying the Annual Budget Law. If the law concerning the annual budget was not promulgated before the beginning of the financial year, the previous budget will continue to be in force until the law is issued. The revenues to be collected and the expenditures to be incurred will be in the ratio of one-twelfth of the previous budget total for each month of the current year. 4.3.8. The budget booklet The practice followed in the matter of publication of the budget is to circulate what is known as the ‘Budget Booklet’. The task of preparing and circulating the budget booklet is presently entrusted to the Budget Coordination Section in the budget directorate. The booklet includes the following: The budget speech—statement of the Minister of Finance; the Royal Decree sanctioning the biennial budget; summary of revenues and expenditures; details of estimated revenue, recurrent expenditure, project expenditure for the relevant financial year in three parts, namely; by chapters, sections and items; by sectors and ministries, and by sectors and ministries and chapters. The booklet is embellished with graphs and charts as appropriate and is published bilingually, in English and in Arabic. Fig. 4 shows the steps in the formulation of the state budget. 4.4. Budgetary accounting 4.4.1. Encumbrances and carry forward of budget provisions Encumbrances represent commitments related to unperformed contracts for goods or services. Respondents indicated that an encumbrance is recorded as a budgetary entry (not as a liability) through the Oracle system when an order for materials, supplies or services is placed with the supplier. Some interviewees stated that: ‘‘encumbrances are recorded to show that there is a commitment for certain amount of money at some time in the future’’. ‘‘encumbrances are included in the accounting records to ensure that the government unit does not overspend amounts which have been appropriated for specific purposes and also to maintain closer control over expenditure’’.

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Fig. 4. State budget flow chart. (*) Cabinet memorandum on budget proposal. (**) Affordable national level of expenditure. (***) Assistant Undersecretary for Financial Affairs.

Other respondents said that ‘‘outstanding encumbrances at year end remain open as long as there is available budget and are carried forward to the next year without budget’’. This is consistent with article (39) of State Budget Law. Allocations in respect of commitments already entered into, but not paid, will be transferred at the end of the year to a reserve by the Treasury Directorate to fulfil the commitments in due course. The facility exists for carrying forward to the next year unspent budget allocations (i.e., outstanding encumbrances). However, such carry forward has to be in the public interest and details of such cases must be approved by the MOF and reported to the cabinet (article 39). The law also includes a whole chapter to cover the project expenditure management such as transfer of allocations among projects, excess over approved costs, and payment procedures and restrictions. 4.4.2. The use of allotments Allotments are used to exercise control by governmental units on their own expenditure. Therefore, governmental units divide their appropriations into allotments. The allotment period could be a month, a quarter or a half-year. The results of the study responses indicate that allotments are not used. Some interviewees indicated that ‘‘allotments are not used because they could not be applicable to some expenditures (e.g. fixed assets)’’. 4.4.3. Accounting for grants Bahrain has received significant budgetary support and project grants from Kuwait and the United Arab Emirates. Contrary to expectations and procedures in developed countries, grants are not treated as deferred revenue and are considered as revenues when the eligibility requirements of the grant are met. Questionnaire respondents and interviewees

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indicated that ‘‘grants are recognised as revenues when they are actually received in cash’’ because sometimes grants are not paid by the grantor. 4.4.4. Budgetary transfers In spite of adequate care and precautions taken in the formulation of the ministerial budgets, it becomes necessary during the course of the year to transfer funds not only between chapters, sections and line items but also between budget centers. While far too many and frequent transfers of funds indicate deficiencies in the budget formulation, the State Budget Law provides for unavoidable transfer of funds between units. Article 26 of the law enables transfer of funds between specific appropriations for expenditures, subject to the terms and conditions issued for the purpose by the MOF. The Constitution, as it stood prior to the amendments in the year 2002, specifically precluded transfers between chapters by providing that such transfers shall be affected only by law. However, after the amendment, there are no legal restrictions on transfer of provisions between chapters. The MOF issues regulations and instructions to regulate transfer of funds from one chapter to another. However, modifications to the General Ledger, consequent on such transfers, can be effected only in the Budget Coordination Section. Requests received from the line ministries should be recorded in this section and should be brought to the notice of the budget director before taking action. The Budget Coordination Section should carry out quarterly analysis of such transfers to verify the reasons and justifications and also to analyse the efficiency of the budgeting system adopted by the ministry concerned. 4.4.5. Additional budget requests Proper planning and prioritization of programmes and activities should avoid the need for additional budget requests during the year. But the need for such requests cannot be entirely ruled out. Hence, all requests for additional budgets during the year should be dealt with strictly on the basis of justification and availability of funds. Article (27) of the State Budget Law envisages that no ministry should request for additional allocations unless there are justifiable causes for such requests. In the event of its agreeing to appropriate the required allocation, the MOF submits such requests by way of a draft law to the cabinet for referral to the Parliament to provide for any adjustments required due to significant and unforeseen economic and financial events affecting the state budget for the relevant financial year or any other special considerations. 4.4.6. Emergency budget The government budget depends, to a large extent, on oil revenues, and due to fluctuations in oil prices and their effects on revenues necessary to finance the expenditure, there is a need to take into account any circumstances which are likely to arise. This requires an emergency budget that is included in the annual budget. Interviewees and some questionnaire respondents indicated that there is no such budget because of limited financial resources. However, article 11 of the State Budget Law indicates that it is permissible for the Minister of Finance to withdraw from the General Account during any financial year, amounts not exceeding 5% of the total budget of the current financial year to meet any ‘‘unforeseen and emergent expenditure’’ for which no provision has been made in the budget and which cannot be postponed to the next year. Thus, the term ‘‘emergency expenditure’’ has been defined to avoid ambiguity. This is a step forward in the State Budget Law towards reforming government accounting. The Minister of Finance submits to the cabinet a comprehensive report including details of the emergency expenditure, met out of the General Account, within one month of incurring such expenditure. He should also report to the Consultative Council within three months either as part of the next budget or separately. The emergency expenditure must be included in the following Annual Budget Law or in any following amendments to the state budget, or must be issued as a separate budget law, whichever comes first within three months from the time of drawing such expenditure. The amount to be reserved for unforeseen expenditure should be kept to the minimum required, taking into account the past trend and the possible demand for the years concerned. 4.4.7. Government reserve According to State Budget Law, a government reserve should be determined and approved by the Council of Ministers, and established through a special law issued for the purpose. It is permissible to deduct a certain percentage, to be determined in the State Budget each year, from the total revenue estimates and to add it to the government reserve, together with the net revenues earned from investment of the government reserve. There is a modicum flexibility because the percentage to be deducted each year is determined in the budget. 4.5. Financial reporting requirements State Budget Law specifies that the government organisations submit to the Minister of Finance quarterly reports on their activities and development of their financial status including particulars and information specified by the MOF. The Minister of Finance may periodically report to the cabinet, the progress of the implementation of the state budget, to provide information reflecting the financial performance and position of the government and any other relevant matters. The MOF publishes, within one month after the end of each quarter, in the Official Gazette, information to reflect the financial performance and position of the government relating to the relevant period, including a summary of government financial statistics and aggregates concerning the performance of the national economy.

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Each minister and head of a government organisation submit to the MOF, within three months of the closing of the fiscal year (by 31 March every year), the audited financial statements representing the final accounts for the year ended and prepared in accordance with GAAP. The audit authority is the National Audit Court. Further, ministers and heads of government organisations shall submit to the Cabinet annual financial reports regarding the implementation of the budget which will include details of the results achieved against pre-determined objectives for the programmes in the budget. Under article 48 of the law each ministry submits annual accounts, audited by the National Audit Court, to the cabinet with a copy to the Minister of Finance by 31 May every year. Article 113 of the law specifies that the Minister of Finance prepares the annual consolidated financial statements, including the financial information in respect of all ministries and government organisations, representing the final accounts for the year ended. The Minister of Finance presents the annual accounts to the Cabinet for submission to the Parliament within five months of the close of the financial year (by May 31 of next year). After approval by a decision rendered by both the Parliament and the Consultative Council, the annual consolidated financial statements are published in the Official Gazette, together with their observations, if any, before the end of the following year. Defining the format, elements and frequency of financial statements preparation in the government is now the responsibility of the MOF. The following statements are prescribed. 4.5.1. The final account It is the responsibility of the budget directorate to issue the Final Account by analyzing annual budget variances at the end of each year. Spending ministers are asked to explain for over/under spending in their respective budget. The analyses are carried out by reviewing and consolidating the explanations and by discussing with the spending ministries. If actual revenues are below the budgeted level, estimates for next year will be revised. The reasons should be explained and justified by the Minister/Director concerned. 4.5.2. Revenue and expenditure statement It is necessary to present an operating statement showing actual and budgeted revenues, actual and budgeted expenditures and the variances. If actual revenues/expenditures are below/above the budgeted levels, reasons and justifications for the variances are required from the ministries or departments concerned. Corrective steps are taken and the estimates for next year budget may be revised after a discussion with the budget directorate and the Minister of Finance. 4.5.3. Annual budget performance report After the close of the financial year, the Budget Coordination Section should prepare an annual budget performance report. The report should fairly present the state of affairs of the government and its financial results. The Minister of Finance presents this report to the cabinet and the Parliament within five months after the close of each financial year. The report may include a summary of major programmes of ministries and government organisations, including extra budgetary activities, the level and composition of debts and financial assets, contingent liabilities, tax concessions and exemptions, the results achieved against pre-determined objectives of major budget programmes, and any given performance criteria. The budget performance report should include a fair assessment of the results achieved by various ministries and other government organisations with the allocated resources. Care must also be taken to bring out shortfalls in achievements, if any, with suggestions for the future. Generally, the report should focus on macro-economic management and sectoral achievements rather than concentrating on individual ministry-wise details. 4.5.4. General Account—consolidated fund Article 10 of State Budget Law commits the Bahraini government to produce a set of consolidated accounts that cover the whole state. The MOF establishes the General Account of the State and ensures that all monies received by ministries and government organisations are paid into the General Account, except monies excluded by a Decree Law, or monies held in trust or custody. Additionally, no monies may be withdrawn from the General Account except by an appropriation under the budget; or as a direct charge against the account under a law or a judicial decree; or to refund money incorrectly paid into, or which is not due to the General Account. Finally, monies invested out of the General Account in term deposits, together with interest earned, are regarded as part of the fund. This is in addition to other supporting reports relating to manpower costs, vacations and statistical reporting. Such information add transparency to the fiscal conduct. 4.6. Internal control measures The budget is the financial policy instrument of the state and includes the estimated revenues and expenditures for the financial year concerned. The purpose is to achieve sustained economic development and stability by the judicious allocation of resources and by efficient and effective use of the resources. Moreover, the objective is to secure transparency, accountability, sound management and control of the budget management process covering the revenue, expenditure and assets of all government organisations. The State Budget Law provides for arrangements to ensure that

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Table 3 Problems associated with line-item approach to budgeting (N = 35). Problem

Frequency and percentage of responses Not important 1

Mean

Moderate 2

Extremely important

3

4

5

1. It provides data useful in the short run but the long run goals of the organisation are jeopardised.

N %

0 0

0 0

6 17.1

13 37.1

16 45.8

4.38

2. It encourages rather discourage spending.

N %

0 0

0 0

5 14.3

18 51.4

12 34.3

4.20

3. Lack of appreciation of the costs of projects or programs involved.

N %

0

4 11.4

7 20.0

8 22.9

16 45.7

4.03

4. It is oriented toward providing a set of accounting records that comply with legal requirement rather than with providing useful type information.

N %

1 2.8

3 8.6

10 28.6

7 20.0

14 40.0

3.86

5. Legislative body is given more detail than they can handle and therefore, they focus on individual items rather than on the overall goals and program. Overall mean

N

5

9

5

3.17

%

14.3

25.7

14.3

3

13

8.6

37.1

3.89

the budget management is efficient. Article 53 provides for internal audit and internal control systems to ensure compliance with rules and procedures. Among these are the requirement of utilising the resources and inputs to achieve what is known as ‘‘value for money’’. This requires the implementation of performance and program budgeting besides the line-item approach. Finally, questionnaire respondents stated that, at year end, actual revenues are compared with estimated revenues and if actual revenues are below the budgeted level, the MOF and budget directorate undertake certain corrective steps. The reasons for the variance are examined and estimates for the next budget period will be revised. 4.7. Problems with the current budgeting system The Government of Bahrain follows the ‘line-item’ approach to budgeting. Despite the advantages of the line-item approach, it has several shortcomings that may make it inappropriate for certain organisational environments. Questionnaire respondents were asked to indicate their views regarding the problems associated with the use of the traditional approach to budgeting. On a five-point Likert-type scale (1 = not important and 5 = extremely important), they indicated the extent to which each of the problems listed in the questionnaire exists. As can be seen from Table 3, all the problems (ranked in descending order) received high rating with 100% of the respondents consider problem 1 ‘‘provides data useful in the short run but long run goals are jeopardized’’ to be moderately to extremely important. This also applies to problems 2, 3, 4 and 5 but with lower percentages to problems 2 and 3. The least frequently cited problems are problem 4 ‘‘it is directed towards compliance with legal requirements rather than with providing useful information’’ 3.86 and problem 5 ‘‘legislative body is given more detail than they can handle’’ 3.17. In conclusion, the analysis suggests that questionnaire respondents are dissatisfied with the line-item approach to budgeting. The minimum rating is 3.17 and the maximum rating is 4.38 for an overall mean score of 3.89. Other limitations added by respondents are: ‘‘Line-item budgets present little useful information to decision makers on the activities and programs of the governmental unit’’. ‘‘Line-item budgets focus on type of expenditure and does not provide information useful to select programs and evaluate performance. It achieves financial control rather than control on the achievement of goals. In other words, it does not relate expenditure to objectives’’. ‘‘Since this budget presents proposed expenditure amount only by category, the justifications for such expenditures are not explicit; it does not provide information about the purpose of the expenditures or about the programmes for which they are allocated, nor about the efficiency and effectiveness of the programmes’’. 5. Future directions of budget management The current accounting system has several limitations. In order to reduce public expenditure, increase efficiency and effectiveness of governmental units and to assess the degree of efficient use of the resources allocated in each public organisation, there is a need to control expenditure in governmental units. Expenditures are recorded on the modified cash basis. It is not clear whether it concerns expenses or investment in fixed assets. Also, accounts receivable and accounts payable are not recorded. The exact calculation of cost of providing government services is not known since there is no

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costing system which would facilitate pricing of such services. In this regard, the following reforms for the accounting system and future directions of budget management are recommended. 5.1. The adoption of performance and program budgeting system The major deficiencies of the line-item budget classification is that it neither provide information about the purpose of the expenditures or about the programmes for which they are allocated, nor about the efficiency and effectiveness of the programmes. Owing to the deficiencies of the line-item approach to budgeting, the government should adopt performance and program budgets (PPB), in place of, or as a supplement to, the traditional object classification budgets. Performance budgets focus on measurable units of efforts, services, and accomplishments. They are formulated so that expenditures are directly associated with anticipated units of outputs or outcomes. The most common type of performance budgets are program budgets, whereby resources and results are identified with programs rather than traditional organisational units, and expenditures are typically categorised by activity rather than by object. In year 2002, State Budget Law requires that the necessary steps should be taken to gradually implement performance and program budgeting beside line-item budgets. At its first stage, it will be implemented for some selected programs at the Ministry of Education and the Ministry of Health. At a later stage, it will be applied by all ministries. The MOF started taking the necessary steps to introduce (PPB) during 2003. The ministry formed a team to determine the roles and general responsibilities of each member, prepare project document and choose a qualified consultancy firm to carry out the project. This is one of the important developments which the government has taken in the area of preparation, implementation and control of budget. The implementation of this approach will direct attention to the outputs and measurement of actual results, for each level of expenditure, rather than measuring the size and type of budget inputs which will result in achieving the highest return from expenditures. However, comprehensive performance budgets require managers to specify objectives, consider alternative means of achieving them, establish workload indicators and perform cost-benefit analysis. Due to the requirements and the long time period needed to implement this approach, particularly application of accounting systems and management and organisation structure, no steps has been taken in this direction. Therefore, it is recommended that this approach be applied and the necessary requirements for implementation are provided. 5.2. The introduction of accrual basis The budgeting and accounting of financial transactions largely follow the ‘cash-based system’ as against the accrual basis. Article 31 of the State Budget Law provides that ‘‘sums which have been actually collected or spent during any financial year shall be deemed as revenues or expenditure of the said year’’. The MOF is exploring the feasibility of introducing the accrualbased accounting, as part of the fiscal reforms under way. After the implementation of a new information technology Financial Management Information System (FMIS), some transactions are recorded on accrual basis. This takes time to introduce and implement because of lack of commitment, resistance to change, and may be little attention given to the preconditions necessary for successful implementation. As such, the government has not yet made the transition to a ‘‘full accrual basis’’. Some ministries with commercially oriented operations such as the Ministry of Electricity and Water follow accrual basis of accounting and reporting. In this regard, the government should seriously take the initiative to introduce the accrual basis and apply it across all government departments for better accountability and cost control. At the beginning it may be difficult and challenging due to the requirements and the several different aspects that should be considered to implement such basis. For example, fixed assets represent a large portion of government assets. This requires taking a physical count of these assets and determine the appropriate bases used to evaluate and depreciate them (recognition and valuation). Although a few researchers have made some efforts over the last twenty years, capital assets are in terms of reformed financial accounting in government and non-profit organisations still the subject of many unresolved conceptual issues (Vanhee, 2002). In addition, inventories and supplies should also be considered and inventory systems reviewed. It is also difficult to prepare budget on the accrual basis. Budgetary accounting has traditionally been the only and most important accounting system in the government. In some revenues it may be difficult to apply accrual basis because they are recognised as revenues when they are received in cash (e.g. fines and penalties). Accrual basis should be applied for all expenditures which are recorded when goods or services are received, not when cash is paid. However, modified accrual basis is used for salaries and wages which are recorded when they are paid in cash. There are also problems regarding the accounting entities, comprehensiveness of balance sheet, role and interpretation of income measurement, investments, pension liability, government debt, and advance payment to contractors. This basis requires accounting knowledge, experience, skills and consultants are frequently used in accounting reform projects in the public sector (Lapsley & Oldfield, 2001; Lopez, 2004; Paulsson, 2004). In addition, consultants with either private sector experience or academic qualifications are supposed to bring the necessary changes and create governments that work better and cost less (Panozza, 2000). Therefore, training programs are required to existing staff and new qualified accountants are needed when introducing the accrual basis. In addition, some managers may resist change to accrual accounting. Carpenter and Feroz (2001) used institutional theory to explain how institutional pressures influenced the decision of governments to adopt or resist the use of generally accepted accounting principles.

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It is worth pointing out that during the last ten years, accrual based accounting and financial reporting have been introduced in many countries’ governments (e.g. UK, Sweden, Finland and New Zealand) and change over to an accrual accounting model became a development trend world-wide (Tagessen, Mattison, Nasi, & Paulsson, 2004). Moreover, the New Zealand government accounting is based on a more business-like method of operations and they include managerial empowerment, accrual accounting, asset revaluations, capital charging and output budgeting (Lally & Smith, 1997). The Vietnamese government promulgated the new enterprise accounting system which lays down the foundation for the conformance of Vietnamese financial reporting to the international standards and standards of developed countries (Yang & Nguyen, 2003; see also Perera, Velayutham, & Rahman, 2001 and Lin & Feng, 2001). Finally, Greece introduced accrual based financial statements into public owned hospitals in the National Health System. Venieris, Cohen, & Sykianakis (2003) used the theory on organisational choice to explain why this reform, after several years of its conception, has not yet seriously shown any progress. Therefore, governmental financial models have been revised to incorporate accrual accounting methods which was adopted throughout the government together with the full recognition of depreciation on fixed assets. 5.3. Contingency reserve funds The State Budget Law (article 8) refers to government reserve. It enables the government to deduct a certain percentage, to be determined in the State Budget every year, from the total revenue estimates and credited to the Reserve Fund. However, there are no details in the law regarding the percentage to be deducted each year. In the USA many states have made provisions in their budgets for establishing and maintaining contingency reserve funds. The basic purpose is to insulate governmental budgets from unexpected fiscal disruptions brought about by such factors as unanticipated revenue shortfalls and expenditure overruns (Vasche & Williams, 1987). Such reserves can effectively insulate governments from reduce spending by cutting programs or from having to increase revenues by raising taxes. The size of the reserve funds, as a percent of expenditures, vary considerably depending on the size of the state’s budget, the economic well-being, and policy decisions about maintaining such reserves instead of spending such funds. Generally, the size of the reserve could be 5% of expenditures. 6. Summary, conclusions and further research The results of the study indicate that budgetary accounting is the most important component of the accounting system in the government. In preparing the budget, the object of expenditure approach (line-item budget), the modified cash basis, encumbrances, budgetary revisions, and emergency budgets are used. Contrary to expectations, fund accounting is not used. The MOF is in the process of attempting to modernise the budgetary accounting and reporting system. This is evident from the important administrative changes and major reforms which have been specified in the Budget Law No. 39 (2002) regarding the gradual implementation of performance and program budgeting and the recommendation to introduce accrual basis. The aim is to improve the overall efficiency, effectiveness, performance and accountability of the government (see also Laurin & Bilodeau, 2004). Based on the findings, certain accounting reforms for development and improvement are highlighted in the previous section. In this regard, it is recommended that the accrual basis should be introduced. During the last 10 years, accrual based accounting and financial reporting have been introduced in many countries’ governments (e.g. UK, Sweden, New Zealand and Finland). Further, the use of performance and program budgeting in line with line-item budgets is worthwhile for effective control on government expenditure and accountability. This is in addition to the establishment and maintaining of a contingency reserve fund. Finally, intensive discussion of the findings at several stages in the writing of this paper resulted in the development of some areas for future research. Further research could examine the perceptions of Bahraini government accountants regarding the introduction and implementation of accrual-based accounting in governmental units. Additionally, the management and control of government expenditure have been areas of study and concern for governments and researchers. In Bahrain, important administrative changes and major reforms have been implemented. 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